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Sunday, November 01, 2009
Kewal Kiran Clothing
Investors with a higher risk appetite and a long-term perspective can add the stock of retail player, Kewal Kiran Clothing (KKCL), based on its brand strength, superior margins, low valuations and a revival in retail spending. At Rs 207, it is at 10 times trailing four-quarter earnings and 8.9 times the estimated FY-10 earnings; valuations are at a discount to peers such as Zodiac Clothing.
Mid-price brands
KKCL’s flagship brand, Killer, contributes just about half the revenues. The next biggest contributor is Lawman, at a fifth of revenues. Both are mid-priced labels targeted at the 16-30 age group.
Killer is a casual wear brand, primarily known for its jeans, while Lawman covers club-wear. KKCL also has a foot in the formal wear market with Easies, priced in the mid-premium range. Its fourth brand, Integriti, is a formal and semi-formal brand, again in the mid-priced segment. All four brands cater to men, with only Killer and Integriti breaking into the women’s segment quite recently in 2007 and 2008 respectively.
While such a concentration may limit sales growth, menswear holds more than half the apparel market. All the same, women’s apparel is a fast-growing category and the company has begun tapping into it. However, it has used its existing brands, which have a masculine tone; establishing itself in the women’s segment may pose a challenge. KKCL is a value retailer; it is this segment that has recovered from the spending squeeze two quarters ago.
The company put up a better performance in the first half of 2009 compared with most retail peers, and KKCL is well-placed to capture renewed consumer spends. However, it also faces competition from value brands such as Trigger and Flying Machine besides in-house brands of players such as Pantaloon and Koutons.
The company has a presence in overseas markets, but exports contribute just 3-4 per cent of revenues and are not potential money-spinners. KKCL manufactures its own apparel, with five operational plants and will add one by end-December this year, bringing the total yearly production capacity to more than three million units.
Retail network
KKCL retails its brands through bigger retail chains such as Lifestyle or Globus besides banking on its own exclusive store chains — K-Lounge, Integriti, Lawman and Killer. The chains total 133 outlets with stronger presence in the West, though the North and East have an almost even split.
The company plans to increase store count to 180 by the end of this financial year, calling for an investment of about Rs 25 crore. Franchises, a mode which retailers began using actively last year due to the lower capital expenditure it entails, were already being used for expansion with 85 of its stores entirely owned by franchisees and a further 17 operated by them. New store expansion will also see the franchise mode being adopted. While it plans to tap smaller cities to expand customer base, it will still open stores in the bigger cities.
Rapid expansion has not been the norm thus far; the company has actually fallen short of store targets even during the high growth phases in the retail sector in 2006 and 2007. It has extended the timeline for meeting its IPO target of 143 K-Lounge outlets from March 2008 to March 2010. It had also planned on breaking into the promising branded kidswear segment, which it is yet to do.
Still, KKCL could be benefited by being set to expand at a time when rentals are lower and owners open to varied rental models which could not have been possible during the boom years. A low debt-equity ratio of 0.1 further supports expansion capabilities. A good many retailers who took on debt to step up store network are now looking at raising equity to balance massive debt and fund expansion.
Strong margins
Missed targets notwithstanding, KKCL has still posted a 19 per cent CAGR in sales over a three-year period. Net profits clocked a 7 per cent CAGR in the same period. Despite the tame net profit growth, margins have held strong, well above those of its retail peers.
In FY-09, operating profit margin stood at a healthy 20 per cent, far ahead of listed retail peers, even as it slipped almost five percentage points compared to the previous year. Margins then improved to 34 per cent in the first half of FY-10, riding on lower raw material and selling costs. Likewise, net profit margins suffered in FY-09, dropping to 9.8 per cent compared to the 13 per cent in the year before.
The first half of the current financial year saw doubling of net margins, from 8.9 per cent to 19.6 per cent. However, the company has among the lowest working capital turnover ratios at 1.5 times, although inventory turnover stands better, averaging at six times over the past three years.
via BL
Annual Report - AIA Engineering - 2008-2009
AIA ENGINEERING LIMITED
ANNUAL REPORT 2008-2009
DIRECTOR'S REPORT
To,
The Members,
AIA Engineering Limited
Ahmedabad
Your Directors take pleasure in submitting the 191 Annual Report and the
Audited Annual Accounts of the Company for the year ended 31st March, 2009.
