Stocks To Buy in 2012 - Noida Toll Bridge

A stock of a company which has already made it’s investment, done all the work and now just collects revenues with minimal operational expenses should be on your list of stocks to buy in 2012 for sure. Any value investor should buy stocks of Noida Toll Bridge in 2012 for excellent returns on investment looking at future developments in company. Here is the reasoning.

Business
Noida Toll Bridge Company Ltd. (NTBCL) has constructed and now operates a bridge (popularly known as DND flyway) that connects South Delhi to Noida. It is an 8 lane world class highway with toll plaza. NTBCL is promoted by IL&FS. NTBCL has only one business, to collect toll revenues form DND flyway which it has already constructed. The bridge is like cash machine for company. The company just have to spend money on minimal operational needs and maintenance of bridge. Operational expenses are not very high. And that is the reason behind company’s operating profit margin of 76% in FY11. Company has to pay big portion of this for debt repayment and interest costs associated with it.

Thousands of vehicles travel everyday on DND flyway out of need to commute between Delhi and Noida. And DND flyway is the only time and energy saving route that vehicle commuter has. Other two routes (via Nizamuddin bridge and Okhla bridge) are free to use but are time consuming and traffic laden. I have travelled a lot on DND flyway and of course on other two mentioned bridges myself by car and at any given day, I have preferred to use DND flyway paying toll. This was to save my time (approximately 20-30 minutes if I use other routes) and of course to save fuel. As per my calculations, with an increased driving distance of 4-5 kilometers per trip if I use alternative free routes and not DND flyway, I would burn more than 1/4th liter of petrol or more in driving, spending at least Rs.18-20 extra in petrol (petrol at Rs.70/liter). And then, extra travel time, hassle of very slow moving big traffic (that burns more fuel than mentioned earlier). Any sensible car driver would use DND flyway so NTBCL may never face slowdown in terns of traffic. Traffic is in fact bound to increase due to huge business infrastructure and residential developments in Noida, Greater Noida and along the sideways of Noida-Greater ay. Visit DND Flyway site for more details on business.

May be, Delhi metro should prove competition to DND flyway (two wheeler riders may opt for metro) but chances of travelers using cars being diverted to metro are very less in my opinion.

Stock Financials
Now, just imagine a company which has operating profit margins of like 76%, will make how much profit once it becomes debt free! NTBCL had debt of Rs. 358 crores in March 2005. As on Sept. 2011, the debt is down to Rs. 126 crores. At this speed, company may repay entire remaining debt within 2 years. And there after, you would have a company which is debt free, generates cash on the spot from toll collections with big operating profit margins.

Along with toll revenues, NTBCL also collects revenues by placing advertisements along side the entire bridge. And advertisement revenues are growing every year (up 20% in FY11 from 10 in FY10 to 12 crores). Under the project agreement with Noida authority, company has right to earn assured returns of 20% on total project cost through toll collection for 30 years from Jan 1999 onwards. The total project cost also includes major maintenance expenses on top of which the profit would be earned.

As in FY11, the total project cost with profit projections that NTBCL management has estimated stand at Rs.2021 crores. And to recover this money, NTBCL will have possession of DND flyway for 40 more years additional to 30 years in contract! There is an alternative using which company can recover these costs. The alternative is that Noida authority would award development rights of land along DND flyway to NTBCL. And this land is very precious and at prime location between Delhi and Noida. So there is a real estate play for company in future.

Stock Valuations
5 year median P/E ratio for NTBCL stands at 22. The stock trades at CMP of RS. 20 with P/E of just 10. Company’s EPS growth for last five years (CAGR) is about 25%. The PEG (Price earnings to Growth) ratio stands at 0.4. Any stock with PEG ratio lower than 1 can be considered as value stock. NTBCL can be called as a good value stock. Company has started paying dividends in 2010. Dividend was 50 paise per share which puts stock dividend yield at 2.5% annually at CMP of Rs. 20. As the debt would reduce in future, net profit would increase and so the dividends. You can expect NTBCL to be a good dividend yielding stock in future for long term.

All in all, Noida Toll Bridge is one of the very good stocks to buy for long term investment portfolio. It will pay you good stock dividend too. It has good scope for capital appreciation in future looking at current stock valuations. One may buy stocks of NTBCL at CMP (Rs.20) or below, which has limited downside.

Disclaimer: I own this stock at 22-23 levels and determined to add more at CMP and below for long term.

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Small cap stock analysis – Piramal Glass

Piramal glass gives you an indirect opportunity to be part of FMCG market in very niche categories of Cosmetics, Perfumes, food-beverage and pharmaceuticals. Why indirect? Because Piramal glass supplies glass packaging to these industries. This business model of theirs directly links them to two of the steady and recession proof sectors of FMCG and pharmaceuticals. Let’s see if this niche business is an opportunity to buy stocks of this small cap stock and make money.

