TRADING CALL 21ST AUGUST 2015

AUGUST EXPIRY SPECIAL CALLS

BUY ITC 340 AUG CALL @ 0.9 TARGET 2.5-4 STOPLOSS 0

BUY FEDERAL BANK 70 AUG CALL @ 0.4 TARGET 2-3 STOPLOSS 0

GOOD LUCK

Result Update: Power Grid Corporation

Result Updates

Buy

CMP  143   Target Price   170

Revenue and earnings growth in-line with estimate Power Grid Corporation of India (PGCIL) reported a healthy 19.6% yoy increase in transmission revenues at Rs4,426cr, marginally below our estimate of Rs4,487cr. Consultancy revenues from services increased 6% yoy to Rs157cr, well ahead of our estimate of Rs133cr. Telecom revenues too were ~15% ahead of our estimate at Rs79cr. The increase in consultancy and telecom income more than offset the lower than expected transmission revenues, resulting in total operating income of Rs4,703cr, 0.3% higher than our estimate of Rs4,689cr. EBITDA margin increased 140bp yoy to 86.3% led by higher income from consultancy and telecom. Net profit increased ~20% yoy to Rs1,412cr vs our estimate of Rs1,378cr. Capitalisation below expectations, capex guidance maintained 4QFY2015 capitalisation came in lower than expected at Rs4,986cr, vs our estimate of Rs6,383cr. This was largely on account of delay in the commissioning of certain projects, which would be capitalized in 1QFY2016. PGCIL incurred a capex of ~Rs22,456cr in FY2015 in line with its target of Rs22,500cr. 

The company has guided for ~Rs45,000cr capex (Rs22,500cr in FY2016 and Rs22,550cr in FY2017) over the next two years. The current capital work in progress (CWIP) stands at ~Rs56,576cr. With total outlay upwards of Rs1,00,000cr, capitalisation is expected to remain healthy, providing strong earnings visibility. Outlook and valuation Led by strong capex plans and a healthy capitalisation rate, we expect PGCIL to report a revenue and EBITDA CAGR of ~15%. At the current market price of Rs143, the stock trades at a P/B of 1.8x and 1.6x its FY2016E and FY2017E BV of Rs81.5 and Rs91.2, respectively. We remain positive on the stock with a target price of `170, based on ~1.85x FY2017E book value, implying an 18% upside from the current levels. Maintain Buy.

Source: Angelbroking 

POSITIONAL TRADING CALLS FOR 22ND JANUARY 2014

BUY RELIANCE CAPITAL @ 348/- FOR TARGET 358-365-375/- STOP LOSS 344/-

BUY TITAN COMPANY @ 218/- FOR TARGET 226-232-235/- STOP LOSS 215/-

BUY KTK BANK @ 104/- FOR TARGET 109-115-122/- STOP LOSS 101.5/-

GOOD LUCK

Tech Mahindra/Mahindra Satyam: Buy, add on dips

Tech Mahindra/Mahindra Satyam

Background
Started as Mahindra British Telecom (MBT) in 1986 as a 60-40 Joint Venture (JV) between Mahindra and Mahindra (M&M) and British Telecom (BT), Tech Mahindra focused exclusively on the telecom vertical with BT initially contributing 100% of its revenues. This revenue contribution from BT reduced to 72% at the time of IPO in July 2006. In April 2009, Tech Mahindra acquired 42.7% stake in the then troubled Satyam Computer Services for Rs 3,000 crore by purchasing 502 million equity shares at Rs 58 per share. Tech Mahindra has brought stability into Satyam’s business and since then Satyam has not seen any major client attrition.

Triggers
- Integrating Satyam will enable Tech Mahindra to participate in large deals, offer a strong expertise spread over different verticals and service lines and cross sell its service offerings to a much wider client base and eventually reduce dependence on British Telecom and AT&T.

- Over the last few years, the company has been successful in scaling up its  Non-BT revenues. This has not only helped it offset the decline in BT revenues but also post an overall growth for the company.

- Recent acquisition of 100% stake in Hutchison Global services (sales of USD 170 million expected per year for the next five years) and 51% stake in Comviva (sales of USD 70 million in FY11) by Tech Mahindra would further improve growth and enhance service offerings.