1. FINANCIAL HIGHLIGHTS:
Particulars Year ended Year ended
31.3.2009 31.3.2008
Rs. in Lacs Rs. in Lacs
Sales & Other Income 94283.38 62136.57
Profit before Interest, Depreciation
and Taxation 22283.01 15895.23
Interest 84.67 8.49
Depreciation 1617.08 827.03
Profit before tax 20581.26 15059.71
(i) Provision for Taxation (Current) 6775.00 3720.00
(ii) Short / Excess provision of Taxation 7.59 7.79
(iii) Provision for Taxation (Deferred) 421.90 466.90
(iv) Provision for Fringe Benefits Tax 31.00 34.00
Total Tax (i+ii+iii+iv) 7235.49 4228.69
Profit after tax 13345.77 10831.02
Surplus Brought Forward from Previous Year 19620.81 10752.55
Balance available for appropriations 32966.58 21583.57
Interim Dividend on Equity Shares 563.90 0.00
Proposed Final Dividend on Equity Shares 1792.09 751.87
Tax on Dividend on Equity Shares 400.40 127.78
Transferred to General Reserve 1334.58 1083.11
Balance Carried to Balance Sheet 28875.61 19620.81
Annual Report - Larsen and Tourbo Ltd
LARSEN AND TOUBRO LIMITED
ANNUAL REPORT 2008-2009
DIRECTOR'S REPORT
Directors' Report
The Directors have pleasure in presenting their Annual Report and Accounts
for the year ended March 31, 2009.
FINANCIAL RESULTS
2008-2009 2007-2008
Rs. crore Rs. crore
Profit before depreciation and tax 4,246.40 3,367.07
Less:Depreciation and amortization 307.30 213.63
3,939.10 3,153.44
Add :Transfer from revaluation reserve 1.31 2.03
Profit before tax and extraordinary items 3,940.41 3,155.47
Less : Provision for tax 1,231.21 982.05
Profit after tax 2,709.20 2,173.42
(before extraordinary items)
Profit on sale / transfer of business 772.46 -
(net of tax)
Profit after tax and extraordinary items 3,481.66 2,173.42
Add : Balance brought forward from
previous year 104.31 78.24
Less: Dividend paid for the previous year 0.33 0.77
(including dividend distribution tax)
Balance available for disposal 3,585.64 2,250.89
which the Directors appropriate as follows:
Debenture redemption reserve 43.34 -
Interim dividend - 56.83
Proposed final dividend 614.97 438.49
Dividend tax 101.83 76.26
General reserve 2,725.00 1,575.00
3,485.14 2,146.58
Balance to be carried forward 100.50 104.31
Dividend
The Directors recommend payment of dividend of Rs. 10.50 per equity share
of Rs. 2/- each on 58,56,87,862 shares 614.97 438.49
YEAR IN RETROSPECT
The gross sales and other income for the financial year under review were
Rs. 35,065 crore as against Rs. 25,863 crore for the previous financial
year registering an increase of 36%. The profit before tax and
extraordinary items (after interest and depreciation charges) of Rs. 3,940
crore and the profit after tax (before extraordinary items) of Rs. 2,709
crore for the financial year under review as against Rs. 3,155 crore and
Rs. 2,173 crore respectively for the previous financial year, improved by
25% in each case respectively.
DIVIDEND
The Directors recommend payment of dividend of Rs. 10.50 per equity share
of Rs. 2/- each. Shares that may be allotted on exercise of options granted
under the Employee Stock Option Schemes before the book closure for payment
of dividend will rank pari passu with the existing shares and be entitled
to receive the dividend.
Annual Report - Unitech - 2008-2009
UNITECH LIMITED
ANNUAL REPORT 2008-2009
DIRECTOR'S REPORT
To the Members,
Your directors have pleasure in presenting the 38th Annual Report of your
company, together with the Audited Accounts for the year ended March 31,
2009.
Annual Report - Ranbaxy Labs - 2008-2009
RANBAXY LABORATORIES LIMITED
ANNUAL REPORT 2008
DIRECTOR'S REPORT
Your Directors have pleasure in presenting this 48th Annual Report and
Audited Accounts for the year ended December 31, 2008.
