Stock Ideas

Rohit Ferro Tech Ltd. (Code: 532731) (Rs.65) is a leading producer of high carbon ferro chrome apart from manufacturing ferro manganese and silico manganese through submerged arc furnace route. It has set up a greenfield plant in Jajpur-Orissa thereby taking its total capacity to 1,65,000 MTA from 55,000 MTA earlier. Further, it has set up a fifth furnace with 15000 MTA capacity in Bishnupur, which is expected to go operational soon. To become an integrated player, the company has applied for a mining lease to the Government of Orissa for chrome ore as well as manganese ore. Presently, it is sourcing manganese ore from Australia besides local sourcing. On the other hand, due to higher production, better margins and better availability of raw-materials, the company is stressing more on production of ferro manganese in place of high Carbon Ferro Chrome. For future it has chalked out a plan to setup a 110 MW captive power plant to bring down its power cost. In order to fund this, it recently made a preferential allotment of 80 lakh convertible warrants at Rs.43 per share to promoters as well as strategic investors like Kampani Finance, Foster Capital etc. On the back of stunning Q3 results, it may end FY08 with sales of more than Rs.500 cr. with PAT of Rs.50 cr. i.e. an EPS of Rs.14 on its current equity of Rs.34.50 cr. The company has the potential to post an EPS of Rs.20 on its fully diluted equity of Rs.42.50 cr. for FY09. Keep accumulating at declines.

A few days back, GM Breweries Ltd. (Code: 507488) (Rs.79) came out with disappointing results for the March 2008 quarter. Sales improved marginally to Rs.49 cr. but net profit declined by 25% to Rs.2.65 cr. due to lower operating margin. Accordingly, the company declared 25% dividend (including 5% special dividend being the Silver Jubilee year), which gives a yield of nearly 3% at CMP. Although the March 2008 quarter results were below expectation, the entire FY08 figures are pretty decent as sales grew by 10% to Rs.186 cr. and PAT increased by 25% to Rs.14.70 cr. thereby registering a healthy EPS of Rs.16 on its equity of Rs.9.40 cr. At the current market cap of Rs.80 cr., the scrip is trading at a low P/E multiple of 5. With a whopping gross block of Rs.68 cr., low debt : equity ratio, strong cash flows, decent margins etc., the company deserves much better discounting. With 68% holding, the promoters are investor friendly and have an uninterrupted record of dividend payment from the day of listing. At a modest discounting by 12 times, the scrip has the potential to cross Rs.200 mark in the medium-to-long-term.

Source: Internet (money times)

Inflation Impact

Friday, the last day of the week, though the first of the new fiscal FY09 may not end on a very positive note. Inflation, which has remained a major concern for the past few days, has now raised up its ugly head. Inflation is at a 3 year high. Wholesale prices rose 7.0 percent in the week ended March 22 from a year earlier, faster than the previous week's 6.68 percent. Vegetable prices are up 4.9%. The current hike in inflation is being caused primarily by higher global commodity prices in agriculture, fuel and metals feeding to domestic inflation. It is not just an Indian situation; currently the whole world is facing the same problem of soaring prices.

The markets had expected the inflation rate to be around 6.52% and when the figure touched on the psychological 7% mark, all hell broke loose on Dalal Street. The markets immediately tanked by a whopping 300 points the moment the news was announced.

It was generally expected that if the inflation had not breached or touched the mark of 7%, the markets would have improved but now that reality has hit, the markets have not taken to this news too well.

There is no doubt now that the UPA Govt, which has been announcing a slew of measures over the past week, will have to take a more aggressive stand to get down the inflation figure. Inflation will be the biggest agenda for the Govt and this could not have been more ill-timed, what with the general elections scheduled for 2009.

There is also no doubt now that the Govt will have to put concerns over the slowing economic growth rate in the back burner and concentrate only on getting the prices down. A hike in the interest rates to curb inflation rate and a rise in the CRR are the most predicable and currently the only, immediate practical solution which the Govt will have to adopt to put a lid on this growing crisis. Rising interest rates would surely mean that slower economic growth but right now, there seems to be just no other alternative. The interest rates are currently at 7.75%, which was not tampered with when the Credit Policy was announced last on 29th January 2008. The next is scheduled for 29th April where a rate hike is a certainty.

Last week, the Govt suspended export subsidy under the duty entitlement pass book scheme (DEPB) on some steel products temporarily to control inflation and boost domestic supplies. The Govt has also withdrawn DEPB on cement, manganese, chrome and ferrous metals. It has also completely withdrawn the benefits on overseas sales of non-basmati rice. Govt raised the minimum price for non-basmati rice exports to $1,000 per tonne from $650 per tonne free-on-board, in a move to slow down overseas sales. Though the cement manufacturers have raised their prices, steel manufacturers have assured that they will not resort to a price hike right now and will keep the prices stable.

All these measures will start showing their effect from the next two weeks. The inflation figure of 7% which is yet to factor in the effects of these and hence it would be too premature at this stage to say that the inflation will now continue to soar even more high.

The pain in the market is expected to remain for a week or two more. By the time, the 18th April inflation rates are announced, the rates would surely have come down, in tandem with the measures taken. Till then, the markets would have discounted the inflation and once figures come in of even a slight drop from the 7% mark, the markets will rise.

For now, there is no alternative but to chin up and bear. Rising costs and falling markets are not exactly the most conducive atmosphere to live in but then, is there any other alternative?

Source: sptulsian.com