Newsletter - Multibagger Idea - Stock Picks of week - May 29


Indian Stock Market News, Recommendations & Views

May 29, 2008Keeping you up-to-date about investing !!
Why you MUST not pay entry load on mutual funds
The market regulator Securities and Exchange Board of India, SEBI, in January 2008 abolished entry load on Indian equity funds if you invest directly....
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Why Tips will never make you rich?
In the past, Indian investors have faced a problem of information scarcity. In the 1990's & before, there was no internet, no business channels, only 1-2 business newspapers etc. People used to invest only on the basis of what their brokers/friends recommended without any knowledge of the company business, financial performance etc.
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ALPHA HUNTERS - generating excess returns in a flat market - Click Here To Read Complete Article


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Enhancing Life..
Mistake that people do when they meet love...they try to posses it, they demand, they expect...
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Think Before Speaking !!

 
Something Light !!
  
 

Picks Of The Week - GREAT OFFSHORE, ITC, HDIL, SYNDICATE BANK

GREAT OFFSHORE

CMP: RS 705.70 TARGET PRICE: RS 1,195
GLOBAL Markets has initiated coverage on Great Offshore with a ‘buy’ rating. In a note to its clients, Citi says the company will immensely benefit from rising crude prices, strong demand and a depreciating rupee. “High crude environment will drive development of marginal fields and refurbishment of existing assets or installations, which will not only be beneficial for the company’s current asset fleet, but also for revenues from marine construction services. Many of Great Offshore's contracts are US dollar-denominated, making rupee weakening good for the company” the report adds. The brokerage has put the company in medium risk category with a target price of Rs1,195, which captures the robust 38% EPS CAGR that the company is expected to deliver over FY08-11E. Strong day rate environment, high utilisation, sustainable business model, strong visibility of earnings and revenue contribution from the new and upcoming fleet is expected to keep the company on the right path.


ITC

CMP: RS 209.10 TARGET PRICE: RS 179
MORGAN Stanley has assigned an ‘underweight’ rating to FMCG major ITC. The company has failed to meet the expectations of the brokerage with regards to growth in profit and turnover. “Sharp 144% growth in non-tobacco FMCG losses despite new product launches, flat or marginal decline in dividend pay-out ratio and 60% growth in other income are the key negatives with regards to ITC,” the brokerage said in a note to its clients. The rise in cigarette margins (as a result of product mix improvement and price hike) and margin expansion in hotels, agri and paper businesses have witnessed margin expansions of 360 bps, 240 bps and 160 bps respectively, the report said. Increase in government related risks, rising losses in the non-tobacco FMCG businesses and a potential slowdown in earnings growth for the hotel business could be the factors that will drive ITC into further losses, the report adds.



HDIL

CMP: RS741.70 TARGET PRICE: RS 812
ICICI Securities has initiated coverage on HDIL with a ‘buy’ rating. The brokerage has maintained its ‘buy’ rating considering HDIL’s revenue growth, margin expansion, healthy balance sheet and large land bank. “HDIL posted quarterly figures that were above market expectations. Revenues and profits surged on the back of better realisations from slum rehabilitation scheme (SRS) projects, especially Kaledonia in Andheri, Mumbai, which was sold to DE Shaw for Rs 9 billion at Rs 20,000 per sqft. Higher component of SRS sales contributed significantly to revenue growth and resulted in better margins,” the ICICI report said. HDIL has a strong balance sheet with cash levels having increased to Rs 3.5 billion in March FY08 from Rs 48 million in March FY07. Current debt-to-equity (D/E) ratio stands at a healthy 0.76, the report said. The company is said to have 192 million sqft of land bank, 22 live projects and 15 projects in pipeline with saleable area of 104.1 million sq ft.


SYNDICATE BANK

CMP: RS 70.75 TARGET PRICE: RS 109
IDBI Capital has maintained a 'buy' rating on Syndicate Bank even while reducing the target price to Rs 109 from the previous Rs 130. The price target also includes dividend of Rs 3 per share. The brokerage has scaled down the net profit estimate of FY09 from the previous Rs 10,396 million to Rs 9,221 million. "Subsequently, the EPS and ABV estimates also are revised 10-15% lower," adds the report. However, despite high RoE, the brokerage expects the "bank to trade at multiples close to ABV". "This is because of persistent weakness in the bank's spreads, which we think shall continue for some time going forward. Our estimated RoA for Syndicate Bank is around 0.8% level for FY10," says the brokerage in a note to its client. The brokerage has also revised the business growth assumptions to 21% YoY for FY09 and FY10 from the previous 16% YoY.