WORKING RESULTS
Rs. in Million
Year ended Year ended
December 31, December 31,
2008 2007
Net Sales 43,393.63 40,712.87
Profit/(Loss) before Interest,
Depreciation, Amortization and
Impairment (5,713.32) 6,745.35
Interest 1,458.28 934.26
Exchange Loss/(Gain)-(Net) on
Loans 7,474.52 (3,120.28)
Depreciation, Amortization and
Impairment 1,544.69 1,187.31
Profit/(Loss) before Tax (16,190.81) 7,744.06
Income Tax (benefit)/expense (5,742.79) 1,566.86
Profit/(Loss) After Tax (10,448.02) 6,177.20
Balance as per last balance sheet 2,162.69 471.18
Transfer from Foreign projects
reserve 19.50 24.87
Balance available for
appropriation (8,265.83) 6,673.25
Appropriations:
Dividend
Interim - 932.12
Final - 2,239.42
Tax on Dividend - 539.02
Transfer to:
General Reserve - 800.00
Surplus/(Deficit)carried forward (8,265.83) 2,162.69
(8,265.83) 6,673.25
CONSOLIDATED WORKING RESULTS
(UNDER INDIAN GAAP)
Net Sales 72,953.83 66,926.74
Profit/(Loss) before Interest,
Depreciation, Amortization and
Impairment (23626.26) 10,509.39
Interest 2,055.01 1,411.88
Exchange Loss/(Gain)-(Net) on Loans 7,494.35 (3,071.25)
Depreciation, Amortization and
Impairment 2,824.69 2,183.41
Profit/(Loss) before Tax (15,000.31) 9,985.35
Income Tax (benefit)/expense (5,650.84) 2,117.85
Profit/(Loss) After Tax (9,349.47) 7,867.50
Add: Share in profit or (loss)
of associates (Net) (78.21) 2.10
Less: Minority Interests 7 123.74
Profit/(Loss) After Tax and
Minority Interests 7,745.86
Balance as per last balance sheet 3 2,464.96
Transfer from Foreign
projects reserve 0 24.87
Balance available for appropriation 10,235.69
Appropriations:
Dividend
Interim - 932.13
Final - 2,239.42
Tax on Dividend - 539.02
Transfer to:
General Reserve - 800.00
Surplus/(deficit) carried forward (4,009.92) 5,725.12*
(4,009.92) 10,235.69
* Gross of goodwill adjustment of Rs. 242.49 mn
Annual Report - Sun Pharma - 2008-2009
SUN PHARMACEUTICAL INDUSTRIES LIMITED
ANNUAL REPORT 2008-2009
DIRECTOR'S REPORT
Your Directors take pleasure in presenting the Seventeenth Annual Report
and Audited Accounts for the year ended 31st March, 2009.
(Rs. in million except book value and dividend per share)
Year ended Year ended
Financial Results 31st March, 2009 31st March, 2008
Total Income 40437 32767
Profit after tax 12653 10140
Dividend on Preference Shares 0 1
Dividend on Equity Shares 2848 2175
Corporate Dividend tax 484 372
Transfer to various Reserves 4500 3014
Amount of dividend per equity
share of Rs. 5 each 13.75 10.50
Book value per equity share
of Rs.5 each 249 203
Dividend
Your Directors are pleased to recommend an equity dividend of Rs.13.75 per
equity share of face value Rs.5/- each (previous year Rs.10.50 per equity
share of face value Rs.5/- each) for the year ended 31st March, 2009.
Blue Star
Blue Star shareholders can stay invested in the stock, as the company’s strong order book and leadership in the packaged air-conditioning segment promise further upside to stock returns. Sales that have slipped for two quarters in a row may pick up once orders from IT and ITeS space are back in the reckoning. Besides, the company’s central air-conditioning segment is seeing increasing order flows from telecom players and government spends (metro rail and airports).
Also, the company has several big corporate clients which place repeated orders. At Rs 1,815 crore, the company’s order book stands at 17 per cent higher than the previous year.
The stock trades (Rs 328) at 16 times its trailing one-year earnings. This is at a discount to Voltas which trades at 22 times on a trailing basis. The latter has, however, withstood the slowdown better than Blue Star and therefore commands a premium.
The business
The company, which began its business as a service agent for air-conditioners and refrigerators, has expanded its revenues substantially over the years.
With five manufacturing facilities and a network of 700 dealers, the company’s revenues have grown at 29 per cent in the last five years. A business model focussed on corporate and commercial market has helped the company establish a strong foothold in the segment with a 35-40 per cent market share now.
