BL Kashyap and Sons

We recommend a buy in the stock of B.L.Kashyap and Sons from a short-term perspective. It is apparent from the charts of the stock that after encountering significant long-term resistance around Rs 500 in late December 2009, it started to trend downward. However, the stock found support at Rs 300 in June and repeatedly took support at this level until it emphatically bounced up on Monday. In that session, it jumped 16 per cent with extra-ordinary volume, conclusively penetrating its medium-term down trend-line as well as 200-day moving average. The stock's upward reversal has been backed by a positive divergence displayed in the daily moving average convergence divergence indicator and this oscillator has entered in to the positive territory. The 14-day relative strength index has entered in to the bullish zone and weekly RSI is on the verge of entering this zone. Our short-term forecast on the stock is bullish. We expect it to move up further until it hits our price target of Rs 400 or Rs 410 in the upcoming trading sessions. Short-term traders can buy the stock while maintaining stop-loss at Rs 376.

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BL Kashyap

BL Kashyap

BL Kashyap

BL Kashyap

BL Kashyap

BL Kashyap

BL Kashyap and Sons

We recommend a buy in the stock of BL Kashyap and Sons from a short-term horizon. It is evident from the charts of the stock that on December 24 it made an upward break through of a narrow sideways consolidation band between Rs 375 and Rs 420 that had been in place since early November. The stock appears to have resumed its intermediate-term uptrend which has been in motion from March low of Rs 86 (52-week low). The recent surge in stock price breached its 21- and 50-day moving averages conclusively. We observe that there is an increase in volumes over the past three trading sessions. Reinforcing the bullish momentum, the daily relative strength index (RSI) has entered in to the bullish zone and weekly RSI is on the verge of entering this zone from the neutral region. The daily moving average convergence and divergence (MACD) indicator has signalled a buy and is likely to make an entry in to the positive territory and the weekly MACD is featuring in this territory. Our short-term outlook is bullish for the stock. We expect it to move up further until it hits our price short-term price target of Rs 495. Traders with short-term perspective can consider buying the stock while maintaining a stop-loss at Rs 425.

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B L Kashyap and Sons

Investors with a long-term perspective can consider buying the stock of construction contractor, BL Kashyap & Sons (BLK), currently trading at Rs 427, at a multiple of 17.6 times its standalone trailing four-quarter earnings.

Increasing signs of a revival in the real-estate segment and diversification into other business streams could augur well for the company’s revenue growth after a lacklustre performance in FY-09.

The company’s sound track record of quality and timely construction in industrial, commercial and residential real-estate has enabled it bag projects from some of the leading developers in the country.
Bright spots

BLK suffered heavily as a result of the realty slump that started in 2008, when construction contracts dwindled as a result of lower off-take across various user segments.

Note that the company still leans heavily towards realty developments — residential, retail, commercial and IT projects constitute 46 per cent of the order book .

Post-March 2009, these segments have shown a slow uptick in off take. Increase in demand in the residential real-estate now appears evident what with some developers hiking the price of their new projects.

Further, according to a Cushman & Wakefield report, even while the office market is expected to witness a fall in demand in 2009, a 19 per cent compounded annual growth is expected between 2009-13.

Both these developments, if sustained, would bode well for BLK’s earnings growth.

The re-rating being witnessed by realty developers in the stock market could also offer some clues on the prospects in store for BLK.

Hotels, where the company has a 19 per cent concentration, however, remains a grey area, as the segment is yet to demonstrate clear signs of pick-up.

Revenue streams

After the slump in its core business provider — real estate — last year, BLK diversified into the promising infrastructure segment in early 2009.

Of its March 31 ‘09 order book size of Rs 2000 crore, about 6 per cent (Rs 125 crore) is for infrastructure and PSU contracts, and the company is the lowest bidder for a further Rs 200 crore. BLK goes in for joint bids where it cannot qualify for projects on its own.

That apart, almost 30 per cent of the order-book comes from industrial projects and projects from corporate end-users such as HCL and Tech Mahindra and order book, thus, does not depend entirely on the fortunes of the real estate sector.

Affordable housing is another area which the company will focus on. Total order book stands at 1.37 times its FY-09 sales, lower than some peers, but a quick execution schedule of 12-18 months could serve it well.

BLK will also generate revenues from monetising land parcels held in its wholly-owned realty subsidiary, Soul Space Projects, as well as selling developed space to its clients.

