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Kamdhenu Ispat

Background :

• Kamdhenu Ispat Limited (KIL), incorporated in September 1994, is the flagship company of Kamdhenu Group. It is a manufacturer of cold twisted deformed (CTD) bars, thermo mechanically treated (TMT) bars with the plant capacity of 48,000 metric tonnes (MT) per annum and ingot manufacturing capacity of 22,500 MT per annum.
• The company has franchisee arrangement with 22 entities to manufacture high strength deformed bars (HSD)/TMT bars, cement, stainless steel pipes under the brand name "Kamdhenu". The total combined capacity of all these units is 840,000 MT.
• KIL's products are used in the construction of multistoried buildings, dams, bridges, flyovers, and power plants as a basic reinforcement material.
• The Company derives its operating income from three different activities: by selling products manufactured by the KIL, by trading of products manufactured by Franchisees and through royalties received from Franchisees for using brand name of the company "Kamadhenu".
• The Company has entered into an agreement with Centre De Rechercher Metallurgiques (CRM), Belgium for use of TEMPCORE trademark used for identification of high quality steel bars.

Objects of Issue :

• To meet the long term working capital requirements of Rs.2,888.15 lakhs to establish ten stockyards across the country.
• To meet the cost of setting up of corporate office with an investment of Rs.250 lakhs.
• To meet the expenditure on lease deposits and miscellaneous fixed assets for setting up stock yards of Rs.59 lakhs.
• To meet the issue expenses of Rs.180 lakhs.

Strengths :

• KIL's key strength is its brand name. It sells all its products under brand name "Kamdhenu", at a premium ranging between Rs.300 to Rs.700 per metric ton.
• The company has a network of more than 1750 distributors and dealers spread across the northern, central and eastern India.
• KIL is operating through franchising due to which company is having the benefit of larger volumes turnaround across the country with minimum investment in fixed capital and reduced gestation period.
• The Company and all its franchisee are using the "Tempcore Process". It produces steel bars at faster speed than normal plants.
• KIL's capacity utilization has been constantly been increasing since FY01. It has increased to 107.3% in FY05 from 91.33% FY01 for steel bars.

Weakness :

• KIL's FY05 operating profit margin and net profit margin are as low as 3.3% & 1.6% respectively.
• Company has undertaken a project to erect sponge iron manufacturing facility but the project has halted, as company could not get mining rights in respect of Mines of Iron/ Manganese Ore.
• KIL's biggest cost is raw material. It formed 52.4% of total expenses of the company. Increase in raw material prices and other inputs can affect the business operations adversely.
• KIL is not a fully integrated company, thus will face margin pressure (company is already operating on thin margins), unlike Gallantt Metals & Godawari Power & Ispat ltd. These companies are operating in same industry, have come up with IPO to fully integrate their manufacturing operations.

Peer Group Comparison :

Financial Year 2005

COMPANY	NPM (%)	OPM (%)	EPS (Rs.)	Debt/Equity Ratio (times)	Interest Cover (times)	RONW (%)	ROCE (%)
Rathi Ispat Ltd.	1.6	6	6.56	1.37	1.46	3.21	23.19
Kamdhenu Ispat Ltd.	1.50	3.3	3.2	0.9	5.4	22.20	22.40
Godawari Power&Ispat Ltd.	12.6	19.9	14.9	1.3	10.1	37.8	18.7

Valuation :

• KIL's sales & PAT have grown at a CAGR of 34.8% and 61.2% respectively since FY01. Sales have grown from Rs.3,574.31 lakhs in FY01 to Rs.11,784.65 lakhs in FY05. Net Profit grew from Rs.25.61 lakhs to Rs.171.19 lakhs.
• Operating profit margin of the company has nearly doubled from 2.6% in FY01 to 4.4% for 9 month ending December2005.
• The company's net worth as on 31st March 2005 was Rs.772.06 lakhs which has increased to Rs.1,133.41 lakhs as on 31st December 2005.
• Book Value per share as on 31st December 2005 is Rs.18.25
• Post issue annualized EPS based on 31st December 2005 earnings is Rs.1.33 per share. The shares are being offered at a price of Rs.25, at P/E of 18.8

A Red Flag for India's Bull Market

Will India's bears come out of hibernation this spring to put an end to the bull market? Stocks are trading high, but earnings may be down

Forget the sacred cows, here come the bulls. Investors in India seem to be having a fit of exuberance, irrational or otherwise. Bombay's benchmark stock index, the Sensex, has broken records almost every day this year, moving from 9,390 on Jan. 2 to 11,747 on Apr. 5. At least $11 billion in foreign money has poured in over the past year seeking to capture the 50%-plus gains seen in 2005.