The company has three segments — central air-conditioning and electrical contracting; room air-conditioners and refrigeration products; and professional electronics and industrial system. These segments have reported close to 30 per cent growth in sales in the last five years.
The company’s major competitor is Voltas, which, however, showcases a more diversified profile as it manufactures mining and construction equipment as well with a chunk of its revenues coming from overseas business.
However, Blue Star has managed a higher margin both at the operating and net profit levels when compared with Voltas in FY-09. Blue Star’s operating margin was 10.8 per cent (9.3 per cent for Voltas) and PAT margin 7 per cent ( 6.2 per cent for Voltas).
HCL Technologies, DLF, Reliance Industries, IBM, ICICI Bank, Wipro, and Infosys are some of Blue Star’s clients which place repeated orders.
The company’s client base is diverse (with customers in telecom, hospital, hotel, education and airline industry); strong order flows from government infrastructure projects such as the airports, metro projects and sports stadium in recent times have helped offset tepid order flows from the private sector to an extent.
Strong order book
Recession in its user industries saw Blue Star reporting a 14 per cent decline in sales for the half year ending September’09. The company could not fully capitalise on the recent revival in consumer spending as it has a relatively small presence in the household room air-conditioner segment. Poor order in-flow from the IT, ITeS and commercial office space segment had further hit the company’s top line. We however, expect some improvement on this front as the market for commercial space has shown signs of picking up in key cities such as Mumbai and Bangalore.
The company’s order book stands at an all-time high of Rs 1,815 crore (17 per cent higher over the previous year). Of this, the company expects to bill around Rs 1,500 crore in the next six months (the half-year sales for FY-10 stood at Rs 740.7 crore in September; full year FY-09 sales were Rs 1,778.8 crore).
Going forward, orders from data centre projects of telecom players are expected to be among the major revenue drivers for the company. Blue Star is a leading supplier in the telecom segment with its customised array of telepace air-conditioners having many takers. It also has large orders for packaged air-conditioners from Sify and IBM for maintaining their high-end electronic servers (booked in FY-09).
Blue Star is also eyeing further off-take from government-related infra spends (such as the stadiums for Common Wealth Games) to boost its sales in the coming quarters. The company already has the Delhi Metro Rail Corporation and Tamil Nadu State Assembly’s orders on hand. The company’s electrical projects (electrical contracting) division, which was acquired from Naseer Electricals in 2008, may also see more MEP (mechanical, electrical and plumbing) order flows, having made a good start. The company’s VRF (variable refrigerant flow) systems that were introduced last year have also been well received by the premium segments of the hospital and hotel industry. This segment will catch up as the user industries move out of recession and start spending again.
Margins protected
Blue Star’s operating profit margin has always been on the industry’s high side. Over the last five years, the company’s OPM improved from 7 per cent to 11 per cent. Even in the last two quarters when sales fell, margins expanded by 2 percentage points, thanks to cost-efficiencies and price correction in key inputs such as copper and aluminium.
The company’s score-card appears encouraging on the PAT front too with earnings recording a compounded annual growth rate of 46 per cent over the last five years. Having repaid significant amount of loans, the company’s debt-to-equity ratio stands at a negligible 0.1.
via BL
SingTel hikes stake in Airtel; buys shares in promoter company
Singapore Telecommunications (SingTel) has bought additional 1.52 per cent stake in India's largest private telecom Bharti Airtel and
will pay up to Rs 3008.4 crore in three installments ranging over 18 months.
In a notice to Singapore Stock Exchange, SingTel said it has entered into a conditional share purchase agreement with Bharti Group entity to buy an additional 7,30,000 issued shares in Bharti Telecom, a promoter company of Bharti Airtel.
"The acquisition is in line with SingTel's strategic focus on maximising the value of its existing businesses," the company said.
SingTel's wholly-owned subsidiary Pastel will pay between Rs 1807.3 crore to Rs 3,008.4 crore depending upon prevailing market prices for Airtel shares.
Going by the said transaction value, Bharti Airtel has been valued in the range between Rs 1.18 lakh crore and Rs 1.97 lakh crore.
When contacted Bharti spokesperson confirmed the deal with SingTel.
Bharti Airtel's shares have been hammered at the Bombay Stock Exchange due to increased competition and pressure on its bottom line, as it touched its 52-week low on October 30, 2009 at Rs 290.30 a share of Rs five face value.
