Godawari Power & Ispat (GPIL)

Godawari Power & Ispat (GPIL)

Monnet Ispat

Monnet Ispat

Q2FY08 Earnings Review

Q2FY08 Earnings Review

Gokul Refoils IPO

Gokul Refoils And Solvent Limited, a Gujarat based company, engaged in the business of solvent extraction, refining of Edible oils and Vanaspati manufacturing, proposes to raise Rs15bn with an Initial Public Offer (IPO).

The Objects of this issue are to set up a new 1500 TPD Soyabean processing plant near Gandhidham, expansion of its existing edible oil refinery at Surat, investment in its wholly owned Singapore subsidiary, funding part of its long term working capital, brand building activities, investment in increasing warehousing capacities and continuous Capex for existing units, general corporate purposes and public issue expenses.

Gokul Refoil started its business in 1982 and is primarily engaged in the business of Solvent Extraction, refining of Edible oils and Vanaspati manufacturing. The group's interest also includes power generation, commodity trading in the domestic and international markets.

The company markets its products under the brand name "Gokul" in the states of Gujarat, Maharashtra, Rajasthan, Madhya Pradesh and Punjab. The brand enjoys a national recognition and the products are packed and sold include Mustard oil, Sunflower oil, Groundnut oil, Cottonseed oil, Palmolein oil, Vanaspati oil and Soya bean oil these are not only sold in in bulk quantities but also consumer retail packs of 15 Kgs, 15 Litre, 10 Litre, 5 Litre, 1 Litre and 500 ml.

Pan India distribution network spread across 19 States catered by 18 C&F agents and 802 distributors, 3 depots, 15 brokers and 295 resellers, distributing Gokul products through a total 1133 bulk points.

Gokul Refoils has setup a Solvent Extraction plant and an oil refinery at Sidhpur, Gujarat, a refinery of 800 TPD and Vanaspati plant of 100 TPD at Gandhidham, four environment friendly wind mills of 1.25 MW each in Kutch for captive power consumption and a 100 TPD operational refinery in Surat. It has also set up a co-generation power plant of 500 KWH at its Gandhidham unit. At present the company has 680 TPD of seed processing, 600 TPD of Solvent Extraction, 1200 TPD of refining and 200 TPD of Vanaspati manufacturing.

Towards expanding the scale of operations and having global presence Gokul Refoils has setup two wholly owned subsidiaries in Mauritius and Singapore under the name Maurigo Pte Limited and propose to invest approximately Rs250mn i.e. US$ ~6.10mn for enhancing the resources of the subsidiary.

Commenting on company's global expansion plans, Kanubhai Thakkar, MD, Gokul Refoils and Solvent limited said, “Singapore is the global hub of edible oil industry with all major oil suppliers having a base in Singapore. Currently we are sourcing about 1, 50,000 MT of Palm oil from Malaysia and Indonesia and 1, 00,000 MT of soyabean oil from Argentina and Brazil. If we have our presence in Singapore, we shall be in a position to negotiate locally and deal with the small and fragmented oil suppliers of Malaysia and Indonesia, which will further enable us to procure the raw materials at reasonable terms."

“Setting up of this office was a part of our long term strategy of increasing our foot print in the global markets to reduce the involvement of intermediaries and source raw materials from the producers. It will help us in procuring oil at reasonable terms and also providing assured supplies round the year. This global presence shall help us to improve the scope of exports of De-Oiled Cake and our margins in export of de-oiled cake," Said Thakkar.

Gokul Refoils consolidated total income for the financial years / period ended July 31, 2007, March 31, 2007, 2006 and 2005 was Rs6.57bn, Rs15.66bn, Rs12.55bn and Rs9.07bn respectively. The Company posted net profit for the said years / period was Rs207mn, Rs254.2mn, Rs123.4mn and Rs200.5mn respectively.

Diwali Picks

Diwali Picks

DOW slides again

Both the major US indices declined on Firday on worries over the tech sector and concerns on subprime losses.

While the Dow dropped 223 points to 13,043, the Nasdaq Composite was down 68 points at 2,628. For the week, the Dow dropped over 4% and the Nasdaq Composite Index declined 6.5% - its biggest weekly loss since 9/11.

Indian ADRs, too, declined on Friday. ICICI Bank plunged over 7% to $60.24. HDFC Bank, Tata Motors, Infosys and Wipro also declined.

Analysts' Picks

PTC

CMP: Rs 152.40
TARGET PRICE: Rs 99

HSBC Securities has downgraded its rating on PTC India to ‘underweight’ from overweight, but maintained its target price of Rs 99 for the stock. “The stock has had a strong run of 75% appreciation over the last month and is now trading at 42.7 times FY08e(estimated) earnings, which is substantially higher than the Chinese and Indian utilities average of 22.1 times. We believe it is fully priced for the next 12 months and the time has come to book profits,” the HSBC note to clients said.“Since we believe in its long term growth story on the back of higher visibility of implementation of its power projects, we maintain our forecasts for net profit CAGR at 54% over the next five years. We have not factored any future investment or dilution of equity into our forecasts,” the note added.