- Acquisition of 51% stake in Complex IT by Mahindra Satyam in Feb 2013 for $23 mm to strengthen Enterprise offerings and expand presence in Brazil.

Concerns
- Legal cases pending against Mahindra Satyam would remain an overhang in the short term.

- Any aggressive ramp down by top client BT would drag down revenue growth.

Valuation & Recommendation
Based on post merger creation of fifth largest entity, sound balance sheet, good execution track record and steady improvement in the operational performance with strong growth & margin expansion, HDFC Securities assigns 11.5xFY14E EPS, which gives them a price target of Rs 1258.9. They feel investors could buy this scrip at current levels and add it on dips in the price band of Rs 986 - 1029 (9-9.4xFY14E EPS) for their price target over the next one to two quarters. Investors who purchase Mahindra Satyam can do so as its share price will move in tandem with that of Tech Mahindra until the final swap (ratio proposed 2:17) takes place. The merger is expected to complete by end of Q4FY13 or early Q1FY14.
Source: valuenotes.com

HDFC Sec Scrip ID	Industry	CMP	Recommended Action	Target	Time Horizon
TECMAHEQNR	IT	Rs 1104.9	Buy at CMP and add on dips to Rs 986 to Rs 1029 band	Rs 1258.9	1-2 quarters
HDFC Sec Scrip ID	Industry	CMP	Recommended Action	Target	Time Horizon
SATCOMEQNR	IT	Rs 129.1	Buy at CMP and add on dips to Rs 114 to Rs 119 band	Rs 148.1	1-2 quarters

Intraday Trading Calls for 06th August

BUY TATA STEEL @ 397/- TARGET RS. 412-418/- STOP LOSS RS. 394/-

BUY TATA STEEL AUG 420 CALL @ RS. 7/- TARGET RS. 25/- STOP LOSS RS. 4/-

BUY TITAN IND @ RS. 228/- TARGET RS. 236-240/- STOP LOSS RS. 225/-

BUY ABAN OFF @ RS. 390/- TARGET RS. 405-412/- STOP LOSS R.S 388/-

GOOD LUCK

Stock Idea: Patni Computer

The company had a dismal Q2, where its operations were affected largely by the change in the management and ownership. And looking at the Q3CY11 performance, it seems most of the integration pain has been absorbed. The results were better than expected with the company posting a net profit of Rs.90 crore v/s a net loss of Rs.51 crore in current Q2. Total income grew by just 2% . To a large extent, net profit was helped due to 16% decline in personnel costs at Rs.519 crore. The company laid off a few employees post its iGate acquisition; with the total employee strength now at 17,853, which is 519 employees lesser than Q2. Forex gain of Rs.36.39 crore also helped. Revenue realization in Q2 was at Rs.44.72/us$ and in Q3 it was at Rs.49.50/us$ which in itself was a huge advantage.

 

Looking ahead, the company will end 2011 with all the integration pain behind it and though YoY performance at the end of the year might seem under pressure, it is good to know that it is entering 2012 with a clean slate, a new management, fully integrated. iGate Corporation acquired a 82.4 per cent stake in Patni Computers in May 2011. During the quarter, the company generated cash flow of Rs.11.64 crorefrom operating activities and net cash flow was placed at Rs.213.26 crore. Q4 could be better and in 2012, the new management is sure to infuse more vigour into the company. The real spike up in the stock will come once the company announces delisitng, which seems like a certainty. This could happen over the next 6 to 12 months and those with the holding capacity can buy into the stock on not just delisitng expectations but also on strong earning outlook.

Source: Internet (By S P Tulsian)

Stock Idea: Dish TV

As expected,the company has come with a reduced net loss in Q1FY12. Loss was down at Rs.18.32 crore compared to Rs.37 croreloss in Q4FY11 and net loss of Rs.63 crore in Q1FY11. The company has done well on the topline front too. Net sales rose 6% on a sequential basis and 51% on a YoY at Rs.460 crore. OPM has been at its best at 27.33% v/s 25% in Q4FY11 and 13% in Q1FY11.