As per the schedule of the payment, Pastel will pay an initial amount of Rs 242 crore and on the completion of 365 days a second payment equal to Rs 1565.3 crore will be made.
via ET
Rural Electrification
Fresh investments can be considered in the stock of Rural Electrification Corporation (REC), a navratna public sector undertaking, which finances all the segments across the power value chain.
Secured advances with a high asset quality (net non-performing assets of almost zero) coupled with sustainable spreads are the key positives for REC when compared to most finance companies. Even after gaining more than 165 per cent this year, the company’s stock is trading at a modest 12 times its estimated FY10 earnings (assuming 15 per cent equity expansion post-offer) and at 1.6 times its estimated book value.
A power sector debt funding requirement of more than Rs 15 lakh crore over the Eleventh and Twelfth Plans is the major growth driver for REC. Its proposed follow-on public offer will augment the capital base, enabling balance sheet expansion.
The Reserve Bank of India’s recent policy change which pegs bank’s risk weights to the borrowers credit rating, will also favour the company given its AAA rating. The profits of REC rose 70 per cent in the first half of this fiscal, helped by loan book and disbursements growth of 32 per cent and 22 per cent respectively. This bettered overall bank credit growth of 20 per cent. Improvement of spreads from 3.34 per cent to 3.47 per cent, helped by better yields and lower costs, also aided the company’s net profit growth.
We expect the loan growth to continue at robust pace on the back of the wide Rs 1,50,000-crore gap between sanctions and disbursements. The margins may get some support as the proportion of private sector borrowers trends up.
At current market prices, the follow-on offer may raise Rs 2,600 crore, given the proposed offer size. This will increase its net worth by 32 per cent and bring down the debt-equity ratio from 6.3 to 4.8, reducing the risk to its credit rating. Increase in costs due to reduced reliance on tax-free bonds, may be compensated by the fall in borrowing costs from banks.
Delays in power projects leading to late disbursement and rescheduling of loan repayments, are the biggest risks for the company. Asset-liability mismatch arising out of lower maturity deposits and high duration loans is also a potential risk. Increase in interest rates later in the year may put pressure on margins as the company predominantly has fixed-rate loans, with three- or 10-year reset.
via BL
India Infrastructure
If previous bull-market favourites such as Praj Industries or Suzlon Energy were no match for your automobile, metal or mid-tier IT stocks in this rally, brace yourself for some hard facts. The engineering and capital goods stocks may no longer be the front-runners in your portfolio.
While the broader Index for Industrial Production (IIP) has staged a convincing rebound from its lows, there are no clear signs of revival yet from its capital goods component. Growth in the monthly and quarterly average index levels shows that while the IIP may have drawn strength from consumer durables, the capital goods index remains a laggard.
The financial performance of listed capital goods companies too reinforces the above trend, and suggests that a turnaround in the sector may be a while away.
Until there is a clear revival, investors may be better off betting on companies benefiting from capex in the government-driven infrastructure space. Those dependent on industrial capex have been struggling to expand sales. Here are some trends in the capital goods index of the IIP that may help decipher what the prospects of capital goods stocks look like.
Growth in IIP but..
Monthly growth witnessed by the IIP in 2009 improved from a 1 per cent Y-o-Y growth in January to 10.4 per cent - a lively double digits, after a long gap of two years. While March 2009 saw the stock market rebound from the doldrums, the IIP too surpassed its earlier high of March 2008 in the same month. The stock market therefore re-rated companies in the manufacturing sector, including the capital goods stocks, in anticipation.
However, while most other use-based segments of the IIP are closer to, or have surpassed, their previous highs, the capital goods index is still a good 34 per cent away from its peak in March 2008.
… weak capital goods
While the IIP numbers cannot be brushed aside as a flash in the pan, given that they have remained in positive territory since January this year, the capital goods index contradicted this trend with a decline in March, April and May 2009, over a year ago numbers.
This decline is significant as it was the first year-on-year fall since the de-growth in 2001. The index then took two good years to recover and surpass its earlier peak of March 2000; perhaps an indicator that the excess capacity/supply situation can take longer to recover.
Revival cues
With the IIP Capital Goods index remaining weak, what cues can investors look for to gauge signs of a revival in the sector? Previous trends suggest a decisive move in the consumer durables index can be a lead indicator for a revival in private investment activity, which in turn can spur business for capital goods.