Multibagger Stock Idea - Quintegra Solutions Ltd
FUTURA POLYESTERS LTD. - Buying strongly recommend...
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gem worth investing - TITAN INDUSTRIES
gem worth investing - RELIANCE PETROLEUM
gem worth investing - IDFC
gem worth investing - HDFC BANK
gem worth investing - ABB
gem worth investing - ABAN OFFSHORE
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Nagarjuna to unlock value - Long term
Binani Inds - hugely undervalued

Enter The Street Hawk - JK Tyre & Industries is an interesting turnaround story for long-term investors

JK Tyre & Industries is an interesting turnaround story for long-term investors. It is also one of the cheapest stocks in the tyre segment, with an attractive dividend yield


   JK TYRE & Industries is India’s third-largest tyre maker and it posted an annual turnover of Rs 3,200 crore during the year ended September ’07. The company is among the top two players in the commercial vehicle and passenger car tyre segments. Commercial vehicle tyres account for nearly two-thirds of the domestic tyre industry’s turnover and profits.


   In the past, the company suffered due to high capital cost followed by spiralling natural rubber prices. This adversely affected its profitability and for a long time, JK Tyre was one of the least profitable tyre makers in the country. Rubber prices have now stabilised and the company has successfully hiked prices to pass on the increase in input costs to its customers.


   Besides, it has been able to restrict its interest cost and depreciation allowances to historical levels, even as revenues and operating profit continue to grow. All this makes it an interesting turnaround story for longterm investors. To top it all, JK Tyre is currently one of the cheapest stocks in the tyre segment, with an attractive dividend yield of 2%.


   JK TYRE & Industries is India’s third-largest tyre maker and it posted an annual turnover of Rs 3,200 crore during the year ended September ’07. The company is among the top two players in the commercial vehicle and passenger car tyre segments. Commercial vehicle tyres account for nearly two-thirds of the domestic tyre industry’s turnover and profits.


   In the past, the company suffered due to high capital cost followed by spiralling natural rubber prices. This adversely affected its profitability and for a long time, JK Tyre was one of the least profitable tyre makers in the country. Rubber prices have now stabilised and the company has successfully hiked prices to pass on the increase in input costs to its customers.


   Besides, it has been able to restrict its interest cost and depreciation allowances to historical levels, even as revenues and operating profit continue to grow. All this makes it an interesting turnaround story for longterm investors. To top it all, JK Tyre is currently one of the cheapest stocks in the tyre segment, with an attractive dividend yield of 2%.

BUSINESS:

The flagship company of the Hari Shankar Singhania Group, JK Tyre markets tyres and tubes under the JK brand. The company pioneered the radial tyre technology in India and claims to be the market leader in both passenger car and truck/bus radial tyres. However, nearly two-thirds of the market (by revenue) is still accounted for by cross-ply tyres for commercial vehicles, and radial tyres account for less than 5% of all commercial vehicle tyres in India. The slow market response to bus/truck radial tyres hit JK Tyre hard as it had bet hundreds of crores on setting up India’s first greenfield facility to manufacture radial tyres for commercial vehicles. This burdened the company with high interest costs and depreciation allowances. For nearly a decade ended September ’06, these two elements of fixed cost ate away the entire operating profit generated by the company, hardly leaving anything for shareholders. Now, however, there are strong indications that radialisation in the commercial vehicle segment is at a take-off point. It has already risen to 4% from 2% two years ago. And being a pioneer in radial tyre technology, JK Tyre is likely to be one of the biggest gainers of this move. This is already visible in its financials. Its return on capital employed (RoCE) nearly tripled in the past three years to over 14% in FY07, and is expected to improve further this year. The ratio of fixed cost to operating profit improved to 65% during the 12-month ended March ’08, against 116% in FY03. This translates into a stronger balance sheet and more sustainable finances. In July ’07, the company raised capital from its promoters by way of a preferential issue to further improve its debt-to-equity ratio (DER). It now plans to go in for a rights issue, which is expected to provide it additional capital to the tune of Rs 100 crore. This, coupled with its retained profits, is expected to improve the company’s DER to around 1.2-1.5 from nearly 2.5 during FY07.

GROWTH PLANS:

In view of the increasing radialisation, JK Tyre now plans to invest Rs 480 crore to increase capacity of radial tyres. Out of this, Rs 315 crore will be spent on augmenting its truck radial tyre capacity to 8 lakh tyres from the existing 3.67 lakh tyres, and another Rs 120 crore will be spent on increasing its off-the-road tyre capacity. The company also plans to invest in augmenting its captive power capacity.


Early last month, the company announced the acquisition of Mexicobased tyre company, Tornel, for Rs 270 crore. The acquisition, which is being done through a special purpose vehicle (SPV), will make it easier for JK Tyre to access the North American market and spare its domestic capacity to meet rising domestic demand. Tornel is likely to be earnings per share (EPS)-accretive, as the acquisition cost is nearly half of the replacement cost of setting up a plant with similar capacity. Spread over three locations, Tornel has a production capacity of 290 tonnes per day (tpd), against JK Tyre’s 650 tpd. In FY07, exports accounted for nearly 20% of the company’s revenues.