Margins have improved on the back of improved ARPUs and tight costs control. In current Q1, total operating expenses were at 76% of the topline, which is down from 89% in Q1FY11 and from 79% in Q4FY11. What has also helped is the increased price for set top boxes, improved pack mix, higher contribution from HD which earns a substantial premium over regular subscription packs. These improvements seem sustainable in the current fiscal and before the end of FY12, the company is sure to turnaround. The stock price dropped after results due to profit taking due over the long run, the stock holds promise.

Source: Internet (S P Tulsian)

Stock Idea: Crompton Greaves

For Q1FY12, despite a 6% YoY rise in net sales at Rs.2438 crore, the company reported a 58% fall in net profit at Rs.79 crore. Cost of raw material rose 35%. Contribution from power sector remained poor in the single digit but more sharp was the fall in the consumer sector, which fell from 35% to 2%. The company has blamed it all on the delays in new orders in the domestic market due to a slowdown in project finalisation by customers.International business activity in Middle East was affected by around 5-10%.

More than the poor performance, the market has probably taken other factors  - former CEO SM Trehan selling his entire holding of 1.8 lakh shares during Jun 29-July 1 at an average price of Rs.260/share. And secondly, investors continue to remain miffed with its buy of an aircraft for Rs.270 crore, which is being viewed as an extravagance. The stock has been witnessing a major sell off and for the discerning long term investor, this may be a good level to accumulate. The first half of FY12 could remain tough but second half could start seeing improvement.

Source: Internet (by S P Tulsian)

Stock Idea: Navin Flourine

This Arvind Mafatlal operates the largest integrated fluorochemicals complex in India and it also generates a good source of income from sale of Carbon Credits. Its performance for FY11 was subdued but it has begun current fiscal with a big bang. The company posted an unbelievable four-fold jump in net profit at Rs.60.22 crore v/s Rs.15.23 crore on Q1FY11. This is almost close to its entire FY11 net profit of Rs.72 crore. Net sales doubled up to Rs.195 crore. This performance was mainly on the back of robust sales and higher realisations from its refrigerant gas business. Sale of CERs (Certified Emission Reductions or carbon credits) continued in Q1FY12, earning it Rs.64 crore. If one may recollect, the company did not sell any CERs in Q1FY11 no CERs were sold in Q1FY11 due to a suspension of issuance by the UNFCCC. EBIDTA margin stood at a whopping 46% and PAT margin at 31%.

The company recently completed buying back equity shares at a price of Rs.400/share, which is why the equity capital today stands reduced from Rs.10.09 crore to Rs.9.76 crore. It is in the process of restructuring its Organic Chemicals activities including dismantling and redeploying some of the assets of its Dewas unit in other projects currently under implementation at Surat. The Rewas site is now being utilized to set up another state-of-the-art contract manufacturing facility. EPS for Q1FY12 stands at Rs.62, which discounts the current price by around 6 times. For entire FY11, its EPS was at Rs.71. Clearly a fantastic beginning!

Source: Internet (by SP Tulsian)

Stock Idea: ITC

Just when the Street had got disenchanted with the numbers of HUL, the performance of ITC came in and it spread a lot of cheer. On a 20% rise in net sales at Rs.5768 crore, the company for Q1FY12, on a YoY showed a 24.51% rise in net profit at Rs.1333 crore. Raw material cost was up 26%. The company has other income component of Rs.144 crore v/s Rs.98 crore in Q1FY11. Even if we remove this component, the rise in net profit is over 22%. Clearly, the bottomline has essentially been driven by the topline.

Cigarettes remained its main bread earner. It showed a 16% rise in revenue and 21% rise in EBIT. FMCG products showed a 20% rise in revenue and loss of Rs.76.28 crore, which is 14% lower than the loss of Q1FY11. Hotels revenue registered a 9% rise, 33% rise in EBIT. Agri revenue rose 26% with a 21% rise in EBIT while paper showed a 21% rise in revenue as well as EBIT. Overall, all segments have shown an improvement. The company had declared a 1:1 bonus and equity capital has thus shot up from Rs.381.82 crore to Rs.773.81 crore. And even post the bonus, the company is sitting on a jaw dropping reserve of Rs.15126.12 crore. Another positive point in favour the company is that its interest outgo for Q1FY12 at Rs.16.45 crore was just 0.28% of the net sales of the quarter. Surely a stock to own for long term.