Company
Piramal Glass Limited (PGL) is a Ajay Piramal owned company from Piramal Group. It manufactures glass containers (flaconnage) for Cosmetics & Perfumery (C&P), Specialty Foods & Beverages (F&B) and Pharmaceuticals industries. The glass containers manufactured by company are used for products such as nail polish, perfumes, skin care creams, foundations and attars in Cosmetics & Perfume industry. Company manufactures amber bottles, amber and flint vials for liquid oral formulations and injectibles for pharmaceutical industry. Bottles for wine, liquor and food are manufactured for food and beverage industry by company. It has manufacturing plants located in the United States, Sri Lanka and India. Piramal Glass markets its products in more than 54 countries worldwide.

Growth and Financials
Piramal glass is planning to grow its capacity by another 22% by the end of this fiscal. It was a loss making business till FY09. But after FY09, it has performed steadily with growth in its earnings. For FY11, company’s net sales were Rs. 1,218.5 crore (it was Rs 1,104 crore in FY10). Net profit in FY11 was Rs 103.4 crore (Net profit was Rs 3 crore in FY10). Net sales itself has more than doubled in the last five years. The company made a rights issue in 2009 for debt reduction. The debt to equity ratio was 15.7 in 2009 when rights issue was done. Now the debt to equity ratio stands at 2.4. And debt reduction has helped in reducing interest payments.

The Cosmetics & Perfume segment earns roughly 30% operating margin against 22% for the pharmaceutical and Food & Beverage segments. Cosmetics & Perfume category is increasingly contributing towards revenues for company. Revenue share of it has grown from 35% in FY09 to almost 50% in FY11. This has helped company in growing cash flow over last two years. Due to this higher revenue share and increasing sales, Piramal glass turn around and swung into profits from losses.

Investment Rationale
Piramal Glass is expecting to increase it’s capacity of manufacturing cosmetics and perfume bottles by 40% and for this, company is setting up new manufacturing facility in Gujarat by March 2012. This capacity increment will make Piramal Glass the world's second largest cosmetics and perfumes bottle manufacturer after France's SGD. As discussed earlier, higher sales and higher profit margins from Cosmetics & Perfume segment has helped the company to improve it’s profitability. Also, company had acquired a US company. This US company has customers such as Calvin Klein, Estee Lauder and similar brands which are very popular in western world and in rest of the world too.

Piramal Glass, having manufacturing operations in India, has a huge cost advantage over other such companies as most of these companies are based out of Europe. Obviously, cost of production for Piramal Glass is much lower thatn it’s European peers (it is just 46% compared to its European rivals) The company is lining up capital expenditure of Rs 260 crore in the next two years from internal accruals to increase the capacity of Cosmetics & Perfume packaging unit. With the debt reduced in past two years, interest outgo is reduced and will go lower in future increasing net profits.

Stock Valuation
Promoters hold 72.30% as per shareholding pattern, which is excellent. The company has given a growth guidance of 17% CAGR for next two years. At current stock price of Rs.93, the stock trades at a P/E of 9. Company had paid out dividend in August 2011 and the stock dividend yield is at 3.79%. If it continues it’s performance, it could be a good dividend yield growth stock in future. At this stock valuation, it is a very attractive stock to buy with 2 years of investment horizon.

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When to Buy Stocks in current sinking stock market?

Indian stock markets are sinking slowly over the past one year. Did you notice it? Or you were too busy to notice it in euphoria about roller coaster rides of BSE and NSE in short term? Check this out and think when you should buy stocks in this sinking market.

If you look at the BSE SENSEX chart closely, you would see the direction in which Indian stock markets are travelling for past one year. As you can see in below chart, the direction was of course, southwards! BSE SENSEX has lost more than 20% in past one year.

BSE SENSEX has lost more than 20% steadily in last one year

Is that where the stock markets are going to stop sinking? Have stock markets bottomed out now and will start rising in 2012? Should you start buying stocks now as this could be the bottom? Which would be the stocks to buy in such market and looking at future? I am going to try to find out answers to these questions in next few days along with you and publish it here on Indian Stocks News.

Certainly, the stock markets should decline further from here. How much? We can only guess. I believe 5 – 10% more from here looking at slowing down Indian manufacturing, higher inflation, lower consumption, bad political scenario and policy makers, bleak global economy (due to deep European crisis) and still not recovered American economy. FII’s have pulled more than $1.6 billions from Indian stock markets and they would pull out more due to global economical scenarios.

But, one thought I wanted to share today is from Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family. His thought says "The time to buy is when there's blood in the streets." Also he appends “Even if the blood is your own!". This is “Contrarian” view of investing in stocks. The essence behind is, the worst the market conditions are, better are the opportunities available to contrarian investor. Investors just have to figure/find out those opportunities.

As you would have seen, mid cap stocks are almost out of flavor for investors now and everyone is concentrating on just large cap stocks on the vine of bad times. It is a right strategy from safety point of view for sure; but investors who want multi-baggers, might want to concentrate on those “better opportunities” out there, start accumulating when others are not optimistic and wait for long time to see the time change and their stocks becoming multi baggers. This will certainly take 3-5 years of time frame if you look at the current global and domestic scenario in India.

As an contrarian approach, what long term investors can do is to find out the companies who have stable growth, good balance sheet, low/no debt but out of flavor due to current stock market conditions. This is the correct time to do that and start accumulating those identified best stocks for long term investing. Don’t buy stocks in large quantities once identified but start buying in SIP manner (Systematic Investment Planning), small quantities at regular intervals over the time period.