FINANCIALS:

In the past three years, the company’s annualised net sales have recorded a compound annual growth rate (CAGR) of 15%, while net profit posted a CAGR of 40%. During the same period, net profit zoomed to Rs 89 crore during the 12-months ended March ’08, against a loss of Rs 7 crore during the 12-months ended March ’05. Nearly two-thirds of the company’s profit growth was recorded in the past six quarters. We expect the company to continue its growth momentum for at least the next few quarters, aided by price hikes and continued growth in the after-market for tyres. Early last month, the company, along with other tyre makers, hiked tyre prices by 5%.

VALUATIONS:

At its current market price of around Rs 128 per share, the stock is trading at 4.5 times its EPS during the year ended March ’07. In contrast, its peer, Apollo Tyres, is trading at a price-to-earnings (P/E) multiple of nearly 10, while MRF is trading at 8 times its EPS. Assuming a modest 12-15% annual growth in revenues and continued improvement in operating margins, JK Tyre’s one-year forward P/E works out to around 2.5, which provides ample upside potential to investors with a horizon of 2-3 years. Besides, JK Tyre has the industry’s highest dividend yield of 2%, which will only improve as profits grow.

Beta: 0.92

Institutional Holding: 13.4%

Dividend Yield: 2%

P/E: 4.5

M-Cap: Rs 390 cr

CMP: Rs 128


 

Merck India Limited (MIL) - Buy Recommendation res...
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gem worth investing - VOLTAS
gem worth investing - TITAN INDUSTRIES
gem worth investing - RELIANCE PETROLEUM
gem worth investing - IDFC
gem worth investing - HDFC BANK
gem worth investing - ABB
gem worth investing - ABAN OFFSHORE
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Tata Power: Full of energy
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Nagarjuna to unlock value - Long term
Binani Inds - hugely undervalued
5 value stocks to buy NOW
Alps Industries : Multibagger
Value picks from current market

 

Bull's Eye - DABUR INDIA, FINOLEX CABLES, PHOENIX MILLS, HCL TECHNOLOGIES, BHARAT FORGE, STEEL AUTHORITY OF INDIA

DABUR INDIA

RESEARCH: MERRILL LYNCH RATING: BUY CMP: Rs 94.65
MERRILL Lynch has cut its FY09 and FY10 EPS forecasts for Dabur by 6-12%, primarily due to high gestation costs for the company’s new retail business. Dabur’s retail format will focus on health, beauty and wellness products. The first store was opened recently in Delhi. The offering looks high quality and Dabur has the first-mover advantage in a format that has huge potential. But near-term costs may be higher than earlier expectations. The growth in Dabur’s topline in FY08 slowed down to 15%. Positive surprises were hair oils (16% of sales), digestives (6%) and exports (16%), which grew above the trend. Key disappointments were Chyawanprash (7%), healthcare (6%) and home-care (5%). Going forward, topline growth rate will remain steady at 15-16%. Merrill Lynch expects significant acceleration in foods and Chyawanprash (led by new products), and in healthcare (led by easing of supply chain issues). It has forecast that Dabur’s EPS will grow 16% in FY09 to Rs 4.4 and 19% in FY10 to Rs 5.2. Excluding retail, EBITDA margins are expected to expand marginally by 10-20 bps every year, led primarily by scale benefits. This should be primarily the case in exports, where margins are much lower than in India. Key risks to margins are higher input costs and higher advertising costs to support new product launches.



FINOLEX CABLES

RESEARCH: HSBC RATING: NEUTRAL CMP: Rs 69.90
HSBC has downgraded Finolex Cables from ‘overweight’ to ‘neutral’ with a new price target of Rs 80. HSBC has cut its FY09/FY10 estimates based on lower EBITDA margin and reduced other income. There are three reasons to believe that core earnings at Finolex will remain volatile: (1) EBITDA margin is expected to be hit by volatile copper prices. In the past five quarters, EBITDA margins have been highly volatile due to sharp movements in copper prices. Finolex reported its historical low EBITDA margin of 4.9% in Q4 FY08 (March ’08). The company is unable to pass on the incremental costs to customers because it lacks pricing power. (2) The company’s earnings are driven by dividend income. In the past few years, including FY08, earnings have been driven by other income (dividends on investments). Since FY05, other income has contributed 20-45% to profit before tax. (3) Its capacity expansion plans have suffered significant delays. HSBC now expects investors to look for stabilisation in the core business before assigning value to the company’s investments. Based on historical price-to-earnings (P/E) multiple during times of falling EBITDA margins and stripping out Rs 19 per share for Finolex Industries, HSBC has reduced its target P/E from 15x to 13x.

