Mercator Lines A Buy

Mercator Line Ltd (MLL) reported considerable improvement in operating performance in Q1FY11 with dry bulk division performing reasonably well. The company has also ramped up its coal business (mining as well as trading) which would increasingly contribute to the topline for the company. 

Freight rates are expected to be volatile over the next one year which could lead to fluctuations in the operating performance of the company going ahead. But MLL is well placed to ride the volatility of shipping business on account of inherent advantages such as diversified revenue stream, presence across segments, long term charter contracts, comfortable debt equity ratio and strong MLL reported 24.3% q-o-q rise in revenue at Rs 599.3 crores. 

The rise in topline was led by a surge in revenue from coal trading and coal mining which constituted 38.2% i.e. Rs 599.3 crores of the total revenue for the quarter. Singapore subsidiary which handles dry bulk business of the company reported revenue of Rs 179.4 crores with improvement in operating days to 1251 days and TCE to $ 30001 per day. EBITDA margin improved to 33.1% from 29.0% in the immediately preceding quarter. 

The company posted net profit of Rs 61.7 crores in Q1FY11 which was higher than the profit made by the company in entire FY10.

MLL is trading at a significant discount to its global peers and almost at 0.5 x times its FY10 book value which provides an appropriate entry point for long-term investors. We recommend a BUY from this point and the stock has potential to go 20-30% short-medium term

VIP Industries strikes record high

VIP Industries advanced 2.54% to Rs 498.50 at 13:29 IST on BSE, extending Wednesday's 12.84% rally, on reports about an impending acquisition in Europe.

Meanwhile, the BSE Sensex was up 38.88 points or 0.21% at 18,256.32

On BSE, 15.84 lakh shares were traded in the counter as against an average daily volume of 4.76 lakh shares in the past one quarter.

The stock hit a high of Rs 507.70 so far during the day, which is a record high for the counter. The stock hit a low of Rs 480 so far during the day. The stock had hit a 52-week low of Rs 63.20 on 3 August 2009.

The VIP Industries stock had galloped 12.84% to Rs 486.15 in a single trading session on Wednesday, 4 August 2010, on massive volume of 53.01 lakh shares

The mid-cap stock outperformed the market over the past one month till 4 August 2010, rising 35.36% compared with the Sensex's 4.33% rise. It also outperformed the market in past one quarter, surging 84.01% as against 6.30% rise in the Sensex.

The company  has an equity capital of Rs 28.26 crore. Face value per share is Rs 10.

VIP Industries net profit surged 60.2% to Rs 32.20 crore on 17.3% rise in net sales to Rs 235.40 crore in Q1 June 2010 over Q1 June 2009.

The company was reported buoyant quarterly result:

Particulars	Quarter Ended
	Jun. 2010	Jun. 2009	% Var.
Sales	235.40	200.60	17
OPM %	19.63	16.95	16
PBDT	45.00	31.60	42
PBT	41.20	27.40	50
NP	32.20	20.10	60

Sintex Industries: Q1FY11 Result

Sintex Industries (Sintex)' Q1FY2011 performance topped analysts' projections on both revenue and earnings front. The consolidated bottom line came in at Rs78.9 crore (up 30.1% year on year [yoy]) as against expectation of Rs72.3 crore. The results include one-off expense of Rs20.5 crore in interest relating to foreign exchange (forex) loss on foreign currency convertible bonds (FCCBs; worth Rs17 crore) and legal charges (of Rs3.5 crore). Adjusting for the same, the net profit stood at strong Rs99 crore in the quarter.

The consolidated revenue from operations stood at Rs910.6 crore, a robust 37.5% up yoy, on account of stellar performance of the building product division (up 43% yoy) and the custom molding division (up 38.9% yoy; primarily due to Bright Autoplast), and a revival in the textile division (up 30% yoy). 

The operating profit increased by strong 57% yoy led by revenue growth and a strong 190-basis-point expansion in the operating profit margin (OPM) to 15.1%.

As far as subsidiaries are concerned, Bright Brothers and Nief Plastics reported strong performance during the quarter. The revenue from Bright Brothers improved by 47% yoy and that from Nief Plast was up by 16% yoy. Zeppelin Mobiles continued to be a drag, posting a 15% year-on-year (y-o-y) decline in the quarterly revenue.

The underlying demand in the monolithic construction business continues to be strong, with the company having a total order book of Rs2,300 crore to be executed over the next 20-22 month period. Further, the company is all set to expand its customer base in this segment, adding various government institutions (currently it is in talks with the Government of Karnataka). In the last 18 months, it has added couple of housing board orders; this will enhance its order repetitiveness from same geographies, leading to better utilisation of local contractors and material sourcing. We expect these initiatives to provide further impetus to the building material segment. Thus we expect the strong demand in the plastic segment (prefabs, monolithic and custom building businesses) to continue to drive the company?s growth in the near to medium term. Further, the revenue per site on rise will lead to optimal use of plastic form work resulting in improved margins. The scenario in the luxury textile business has started improving and we expect that the pain is behind, and going forward, we see incremental positives coming from this business.