Source: Internet (by S P Tulsian)

Stock Idea: Narmada Gelatin

Accumulate Narmada Gelatin below Rs 100, says Ashish Chugh, Investment Analyst.

Chugh told CNBC-TV18, "We like the stock of Narmada Gelatin for two reasons. First is this is a debt free co which is available at very attractive business valuation and also provides margin of safety. The second reason is the possibility of the company getting sold in the future and this event as and when it happens may lead to a huge value unlocking for the company in the future.”

He further added, “This is belonging to the Shaw Wallace Group and manufactures gelatin and this is a 50 years company. The user industries for the company’s products are primarily pharma and food industry.”

“If you look at the financials of the company for FY11, this company has achieved sales of about Rs 91 crore, which was up by about 10% in the same period last year. Profit after tax was up by about 15% to about Rs 9.5 crore. This company has got a small equity of about 4 crore. So EPS for FY11 was about Rs 23.50. At the current price of Rs 95 this stock is traded at a PE multiple of just about 4-4.5.”

“The reason I am saying that - the business is available at attractive valuations because if you look at the balance sheet of the company - now this is a totally debt free company. The net current asset in the balance sheet is close to Rs 26 crore - I am talking about FY10 balance sheet. The company has got investment in mutual fund of about Rs 5.5 crore. If you add the profit for FY11 into this - you get total current assets and cash of about Rs 41 crore. As against current assets of about Rs 41 crore the market cap of this debt free company is less than Rs 40 crore, which means that the biz of a company which is 50 years old is available virtually free of cost.”

“The promoter holding is about 75%. The company recently announced a dividend of 40% which at the current price of Rs 95 would result in a dividend yield of more than 4% for the investor. This company caters to a sector which is more steady compared to many other sectors. Pharma and FMCG is a sector, which is not really getting affected by the slowdown. The stock is available at a discount to book value. This is a 50 year old company having gross block of about Rs 50 crore. I think the current valuation will be substantially higher.”

“If you see the Shaw Wallace Group - they have been slowly selling most of their companies. Their flagship company - Shaw Wallace and Company, the other companies like Hindustan Dorr-Oliver, Mather & Platt Pumps, Falcon Tyres, Gordon Woodroffe - I think all these companies have got sold in the last few years. Narmada Gelatin is probably lying unsold mainly because of the fact that management may not have got an attractive valuation. So this is a business which is giving you a dividend yield of 4%.”

“It is steady stock, steady growth in the financials of the company. Whether and when this company gets sold is anybody’s guess. But I think in spite of that, given its steady performance over so many years and the attractive valuation - stock has got the potential to get re-rated. So I think any price below Rs 100 maybe a good opportunity to accumulate the stock."

Source: Internet (moneycontrol.com by Ashish Chug)

Intraday Trading Calls for 20th June

Intraday Trading Ideas:

Buy GODREJ IND. Above Rs. 204/- Target Rs. 209-212/- Stop Loss Rs. 201/-
Buy LIC HOUSING Above Rs. 230/-Target Rs. 235-240/- Stock Loss Rs. 228/-
Buy KARNAKAK BANK at Above Rs. 126/- Target Rs. 129-132/- SL Rs. 125/-
Buy PFC Around Rs. 180/- Target Rs. 185-189/- Stop Loss Rs. 178/-

For Short Term Trading Buy IFCI Above Rs. 48/- Target Rs. 50-52/- Stop Loss Rs. 47/-

GOOD LUCK

Stock Idea: Garden Silk

This is a value play in the textile segment. This is a company which has got good strong brand Garden Vareli. This is a 30 year old company and the brand is well recognised and has got good brand recall. Company’s manufacturing facilities are located in Vareli and Jolwa in Surat district.