And big-ticket initial public offerings by the likes of Reliance Petroleum and low-cost airline Deccan Aviation are likely to pump up the excitement even further, attracting as much as $22 billion in new cash to the market this year. "India has moved from being a small car to a Ferrari," says Andrew Holland, Merrill Lynch's  head of research in India.

By many measures, it appears the bulls may be onto something. They point to the likes of Infosys and Tata, which are among the best-managed companies in the emerging markets. The country's youthful, increasingly educated population is eager for work. Successive governments from opposite ends of the political spectrum have persistently backed economic reform. And local investors are starting to join the party, as Indian mutual funds raised nearly $4 billion in the first quarter, compared with $242 million for the previous year period.

TOO MUCH MONEY.  Some, though, wonder whether the bulls are being led to the slaughter. The 30 companies in the Sensex, or the Sensitive Index, are trading at an average of 20 times their expected 2006 earnings -- the highest multiple ever and even higher than the average of about 15 for the Standard & Poor's 500 index. Meanwhile, corporate profits are estimated to have climbed 15% in the fiscal year ended Mar. 31 -- well ahead of the Asian average of 6%.

Those IPOs in the pipeline should mop up much of the excess cash sloshing around, which could cut into demand for existing issues. "Right now, there's too much money chasing too few stocks," says Prithvi Haldea, director of researcher Prime Database, which follows the IPO market.

Then there's the problem of the foreigners. Overseas investments account for three-quarters of new funds flowing into the market. If the tide turns, they could quickly vanish. "Foreign institutional investors are supporting India's growth," says Ridham Desai, co-chief executive of JP Morgan Chase in Bombay. "If they twitch, India will dip. The market is disregarding this."

AWAITING RESULTS.  Interest-rate hikes could also hurt. In the past two years, India's central bank has raised rates three times, taking short-term rates to 6.5%, the highest level in two years, while U.S. rates are at a five-year high. "In an environment of rising rates, equity markets aren't the only alternative," says Mark Syn, executive director of Goldman Sachs Asset Management.

The first indication of a market slowdown could come this month, when results for the last fiscal year are made public. Earnings grew 15% in the quarter ended Dec. 31 -- half the 30% growth of the past three years. Analysts expect growth of 18% to 20% now, but with valuations as high as they are, there's little room for companies to make mistakes. "God help the market if earnings are lower than 15%," says Dinshaw Irani of Bombay investment advisory firm Artemis Advisors.

Still, such an outcome seems inevitable. Stars of previous quarters such as Tata Steel and petrochemicals giant Reliance are subject to commodity cycles and will surely see slower growth. Indian companies are investing in new capacity, but face an acute shortage of management talent to execute their plans. "India is a good 10-year play, but in the short term there are risks," says Madhav Bhatkully of Bombay's New Horizon Investments.

SPRING CHANGES?  Try telling this to investors, and "they roll their eyes and say it'll work out in the long run," says Manish Chokhani, director at Bombay brokerage Enam Securities. This year, Morgan Stanley reckons foreigners will invest $20 billion in India's stock market, nearly double last year's figure.

And at annual Indian investment conferences of Deutsche Bank , Citigroup , Merrill Lynch, and Morgan Stanley  in March, attendance was far higher than last year's levels. Sure, India has plenty of long-term potential. But this spring, it may be time for the bears to start pushing the cows -- and the bulls -- out of the way.

Businesweek

Plethico IPO News

Herbal company Plethico Pharma is planning to raise Rs 110 crore through initial public offering which will open for bidding on April 10.
 
 Of the proceeds, the company plans to use Rs 25.7 crore for upgrading the Kalaria plant, Rs 30 crore for organic farming and Rs 28 crore for brand buyouts. The price band for the issue has been fixed at Rs 280-300.
 
 Currently, the company caters to unregulated markets and is planning to expand its presence to the US through herbal medicines.
 
 "The demand for herbal products would touch $1.5 trillion by 2050. We are aiming at producing products which are of standard quality in the US, for which we have undertaken organic farming in India. It is believed that different fields produce different qualities of herbs," said ShashikantPatel, chairman & managing director, Plethico Pharmaceuticals.
 
 Plethico is a multi-product company, with a large global presence and has awide product range including herbal and allopathic formulations, consumer health care products and nutraceuticals, food supplements, disposables andhospital consumables.
 
 It has a portfolio of more than 400 formulations in more than 39 therapeutic segments and exports to more than 45 countries.
 