We maintain our bullish stance on the company on the back of strong revenue visibility and margin expansion in wake of strong growth in the building material (monolithic as well as prefabs) and the custom moulding divisions coupled with stable performance of the textile business. We expect the company to post an earnings compounded annual growth rate (CAGR) of 22% over FY2010-12E. We maintain our Buy recommendation on the stock with a revised price target of Rs396 (11x FY2012E). At the current market price the stock is trading at 12x and 9.3x its FY2011E and FY2012E earnings respectively.

Deepak Fertilisers & Petrochemicals Corporation

TAN project on track: Deepak Fertilisers and Petrochemicals Corporation Ltd (DFPCL) is in the process of setting up a technical ammonia nitrate (TAN) plant in Taloja near Mumbai, which will enhance its TAN capacity more than three-fold, to 432,000 million tonne per annum (MTPA) from 132,000MTPA currently. The plant is expected to come on-stream by September 2010 and the project is progressing as per schedule. With the plant coming on stream, we expect the company?s TAN revenue to grow at a compounded annual growth rate (CAGR) of ~52% from FY2010 to FY2012. Thus the contribution of TAN to the company?s top line would increase to around 28% from 19% currently. 

Enhanced capacity utilisation due to improved availability of raw materials: DFCL?s capacity utilisation has suffered in the past on account of unavailability of raw materials such as natural gas. As a result, the capacity utilisation for methanol and ANP had remained low. To obviate the same, the company has now contracted around 90% of its natural gas requirement and this is expected to improve its capacity utilisation levels, going ahead

Demand for industrial chemicals remains strong: The demand for industrial chemicals remains strong on the back of a healthy growth expected for industries such as pigments and nitro cellulose, which are DFCL?s user industries.

Expectations of a normal monsoon positive for fertiliser sales: The India Meteorological Department (IMD) in its latest update on the progress of monsoon has revised upwards its forecast for the monsoon this year to 102% of the long period average (LPA) from 98%. The expectations of a normal monsoon this year could positively impact the fertiliser sales with the same contributing around 30% to the company?s top line. 

Maintain Buy with a revised price target of Rs178: We continue to remain optimistic on the future prospects of the company and are upgrading our price target on the back of improved visibility of earnings accruing from the TAN plant, as the project implementation schedule remains on track and the date for commissioning approaches nearer. Additionally, the improved raw material availability as well as the expectations of a normal monsoon also bodes well for the future prospects of the company. At the current market price of Rs149, the stock trades at 6.7x its FY2012E earnings per share (EPS) and 1.1x its FY2012E book value (BV). We maintain our Buy recommendation on the stock and upgrade our price target to Rs178 (8x FY2012E EPS). 

Performance of Media Sector in FY 2010

The media sector reported better-than-expected results in FY10. Robust revenue growth and strong margin expansion resulted in the profitability of some companies almost doubling. Others consolidated their operations in the financial year. We maintain our Overweight stance on the sector, and prefer broadcasters to print media.

■ FMCG advertisers to drive broadcasters’ revenue: Sustained high advertising and promotion expenses by FMCG companies would mainly benefit broadcasting companies. FMCG accounts for more than 55% of spending on television.

■ Consolidation – the mantra in FY10: FY10 was the year of consolidation for the media industry. For instance, the Zee group consolidated its general entertainment channels (GECs) under Zee Entertainment. TV Today and DB Corp consolidated their radio businesses and HT Media de-merged its Hindi daily for an IPO.

■ High dividend payout: Companies paid higher-than expected or in-line dividends through special or interim dividends during the year. Broadcasting companies have increased the dividend payout ratio, while print companies have slightly reduced the same.

■ Prefer broadcasters to print players: We prefer broadcasters to print companies, considering that ad revenue growth for broadcasters is expected to be over 15%. DTH subscription revenues are expected to increase. With carriage and placement costs
remaining flat and programming expenses under control, we expect margins to expand.
■ Top picks and top sells: We maintain our Overweight rating on the sector. We have a Buy on Sun TV Network, Zee Entertainment and Jagran Prakashan; Hold on ENIL, HT Media and Info Edge; and Sell on Balaji Telefilms.

Finolex Industries-Multi-Bagger

 

(Finolex Ind gets single digit PEs while similar manufacturers like Sintex and Astral Poly get twice the PEs. This under-valuation cannot sustain for long. Finolex Ind is ready for a re-rating)

 

There has been a significant increase in the disposable income of the Rural population, driven by the various government schemes. An improvement in the cash position has allowed the rural population to reinvest in their farm land and to build concrete houses, which are the two top priorities in Rural India. The impact of NREGA has been that middle class living in rural and sub-urban India has created additional demand for PVC pipes-which grew 30 per cent in FY10, and this momentum is likely to continue.