PHOENIX MILLS

RESEARCH: KOTAK SECURITIES RATING: ADD CMP: Rs 354.40
KOTAK Securities has initiated coverage on Phoenix Mills with an ‘add’ rating and a target price of Rs 450, based on March ’09 net asset value. Kotak believes that Phoenix Mills is among the best-positioned to ride India’s retail boom. Phoenix Mills, along with its associates, has a total developable land bank of 34 million sq ft comprising retail (25 million sq ft), residential (7 million sq ft) and hotels (2,200 keys) spread across 23 cities. Phoenix group will have operational retail space of 25 million sq ft by FY12E with 11.9 million sq ft attributable to Phoenix Mills. Financial structuring/alliances will aid in faster growth and diversify project-specific risks Phoenix intends to undertake projects in metro cities in association with financial investors. The company plans to dilute its stake in various projects at a premium, thus unlocking capital to enable faster growth. Phoenix has expanded its retail footprint through acquisitions: (1) Buyout of Atlas Hospitality; (2) Purchase of a 42% stake in EWDPL (a tier-II city); and (3) Purchase of 70% stake in United Malls (a mall developer in tier-III cities). Revenues will grow strongly over FY09-11E. Kotak expects other projects to start contributing to revenues in FY11E.



HCL TECHNOLOGIES

RESEARCH: CLSA RATING: UNDERPERFORM CMP: Rs 292.10
WHILE the sector-wide sentiment has strengthened, driven by currency depreciation and tax extension, it is difficult to envisage further stock outperformance, given that HCL Technologies’ phase of ‘superior than peers’ financial performance is weakening. IT spending may remain sombre for some more time While HCL believes IT spending environment is favourable for offshore delivery in the long term, near-term growth will be hindered by the freeze on client budgets and delays in deploying budgeted IT spend. While HCL has benefited from proactive forex hedging (hedging gains contributed 5.2% to PBT during nine months of FY08), gains from a reversal in currency moves will be muted. HCL’s significant improvement in financial performance, deal wins and operational control over the past 18 months helped it to resist sector-wide valuation contraction in CY07. Immediate objectives of restructuring the voice-heavy BPO business by containing growth from BT and growing the ERP business by leveraging global partnership with SAP may take some time. The FM’s dole has given an extra year for HCL to make its SEZ move. But HCL needs to consistently outperform its peers to sustain investor interest and this may not be forthcoming in the near term.

BHARAT FORGE

RESEARCH: CITIGROUP RATING: HOLD CMP: Rs 276.75
CITIGROUP has cut the target price of Bharat Forge to Rs 312 as it has revised the company’s earnings estimates downwards by 9-20% over FY09/FY10E. The target price is based on 18x September ’09 EPS — the mid-point of the current trading band — and is well supported by an earnings CAGR of 25% over the next two years. It is also based on expectations of slower growth in domestic demand, margin pressures due to a rise in input costs, a volatile currency, a slower-than-expected turnaround in operations of subsidiaries and joint venture operations. The sharp rebound in profitability in FY10E will depend on the management successfully executing the high-margin non-auto business. Citigroup has forecast strong earnings CAGR of 26% in standalone PAT over the next two years, driven by steady improvement in export sales (notably in the non-auto segment). Recurring parent PAT at Rs 68.3 crore (+6% y-o-y), was in line with estimates. EBITDA margin rose 70 bps y-o-y (50 bps above estimates), led by stronger growth in exports and the attendant beneficial impact of duty entitlement passbook (DEPB).



STEEL AUTHORITY OF INDIA

RESEARCH: MORGAN STANLEY RATING: OVERWEIGHT CMP: Rs 172.95
MORGAN Stanley’s conviction on out-of-consensus ‘overweight’ call on SAIL has increased after its robust Q4 FY08 results. The stock is trading at a P/E of 6.9x and EV/EBITDA of 3.7x on FY09 earnings, which looks unfair, given comparable global averages of 11.2x and 6x, and SAIL’s likely EPS CAGR of 37% between FY08-F10. After adjusting for exceptional items and provisioning, SAIL’s Q4 FY08 EBITDA stood at Rs 4,350 crore, in line with estimates. The strong performance should provide the first trigger for trend reversal for the 24% year-to-date underperformance versus the Sensex, offering a good opportunity to build positions in SAIL. Fears about SAIL’s earnings trends should be mollified in the coming two quarterly results. Morgan Stanley believes fears of a steel price hike and coking coal costs are overblown. Additionally, SAIL should be able to reduce its wage cost by $19/tonne in FY09 after the one-time provisioning of Rs 1,600 crore in FY08.

Source: economictimes

How to build an ideal portfolio?
Mkts to see deep, long correction: Rakesh Jhunjhun...
Investment Idea - ZEE Entertainment Enterprises Li...
Why tips will never make you rich?
Tata Power: Full of energy
Long-term investors can start portfolio building
Tyre & Industries Ltd Target Rs.145/-
Bear Market? Is this a good time to invest?
Investment Idea - Prime Focus Ltd. plans beachhead...
Top midcaps: Adlabs, Parsvnath, Kotak Bank, Geojit...
Multi Bagger: Rain Commodities
Don't drive away blue-chip stocks
Buy Tata Steel, target Rs 1085: Emkay Research
The man who can’t stop praising Rakesh Jhunjhunwal...
What should retail investors do..
Nagarjuna to unlock value - Long term
Binani Inds - hugely undervalued

Multibagger Stock Idea - Quintegra Solutions Ltd

Quintegra Solutions Ltd., (NSE: Quintegra; BSE: Quintegra, Scrip Code: 532866), a global IT services and Consulting Products company, is one of India's leading software developer and IT services exporter.