 The company also employs approximately 250 sales personnel across these markets, of which, 150 are employed in markets outside India.
 
 It has two fully integrated state of the art manufacturing units locatednear Indore, which serve as the backbone of the entire operations.
 
 These facilities are being upgraded as per the norms of UK MHRA, thecompany officials said.
 
 So far, Plethico has adopted the "branded generics" model for marketingallopathic formulations in India. "Branded Generics give a premium overother generics as their bio-availability is high as compared to othergenerics," said. The company proposes to extend this model to other semi-regulated  markets.

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Sharekhan - Market Outlook - Rangebound

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Reliance Petro fixes IPO Price

Reliance Petroleum (RPL) has fixed the price band for its forthcoming initial public offer (IPO) at Rs 57-62 per share, valuing the Mukesh Ambani company at Rs 27,900 crore at the upper end of the price band. The issue, closely watched by retail and institutional investors alike, is scheduled to open for subscription on April 13 and close on April 20. RPL, a unit of Reliance Industries (RIL), one of India's largest private companies, plans to use the funds from the issue to part-finance its proposed Rs 27,000-crore export-oriented refinery in the special economic zone at Jamnagar in Gujarat. In its draft red herring prospectus filed recently, RPL had initially proposed to offer 180 crore shares. However, in a pre-IPO private placement last week, RPL offered 45 crore equity shares to foreign institutional investors, financial institutions and banks at Rs 60 a share, raising Rs 2,700 crore. The shares offered in the private placement are locked in for one year from the date of allotment of the shares in the IPO. Also, in the IPO of 135 crore shares, parent RIL is scheduled to subscribe to 90 crore shares at the issue price. According to a statement issued by RPL on Wednesday, RIL is scheduled to make a payment of Rs 62 per share on the 90 crore shares, amounting to Rs 5,580 crore. RIL shares rose 0.2% to Rs 839.55 on Wednesday, giving the company a market capitalisation of Rs 64,346 crore. The net size of the IPO to the public is 45 crore shares, with retail investors having the option of paying only Rs 16 per share on application. Retail investors can apply for a minimum 100 shares and a maximum of 1,600 shares. At 100 shares, an individual investor will have to fork out Rs 1,600 on application and Rs 5,700 on allotment, assuming that he or she applies at the lower end of the band. At 1,600 shares, an investor will have to spend Rs 25,600 on application and Rs 91,200, assuming he or she gets allotment. RPL's export-oriented refinery will have a capacity to process 580,000 barrels per stream, making it the sixth-largest refinery in the world. As a part of this project, RPL is also setting up a 900,000-tonne per annum polypropylene plant. The project is expected to go on stream by December '08.

Sharekhan - Investor's Eye

Marico Industries
Cluster: Apple Green
Recommendation: Buy 
Price target: Rs635
Current market price: Rs569

Price target revised to Rs635
We are revising our price target on Marico to Rs635, at which price the stock will discount its FY2008E earnings by 25x, which is still at a 17% discount to HLL's PER of 30x FY2008E.

Godrej Consumer Products
Cluster: Apple Green
Recommendation: Buy 
Price target: Rs912
Current market price: Rs760

Price target revised to Rs912
The visibility in the revenues and earnings has been the strongest in the recent years for the fast moving consumer goods (FMCG) industry in general and for Godrej Consumer Products in particular. The demand outlook is strong in view of the new breed of consumers ie semi-urban and rural consumers who have joined the consumption fray and have given the much needed spark to the industry. Given these vital fundamental changes, the valuations are fast changing. Comparable companies in the FMCG sector are already commanding higher valuations with the 2-year average industry price/earnings (P/E) multiple reaching +24-25x. GCPL, which trades at P/E multiple of 20.8x FY2008E consolidated earnings is still available at a discount of 20% to the average industry P/E. Considering the significant room for growth within the core businesses (hair care and toiletries businesses) and the entry in the international space through Keyline Brands, we have confidence in GCPL's long-term growth prospects. We are revising our price target for GCPL to Rs912, at which price the stock will discount its FY2008E consolidated earnings by 25x, in line with the industry.

 

UltraTech Cement 
Cluster: Ugly Duckling
Recommendation: Buy 
Price target: Rs850
Current market price: Rs704

Price target revised to Rs850
At the current market price of Rs704, UltraTech Cement is discounting its FY2008 earnings by 26.8x and 11.8x its FY2008 earnings before interest, depreciation, tax and amortisation (EBIDTA). On an EV/tonne basis the stock is trading at an attractive valuation of US$118 per tonne of cement. This is a huge discount to its peers like ACC and Gujarat Ambuja that are trading at valuations in excess of US$150 per tonne of cement. We believe the valuations are very attractive considering the company's high leverage to the prices of cement. Consequently, we are revising our price target for the stock to Rs850, at which it will be trading at US$140 per tonne of cement, which is still a discount to the valuations commanded by its peers. 