An interesting trend that emerges in the IIP constituents is that the consumer durables index is often ahead of the other segments, whether in peaking out or in recovery. For instance, the consumer durables index peaked in October 2007, after which it steadily declined. After nascent signs of recovery in September 2008, the index returned to a decisive growth track post March 2009.
This strong growth is reflected in the financial performance of consumer goods companies such as Voltas, V-guard, Bajaj Electricals and Whirlpool of India. Strong sales numbers by two-wheeler and passenger car companies are yet another clear consumer spending indicator.
On the contrary, the IIP capital goods index reached a high much later — in March 2008 — and is still lower than its last high (see Table for index movements from earlier highs). Earlier years’ trend also suggests that there is a lag of six months to a year between the recovery of consumer durables and capital goods. This suggests that strong consumer spending could drive investments made by industries, which in turn eventually flow to the capital goods industry.
Another indicator that can drive activity in the capital goods space is an expansion in the basic and intermediate goods indices. These segments are typically the user industries for the capital goods produced. These indices, while moving ahead of their March 2008 highs, have however not yet showcased strong growth.
Revenue growth
If the lead indicators do point to a slowdown/revival in the capital goods sector, how would they reflect in the company’s financial numbers? Revenue growth is the key trend for investors to watch out for.
The IIP seeks to reflect growth in the country’s industrial activity, excluding services. A surge or fall in this index, therefore, acts as an indicator of the production and sales growth of companies across industries; with sales sometimes coming with a lag. Specifically, any noticeable trend in the capital goods index, a constituent of the IIP, should translate into revenue growth/decline for companies in this sector.
While most companies have reported expansion in their operating and net profits as a result of relief on the raw material and interest cost front over the last two quarters, revenue growth may bring the first concrete signs of a recovery.
To determine the correlation between the IIP Capital Goods index and the revenue growth of companies, we also averaged the IIP and its constituents at quarterly intervals, and looked at year-on-year growth. This too clearly suggested that both the index growth and the revenue growth moved in tandem and were at their weakest in the June 2009 quarter.
While September’s IIP figures are not yet out, the average of the July and August index figures suggest that there can be a decline once again for the September quarter, unless the numbers for the awaited month are exceptional. The 7 per cent y-o-y growth in the September quarter revenues of about 65 capital goods companies have also not demonstrated a recovery in sales, although profits once again expanded as a result of cost savings. One in two companies continued to see decline in revenues over a year ago numbers. It is therefore small wonder that capital good stocks (taking the BSE Capital goods index), which consistently topped the stock market returns chart as a sector from 2002 to 2007, failed to do an encore this year.
However, not all the stocks in the sector wear a gloomy look. This is thanks to the diversified business profiles of these companies — ranging from bearings, electrodes, abrasives and grinding wheels to power equipment, electric equipment, automation and engineering turnkey companies. Investors may take cues from the following trends before assuming exposure to stocks in the sector:
Industrial equipment/machinery manufacturers such as Lakshmi Machine Works, Praj Industries, Apar Industries and SKF India dependent on a revival in capex spending by other manufacturing industries may have to take a longer road to recovery.
Construction equipment companies dependent on infrastructure spending are likely to see a revival in their and order book, what with highways and metro projects once again gathering steam.
Capacity additions in the power space and railway spending are largely driven by public-private participation and are therefore less affected by the slowdown. BHEL, Crompton Greaves and Kalpataru Power Transmission have already turned in strong numbers in the September quarter while others such as Texmaco and Stone India are showing signs of revival in their sales.
Engineering and turnkey service companies that serve the oil and gas space (BGR Energy Systems and Honeywell Automation India, for instance) have also notched up improved revenues.
via BL
Jay Bharat Maruti
Now that sales of passenger cars are back on track, investors can consider accumulating the stock of Jay Bharat Maruti, an auto ancillary company whose single largest customer is Maruti Suzuki. Trading at Rs 47 (discounting its trailing four quarter earnings by eight times), JBM appears a safe bet given the stable prospects for Maruti Suzuki.