Quintegra Solutions

CMP : Rs 93

Target : Rs120 & 180

Time - 3-4 Months for Target 1 and 8-9 months for Target 2

Quintegra has offices in the US, UK, Germany, Africa, India, Malaysia and Singapore, with development centers in India, Singapore and Malaysia. Leveraging its proven global delivery model, Quintegra provides a full range of custom software development solutions and consultancy services in IT on various platforms and technologies. Quintegra's software development processes meet the highest quality standards and its software processes comply with SEI CMM standards. Quintegra enjoys long-term business relationships with clients across diverse sectors including some of the best-known global corporations. Quintegra also works closely with many mid-size growth companies and ISVs. Quintegra is headquartered at Chennai, India, and is listed on India's NSE, BSE and MSE.

More Recently Quintegra has completed the Initial Assessment of ISO 27001:2005 Information Security Management System of the organization with an external agency.On its quality journey, Quintegra has also completed its SCAMPI B assessment with an external auditor and is moving closer to become a CMMi Level 5 company.

Growth of the company
Quintegra Solutions Ltd has grown from $10 million to a $100-million company in the last three years.Quintegra targets $1 b revenue in 3-5 years.Quintegra's exposure and risk is mitigated by the fact that they have penetration into different countries apart from the US and our growth in those countries is extremely high

Quintegra's Consolidated Full Year Net Profit Up by 402%

On a consolidated basis, the Company has recorded a top line growth of 239.54% for the Fourth quarter ended 31 March 2008. The Company's consolidated revenue for the Fourth Quarter ended 31 March 2008 was Rs. 104.33 Crores as against Rs. 30.72 Crores for the corresponding period of the previous year. The Net Profit for the Company on a consolidated basis for the Fourth Quarter ended 31 March 2008 was Rs. 5.51 Crores as against Rs. 2.86 Crores for the same period during the previous year posting an increase of 92.65%.

On a stand alone basis, the Company has recorded a top line growth of 47.78% for the Fourth quarter ended 31 March 2008. The Company's stand alone revenue for the fourth quarter ended 31 March 2008 stood at Rs. 25.67 Crores as against Rs. 17.37 Crores for the corresponding period of the previous year. The Net Profit for the Company on a stand alone basis for the fourth quarter ended 31 March 2008 was Rs.2.77 Crores as against Rs. 1.99 Crores for the same period during the previous year posting an increase of 38.64%.
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FUTURA POLYESTERS LTD. - Buying strongly recommended

Buying strongly recommended.
FUTURA POLYESTERS LTD.
A Good Medium Term Buy


Futura Polyesters Ltd. (Rs. 33/-): Belonging to Sonata Software Group,
FPL is engaged in the production of Polymers, PET, Preforms and
Polyester Fibre with installed capacity of 57,000 tons, 20,000 tons
and 39,000 tons respectively.

Its focus is on Speciality Products. In Fibre Business, it has
launched more than 300 shades of Dope Fibre which is in good demand,
apart from PTTV-Flex, Flame Retardent, High Shrink Fibre etc. PET
Business is also growing rapidly due to increase in capacity by MNC
Companies. Here also, company is focussing more on new products like
Beer PET, Hotfil PET, High-Heat PET etc.

Financial Performance: (this years not included)
Y E A R E N D E D
31/03/07
(cr.) 31/03/06
(cr.)
Sales 563.30 521.40
Depreciation 24.79 23.92
PAT 10.62 -11.40
Equity 52.42 52.42










In 06-07, Polymer Operations were more profitable. Company has
received U.S. Patent for Antimony free resins which has big potential.
Fibre Operations were also better due to higher result.

Its performance has been reasonable and company is likely to report
steady improvement in its performance in coming year. Based upon its
financial performance, scrip is fairly priced.

However, FPL is being recommended as there will be value unlocking for
its share holders in near future. FPL has a Chemical Division which in
2002 was renamed Innovassynth.

PROFILE OF INNOVASSYNTH

Innovassynth Technologies (I) Ltd. came into existence since 1st
August 2002. The company is catering to the needs of customers in the
area of 'knowledge based R & D services' for the last 5 years, which
include:

- Contract R & D
- Custom Synthesis
- Contract Manufacture

In a very short period the company has established its name as a
reliable partner in above area of activities and has joined hands with
many prestigious companies in the field. The company has identified
NUCLEOSIDES as a niche area and earned reputation as a supplier of
various protected Nucleosides and a partner for Process research.