 

Jaiprakash Associates 
Cluster: Ugly Duckling
Recommendation: Buy 
Price target: Rs650
Current market price: Rs480

Price target revised to Rs650
At the current market price of Rs480, Jaiprakash Associates is discounting its FY2007 earnings by 21.1x and its FY2007 EBIDTA by 7.6x. We have valued the company on the sum-of-parts basis. We have valued the cement business at the rate of US$140 per tonne of cement and the Engineering & Construction business at a multiple of 7 on FY2008 EBIDTA. Consequently we are revising our target for JAL to Rs650.

Madras Cement 
Cluster: Cannonball
Recommendation: Buy 
Price target: Rs3,250
Current market price: Rs2,388

Price target revised to Rs3,250
We are upgrading our FY2007 earnings of Madras Cement by 6% from the earlier Rs104 to Rs110.6. Further we are introducing our FY2008 earnings for MCL, and the same stand at Rs152. At the current market price of Rs2,388 the stock is discounting its F2007 earnings by 21x and its FY2008 earnings by 15.7x. The stock is trading at attractive valuations on EV/tonne basis with a value of US$116 for FY2007 and of US$109 for FY2008. We are upgrading our price target for MCL to Rs3,250. At our price target the stock will be discounting its FY2008 EBIDTA by 11x and will be trading at EV/tonne of US$146.

 

McDowell & Company 
Cluster: Apple Green
Price target: Book profit
Current market price: Rs878

Book profit
We had initiated coverage on McDowell & Company on December 30, 2005 at Rs471. The stock has appreciated by 86% since then and achieved our price target of Rs750. We recommend investors to book profit. 

 

Container Corporation of India 
Cluster: Apple Green
Price target: Book profit
Current market price: Rs1,413

Book profit
We had initiated coverage on Container Corporation of India on August 11, 2005 at Rs1,100. The stock has appreciated by 28% since then and close to our price target of Rs1,450. We recommend investors to book profit. 

 

Emco 
Cluster: Apple Green
Price target: Book profit
Current market price: Rs800

Book profit
We had initiated coverage on Emco on December 30, 2005 at Rs345. The stock has appreciated by 131.8% since then and achieved our price target of Rs600. We recommend investors to book profit. 

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SECTOR UPDATE

Cement 

Cement majors post strong dispatch numbers
The cement majors have declared impressive dispatch figures for the month of March 2006. GACL with a dispatches growth of 12.7% tops the chart followed by ACC with a growth of 11.5% year on year (yoy). For the full year the AV Birla group tops the chart with a dispatches growth of almost 11% followed by ACC, which recorded a growth of 9%. For the January-March 2006 quarter too, the AV Birla group recorded the highest growth of 13.3% yoy. GACL too gave a stellar performance recording a growth of 13.2% in the same period. Further, the uptrend in the cement prices is expected to continue with the news that the cement manufactures are mulling a fresh Rs3-5 per bag hike in Mumbai and a Rs10 per bag hike in Chennai. This would be the second hike in Mumbai in the last 20 odd days.

Automobile 

Revival in commercial vehicles continues

Tata Motors
The sales volumes for the month of March are better than estimates.

Mahindra & Mahindra
The sales of Scorpio grew by 44% for March at 2,949 units and by 18% for FY2006 at 31,661 units. The jump in the growth in March sales was due to the launch of the new version of Scorpio with additional features at no extra price

Sharekhan Trading Call - JP Associates

Trading Call Updated
Date: 05/04/2006 | Company Name: JPASSO | Call Type: Go Long
Stop Loss/ Reversal: 460.0000
Buy/Sell Price Rs.: 480.00
Current Price Rs.: 510.00
Potential P/L%: 0.1700
Target: 520
Remark:
Investment Argument: The stock is trading at the break-out level from a bullish flag pattern. The 10-DMA and the 20-DMA at Rs466 offer support. Buy the stock with a stop loss of Rs460 for a target of Rs520

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Birla Corp - Trading Call

Trading Call Updated
Date: 04/04/2006 | Company Name: BIRLACOR | Call Type: Go Long
Stop Loss/ Reversal: 294.0000
Buy/Sell Price Rs.: 312.00
Current Price Rs.: 347.25
Potential P/L%: 0.8000
Target: 340-400

Remark:
Investment Argument: Buy the stock with a stop loss of Rs294 for targets of Rs340 and Rs400.