 

Finolex Industries is the largest integrated PVC pipe manufacturer in the country with a capacity of 140,000 MT which is expected to increase by another 50,000 MT in FY11.

 

Finolex Ind offers a wide range of PVC pipes and fittings for diverse applications in agriculture, housing, telecom industry. It also manufactures speciality pipes and fittings for the construction industry. Currently, 75 per cent of sales are made to the Irrigation sector.

 

Finolex has aggressive plans to capture incremental market share in Northern India, where the demand for PVC pipes is growing at a high pace mainly driven by the construction, with demand forecast to grow by 35 to 40 per per annum over the next 5 years.

 

Besides growth in sales volume growth, Finolex Industries will be saving massively on input cost, where captive power will help reduce power cost from 10 per cent of Sales in FY09 to 4 per cent in FY11. This will be the biggest contributor to margin improvement in FY11.

 

Finolex Industries is also present in the drip irrigation business through it's joint venture-which is growing at an exponential pace. During FY10, this JV grew revenues by 67 per cent yoy and returnedEBITDA margins of 30 per cent. Value unlocking through a listing of this entity over the next 3 years is a distinct possibility.

 

Most importantly, Finolex has shifted one of it's production facilities to Ratnagiri. The said facility was located on a piece of land admeasuring 78 acres and situated in Pune. There are plans to sell this land and close-out corporate debt. The land sale should bring in Rs 410 crore or roughly Rs 33 per share. Adjusted for this land sale, the Finolex Industry stock is available for a mere Rs 50 per share.

 

The management is confident of clocking a net CAGR earnings of 22 per cent for the period FY10-FY12, primarily driven by higher volume growth in the pipes business coupled with robust margins backed by huge power cost savings.

 

At the current price, Finolex is quoting at 5 and 4 times EV/EBITDA for FY11-FY12. The stock also offers a near 4 per cent Dividend yield.

Find Some Growth Stocks Where Ratios Will Not Work

Some of the companies with negligible revenue from core business but mega plans under implementation are worth look. 

The Price to Sales Ratio is a valuation ratio that indicates how much investors are ready to pay for each rupee of sales.  It can be calculated as the market capitalization divided by sales.  The one with low ratio is considered as value pick.   However, the price to sales ration can not always be considered to pick the growth stocks.  In recent results, a few companies have little or nothing to show by way revenue and profit from their core business operations.  Many of these companies have mega future plans that could completely transform companies’ business profile and size of operations.  Such stocks are difficult to value as traditional parameters such as earning per share, price to earning multiple, dividend yield etc.

Some of them also present huge opportunities and these stocks could be multibaggers once project starts going on stream.  Investing in such stocks makes sense before their core business goes on stream and start contributing to the top line as immediately after this as it is most likely that such stocks would witness re-rating.  Generally, such stocks rally once plans start materializing or at least some visibility emerges on project implementation.

Investors should be clear on two fronts: first, these stocks are long term bests and there is no point expecting overnight results.  Second, before investing in such companies, investors should make some basic checks like management credentials, project implementation skills, experience, corporate governance norms, financial backing by group, industry dynamics and size of the business opportunity and so on.

One can look at the following companies from power sector can for long term investment:

·         Adani Power: Projects are under implementation for 10000MW.

·         Reliance Power: 16 large projects, combined capacity of 33,480MW

·         Indiabulls Power: 6,600 MW (thermal power), 167MW (Hydropower)

·         KSK Energy Ventures: Nine plants are under implementation with combined capacity of 8,900 MW

·         NHPC: 11^th plan target is 5322 MW.

·         Jaiprakash Hydro Power: Plans to add power generation capacity of 13,500 MW (mix of thermal & hydro).

This investment is only for the bravehearts who can take the risk of losing entire capital.  This is because project implementation is dicey and could lead even to company’s fall,  long gestation, project delays, funding issues, regulatory and policy issues, pricing barriers, market entry, volatile commodity prices etc.

Alok Industries - Q3FY10 Result Update

Despite the pressure on export demand from developed economies, larger players in the Home Textile industry continue to derive the benefits of consolidation. After a few quarters of sluggish textile exports, Alok has been able to profitably capture the incremental growth in volumes and realizations during 9mFY10. While the growth in the company’s apparel business has been relatively slower, thanks to the heightened competition, home textile business continues to remain unaffected. The latter infact has managed to reap better realizations from its marquee clients in global retailing. The volume growth on the other hand was contributed by Alok’s expanded polyester yarn (POY) capacity that is the largest single location capacity in the country.

Alok will be attaining sizeable capacity across segments i.e., spinning, toweling, sheeting and garmenting once the phase-III of the capacity expansion gets fully commissioned by FY10. The incremental 14,000 TPA (tonnes per annum) of spinning capacity will make the company 60% self sufficient as far as its yarn requirement goes. The terry-towel, sheeting and garment capacities will lend the company operating leverage against its peers in the home textile and readymade garment industry.