The company has extensive distribution network comprising of about 65 dealers and about more than 300 outlets in about 60-65 cities. The company has been reporting good performance quarter on quarter and also year on year.

For FY11, the company achieved sales of about Rs 3,400 crore, which is up by about 35% over the same period last year. EBITDA is about Rs 290 crore which is up by about 21%.

The company has made profit after tax of about Rs 84 crore which is up by about 33 to 34% compared to FY10. EPS for the full year is about Rs 22 so at about Rs 100 the stock trades a PE multiple of about less than 4.5.

Important thing to be noted is that this company provided about Rs 70 crore towards depreciation which means the cash profit of the company is about Rs 155 crore.

The cash EPS comes close to Rs 40 which means at Rs 100 the business is available at 2.5 years of its cash flow which I believe is small given the fact that this is not a commodity company but this is a company which has got a brand and a good distribution network.

So from the current levels, that downside looks restricted. At the same time I would like to say that this is a stock which may not move up sharply. This is one of those hedges which may not go down too much in case of market fall but it may give you steady returns over the long-term

Source: Internet (Moneycontrol.com by Ashish Chug)

Stock Idea: Spice Jet

I believe that times when the industry is not doing well can be seen as opportunities to buy the stock because you get the stock cheap. This is a company which has; the stock has dropped by 50% over the last seven- eight months. It is consolidating in the range of about Rs 38-45 for the past three-four months.

If you see the Q4 performance of SpiceJet this company has reported a loss of about Rs 60 crore. In spite of the loss of Rs 60 crore in Q4 the company has ended the full year with a profit after tax of about Rs 100 crore. The loss in the last quarter is primarily on account of higher ATF prices.

Looking at the business model of SpiceJet vis-à-vis the other listed aviation stocks, this is a company which follows asset like model, which means that it doesn’t own aircrafts but leases them. This essentially means that the capital which the company requires for business is less which is evident from the debt in the balance sheet.

Companies like Jet Airways and Kingfisher Airlines debt to the tune of about Rs 8,000 crore to Rs 14,000 crore. In comparison to that SpiceJet has debt of just about Rs 400 crore, which is negligible when compared with other aviation stocks.

If you see the full year performance of other airlines stocks Jet recorded a profit after tax of about Rs 10 crore, Kingfisher posted a loss of about Rs 1,000 crore for FY11 whereas Spicejet made a profit after tax of about Rs 100 crore. So, the financial position of SpiceJet vis-à-vis the other listed airline stocks is substantially better.

The company has been on growth path, it has aggressive plans to expand aggressively into tier two and tier three cities where it sees good growth potential. It has plans to increase the number of aircrafts from 30 to about 70 in the next three years.

Most airline companies have been increasing their fares slightly to offset the cost of higher ATF prices but given the trade-off between higher fares and the load factors, the entire cost has not been passed on to the customer but the volume growth has been good.

As the ATF prices and the oil prices stabilise these companies will benefit. But, bad times can be seen as opportunities to buy these stock and SpiceJet looks to be the best out of the lot of aviation stocks to outperform in a good environment.

Source: Internet (Moneycontrol.com by Ashish Chug)

Stock Idea: Mahindra Satyam

The market was grossly disappointed with the numbers of Mahindra Satyam for Q4FY11. It posted a consolidated net loss of Rs.327 crore despite a 7.5% rise in revenue. But this loss was mainly on account of the one time exceptional expenditure spent on lawsuit settlement. Exceptional items was to the tune of Rs.571.5 crore in Q4FY11 related to restructuring, forensic investigation and litigation support, class action settlement consideration and provisioning for impairment losses in subsidiaries. And for FY11, exceptional expenditure was placed at Rs.641 crore. So till date the company has paid off US$ 125 million on class action cost, $10 million as US Securities and Exchange Commission (SEC) cost and $70 million for Upaid lawsuits.

The good part is that the company has completed cleaned up its books after the scam. It will now begin FY12 truly on a clean slate. Volumes have started picking up which rose 3.5% in FY11, mainly on the back of business from America and Asia-Pacific. And indicating the turnaround is the fact that it plans to hire around 17,000 people in current fiscal. Its current headcount is at 30,000. Its merger with parent company, Tech Mahindra is still quite far away as it is looking at a horizon somewhere by mid next fiscal. Baring this exceptional expenditure, overall, the company had done well and current fiscal could be its true turnaround year.