The company is involved in business with well-known companies in
various fields like pharmaceuticals, perfumes, agro chemicals, and
fine and speciality chemicals. With two sites at its disposal, one
already active at Khopoli near Mumbai and the other in the development
stage at Chennai, it has chalked out ambitious plans to move in to
cGMP and FDA approved facilities and is on a fast track to achieve
them.

The company has also formed a Limited Liabilities Company named
"Austin - Innovassynth Technologies LLC." in USA in collaboration with
Austin Chemicals Company INC., USA for strategic business development
and project management processes. Austin Chemicals Company is a 130
million dollar U.S. based Company mainly involved in business of
development and implementation for supply of intermediates and raw
materials to major pharmaceutical companies in USA and Europe. This
joint venture company will help Innovassynth in their business
development and marketing effort for catering to major pharmaceutical
companies across the world.

BUSINESS SEGMENTS

1. Pharma Intermediates: Company offers intermediate products required
for bulk drugs as well as New Drugs under development. Being a service
company, Innovassynth has no issues with regard to Intellectual
property rights. Moreover, it has formed a joint venture company in
USA with Austin Chemicals Inc., U.S., which acts as a marketing arm
for Innovassynth.

2. Nucleosides and Nucleotides: Company has identified this as the
'Niche' area. It has been working in this field since last 4 years and
developed the skill sets for handling mostly all types of compounds.
Specialization is in the scaling up of the various reactions. Column
chromatography on kilo scale is a special feature of our pilot plant
for Nucleosides and Nucleotides.

3. Flavour and Fragrance Chemicals: Innovassynth has an established
base in USA to market the Flavour & Fragrance chemicals in U.S. and
European markets. Innovassynth products fulfill the odour demands of
the products, which is a primary requirement in this field.

4. Nutraceutical Products: Innovassynth has recently made a foray into
this area. It has identified a few products which are of synthetic and
standardized herbal extracts. A full-fledged laboratory has been set
up to develop the products. In the meantime, a synthetic product is
already in production and being marketed in USA through its associate
company in U.S. Another herbal based product is in the final stage of
commissioning. A few more products are in the pipeline.

5. Fine Chemicals / Intermediates: Innovassynth is dealing with big
U.S. catalog companies to develop and provide high value fine
chemicals and intermediates. It is also negotiating with European Fine
Chemicals companies to participate in the outsourcing program of these
companies.

In a recent interview, CEO of Innovassynth Mr. B Sahu said:

"Nucleosides are used for making amidites, which, in turn, are used
for synthesising oligo-nucleotides, which have potential to become the
final medicines. Nucleosides are a totally new area and highly
technology driven. It has the potential to become a very lucrative
segment. With the advances in genetics, it would be possible to
predict at what age one would get a disease. The new generation of
medicines would be able to block the appropriate part of the DNA or
RNA and completely cure these diseases. Till now, no medicines based
on this therapy have come to the market, but there are about 16
products in the phase II and III clinical trials. A lot of research,
worth-bns of dollars, is happening in this field.

The two leading research organisations in this area are US-based lsis
Pharmaceuticals & Geron Corporation and both have been working with us
for the last three years. We work as if we are their extended research
arm, for developing raw materials for the final product. We are the
only company in India manufacturing a wide range of protected
nucleosides amidites - both general purpose and specialised - at plant
level in kilo-scale for Geron and others. We will be exclusively
working on developing amidites for lsis and Geron for all their future
compounds.

The other area include fragrance and perfumery chemicals, in which we
basically undertake synthetic chemistry work for companies in the U.S.
and Europe. In pharma intermediates, we have a joint venture 'limited
liabilities company' with Austin Chemical Company, U.S.. Under this
venture, we are involved in supplying raw materials for Phase 1, Phase
2 and Phase 3 trials and also for replacing present commercial
suppliers of raw materials.

In Speciality Chemicals, we work with many leading companies like
Sigma Aldrich, Honeywell, Mitsubishi, etc. for chemicals used in a
wide range of applications, ranging from digital photography to
various biomedical applications. Apart from these areas, we are also
into nutraceuticals - an area in which very few chemical and
pharmaceutical companies have ventured into. We have already developed
2 - 3 products, which are being marketed in U.S. One is synthetic
gugglesterone (having cholesterol reducing property), which we
manufacture at 98.6% purity level and at 100 kg. scale. Another
product developed by us in this area is hydroxyisoleucine (it
increases insulin level). We are the only company manufacturing this
product at 75% purity. We have a tie-up with a U.S. company, which
does exclusive marketing for these products in the U.S.

We have five manufacturing facilities, apart from a plant
manufacturing coloured chemicals. We also have a large contract
manufacturing facility for Ciba Speciality Chemicals (Switzerland), in
which we manufacture a speciality chemical exclusively for them since
the last four years. We have five laboratories at Khopoli - one is for
necleosides, one for nutraceuticals and the rest are for pharma and
other chemicals. We also have two 'kilo-labs' - one for nucleosides
and the other for non-nucleosides.

