Stock Idea: Balmer Lawrie

Balmer Lawrie is a Government of India undertaking. This is a diversified company which is into various businesses like logistics, tea, industrial packaging, grease and lubricants and travel services. Logistics is a business which accounts for about 25% of their revenues and provides the highest profit margin to them. They have got container freight stations at Mumbai, Kolkata and Chennai.

They have 20 acres of warehousing space in Navi Mumbai, 10 acres in Kolkata and six acres in Chennai and are expanding the space in all the three locations. This company is largest manufacturer of mild steel drums in the country and is also into grease and lubricants business with manufacturing facilities located in Bombay and Kolkata.

If one looks at their financials, FY10 sales were about Rs 200 crore, PAT was about Rs 120 crore which means an EPS of Rs 75 on equity of Rs 16 crore. For the first nine months of the current financial year sales are up by about 25% to about Rs 1,500 crore while PAT is marginally up by 5% to about Rs 87 crore.

They paid a tax of Rs 42 crore for the first nine months. The company has been a regular dividend payer and they paid a dividend of 230% which is Rs 23 in FY10 which means a dividend yield of 4 % of the current market price. If we take a look at their balance sheet, the market cap at the current price is about Rs 950 crore. They have a small equity of about Rs 16 crore and long-term debt of about Rs 100 crore with another Rs 100 crore as working capital loans.

They hold cash and cash balance of roughly Rs 300 crore of the balance sheet and they have also given loans and advances of about Rs 100 crore. So their enterprise value is close to Rs 650-700 crore. Gross block of the company is also Rs 700 crore. This is an 80 year old company sitting on assets most of which are valued at historical costs. So Rs 700 crore on historical costs would be quite a big sum at the current market price.

I believe they are highly undervalued; this has been a consistent dividend payer. If nothing else, they are capable of giving a dividend yield of about 4-5% on an annualized basis. Logistics is a business which has tremendous potential for growth and the stock offers potential appreciation from the current market price.

Source: Internet (moneycontrol.com by Ashish Chug)

Stock Idea: Jayant Agro

Jayant Agro is a Gujarat based company which is into the manufacturing of castor oil and castor oil derivatives. India is the largest producer of castor seeds in the world and accounts for roughly 60% of the world’s production of castor seeds. Gujarat accounts for roughly 70% of India’s production of castor seeds.

This means that Gujarat accounts for roughly 40% of the world’s castor seed production. So companies involved in the castor business based out of Gujarat or having their manufacturing plants located in Gujarat are sitting on a huge competitive advantage.

Jayant Agro is the largest listed company in the castor oil space and probably the second largest castor company in the country. If we look at their financials, for FY10, sales were close to Rs 900 crore with a profit after tax (PAT) of about Rs 12.5 crore. For the first nine months of the current financial year, sales have grown by roughly 30% to about Rs 840 crore. PAT has increased by 70% to about Rs 20 crore. It has almost less than doubled over the same period last year.

So EPS on an annualized basis comes to about Rs 17-18. The current price of less than Rs 100, the stock trades at a P/E multiple of about 5.5. But the problem with Jayant Agro is that this company is a low margin business. They crush castor seeds, convert it into castor oil and export most of the castor oil. The value addition happens elsewhere in countries like China, Japan, US and Europe.

What the company has realized over the last few years is that value addition is the way to go forward. They are putting up a new plant for value added derivatives of castor oil in collaboration with Mitsui Corporation of Japan where Jayant Agro holds about 76% stake and Mitsui holds 24% stake. This plant has recently gone into operations and hopefully should contribute significant revenues and profits in FY12.

Going forward, we can see the average margin of the company which is currently at about 4% improving too much higher levels because the margins in the new business are expected to be quite good. If we look at a similar deal which happened in the castor oil business two-three years back, I would like to admit that I don’t have the exact contours of the deal but whatever I could get from publically available sources, Morgan Stanley Private Equity had taken a 25-30% stake in a company called Biotor Industries which is the largest company in this business for about Rs 182 crore.

This values Biotor at close to Rs 800 crore. Biotor at the time of the deal had revenues of close to Rs 1,000 crore. I don’t have the profitability figure for Biotor but it was valued at roughly 80% of the sales. Here even if we assume that the sales of the company for Jayant Agro are going to be about Rs 1,100-1,200 crore this year, the marketcap is just about Rs 140 crore at the current market price.

Even if the profits are much lower compared to Biotor, the valuations are much lower when you compare it with the Biotor. In Jayant Agro, we are currently sitting on a base case scenario; turnover for FY11 is going to be about Rs 1,100-1,200 crore with a PAT of about Rs 26-27 crore and EPS of about Rs 17-18.

You have a company which is sitting on a huge competitive advantage available at a P/E multiple of just about 5.5. The profits and the profit margins for the future, we believe, will be much more than what they had been doing for the past few years. They can surprise on the upside if held for a couple of years. I would say this is a stock to just buy and keep for a few years.

Source: Internet (moneycontrol.com by Ashish Chug)

Intraday Trading Calls for 29th April

Indian Stock Market may open flat to Positive and positive trading with very high volatility.

Today's Intraday Stock Tips / Trading Calls (Keep strict Stop Loss for Each Trade):

SCRIP NAME	TRIGGER	PRICE	TARGET 1	TARGET 2
PATEL AIRTEMP	Buy Above	94.50	100.20	105.00
	Sell Below	92.05	88.45	85.00
IDFC	Buy Above	150.00	154.25	158.00
	Sell Below	148.45	145.25	142.00
UFLEX	Buy Above	220.00	226.75	234.00
	Sell Below	215.45	209.55	203.00
LIC HOUSING FINANCE	Buy Above	226.75	232.45	238.00
	Sell Below	223.40	218.55	212.00
HCL INFO	Buy Above	112.20	116.55	121.00
	Sell Below	109.25	105.05	102.00
INDIABULLS FINANCE	Buy Above	176.65	181.25.	185.00
	Sell Below	173.75	170.05	167.00
MANAPPURAM FINANCE	Buy Above	133.60	138.65	144.00
	Sell Below	131.05	127.15	122.00

GOOD LUCK