Source: Internet (Premiuminvestments.in)

Stock Idea: Arvind Ltd.

As expected, the company ended FY11 on a high note. Despite a 33% rise in raw material costs and 16% rise in interest outgo, the company, on a 25% rise in consolidated net sales, posted a whopping 211% rise in net profit. Call it is the base effect or better realisations, the company has done well. Even sequentially, for Q4FY11, though the growth is not as trailblazing as on the annual basis, topline grew 19% and bottomline by 31%. Interestingly, raw material cost for the quarter was down 7%. This shows that cotton prices are on the decline.

Arvind holds 54% stake in another listed group company, Arvind Products and this company is now to be merged with Arvind. The merger ratio is 1 share of Arvind for every 11 shares of Arvind Products. The company is banking big on its realty business in current fiscal. It has already formed a JV for a large township project with Tatas for its 134 acres into a SPV. 50% of the value of land, Rs.125 crore is expected to accrue to the company in current fiscal. For FY12, the company hopes to notch up a turnover of around Rs.4800 crore and if it is able to maintain the same margins, then a net profit of around Rs.195 crore. On an equity of Rs.257.81 crore (includes Rs.3.41 crore from merger with Arvind Products) the FY12 EPS of Rs.7.55 discounts the current price by around 10 times. A good bargain for the largest denim making company in the world.

Source: Internet (Premiuminvestments.in)

Stock Idea: Lakshmi Vilas Bank

Lakshmi Vilas Bank can move to Rs 145 in the next four-six months time, says SP Tulsian of sptulsian.com.

Tulsian told CNBC-TV18, "Lakshmi Vilas Bank has shown a very good performance for Q4. If you take their overall FY11 performance, the bank had posted an EPS in double digits that is Rs 10 plus and their fall in the NPA was at 4% plus as of March 31, 2010 and has fallen to less than 1% to be precise at 0.91%. They have a total 273 branches with presence in 16 states. If you take the marketcap of the bank which is at Rs 440 crore that means each branch is valued at a valuation of Rs 1.5 crore."

He further added, "If you see the financials or the provisioning coverage ratio which is at 77% against the stipulation of 70% and apart from improvement in working in Q4, the bank will be aggressive in opening more branches going forward. The same kind of profitability is likely to continue and I won’t be surprised if I see an EPS of over Rs 12 plus for the bank in FY12. The stock looks quite good at Rs 112. I am expecting that probably it can move to about Rs 145 in the next four-six months time."

Stock Idea: Mayur Uniquoters

Mayur Uniquoters can test Rs 400 in the next six-eight months time, says SP Tulsian of sptulsian.com.

Tulsian told CNBC-TV18, "Mayur Uniquoters is a very established company which makes synthetic leather. If you see their financials, the company has posted an EPS of close to Rs 45 for FY11 with PAT margin of close to about 10%. Presently, the company is operating with a plant capacity of 1.4 running million meters per month. Now they are raising their production capacity from 1.4 million per month to 1.9 million per month with the increased capacity operational from July."

He further added, "Their topline has seen a growth of 50% in FY11. Their total income was about Rs 250 crore while the bottomline grew by about 56-57%. The best part is that they are debt free and have a cash balance of about Rs 24 crore in the books. The expansion will get implemented in this cash balance and since their EPS for FY11 is Rs 44-47, I am expecting the expansion to happen by July. That will also contribute for about eight-nine months working in FY12. One can safely assume that they should be able to post an EPS of at least Rs 60."

"The product has very good demand and is supplied largely to auto seats and in furnishing. Their customers are Maruti, Honda, Hero Honda which they supply synthetic leather too. The share is viable at a PE multiple on historic earning at about 5 PE multiple. If I take the forward earnings it is ruling at 3.5-4 PE multiple and debt free status with promoter stake of 75%, this is quite a safe and good growth oriented stock. I expect a price of Rs 400 in the next six-eight months time."

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)