As per the management, the entire process of converting cotton to finished fabric ensures gross operating margins of around 37%. The conversion of fabric to garment offers additional operating margin of 12%. Thus vertical integration is expected to play an important role in sustenance of the company's operating margins and improvement in net margins.

Although the TUF debt has kept the company's funding costs relatively moderate and most of the capacities have already been commissioned, extended period of lower capacity utilisation may force the company to bear interest costs longer than expected without deriving the benefit of growth in volumes and margins. Having said that the planned equity dilution will help the company lower its debt to equity ratio.

At the current price of Rs 24, the stock is trading at an EV/EBIDTA multiple of 6.2 times FY12 estimates. Synonymous to its chain of retail stores - 'Homes & Apparels', this company's business model is in contrast to most other single-product players in the textile sector. Its integrated structure makes it ideally poised to capture the upsides in terms of margins. Moreover, the higher profits are ploughed back for R&D to achieve better product mix and improved quality.

 

Armed with sizeable capacity and strengthened overseas presence, the company is set to reap the benefits of higher sales and better realizations over the next 4-5 years. What is more, lower interest and depreciation cost will mean return ratios that will be nearly double of that at the end of FY09. We maintain our positive view on the stock

BILT Result Update

BILT’s revenues grew by a robust 37% YoY during 2QFY10 largely due to a boost in volumes as its capacity expansions at Ballarpur and Bhigwan came on stream. Unit Kamalapuram (which manufactures rayon grade pulp) also bounced back with revenues growing by 211% YoY. As a result, the company’s overall paper business logged in a healthy growth of 24% YoY. For the half year period too, while overall sales grew by 16% YoY, sales from the paper business logged in a growth of 17% YoY.

BILT’s operating margins contracted by 3.7% during the quarter, largely due to a rise in raw material costs from 21.2% of sales in 2QFY09 to 30.9% in 2QFY10. Raw material prices were higher on account of a substantial increase in pulp prices. Further, a correction in realisations also had an impact on overall margins during the quarter. D


Despite the 18% YoY growth in operating profits, higher interest costs and depreciation charges dented BILT’s bottomline, which fell by 1% YoY during the quarter. Increased tax expenses also played a role in impacting bottomline. Depreciation was higher during the quarter due to the expanded capacities at Bhigwan and Ballarpur coming on stream.

At the current price of Rs 25, the stock is trading at a price to earnings multiple of 3.2 times our estimated FY11 earnings. With the capacity expansion at Bhigwan and Ballarpur coming on stream, volumes and consequently sales are expected to ramp up going forward. Near term pressures are likely to persist in terms of higher raw material costs as pulp prices remain firm. Also, given that Bhigwan imports pulp, the additional capacity coming on stream means that pulp requirements will increase putting further pressure on margins. However, in the longer term, the Sabah acquisition will be beneficial as pulp from the forests in Malaysia would be used at the Indian plants thereby lowering raw material costs. Overall, we maintain our positive view on the stock from a long term perspective.

Sintex Industries Q3FY10 Result

Performance summary

Consolidated sales grow by 3% YoY during 3QFY10. Growth led by the plastics division where sales grew 5% YoY during the quarter. Sales for the textile division fell by 6% YoY. Overall sales decline by nearly 3% YoY during the nine-month period ended December 2009.

Operating margins expand to 18.1% during 3QFY10, from 16% in 3QFY09. Expansion led by lower other expenditure. Otherwise, raw material costs rise on the back of higher commodity prices.

A good operating performance fails to lead to a good bottomline picture. Higher depreciation impacts net profits, which rise by just around 2% YoY during 3QFY10, as compared to the 17% YoY growth in operating profits. 9mFY10 profits decline by around 10% YoY.

What to expect?

At the current price of Rs 270, the stock is trading at a multiple of 10.1 times our estimated FY12 consolidated earnings for the company. Sintex’s nine-month performance is as anticipated. The management believes that it is seeing some strong signs of a pickup in economic activity that is leading to higher capacity utilization for the company. Overall, we maintain our positive view on the stock at the current juncture. One can keep HOLDing this stock.

Sugar on Fire

Rise in sugar price by 20% in last month to Rs40/kg in Delhi wholesale market is likely to yield significant upside for the sugar companies. Key drivers for sugar price rally are (1) concern of further production shortfall in India owing to restrictions on raw sugar imports (2) poor quality of sugarcane; and (3) surge in international price on poor output in Brazil.

One can look buying good sugar stocks on attractive valuation amidst rising prospect of the tight sugar market lasting until FY11E (YE Sep 2011). Robust profit in Dec09 Q to be reported in Jan 2010 is likely to be the key trigger.

It is learnt from newspaper reports that Uttarpradesh is yet to lift the ban on imports of raw sugar into the state imposed since Nov 2009 in order to protect farmer’s interest. The ban could last until Mar 2010, i.e the end of sugarcane crushing season. At present about 0.7mt of raw sugar is held up at ports including 0.55mt of Bajaj Hindusthan and 0.065mt of Balrampur Chini.