Innovassynth, along with Shasun Chemicals and Drugs Ltd. and Suven
Pharmaceuticals Ltd., have joined with Austin Chemical Company to form
the 'Life Sciences Alliance'. The alliance helps us to jointly offer
our services whenever a global pharmaceutical company scouts around to
outsource some of its activities. The basic reason for this alliance
is to present a complete package of capabilities and facilities to a
foreign customer. For example, while Innovassynth provides its R&D
based non-GMP capabilities, Shasun provides its GMP infrastructure and
expertise and Suven its clinical facilities. Similarly, the exclusive
capabilities at each are shared for a common goal."

Rationale to buy FPL: With above credentials and business model,
Innovassynth has a good future. In 07-08, Innovassynth is likely to
achieve of Rs. 60 crs. We are unable to estimate profit figures for
the company.

Now, share holders of FPL will get 5 shares of Innovassynth against
every 11 shares of FPL. Share Holders will not be required to make any
payment for this allotment which means, shares of Innovassynth are
free of cost. RAKESH JHUNJHUNWALA AND RAHEJA GROUP ARE HOLDING APPROX.
20% EQUITY OF INNOVASSYNTH. HENCE, IT IS ESTIMATED THAT INNOVASSYNTH
WILL BE LISTED AT BSE ANWHERE BETWEEN RS. 60-80.

Suppose, investor buys 110 shares of FPL for Rs. 3800/-, he will get
50 shares of Innovassynth which should sell for more than Rs. 3000/-.
Thus, investor will be able to recover his original investment by
selling Innovassynth Shares. But, he will be still left with 110
shares of FPL. Record Date is around 4-6 weeks away. We estimate that
before Record Date only, share price of FPL may go upto Rs. 45-50.
Thereafter, on ex-basis, FPL may quote at minimum Rs. 28-30. Further,
FPL will issue 8:10 Rights Shares at par (after writing out Face Value
of Rs. 6/-). Thus, Rights Issue is also very attractive which will be
additional bonanza for FPL share holders.

Giving the fact that R J is invested in Innovassynth since 5 years,
there may be big hype at the time of Innovassynth listing and
investors will reap rich harvest. In sum, investment in FPL at current
levels should give minimum 100% - 150% appreciation in coming months.
 
 

Newsletter - Multibagger Pick - 23 May '08


Indian Stock Market News, Recommendations & Views

May 23, 2008Keeping you up-to-date about investing !!
Multibagger Pick
Carborundum Universal - Click Here To Read



Chemicals industry offers excellent investment opportunities
After the meltdown earlier this year, the stock market has been range-bound for the past three months. While most sectors have been struggling on the bourses, an unglamorous industry has suddenly come to the forefront by demonstrating its ability to weather the storm.
Click Here To Continue
Stocks for long-term investments in 2008
The new themes for this year and the preferred stocks where you can park your long-term investments...


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Why Tips will never make you rich?
In the past, Indian investors have faced a problem of information scarcity. In the 1990's & before, there was no internet, no business channels, only 1-2 business newspapers etc. People used to invest only on the basis of what their brokers/friends recommended without any knowledge of the company business, financial performance etc.


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Stress & Glass Of Water
This is specially for people having lot of work and stress
Read Complete Article
  


 

Merck India Limited (MIL) - Buy Recommendation research report

Report Date May 23, 2008

Company Name Merck India Limited (MIL)

Price / Recommendation Rs. 352.50 BUY

 

Sector Pharmaceutical

One Year Target Price Rs. 525/-

Market Capitalisation Rs. 594 crore

52–week range Rs. 310-460

Shares in issue (mio.) 16.86

BSE Ticker 500126

NSE Ticker MERCK

BSE Sensex 16907.11

 

Shareholding Pattern on Mar. 2008

%

Promoters 51.00%

FIIs 1.20%

MFs / UTI 5.59%

Banks / FIs 13.45%

Others 28.76%

 

 

Investment Rationale

Ø MIL, 51% subsidiary of Merck KGaA – Germany, operates in

Pharmaceutical and Chemical segments.

Ø Giving more thrust to top-line growth to achieve significant

scale thru deeper penetration with increased field force, selective

new launches from the parent and some line extensions in

pharmaceutical segment.

Ø Focus on fast growing therapeutic segments such as

cardiologicals and hematinics should enhance their contribution

to 10-12% of sales (~ 8% in CY 2007) going forward. These

segments enjoy good margin as well.

Ø MIL is setting up bulk chemical (Oxynex) plant at Goa @ capex

Rs. 27-30 crore in CY 2008, which will enhance Oxynex ST

capacity to 150 TPA (22 TPA). This 100% EOU expected to

commence production in Sep–Oct 2008, would generate

revenues of ~ Rs 22-25 crore at full capacity by CY 2009 with

gross margin of 20%.

