Weekly Report - May 9 2008
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Saturday, May 10, 2008
Company Background - Larsen and Tourbo
The birth of Larsen & Toubro was happened in the year of 1946 as a private ltd company. Earlier it was a partnership firm founded by Mr. Henning Holk Larsen with Mr. Soren Kristian Toubro. L & T turned on to a public limited company in the year of 1950. Company focused in the areas of Engineering & Construction, Electrical & Electronics, Machinery & Industrial Products and in IT & Technological Services.
L & T came across in Shipping and Cement industry also. During the year 1981-82 company acquired 2 bulk shipping carriers from Japan and in the year 1983-84 started one cement plant with capacity of 1 MTPA at Maharashtra. In the year 1997 a joint venture company was formed with Deere Pvt Ltd to manufacture agricultural tractors namely L&T-John Deere Pvt Ltd. In April 1st 2003 company transferred its Cement business to Ultra Tech Cement company. L & T received a host of awards, medals and trophies for its continuous efforts. Environmental Excellence Gold award from Greentech Foundation in 2003-04 and 2004-05. Engineering Export Promotion Council (EEPC) offered a trophy for high exports. During the financial year of 2004-05 Business world's survey on India's Most Respected Companies, ranked L & T the First in Infrastructure Sector. The Ministry of Power conferred the first prize in National Energy Conservation for the year 2005.
In July 2005 the company approved the divestment of its stake in L&T-John Deere Pvt Ltd. In August 2005 the company has entered into a Memorandum of Understanding with DatarSwitchgear Ltd (DSL) to merger the company with L&T. As on October 2005 company has totally exited from the packaging business by sale of its Glass Containers Business to ACE Glass. In the year 2006 company amalgamated two of its own folds, the L&T Power Investments Pvt Ltd (LTPL) amalgamated with India Infrastructure Developers Ltd (IIDL).
A Wall Street Journal survey featured L & T among Asia's "Most Admired Companies" and ranked the company No.1 for quality of products and for overall reputation during the year 2006-07. In April 2007 L&T and its associate Audco India Ltd (AIL) invested Rs 35 crore in the Coimbatore (TN) switchboard and valve unit and plans to investment Rs 60 crore over the coming few years. Larsen & Toubro joining hands with Japan's Toshiba Corporation and Mitsubishi Heavy Industries for setting up manufacturing facilities for super-critical turbines and boilers used in coal-fired power generation plants. The two joint ventures will have an aggregate capital outlay of about Rs 600 crore.
The company is well positioned to exploit the opportunities that will come from hydrocarbon, infrastructure, power, minerals & metals and other industrial sectors. The Public Private Partnership model is going to be the way forwarded for infrastructure projects in the country, L & T has already committed as like that and looking ahead. L & T has commenced shipbuilding at its Hazira Works and also scouting for a suitable site in India to set up a world-class facility for shipbuilding and repair the same. Company also concentrate on the Defence, Nuclear Power and Aerospace sectors which show the potential and promises and L & T plans to expand its presence in the sector of construction and electrification for the railways and L&T investing Rs 2,500 cr for expansion in Shipbuilding, Manpower constraints and others. L&T have super-critical power plants, ranging between 500 MW-1000 MW, the foundation made on March 2008 to add 4000 MW per annum capacity for super-critical boilers and steam turbine generators.
Gini and Jony IPO coming soon
Gini & Jony, India`s leading manufacturers of premium lifestyle kids wear based in Mumbai filed the draft red herring prospectus (DRHP) with market regulator, Securities and Exchange Board of India (SEBI) to enter into the capital market with an initial public offering (IPO) of 3 million equity shares, of Rs 10 each for cash at a price to be decided through a 100% book-building process. The company will fix the issue price and date in later stage.
The issue will constitute 25.04% of the fully diluted post issue paid-up equity capital of the company. The equity shares are proposed to be listed on the Bombay Stock Exchange of India (BSE) and National Stock Exchange (NSE). The book running lead manager to the issue is Edelweiss Capital.
Of the total equity float, at least 50% of the issue shall be allocated on a proportionate basis to qualified institutional bidders (QIBs) including 5% of the QIB portion that would be especially reserved for mutual funds. Further, not less than 15% of the issue shall be available for allocation on a proportionate basis to non-institutional bidders and not less than 35% of the issue shall be available for allocation on a proportionate basis to retail individual bidders, subject to valid bids being received at or above the issue price.
Gini & Jony, promoted by Prakash Lakhani in 1994, is engaged in activities primarily includes designing, manufacturing, branding and selling of ready-made apparels and other lifestyle accessories for kids, under its various brands. Its distribution channel broadly comprises of network of exclusive brand outlets (EBO), mix of distributors, shop-in-shops (SIS) and factory seconds outlet (FSO). Its wholly owned subsidiary, GJFFL distributes the products through its network of exclusive brand outlets. As on Mar. 31, 2008, its pan-India distribution network is spread over 108 cities comprising 60 EBO, 28 distributors, 124 SIS and 38 FSO. Its 28 distributors sell the products to 706 MBO, across India.