If govt does not allow import during crushing season, then mills will see an increase in cost of production by Rs1/kg and may not be able to import additional quantity, which in turn will affect supply.

Amount of sugar recovered per tonne of cane in Uttarpradesh and Maharashtra in the first three months of current season (Oct09-Dec09) is about 20bp lower y-o-y and total sugar production is flat. This is below the estimate of 11% growth in India’s sugar production to16.2mt driven by 50bp increase in recovery. Lower recovery could lead to about 15mt of sugar production in India, which along with restricted raw sugar import could tighten the supply and drive up price further.

International raw sugar price (SB1 Cmdty) has gone up 25% in last one month following reports of 30% decline in sugar production in Brazil between 16 Nov 2009 and 16 Dec 2009. Recent shift in usage of cane in Brazil in favour of ethanol has further boosted the outlook of tighter sugar supply globally.

Renuka sugar, the largest raw sugar refinery of India, being based out of Karnataka and West Bengal is unaffected by Uttarpradesh’s import ban. We expect Renuka to be the biggest beneficiary of rising sugar price in FY10 owing to its 0.4mt sugar stock at cost of Rs23/kg and contract for another 1.2mt raw sugar.

Cairn India – Buy on Dips

How it performed past quarter:

Cairn India’s (CIL) top line at Rs. 2,29.8 Cr, was down 28.2% Y-o-Y (on lower crude prices and production) and up 12.1% Q-o-Q (on higher crude prices) in Q2FY10.

The company’s net hydrocarbon production (includes Rajasthan production, revenues on which were not booked), at 18,638 boepd, increased 8.9% Y-o-Y and 17.1% Q-o-Q.

Crude realisation of USD 69.1/bbl was up 14.8% Q-o-Q, down 40.6% Y-o-Y, and gas realisation was lower at USD 3.9/mmscf.

Higher total expenses (production and employee) resulted in an EBITDA of Rs. 1,33.3Cr. (down 41.5% Y-o-Y and up 0.9% Q-o-Q).

CIL’s results benefited from several exceptional items like foreign exchange fluctuation gain of Rs. 66.18 Cr. (included in other income), reversal of deferred tax liability of Rs. 264.79 Cr.(considering field like as stipulated in PSC against useful economic life), and gain of Rs.163.71 Cr. on reversal of provision in the ONGC carry case (group has won its appeal in Malaysian Court). Hence, CIL’s PAT, at Rs. 469.5 Cr, increased 60.1% Y-o-Y and was almost 10x Q-o-Q.

Outlook

Crude production at the Mangala field commenced on August 20, 2009, In line with its guidance during the 2006 IPO.. Train 1 was commissioned and production has begun. First cargo of crude was delivered to MRPL on October 9, 2009. Train 2 (50 kbpd capacity) completion will be delayed from end CY09 to early CY10 and train 3 (50 kbpd capacity) by H1CY10. With this, Mangala plateau production of 125,000 bpd is targeted by H1CY10. GoI has agreed for CIL to be able to sell to private refiners. Further, management also indicated little impediment to exports. Aishwarya FDP has yet to be approved. CIL estimates the implied price realisation is ~10-15% discount to brent (based on six month ending Sept 2009 average prices).

In addition to the ramp-up of Rajasthan production, the company has 25 discoveries, development of which could positively impact production.

One may look at buying this scrip on dips and hold on as long as you can, for maximising your profit.

By and large the movement will be decided by the oil prices, which is unlikely to come down any time soon.

Fortis Healthcare – Healthy Days Waiting

Fortis Healthcare Limited declared its Q2 results. The company’s Q2 net profit was up at Rs 12.97 crore versus Rs 4.3 crore. Its revenues were up at Rs 187.5 crore versus Rs 154.7 crore.


H1F10 revenue increased to Rs. 370.36 Cr. from Rs. 291.53Cr and net profit up to Rs. 20.52Cr as against Rs. 10.99 Cr.

Quarterly EPS stands at Rs. 0.57 as against Rs. 0.17 during Q2FY09.

Outlook

The company is in growth stage. 2 months ago, Fortis Healthcare sealed the biggest deal in the Indian healthcare industry when it acquired 10 hospitals from Wockhardt for Rs 910 crore helping it emerge as a pan-India player. The acquisition adds 1902 beds to its existing 3142 beds and expands its geographical presence to Mumbai, Bangalore and Kolkata.

Sensing the huge growth potential in the Indian healthcare industry, the company has been keen to scale up rapidly and acquisitions has been its preferred route for growth. After the controversial takeover of the Escorts group’s healthcare business in 2005, it snapped up Chennai-based Malar Hospital and Delhi-based, The Cradle, in 2007. With these acquisitions, the company seems well on its way to achieve its target of having around 40 hospitals, or approximately 6,000 beds, by 2012.