Maruti’s pivotal role
Jay Bharat Maruti, in which Maruti Suzuki holds a 29.3 per cent stake, is in the business of making body-in-white (BIW) parts and assemblies, rear axles, fuel neck fillers, mufflers and other components for automobile OEMs (original equipment manufacturers). About 65 per cent of the revenues come from BIW parts. BIW refers to the stage when the car body sheet metal (including doors, hoods and deck lids) has been assembled but the components (chassis, motor) and trim (windshields, seats, upholstery, electronics, etc) are notdone. JBM supplies parts to all models of Maruti Suzuki. This apart, the company also supplies to Honda Motorcycles and Scooters India, Eicher Motors and Mahindra and Mahindra.
After facing a rough patch in the third quarter of last fiscal, Maruti Suzuki swiftly returned to the growth path from January 2009. Passenger vehicle demand for Maruti has seen resurgence in recent months with easier availability of credit, payment of the first tranche of Sixth Pay Commission, strong rural and semi-urban demand, good festive demand and expanding exports to European countries, driven partly by the regulatory push for compact cars. Maruti Suzuki’s unit sales are up by 30 per cent since April 2009, relative to last year’s numbers.
The withdrawal of incentives to buy new cars offered by European governments (a scheme which is the major propeller of A-Star’s sales in these countries), may pose a risk to JBM’s volumes, post-December. However, initiatives by Maruti to expand markets in Latin America, West Asia and Australia may help partially counter the decline in exports to Europe. The domestic market too continues to offer good scope for growth, with Maruti’s recent launches such as A-Star and Ritz doing well. What is positive, is Maruti’s leadership in the A2 or the hatchback segment, which is expected to post comfortable volumes growth.
In the last fiscal, JBM commenced operations in its third plant in Maruti Suppliers Park at Manesar, which rolls out Swift, A-Star SX4 and Dzire. The facilities at the new plant include a press line, axle manufacturing unit and a paint shop.
Financial prospects
JBM’s performance usually follows that of Maruti Suzuki. Until FY-08, JBM registered an annualised sales and profits growth of 17 per cent and 15 per cent respectively. However, the recently-concluded fiscal witnessed some moderation. The company saw its 2008-09 sales and operating profits grow by 5 per cent and 12 per cent year-on-year. The commissioning of a new plant resulted in higher depreciation and led to a 34 per cent decline in net profits.
With softening excise duty structure, input costs and depreciation rates, JBM managed to expand its operating profits and net profits by 23 per cent and 77 per cent respectively in the September 2009 quarter. Sales remained flat due to high stocks of inventory with Maruti Suzuki; but this may ease from the forthcoming quarters. Stable prices of domestic steel (a primary input material) in the medium term may also be a positive.
Concerns
Though the business of JBM is highly leveraged on Maruti’s performance, JBM has not been able to deliver the kind of growth or stock market returns Maruti has. This is because JBM operates on thin margins (8-9 per cent) endemic to the auto components business. Quite often, the vehicle manufacturer dominates the scene and the component supplier has to negotiate long-term contracts at tight margins. That apart, being a small-cap stock, JBM is quite vulnerable to market corrections.
via BL
GAIL, CIPLA. HCL, Bank of Baroda , ACC, Ambuja Cements, Sun TV, HPCL, Shriram Transport, Tata Tea, India Cement, Havells, Hexaware
Astec Lifesciences IPO Review
Investors can refrain from subscribing to the Initial Public Offering (IPO) from Astec Lifesciences, being made to fund expansion projects for the manufacture of agrochemical and pharma ingredients.
The company has managed consistent profit growth with high margins in the past. However, it has limited presence in the overseas markets which is deemed lucrative for ingredient suppliers.
A small scale of operations and an expansion project that is in its very initial stages also make an investment in the stock unattractive at this stage. In the price band of Rs 77-82, the offer price discounts the company’s 2008-09 earnings by about seven times based on the pre-offer equity base and 12 times, on the expanded one.
Though that appears to be an undemanding valuation, much larger listed peers in the space — Hikal, Meghmani Organics and Sabero Organics — command multiples of only 5-6 times.
Astec Lifesciences is a supplier of fairly long-standing active ingredients such as Hexaconazole, Propiconazole, Metalaxyl, Tebuconazole and Dicap to manufacturers of fungicides and anti-fungal drugs. Over two-thirds of the company’s sales go to domestic clients such as Syngenta India, Indofil Chemicals and Atul, with exports making up the rest of revenues.