Watch out for more posts here on IndianStocksNews.com for stocks to buy in 2012.

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RIL - A giant seating on huge cash

I just read a news article in ET that mentions 25 billion dollars of cash pile that RIL has as idle money! It’s a huge cash pile that RIL have and people are certainly interested in knowing how RIL is going to deploy this huge cash for future growth. Does this fact indicate you to buy stocks of RIL?

Expectations from RIL
People are awaiting on announcements from RIL and specially from Mr. Mukesh Ambani about future investments and growth plans but company seems pretty tightlipped about it. ET article tries to explain and analyze the situation. You may read the article on RIL here.

Retail Business
As I have been following RIL andrelated developments for some time now, I can see a few things that I have understood. One of it is Reliance Retail. In Past 4-5 years, RIL has tried different formats of retail businesses such as hyper mart Reliance Retail (Grocery), Reliance Fresh (Veg./fruits), Reliance shoes, Reliance Gold. I have been to all these format stores except Reliance Gold and they had decent setups. These experiments could grow/consolidate further and ultimately become the growth engines for RIL as everyone knows the humongous retail market size of India.

Reliance Retail Subsidiaries

Petroleum Retailing
Another forgotten business from RIL stable is petrol retailing business (petrol pumps) which was in doldrums due to regulated pricing of petrol in India. But now as pricing is being freed slowly from regulations and being tied up with international markets, RIL would be a huge beneficiary of this and I am sure RIL would be preparing for that. Expansion of current refining capacities and addiction of refining business by means of buying out other refining companies globally could be another growth plan of company.

Broadband Internet and Telephony
One more exciting development I read some time back was about RIL setting up Broadband/4G internet capabilities and telecommunication (VOIP) business for which, I believe, RIL has started the preparations. Being a techie, engineer and internet junkie apart from stock market investor, I can imagine what a market size is available for Broadband/high speed internet business in India. RIL could make a big bang in it as Reliance communications did few years back in mobile phones. I believe they are in process of setting up high speed Wifi hubs across the country to facilitate broadband business.

Opinion
RIL must be exploring bunch of opportunities as next growth engines with that huge cash pile, which would eventually happen. Even if it does not happens soon, it huge cash will keep drawing a few thousand crores every year just by means of FD’s/CD’s and MF investments. And this very fact indicates that one should buy stocks of RIL for long term safe capital growth. Feel free to express your thoughts on this.

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Attractive stock to buy - Sadbhav Engineering

Sadbhav Engineering is a construction company from Ahmedabad. It undertakes construction projects of roads,highways, irrigation and mining. Here is stock analysis of this construction and infrastructure stock to check what this could be a good stock to buy.

Business
Sadbhav Engineering (BSE: 532710, NSE: SADBHAV) is in construction, engineering and infrastructure development. Company's road construction projects include a road at Nagpur MIHAN Project (International hub airport complex), Seoni- Chiraidongri (SH-11A) road project and widening of Sambalpur - Rourkela Road Project. Its irrigation projects include Majalgaon Right Canal, improvement of Shedhi Branch Canal and construction of Narmada main Canal. It's subsidiaries include Sadbhav Infrastructure Projects Limited, Nagpur Seoni Express Way Ltd and Sadbhav Mining Limited, Mozambique.

Financials
If you look at balance sheet, Company's operating profit margin stands at 11-12% with NPM of 4-5%. This shows company's good project execution capabilities. It has low debt and interest expenses. Company's interest expense ratio to net sales is in 1-2.5% range. Company's net sales has grown by 34% to Rs 612 crore in past 18-24 months. It has an order book of Rs 6,586 crore, a big part of it's orderbook is from build-operate-transfer (BOT) projects. Roadbased projects guarantee immediate cash realisation which is not true to other construction projects.

Sadbhav Engineering has nine BOT projects. 3 BOT projects are operational and one near completion. Its projects are Maharashtra Border Check Post, Rohtak Panipat Tollway, Ahmedabad Ring Road and Mumbai-Nashik Expressway. The company has recently bagged two NHAI projects. Around 13% of company's order book is from mining projects.

Company Prospects
Mining industry has no big players and there is a huge opportunity for the company to scale up the value of projects and its clientele base. Sadbhav engineering has clients such as L&T, SAIL, Coal India and Gujarat Industries Power. Contribution of mining projects to the company's total revenues has increased from 4% to 17% in past 4 years. This contribution is expected to increase in future looking at strong revenue visibility of its mining projects.

Stock Valuations
At current stock price of Rs.112, the stock trades at P/E multiple of 12/7. Some of the construction and infrastructure stocks are trading at much higher valuations like above 35 P/E. The stock has a low debt to equity ratio of 0.65 which is good. This is a consistent dividend paying stock that shows management's commitment towards shareholders. Shareholding pattern shows promoter shareholding of 47.59% with institutional shareholding of more than 40%. This shows good shareholding pattern. Overall, it is certainly a good stock to buy from construction sector for long term investing and capital appreciation.

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