The company’s greenfield hospitals in Shalimar Bagh, Delhi and Gurgaon project are on track to be operational by end FY10 & FY11 respectively.

The management is very vibrant, and is capable of making the company to a largest hospital network in India. However, the negative about them is the way they get off from Ranbaxy, which is still alive in the minds of investors.

One, with long term view of 2 -3 years, can buy this stock and grow your money with the company.

Buy – Aditya Birla Chemicals India Ltd

Aditya Birla Chemicals India Ltd (ABCIL) is one of the leading Chlor Alkali company in India, where Hindalco Industries holds 56% of equity. ABCIL was formerly known as Bihar Caustic & Chemical Ltd, is a part of Birla Chemicals.

Products

Its product range includes caustic soda lye with a capacity of 92,750 tpa, liquid chlorine (6,500 tpa), hydrochloric acid (43,750 tpa), sodium hypochlorite (1,800 tpa), compressed hydrogen gas (17,42,400 Nm3/A), aluminium chloride (12,000 tpa) and stable bleaching powder (17,500 tpa). The plant is located at Garhwa Road, Palamau district, Jharkhand.

The plant uses the most-modern, energy-efficient and environment friendly membrane cell technology. With the implementation of membrane cell technology, caustic soda capacity has increased from 160 to 265 tpd. The company also has a state-of-the-art 30 mw captive power plant for uninterrupted power supply.

Some of its major customer’s include: Hindalco, GAIL, SAIL, NTPC, TISCO, Hindustan Uniliver, IOCL, IFFCO, BALCO, JK Paper, Usha Martin etc.

Financials/Performance

During the Financial Year 2008-2009 the Companies‘ gross turnover was up by 14.03 % at Rs. 230.91 crores as compared to Rs. 202.50 crores and net sales were Rs. 204.07 crores as compared to Rs. 174.27 crores in the previous year. Profit before tax stood at Rs. 55.60 crores as against previous year’sprofit of Rs. 58.45 crores.

The company holds cash reserve of 168Cr.

Gross Turnover: 230.91Cr. (FY09)

PAT: 46.08Cr. (FY09)

EPS: 20.78 (TTM)

BV: 102.34 (FY09)

PE:4.45

FV:10

Industry PE: 9.72

Div Yield: 1.62

Current Ratio: 2.13

During past five years, the company doubled its sales and EPS grown over 4 times. Over past five years, the company giving its shareholders an average dividend of 12%.

 

Outlook

 

The Company expects to expand its size of operations with better performance in the coming years by progressive improvement in capacity utilization of the plant. Moreover the Company has plan for further capacity expansion by 250 TPD Caustic Plant and 30 MW Power Plant along with value added Chlorine based down stream products.

 

Risk & Concerns

 

a) Under utilization of installed capacity.

b) Increase in the cost of basic raw material i.e. Salt and Coal.

c) Import threat of Caustic Soda.

d) Frequent bandhs (strikes) and extremist activities affecting movement of goods and Productivity (their plant is naxal infested Jharkhand).

Conclusion

The company passed the tested time very fairly. During the time of the global meltdowns and slowdowns of past two years, while many other large players were struggling to hold their feet, ABCIL could not only withstand, but it could improve both sales and earnings. Naturally, one should expect a better performance once demand and consumption is resumed. Most of its clientele are well known top companies from various sectors. The improvement in sales of these companies will also make more demand for raw materials, which ABCIL supplies.

At current price, we believe, the share is undervalued. It is now selling at around 4.5 times of its TTM EPS of 20.78, as against industry PE of 9.72.

The company will release its Q2FY10 results on 26 October, we expect some good figures.

We expect at least 50% upward movement for this scrip in short to medium term.

Sintex Industries - Your way to profit

Sintex is Nokia of water storage tank business in India. Even if you don’t have one at your home, you can see ‘Sintex’ on every corner of the country.

Sintex industries is a prominent player in textiles and plastic business in India. Over the years it has built a strong brand recognition. It was a textiles company in 1931 and later diversified into plastic business in 1974, with manufacturing of water tanks. Since then company has diversified into various plastic products like prefabs, custom moulding and into construction. Recent years, they acquired many companies to scale up custom molding and prefab segment, within and outside India. Currently, Sintex manufacture their products from 15 plants in India and 20 plants outside India.

Sintex operates in three business segments:

Textiles (structured fabrics)

Plastic (water tanks, custom moldings, prefabricates structures etc.)

Construction (Monolithic Construction)

TEXTILES

Sintex is probably the only Indian textile company which relies heavily on product development. In the textiles business, it primarily manufactures industrial fabrics and fabric for premium retail garmenting. However, it does not have direct marketing presence, rather it is a supplier of international and domestic design houses. They work with some of leading European brands like Lacoste, GAP, Ann Taylor and Marks & Spencer. Also, the company has strong marketing and design tie up with Europe’s leading fashion and design company, Canclini Tessile. Sintex annually adds about 36,000 designs to its fabric collection. The company has now begun marketing of coated fabrics, which are used in sports wear, travel, and military products.