Historic growth rates in the company’s sales and net profits have been impressive, with sales growing at an annualised rate of nearly 50 per cent over the past three years (Rs 89 crore in 2008-09), while net profits (Rs 10.7 crore) have grown at 47 per cent. This growth has been managed through a scaling up of the company’s sales volumes with manufacturing capacities expanded from 500 tonnes to 2,800 tonnes over the past five years.
Capacity expansion
The present IPO is to fund a further expansion of capacity to over 3,950 tonnes by 2010-11, working capital and expenses on product registration and research. One point in the company’s favour is that it has managed to almost fully utilise its present capacity.
However, this expansion project, originally scheduled to be commissioned in October 2009, has already faced a sizeable delay and is now expected to come up only by October 2010.
The project is also in a preliminary stage with orders for equipment yet to be placed. The company is relying entirely on the IPO proceeds to fund this project.
Fungicides, with a market size of about Rs 750 crore, make up less than a fifth of the domestic crop protection market, in which insecticides are the dominant segment. The domestic demand for crop protection chemicals is expected to register high single-digit growth over the next five years, helped by healthy farm product prices and the pressure to improve crop yields. However, sale volumes do tend to be cyclical and susceptible to the vagaries of the monsoon.
A fragmented industry structure, with a large number of small players and a fairly high rate of product obsolescence also imposes constant pricing pressure on agrochem suppliers.
Astec has so far managed to keep its operating profit margins (23 per cent) well above industry levels (10-12 per cent) over the past three years. However, it is currently a small player and ramping up sales volumes may entail a sacrifice on margins.
Minimal global presence
Even after doubling its exports over the past three years, Astec remains a marginal player in overseas markets with exports of Rs 26 crore in 2008-09.
Exports offer scope for strong growth and higher margins for ingredient suppliers, given that India is a low-cost manufacturing base for agrochemical and pharma ingredients. However, establishing a significant overseas presence in agrochemicals is a long-drawn process, dependent on an extensive distribution network, a wide range of products and the need to register each new product in individual markets.
With a small export turnover and just three product registrations in its own name (43 held by clients), Astec is well behind leading agrochem marketers such as United Phosphorus or even Meghmani Organics in global market presence.
The company also faces unresolved litigation, which could pose risks to its operations. Nath Biogene, a former customer, has alleged supply of spurious products by the company; which Astec has disputed.
An appeal on this matter is now pending before the Supreme Court. The offer document also mentions a complaint filed by the Government of Maharashtra alleging “illegal manufacture and distribution of pesticides without an appropriate licence” at one of its units.
via BL
Weekly Technical Analysis - Nov 1 2009
Continuing the post-Diwali trend, markets extended losses for the second straight week. In fact, bears had the upper hand throughout the week, with the Nifty declining 5.7 per cent (285 points) to 4,712. In the last two weeks, the index has shed 8.4 per cent.
This week, the index touched a high of 5,034 and tumbled to a low of 4,688, breaking quite a few significant supports on the downside. The Nifty is now below its short-term (20-day) and medium-term (50-day) simple moving averages. The short-term moving average is at 4,987 and the medium-term moving average is at 4,869.
In retrospect, a similar correction was seen in the June-July period, wherein the index shed 15 per cent in 22 trading days and dropping below its short- and medium-term moving averages. Quite a few indicators had turned bearish and oscillators oversold. Thereafter, the index staged a complete recovery in the next seven trading sessions.
Although this time the index has fallen just 8.4 per cent in ten trading days, the indicators (moving averages, trend lines and MACD) are suggesting bearishness while oscillators (RSI and Stochastic Slow) are in the oversold zone. The only difference is that the index timeframe and the correction have been smaller. With an eye on 4,650 as the near support, one should not rule out an August-like pullback. (For weekly support and resistance levels, see table)
However, given the lower earnings by quite a few frontline companies and global cues playing a major role, volatility may be the order of the day for some more time.
Technically, the trend, which is now down, could ee the index test its next major support around 4,640-4,500-4,350. Any rallies could see the index face resistance around its 20-day and 50-day DMAs (daily moving averages. The Sensex moved in a range of 1,134 points. From a high of 16,939, the index dropped to a low of 15,805 and finally ended with a loss of 5.4 per cent at 15,896.
The index has gone past its crucial support of 16,400-16,450, which may now act as a hurdle on the upside. Next support for the index is around 15,625, below which the index may drop to 15,165. The long-term support for the index remains intact at 14,800.
via BS
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