Oriental Bank

CMP: Rs 233.65
TARGET PRICE: Rs 280

Merrill Lynch has retained its ‘buy’ rating on Oriental Bank of Commerce with a price target of Rs 280 despite weak earnings for July September. “While core earnings have disappointed in 2Q(July-September), we maintain our buy given the low valuations (0.9 times FY09E book value with 15% return on equity) and the fact that it is one of the few banks that is providing for AS-15, giving it some buffer to its earnings. We believe OBC currently trading at 1.0 time FY08E book, could trade up to 1.1 times FY09E adjusted book given the forecast rise in ROE to +15% in FY09E on back of improving NII (net interest income, rising fee income and lower NPL (non performing loan) provisions,” the Merrill Lynch note to clients said.

IVRCL Infra

CMP: Rs 521.15
TARGET PRICE: Rs 601

ABN Amro has initiated coverage on IVRCL Infrastructures & Projects with a ‘buy’ rating and a sum-of-the-parts based target price of Rs 601.“We believe IVRCL will be a key beneficiary of the government's plans to develop the agriculture sector by increasing irrigation facilities. IVRCL’s diversification into power distribution (18% of sales) and roads should balance its product mix, as these segments are growing exponentially due to private participation,” the ABN Amro note to clients said. Adjusting for subsidiary value of Rs 158.1 per share at 15% holding company discount, the stock trades at 17.3 times FY09F (forecast) diluted EPS of Rs 24.8, the lowest among tier-2 construction companies.

Samvat 2064 a whimper

The Samvat year 2064 began on a weak note as Sensex plunged by 151 points in the special Diwali muhurat trading on the Bombay Stock Exchange today due to the heavy profit sellings by funds.

The Sensex, which fell by about 917 points or 4.59 per cent in the last four trading sessions, fell further by 151.33 points at 18,907.60 in the muhurat trading on the first day of Hindi calender year Samvat. It witnessed the day's high of 19,329.57 and a low of 18,737.22 points.

Similarly, the broad-based National Stock Exchange index Nifty fell by 35.50 points at 5663.25, after touching a high of 5794.20 and a low of 5614.90 points.

Visa files for $10 billion IPO

Visa Inc, the world's largest credit card network, filed with regulators on Friday to raise up to $10 billion in an initial public offering, in one of the largest and most eagerly awaited US stock offerings.

Visa announced the offering two days after agreeing to pay $2.1 billion to settle a three-year-old antitrust lawsuit with rival American Express Co.

The card network did not reveal in its registration statement filed with the US Securities and Exchange Commission when it plans to go public, how many shares it plans to offer, or the expected share price.

San Francisco-based Visa outlined plans in October 2006 to float a majority of the network, which is now owned by its 13,400 member banks, and at the time said it hoped to go public within 12 to 18 months.

On Wednesday, it agreed to settle a 2004 lawsuit that American Express filed against Visa, the smaller MasterCard Inc and eight banks charging them with anti-competitive practices.

The new publicly traded entity, Visa Inc, will combine Visa's US, international and Canadian operations. Another affiliate. Visa Europe, will remain a membership organization and take a minority stake in Visa Inc.

Visa has said it plans to use IPO proceeds to fund expansion and an escrow account to help cover legal bills. The network and MasterCard face a variety of antitrust lawsuits from rivals and retailers, some of which accuse them of price fixing.

Visa's roots date to 1958 when a Bank of America Corp predecessor created the blue, white and gold BankAmericard, helping pave the way for the modern credit card business. That card has evolved into Visa.

MasterCard went public in May 2006 in a $2.4 billion IPO and its shares have since risen roughly five-fold.

Morgan Stanley spun off its Discover Financial Services, but those shares have fallen by about one-third.

Visa said Bank of America Securities, Citi, Goldman Sachs & Co, HSBC Securities USA Inc, JPMorgan, Merrill Lynch & Co, UBS Investment Bank and Wachovia Securities are joint book-runners for the IPO.

Post Market Commentary

The auspicious day of Diwali does not prove to be good for the investors as the market tumbles to close the trading session on a negative territory. The BSE Sensex fell by 151.33 points to close at 18,907.60 and Nifty dropped by 35.5 points to close at 5663.25. On this auspicious day though the market opened with a huge gap but all of a sudden lost the grip and fell to trade in red by pairing most of its initial gains. The global cues are not supportive which led the investors to take wait and watch approach as well as calculated steps in booking their positions. But overall the market breadth was strong as 1797 stocks closed in green while 697 stocks closed in red. The BSE Mid Cap and Small Cap closed higher by 67.85 points and 145.97 points at 8,013.63 and 9,756.88 respectively.