Weekly Market Update
The BSE Sensex opened at 17,687 points on Monday and ended the week at 16737, registering a loss of 950 points. During the week, it touched a high of 17,735 points and a low of 16,679 points.
The Nifty opened at 5,227 points and ended the week at 4982, losing 245 points. It touched an intra-week high of 5,254 and a low of 4969 points.
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On Monday, due to the dearth of positive news flows from global and domestic fronts, the markets failed to cling on to the gains, and the indices were swinging between the positive and negative territories. The Sensex finished the day at 17490, down 109.22 points, or 0.6 per cent.
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The sudden decline in rupee's value against the dollar on Tuesday had a positive effect on information technology stocks.
These stocks surged higher as the rupee declined to an eight-month low against the dollar. The Sensex closed at 17373 points on Tuesday.
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On Wednesday, the BSE Capital Goods index was hit badly, shedding more than 300 points from its previous close. Eleven stocks declined and only four stocks advanced in the Capital Goods index.
Among the major losers were heavyweights BHEL and L&T, which were also two of the worst performing scrips among the 30 Sensex stocks. BHEL shed 4.12 per cent and closed at Rs 1,783.75, while L&T dipped 2.44 per cent to close at Rs 2,986.50.
The other capital goods stocks that took a beating at the bourses today were ABB Ltd (1.62 per cent), BEML (2.52 per cent), Bharat Electronics (6.11 per cent), Suzlon Energy (1.22 per cent) and Punj Lloyd (2.06 per cent).
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Cairn India shares moved up to a new high on Wednesday, gaining 7.5 per cent, spurred by the rise in the international crude prices that touched a record high of $122 per barrel.
The company's share price closed at Rs 278.45, up by Rs 19.35 on the BSE, after touching intra-day high Rs 283.50.
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Share prices of ITC, Larsen & Toubro, and Axis Bank fell on Thursday, partly on news that the Specified Undertaking of UTI may start the process of selling off its stake in these companies.
This dealt a double blow for these scrips, as stocks in the industry sectors to which they belong also came under selling pressure in a declining market. ITC, L&T and Axis Bank fell by between 3 per cent and 5 per cent on Thursday.
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Inflation rose to 42-month high of 7.61 per cent for the week ended April 26 as against 7.57 per cent in the previous week on account of rising food prices and some manufactured products.
Besides, crude oil rose above $125 on Friday due to sharp demand for diesel amid concern over supplies.
Traders feel further rise in the inflation rate affected the market sentiment.
The Sensex lost 345 points and closed at 16,737.
Losses to double for state run oil firms
State-run oil firms are likely to see revenue loss on fuel sales to more than double to Rs 1,80,000 crore during the current fiscal after surge in international crude oil prices and weakening rupee made imports costlier.
India imports 73 % of its crude oil import needs and the cost of imports would spiral after crude inched closer to a record 125 dollars per barrel, while rupee touched its 13-month low, an Indian Oil Corp official said here.
"We had previously anticipated the under-realisation on sale of petrol, diesel, domestic LPG and kerosene in 2008-09 at Rs 1,50,000 crore. But with rising crude and weakening rupee, the losses may now total Rs 1,80,000 crore," he said.
Indian oil, Bharat Petroleum and Hindustan Petroleum had in 2007-08 lost Rs 77,304.50 crore on fuel sales.
The Indian basket of crude oil was at an all-time high of 117.8 dollars per barrel yesterday, a 87 percent jump over the last fiscal's lowest price of 62.91 dollars recorded on May 9, 2007.
The three retailers are losing Rs 450 crore a day on sale of petrol, diesel, domestic LPG and kerosene. They were losing about Rs 425 crore daily during the last month.
The official said oil companies were at present losing Rs 13.97 a litre on petrol, Rs 20.97 per litre on diesel, Rs 305.72 per LPG cylinder and Rs 28.72 a litre on kerosene.
Dish TV to offer free set-top boxes
Move aimed at impending entry of Reliance, Bharti services.
The price-war has begun in the direct-to-home (DTH) market with the country's largest DTH company Dish TV — with over 3 million subscribers —getting ready to offer its connection virtually free.
Any consumer who wants to buy a Dish TV connection will not have to pay for the set-top box, the hardware essential to access DTH services and normally costs Rs 2,500.
This move is in anticipation of the launch of services from Reliance Communications' Big TV and Bharti's DTH services and also to take on its competitor Tata Sky, which has now crossed the 2 million subscriber mark.
This step is also expected to add to the monthly losses of Dish TV, currently estimated to be over Rs 450 crore.
According to sources, Dish TV is set to undertake a massive branding exercise centred on a "free Dish TV connection" featuring its brand ambassador Shah Rukh Khan at an estimated budget in excess of Rs 50 crore.
According to the plan, a Dish TV set-top box is likely to come free with every Dish TV connection as the consumers will just have to make an annual one-time payment of Rs 4,000 towards the monthly subscription fees.