Ø It is debt free company with surplus cash of ~ Rs 350 crore (i.e.

Rs 206/- per share) as on Dec. 31, 2007, offering greater

opportunities to acquire good businesses / brands.

Ø Thus, MIL is expected to grow topline @ 15% (+). Once, topline

will grow, profitability is also expected to improve going ahead.

Investment Concerns

Ø 58 % of turnover (i.e. vitamins) is under DPCO.

Ø Existence of parent's 100% subsidiary, Merck Specialities in

India, could to some extent, pare interest of the listed entity.

Recommendation

Ø Investor friendly company with track record of high dividend

payout. At CMP, dividend yield works out to be ~ 5.7%.

Ø At CMP, the share (Rs. 10/- paid up) is trading at 8.6 times CY

2007 actual EPS of Rs. 40.8 and 8 times CY 2008 expected EPS

of Rs. 44.09. Considering aggressive growth plans, we

recommend to "BUY" the share at CMP.

 

 

About Merck India

 

Ø Merck India, 51% subsidiary of Merck KGaA – Germany, operates in Pharmaceutical (accounts for 79% of sales)

and Chemical segments (21% of turnover).

Ø Pharmaceuticals business comprises of two divisions viz. Ethicals and Consumer Health Care (CHC). Ethicals

division deals with therapeutic segments such as Vitamins (Polybion, Poluzee, Neurobion, Avion),

Cardiologicals, Cough & Cold preparations (Nasivision), Dermatological (Evion cream), Haematinics

(Anemidox) and Anti- Malarials (Emquin). While CHC division deals with Nasal Drops, Oral Rehydration Salts

(Electrobion), Health Supplement, Joint Care etc.

Ø Chemicals business comprises of Bulks drugs, Pigments and Life Science Products.

Bulk Drugs

12-13% of sales

ñ Mfg. Vitamin E, Oxynex, Thiamine Disulfide (TDS) and Guaiazulene. Company is the sole manufacturer of

Guaiazulene and TDS for Merck companies globally. TDS is manufactured at 100% EOU and exported to Europe

& South East Asia. MIL is major domestic manufacturer of Vitamin E.

Pigments

4% of sales

ñ Sourced from Merck Operations worldwide, Iriodin Pearl Lustre Pigments are sold to varied customers. During

CY 2007, company launched Candurin, unique coating pigment for food & pharmaceutical applications.

Life Science Products

ñ Supplies chemicals that are used in cosmetics, health, and nutrition industries.

Ø It has manufacturing facility at Goa, where it manufactures bulk drugs, soft gelatin capsules and injectables.

 

 

Investment Rationale

 

Ø Changing demographics, rising health consciousness, increased focus towards research and development, product

patent protection and expanding health insurance sector are some of the key drivers for growth of pharmaceutical

industry in India and company intends to capitalise on this potential thru deeper penetration with increased field

force, selective new launches from the parent and some line extensions in pharmaceutical segment. MIL is giving

more thrust to top-line growth to achieve significant scale.

ñ Trying to increase share of non-vitamin formulations in its product mix by launching products in fast growing

therapeutic categories like cardiovascular, hematinics, topical anti-inflammatory, diabetes and dermatology.

ñ Plans to launch 10-12 products in CY 2008, of which ~ 20% will be OTC products. Just recently, company

launched Electrobion SIP (Apple and Lemon flavour). These new products, mostly out of DPCO preview,

will help company not only to increase volume but also to improve profitability over a period of time.

ñ Company set up separate CHC division in pharmaceutical business to focus on certain therapeutic segments

in CY 2007. These measures should result in tangible improvements in operating results, beginning with

2008. Has aggressive plans for CHC business

ñ Pursuing aggressive marketing strategy. Towards this end, it has 700 recruited outsourced field force to own /

existing force of 400 reps. to ensure deeper penetration with doctors and chemists. Besides, company will

also be penetrating in rural and semi-urban areas. Increased field force has not only led to faster growth of

new launches but also growth of old matured products.

Ø In chemicals business, MIL has embarked on enhancing capacity of bulk chemicals, Oxynex ST to 150 tpa (22

tpa), in Goa @ capex Rs. 25-30 crore. Oxynex ST finds many applications in broad spectrum of photo-stabilizing

the actjve ingredients of sunscreens (skin lightening self tanning, anti-ageing, day care products), fragrances, antioxidants,

colour cosmetics and protection of formulations for extended storage, viscosity drop and colour fading.

MIL is the only manufacturer of Oxynex ST worldwide. With commissioning of new plant in Oct 2008, Oxynex

ST would be primarily exported to group companies. This 100% EOU is expected to generate revenues of Rs 30-

36 crore at full capacity by CY 2009 with gross margin of 20%.

Ø It is cash rich company with liquidity of ~ Rs 350 crore (Rs 206/- per share) as on Dec. 31, 2007. This available

surplus will provide greater opportunities to acquire brands / companies.

 

 

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