The oil and gas index grew by 40.63 points to close at 11,634.38. Pushing it up are Essar oil (18.55%), HPCL (3.57%), IOCL (2.96%), BPCL (2%) and RPL (1.13%) closed higher.

BSE bankex index dropped by 140.77 points to close at 10,212.42. From the losers pack are Kotak bank (2.33%), ICICI bank (2.19%), HDFC bank (1.36%), SBI (1.01%) and Union bank (0.91%)( closed lower.

BSE Metal index declined by 185.30 points to close at 16,864.22 Pulling it down are Jindal steel (2.36%), SAIL (1.95%), Tata steel (1.31%), JSW Steel (1.30%) and Sterlite (1.20%) closed in red.

The auto index slipped by 21.90 points to close at 5,207.21. Scrips that fell are Tata Motors (1.42%), Bajaj Auto (1.33%), M&M (1.04%), Hero Honda (0.89%) and Maruti Suzuki (0.37%).

The IT index fell by 45.61 points to close at 4,253.25 HCL tech (3.25%), Iflex (2.42%), Wipro (2.07%), Satyam (1.75%) and Infosys (0.72%) closed in negative.

RPL vs Oil Refining and Marketing Companies

How did RPL fare versus all domestic oil refining and marketing companies with regards to their valuations and capacities? This analysis throws up some interesting findings.

RPL has basically higher GRMs (Gross Refining Margins) compared to most other companies. Most of it is because of the latest machineries and technologies that RPL uses, produces estimates of about USD 15-18 per barrel of GRMs versus USD 6 of other companies.

A look at all the oil and marketing companies versus RPL will reveal what is in store. All these are 2010 estimates because RPL will go on-stream in 2010. So the analysis considered 2010 estimates.

The total revenue is close to about Rs 4,74,481 crore for all the oil and marketing companies put together versus Rs 21,908 crore for RPL – these are 2010 estimates.

PAT (profit after tax) for all the other oil and marketing companies is estimated to be close to about Rs 10,416 crore versus 2010 PAT of about Rs 7,424 crore for RPL. PAT is low for all these oil and marketing companies put together on those higher sales is because these companies have lower GRMs.

A look at the refining capacity reveals that RPL will have a refining capacity of close to about 28 million tonnes per annum versus the refining capacity of all the oil refining and marketing companies put together is about 117 million tonnes. That means that RPL has one-fifth the refining capacity of all the oil and marketing companies
put together.

A look at the refining capacity reveals that RPL will have a refining capacity of close to about 28 million tonnes per annum versus the refining capacity of all the oil refining and marketing companies put together is about 117 million tonnes. That means that RPL has one-fifth the refining capacity of all the oil and marketing companies
put together.

Having said that, MCap of all the oil and marketing companies is still lower than RPL. RPL's MCap is about Rs 120,000 crore versus Rs 100,000 crore of all these oil refining and marketing companies.

other estimates value other oil refining companies less aggressively than RPL. Why these companies are conservatively estimated is because of the subsidy burden, which these companies have. The marketing losses that PSUs and other companies have to take have also been considered.

At some point in time, these marketing companies will be profitable. So the lower estimates that have taken on PAT will increase aggressively. Having said, that analysts are not saying that RPL is expensive or the other oil and marketing companies are cheaper at this point in time. They are just giving a comparison between all the other
oil refining and marketing companies versus RPL at this point in time.

RPL's EPS is close to about 16.5 in 2010 versus all the oil refining and marketing companies; it is close to about Rs 202. So one can imagine the difference over there, also price to earnings ratio of RPL in 2010 is estimated about 16.1 versus 9.6 - that is the average price to earnings ratio of 2010 of other oil refining and marketing
companies.

These are just comparisons, analysts are not saying that one thing is cheaper than the other or one thing is more expensive than the other. These are just comparisons between other oil refining and marketing companies and RPL.

OIL COS FY10e

(Rs Cr) Revenue PAT

IOC 2.35 lk 5,205

BPCL 1.02 lk 1,601

HPCL 82,909 1,595

Bongaigaon 5,909 331

Chennai 21, 854 670

MRPL 26,191 1,014

Total 4.74 lk 10,416


OIL COS FY10e

(Rs Cr) Revenue PAT

RPL 51,908 7,424


OIL COS FY10e

(Rs) EPS

IOC 43.70

BPCL 44.30

HPCL 47.10

Bongaigaon 16.60

Chennai 45

MRPL 5.80

Total 202


OIL COS FY10e

(Rs) EPS

RPL 16.50


OIL COS MKT CAP

(Rs Cr)