Recently, Big TV had announced its DTH connections for its employees at only Rs 1,000 plus the monthly subscription fees of about Rs 300 (see table).
According to industry experts, this move is likely to benefit Dish TV increase its overall DTH market share, from 59 per cent to over 65 per cent, within a month. A free set-top box is likely to increase Dish TV's losses as every DTH company heavily subsidises the cost of its set-top boxes.
A DTH set-top box normally costs Rs 3,200 to Rs 3,500 to the DTH company but is offered to consumers at Rs 1,500 to Rs 2,500.
Via Business Standard
Inflation to hit FDs
Bank depositors, who have locked in money for tenure of less than one year, could be the major losers and earn negative interest rate on their fixed deposits if high inflation persists over a longer time. A study of interest rates, offered by different public sector banks, revealed that all of them are currently offering six per cent to 7.
50 per cent interest on deposits for duration of six months to one year. Whereas, inflation has spiralled to 7.
61 per cent as of April 26. If this trend persists and deposit rates are not revised, bank deposits would start or are already earning negative interest rate (rate of inflation being higher than the rate of interest) since the last few weeks.
Logically, interest rate on FDs need to be higher than inflation, which helps depositors earn real interest rate or at least beat inflation. The interest rates offered by banks for term deposits of more than one year are, however, between 8.
25 per cent and 8.75 per cent and in some cases even nine per cent and thus depositors are well protected from inflation.
Ajit Ranade, Group Chief Economist, Aditya Birla Management Corporation said it is true the bank depositors will get negative interest rate if the rate of inflation is higher than the rate of interest. However, he pointed out the inflation is a weekly number.
One needs to consider the average rate of inflation over a period of time, he said. S K Goel, Chairman and Managing Director of UCO Bank argued that the interest rates offered by banks at present are taking care of higher inflation.
"The inflation has gone up only during the last few weeks. You are to consider average rate of inflation and compare it with duration of deposits," he observed.
Anu’s Laboratories IPO Analysis
Anu’s Laboratories, Started in Hyderabad in 1996 by K. Hari Babu, Anu’s Laboratories e manufactures basic and advanced intermediates and fine chemicals. Some of the key intermediates produced are 2,4-dichloro-5-fluoro acetophenone (DCFA) (an intermediate for synthesising quinolone antibiotics like ciprofloxacin), chlorohexanone (key intermediate in the manufacture of cardio vascular medicine), methyl-4 (4-chloro, 1 oxo butyl),and di-methyl acetate (an intermediate used to manufacture Fexofenadine, an anti allergic drug). These three intermediates accounted for around 29%, 24% and 9% of the company’s sales in the nine months ended December 2007. Exports to Israel, Italy, Japan, France, USA and Singapore accounted for around 20% of the sales in this period.
As a forward-integration measure, Anu’s Laboratories has proposed setting up a plant for manufacturing drug intermediates including active pharma ingredients (APIs) at Jawaharlal Nehru Pharma City, Vishakhapatnam, Andhra Pradesh, for Rs 55.09 crore. Land measuring 9.54 acres has been purchased by paying an initial sum of Rs 0.91 crore. A separate development-cum-service agreement for development of this land has been entered with Andhra Pradesh Industrial Infrastructure Corporation (APIIC) and Ramky Pharma City (Ramky). Commercial operations are expected by April 2009.
To bolster its contract research and manufacturing (CRAMS) & R&D operations, Anu’s Laboratories is to set up a pilot plant at Jawaharlal Nehru Pharma City for Rs 8.34 crore. From the IPO proceeds, Rs 16.67 crore is to be earmarked for meeting long-term working capital requirement.
From internal accruals, Rs 12 crore will be deployed for the expansion programme and meeting issue expenses. By 7 April 2008, Rs 1.29 crore had been utilised.
Weaknesses
Around 53% of the revenue was from the sale of two products: DCFA and CIS Lactum in the nine months ended December 2007. Any decline in the sales of these products or potential substitute or volatility in the prices of these products may adversely affect the financial performance.
Dr. Reddy’s Laboratories accounted for around 47% of the revenue.
About 34% of the sales were from products manufacturing, outsourced to a promoter group company, Nitya Laboratories. This can lead to conflict of interest. Moreover, Nitya Lab has been incurring losses, has overdues to banks and is involved in various legal proceedings.
Valuation
Anu’s Laboratories has set a price band of Rs 200 to Rs 210 per equity share of Rs 10 face value. At the lower band of Rs 200 per share, the P/E would be 13.8x times annualised EPS of Rs 14.5 for the nine months ended December 2007 and 17.8x times the EPS of Rs 11.3 for the year ending March 2007 (FY 2007) on post-issue equity of Rs 12.08 crore. At the upper band of Rs 210 per share, the P/E would be 14.5x times and 18.7x times, respectively. In the pharmaceutical industry (bulk drug and intermediates), comparable companies such as Neuland Labs, Aarti Drugs and SMS Pharma have TTM P/E of around 9.5, 4.8 and 10.4, respectively.
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