About Rs 110 crore is expected to flow in by the end of FY10, with a further Rs 60 crore in the pipeline, according to company estimates.

Financials

Sales fell 5 per cent in FY-09, while net profits slid far more by 32 per cent due to high labour costs and interest.

However, the company managed a three-year CAGR of 46 per cent and a net profit growth of 39 per cent.

Though the company has not seen cancellation of projects, it has slowed down execution on a few where it has foreseen payment delays. Working capital turnover has been affected, dropping from 4.8 times in FY-08 to 2.4 times in FY 09.

Operating margins have slipped 2.8 percentage points in FY 09 from the previous year, but have held at 10.6 per cent, improving further to 12 per cent in the June 2009 quarter. However, interest and depreciation costs have dragged net profit margins.

That said, debt-equity ratio is low at 0.26 times, and the company will use proceeds derived through Soul Space to meet debt obligations.

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Tata Chemicals, Patels Airtemp, Jindal SAW, KSB Pumps, Sanghvi Movers, BL Kashyap, HCL Technologies, BASF India, Navneet Publications, Ranbaxy Labs,

Tata Chemicals, Patels Airtemp, Jindal SAW, KSB Pumps, Sanghvi Movers, BL Kashyap, HCL Technologies, BASF India, Navneet Publications, Ranbaxy Labs, Madras Cement

BL Kashyap & Sons Conference Call

BL Kashyap & Sons Conference Call

Infotech Enterprises, BL Kashyap

Infotech Enterprises, BL Kashyap

BL Kashyap & Sons

BL Kashyap & Sons

BL Kashyap & Sons

BL Kashyap & Sons

B. L. Kashyap and Sons: Hold

Investors can continue to hold the stock of B. L. Kashyap and Sons (Kashyap) with a two-year perspective. We had recommended investment in the company's initial public offer in February 2006 with a one-year perspective. Growth in numbers, a robust order-book and relatively lower risks compared to other real-estate players add clarity to the company's earnings prospects.

However, the current valuation does not offer an attractive entry point to the stock. Further, the company's foray into joint real-estate development through its fully-owned subsidiary has to pass the litmus test before the stock can command premium valuations. Investors holding the stock must watch this development.

At the current market price, the stock trades at 16 times its likely earnings for FY-08 on a standalone basis. Revenues from the company's furnishing and real-estate subsidiary are likely to be earnings-accretive on a consolidated basis from FY-08.

Unique play on real-estate

Kashyap undertakes construction contracts in the commercial, residential and industrial segments. In other words, it is a construction services provider to real-estate players and corporates. Thus, the company is relatively insulated from uncertainties involved in land development or correction in market price of land, which have affected construction stocks. In this respect, Kashyap is a play on the growth prospects for real estate minus some of the key risks to the sector. While a pure contractor's business does not offer attractive margins, Kashyap has managed to ramp up its operating profit margin (OPM) from less than 6 per cent in FY-04 to over 10 per cent in FY-06. The company's ability to undertake turnkey construction projects that include electrical and mechanical services has helped improve the OPM.

Kashyap's execution period for a good number of projects on hand is about 15 months. This is much less than than two-four years taken by real-estate projects to realise revenue (due to legal and other procedural compliances involved). Kashyap's order-book, as of December 2006, stood at Rs 1,350 crore, almost three times its FY-06 revenues. Over 65 per cent of the orders are from the commercial space with about 17 per cent from the residential segment. With clients such as IBM and Oberoi Hotels and the continuing robust demand for commercial space, the growth prospects for Kashyap appear bright.

Kashyap seeks to offer integrated construction services and as a step towards this, has used a part of its IPO proceeds to set up a fully-owned subsidiary which makes interiors such as wooden doors, frames and cabinets. This unit, expected to go on stream by April 2007, is likely to provide an edge over other civil construction players in terms of providing a one-stop solution, especially in the commercial space.

The other fully-owned subsidiary — Soul Space — is into real-estate development. This space carries the risks associated with land development. However, if the company is able to execute its plan of joint development with landowners, it may well mitigate the risks linked to procurement and holding of land. The company has already started two projects in Bikaner and Pune through joint ventures.

Risks

Uncertainties on cement supply and pricing may affect margins. Further, while the construction activity in the commercial and residential space is robust, any slowdown can affect order ramp-up for the company and profitability.

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