Concerns:

*Since their textiles business is export oriented, the global downturn may affect the sales.

*Fluctuation in USD is also a concern

*Growth in textiles will be relatively lower and that largely led by deepening relationship with global design and fashion marketing companies.

*In textiles, being a high value business, the focus is more on relationship with the vendors who require customized solutions. Thus, sustaining the current relationships and nurturing new relationships would be crucial.

*Since this is a high-end value-driven business, its potential to grow on volumes would be limited.

PLASTIC

The Indian plastic industry is valued at US$ 4 bn (0.4%) compared to the global plastics industry of US$ 1 trillion. The domestic per capita consumption still lags behind at 4 kg, as against the world average of nearly 20 kg. This provides huge opportunity for sustainable growth for plastic products manufacturers in the country.

Sintex is a leader in the manufacturing and sales of plastic products in India. Sintex’s plastic division has been the star performer for the company over the past 4-5 years. Presently plastic segment is the largest revenue contributor to the company. From just water tank business, it has diversified into prefabs and custom moldings.

Tanks:

Water is a scarce commodity in India, and storing them for future usage is inevitable and important.

Sintex is the leader in the plastic overhead tanks. The company started this operation in 1975 and at present has 1,200 agents, 650 dealers, 18 offices, 22 depots and close to 10,000 retailers. The wide distribution network is Sintex’s greatest strength as it is a deterrent to competition. Companies plastic division has been star performer over past 4-5 years. It holds over 60% of market share of water storage tank business in India.

Since this is a matured business, the growth rate for Sintex tank is low. The margins are also very low due to competition from a lot of unorganized players. However, this business allows Sintex to retain its distribution strength and the brand value through which it can push a lot of other plastic-related products.

Custom molding:

This is another fastest growing segment of Sintex. Custom moulded products are made from glass-fiber-reinforced polymers that yield characteristics such as higher strength, corrosion resistance and lower weight compared to conventional materials such as steel. Custom molding substitutes metal components used in auto, wind power, aerospace, defense etc.

The custom molding is likely to emerge as a stable and secure long term growth business for the company. It has made 5 acquisitions recent years to address diverse industries such as aerospace, wind power, aeronautics, defense etc. They manufacture the products for major clients like GE, Cummins, Coca Cola and Pepsi. Its key product in custom molding business includes electrical enclosures, meter boxes, auto components, FRP Tanks, etc.

Auto Accessories: Sintex acquired the auto accessories business of Bright Brothers in FY08. Bright Brothers specializes in injection moulded components, such as bumpers, cockpit system, door panels and radiator fans etc. Its client list includes Maruti, Tata Motors, M&M, Hyundai, Honda etc.

Prefabricated Structures:

Prefabricated structures are the building structure manufactured in the plant and assembled at site. The key facet of prefabs business are manufacturing, assembling and execution. Prefab is a very big business in Western countries, which represents 8-10% of total construction industry, but that is not the case in developing countries like ours, mainly due to lack of awareness. Prefabs are maintenance free, takes 60% less time, and upto 15% cheaper. Sintex is the largest player in the domestic prefabrication market.

Sintex prefabs, which are available in various types and designs, find diverse uses, ranging from temporary to permanent structures. They are ideal for erecting schools, kiosks, huts, tent substitutes, hospitals, police stations, offices, telephone exchanges, post offices and even community halls. Govt is planning for large number of schools, hospitals etc. The market potential is huge.

Concerns:

*Prefab structures, being a service intensive business, could face execution risks.

*Also, relationships with state/centre governments are crucial as these products are generally sold to them.

*Any government regulation curtailing the use of plastics could be detrimental for Sintex.

MONOLITHIC CONSTRUCTION

Monolithic construction involves creating a lightweight plastic-based formwork and then casting walls and slabs together by pouring fluid cement concrete into the formwork. It requires nominal quantity of metallic reinforcement bars that helps in significantly reducing construction costs and time and requires minimal maintenance. Monolithic is a substitute to conventional method of construction, promises immense growth potential to the company. It is cost effective and less time consuming. While prefabs are used to construct only single storey structures, monolithic construction can create structures up to five to six floors.

Low income housing present opportunity for monolithic construction to the tune of Rs. 4L Cr. Currently sintex is the only player in Indian market in this segment.

Sintex entered the monolithic business in the beginning of FY08 and was soon flooded with orders from various state government organizations.

Affordable and quality housing is a key challenge faced by the Indian government. With private builders concentrating on middle and high income groups, the lower income group and poor people are deprived of proper housing facilities. This offers a huge opportunity for Sintex, as its formwork system offers speedy construction of high quality houses at affordable prices. The company already constructed low cost houses for Ahmadabad Urban Development Authority, and they are negotiating with many north Indian cities for similar projects. The current order book for the monolithic construction stands at over Rs. 1800Cr., which is to be executed within 2 years time.