Reliance Petro IPO may open on Apr 10

Reliance Petroleum Ltd (RPL), the wholly owned subsidiary of RelianceIndustries, is likely to unveil its initial public issue (IPO) on April 10.
 
 RPL, which is raising funds to part-fund its Rs 27,000 crore refinery atJamnagar in Gujarat, plans to begin its international roadshows during theweek beginning April 3. The entirely book-built IPO is expected to beintroduced within a price band of Rs 57 to Rs 62.50.
 
 Sources in the investment banking industry said roadshows were beingplanned in cities including Hong Kong, Singapore, London, Boston, New Yorkand San Fransisco. Reliance Industries Chairman Mukesh Ambani is expectedto attend a couple of roadshows, they added.
 
 Stock market sources said going by the huge response of the pre-IPO privateplacement, RPL's IPO might break the previous record of investors'participation in a public float. National Thermal Power Corporation had seta record by attracting 15 lakh applications for its public issue inOctober, 2004.
 
 A clutch of investors including Blackstone, Citigroup, UBS, Deutsche Bank,UTI Bank, SBI, ICICI and IDBI and Mukesh Ambani, were learnt to havescooped up 450 million shares in the pre-IPO private placement. Theinstitutions were believed to have purchased shares at Rs 60 apiece,totalling an investment of Rs 2,700 crore. A formal announcement of this isexpected shortly.
 
 Incidentally, Reliance Industies had invested Rs 2,700 in RPL as its equitycontribution in three tranches in December, January and February.
 
 The IPO will offer 1,800 million shares. Reliance would again acquire 900million shares through the IPO, exactly the same amount to be offered tothe public. As the pre-IPO placement consumed 450 million shares, thepublic would be entitled to apply for 450 million shares.

Sharekhan - Investor's Eye

TVS Motor Company 
Cluster: Emerging Star
Recommendation: Buy 
Price target: Rs210
Current market price: Rs140

The Apache war cry

Key points

• TVS Motor Company, one of the largest players in the two-wheeler segment in India, is a perfect play on the boom in the country's two-wheeler industry. The company has indigenously developed a number of products across the two-wheeler segment. It now has a strong presence in all the product categories: motorcycles, scooters and mopeds. The proposed foray into the three-wheeler market should further fuel the company's growth.
• Its recently launched motorcycle, Apache, has won huge accolades and is expected to capture a 13% share of the premium segment in FY2007. Apache has been launched in only select cities and the initial response to the model has been encouraging. A national roll-out is expected by April 2006.
• With a rise in its volumes, the cost-cutting measures undertaken, an improved product mix with more higher-end products and an entry into the three-wheeler segment, the margins of the company are set to improve. We expect the same to expand by 380 basis points to 11.2% by FY2008.
• The exports of the company are expected to rise with the setting up of a new plant in Indonesia. The new plant should also help TVS Motor to cater to the demand from the fast growing Asean and African markets.
• At the current market price of Rs140 the stock discounts its FY2008E earnings by 10.2x and FY2008E earnings before interest, depreciation, tax and amortisation (EBIDTA) by 5.5x. Considering the company's growth prospects, we believe that the stock's valuations are very attractive. Hence, we are initiating a Buy recommendation on the stock with a price target of Rs210.

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STOCK UPDATE

Bharat Heavy Electricals 
Cluster: Apple Green
Recommendation: Buy 
Price target: Rs2,650
Current market price: Rs2,298

Powering ahead

BHEL came out with its full year's provisional numbers (PNs), and the same are above our expectations. The PNs indicate the following. 

• The net profit for FY2006 rose 68% to Rs1,620 crore because of a higher order intake, which in turn brought the operating leverage into play. 
• The revenue stood at Rs14,410 crore, up 51% year on year (yoy).
• The outstanding order backlog jumped to Rs37,500 crore, up 17% from Rs32,000 crore last year.
  

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SECTOR UPDATE

Automobile 

Strong growth continues
We had mentioned in our note Potential threat from rising interest rates dated March 23, 2006 that the tightening liquidity and the rising interest rates could act as a dampener, thereby affecting the growth in the passenger vehicles segment. However, over the last couple of days the liquidity has improved substantially with the Reserve Bank of India infusing liquidity through the reverse repo window. We believe that the high sales in the passenger vehicles segment for the month of March 2006 were driven primarily by two reasons. Firstly the year ending effect, as the dealers go aggressive during this month on selling and secondly the discounts offered by the manufacturers. However, we would like to closely monitor the interest rates and liquidity going forward for a couple of months.