Concern: Since the clients are mainly Govenements (state/centre) delay in getting site clearance or clear title for the land could delay the sales cycle. This would also result in lower margin, as the company would keep on incurring labor cost.

OVERALL CONCERNS

*One of its recent acquisition, Geiger Technik, Sintex has paid around Euro 7 m for a 10% stake so far. Geiger has recently filed for bankruptcy Sintex likely to lose the entire amount that it has invested so far.

*Successful integration of overseas acquisitions and its ability to improve operational efficiency.

FINANCIALS

Sintex maintained a strong growth record over the past few years. It generated average revenues of around US$ 350m over the past three years. Topline and bottomline have grown at average annual rates of 54% and 52% respectively during the past 3 financial years. During the last financial year the sales almost reached at US$700.

Companies average operating margin over past 5 years is 17.5%

SHARE HOLDING PATTERN

Promoters – 30.15% (up from 30.06)

FIIs – 32.38% (down from 34.9%) *

Public – 7.84% (down 8.09)

Private Corporate Bodies - 10.73% (up from 7.82%)

Banks, Fin. Inst., Insurance – 0.08% (up from 0.01%)

*High FII holding is considered as negative after last crash, as FIIs were the main sellers due to global economic crisis. Their action is become unpredictable.

SHARE MOVEMENT

weeks high/low: 70.20/270.60

Average Volume: 2,80,000

HOW IS IT VALUED

Face Value: Rs. 2

Last Closing Price: 252.15

No. of Shares: 136.5m

EPS (FY09): 23.80

PE: 10.59

OPM: 20.15%

GPM: 20.43%

NPM: 13.48%

INTRINSIC VALUE

By evaluating the current business prospects of the company, many of them are at nascent stage in India, the company has potential to grow in big way. Sintex has the advantages of first entrants in many areas. Strong growth drivers are likely to ensure rapid revenue growth in coming years. However, there was dip in sales Q to Q basis in last quarters, mainly due to reduction in prices. We expect a net profit ~Rs.350Cr. (an EPS of ~Rs.25.5/share) for FY10, and the company has the value to pay at least 15 times of FY10 earning (current Sensex PE is 21).

In that perspective, we expect the price of the stock has the potential to reach to Rs. 380 in 1 year time, which is 50% more over current price.

In the meantime, you may watch the last quarter result, which is due to come tomorrow (Oct 12), to decide the entry price. They might subtract Euro 7m as against Geiger bankruptcy this quarter. Any dip in numbers can take the stock 10-15% down, which you may consider as an opportunity to enter.

One may buy the stock with 12 – 18 month perspective. A position even beyond FY12 is advisable for further gains.

We welcome your opinion too, do write us…….

Note:  Sintex Ind's Q2 result is out. Net Profit is down to 46.9Cr. as against 68.24 YoY. Click here to read the management clarificaiton

Lakshmi Energy & Foods

Rice is an important food for the population across the glob. The demand growth is outpaced supply growth on account of changing income & consumption growth. Asian countries account 92% of world’s total rice production. Unusual variations in climate have badly affected corps in many producing countries.

Look at India. It was drought that affected the agri pdoduction a couple of months ago, now it is flash flood. Rice production in Andhra Pradesh, one of the main rice producing state, will also hit badly by the unexpected flood. India is the second largest producer of rice, accounts 1/4th of global output.

Lakshmi Energy & Foods, a Punjab based company, is one of the largest non-basmati rice producer in India, may benefit from the current situation. It is uniquely positioned in two of the fastest growing sectors: Food and Power. It was bumper paddy production in Punjab last year, and there was situation of storage problem in godowns. Deferred offtake had a hit on Lakshmi Energy’s revenue during last FY. At the current situation, the piled up stocks will likely get a better realization for the producers like Lakshmi (remember govt. already increased the minimum support price). The non-basmati rice segment is relatively a much more stable business as the rice is sold to the government at a fixed price minimum support price.
They produce another scarce item in India – electricity- out from husks. Current capcity is 30MW, however the company has plan to increase the same to 105MW in next couple of years time.

Some other valued added products are:
Refined oil
Cattle feeds
Chakki atta

Risks
There are delays in setting up new padding processing capacities
Adverse weather conditions, such as drought or flood
Any change in govt. policy, as the price is constituted based on MSPs fixed by the govt.

Company
Largest producer of non-basmati rice
One of largest food grain processing company in the world
Better utilization of by-products, thereby by adding better realization

Shareholding pattern
Promoters: 45%
FII: 25% (down from 37)
Public holding 11.50% (up from 6%)

Overview
52weeks high-low: 283-63
Book Value: 74.33
Face Value: 2
EPS (TTM): 21.6
PE (Price at 130): 6.01



Conclusion:
At current price this stock looks cheap. Going forward, with their planned expansion, especially power capacity additions, the stock has potential to double in a one year period. Recommended to accumulate 120-110 range.