IOC 55,650

BPCL 10,170

HPCL 8,050

Bongaigaon 1,376

Chennai 4,830

MRPL 13,901

Essar 5,851

Total 99,828


OIL COS MKT CAP

(Rs Cr)

RPL 120,802



OIL COS VALUATIONS

FY10e P/E

IOC 11x

BPCL 7.6x
HPCL 5.0x

Bongaigaon 4.2x

Chennai 7.1x

MRPL 13.8x



Total 9.6x

RPL 16.1x


OIL COS CAPACITY

Refining mtpa

Total ex-RPL 148.97

IOC 60.2

HPCL 13.4

BPCL 22.3

Essar 10.4

ONGC+MRPL 10.4


REFINING CAPACITY

mtpa

RPL 28


ANALYSING RPL

-GRMs higher than most other companies

-Higher GRMS due to latest machineries, better technology

-GRM estimate of $15-17/bbl Vs $6/bbl for others

-RPL refining capacity of 28 mtpa Vs 117 mtpa for others

-Mkt cap of all other refining, mkt cos still lower than RPL

-Subsidy burden hits state run oil refininy companies

-Other oil refining cos have higher profits even after a/c for mktg losses

-RPL will start earning profits in FY2010

-RPL EPS then would be Rs 16.50 Vs Rs 202 of others put together

-FY10 total rev of oil refining cos seen at Rs 4.75 lk cr Vs Rs 21,908 cr of RPL

-FY10 total PAT of oil refining cos seen at Rs 10,416 cr Vs Rs 7,424 cr of RPL


Via Another Group

Our Take

Bubble - when it bursts, people will lose a lot of money

Disclaimer - Don't own RPL

Rakesh Jhunjunwala - cautious, RNRL, RPL don't deserve to run up like this

Q: Last year, you were telling everybody that 15% is great and that we should not expect 50% every year. We have done that again. Are you a bit surprised?

A: I would say I am surprised to some extent by at least the gain of the last one-month. The space and speed has surprised all of us.

Q: Do you think we can do an on core, third time lucky with 50% again or is that being too optimistic?

A: It is time to reflect, we have had a rise from 3,000 to 19,000-20,000. I do not think economic conditions in America are very good. Asian markets there are deteriorating at a fast speed. It is an economy, which is drunk on credit. The credit markets are value effected, so I will not be circumspect at these levels.

We have had such a humongous gain from 3,000 to 19,000-20,000. I think markets are going to consolidate around these levels and would feel more comfortable as an investor.

Q: Would you be cautious here or do you see much higher levels even next year on this base?

A: What makes me uncomfortable is the divergence in valuations. You cannot have Infosys making a 52-week low as their earnings have not come down and they are still growing 15-20%. It is one of India’s best performing investments in time to come. You cannot sustain this kind of divergence in valuations, where you keep giving value to momentum, and you lose all value to value. That would be the first sign of an indication, may be it could happen in a week, ten days, or maybe we are in it. May be it could not happen in the next three months and we could go 20% higher, but I think this is the first indication and we have to be very cautious in this market.

Q: When you say you are cautious, are you cautious because of the excesses that have happened? Is it why you are calling for a correction or have you in the medium-term too become circumspect?
A: There are two-three things internationally especially in America where we are facing large uncertainty. We don’t know how this uncertainty will pan out, what value will the dollar lose, and what disorder it can cause to financial markets. I am extremely bearish on US financial markets and think the sub-prime problem is going to be far larger than what people are imagining. There is a paradigm shift in India. The bull market is very much alive. The factors driving this secular bull market are very much alive and kicking, I have no doubt about it. I am hopeful that five years later we are going to be far higher than where we are today. But the fact remains that we at 19,000 are at 19 times 2009 earnings. There is vast divergence in the valuations of the Sensex or Nifty, you have very narrow group of stocks gaining.

Q: Undeservedly are you saying?
A: I will reserve my opinion there. The fact remains that in a true bull market you cannot have quality stocks going to 52-week lows. You can have stocks with no operating income, whose valuations are 100-200 times earnings. The narrowness of the rise, the uncertainty that we are facing, and the speed of the rise, is why I feel the markets need to pause. They need to take a breath and that will give it strength for the long-term rise.

Q: When you speak about a correction, are you speaking about a major sell-off or just about a 10-15% correction? We have seen three of those this year and we are still up 50%.
A: There is a difference between opinion and the empirical evidence of what the screen is telling us. In the last 15-20 days, flows from abroad have considerably slowed down. World markets after the second Fed cut are showing some kind of resistance and weakness. The market is losing breadth and is facing resistance at higher levels. The market should pause and correct, it is more than opinion, as that is what the screen is telling us. We have not had any correction right from 3,000 to 20,000. We have had very severe corrections but they have been related to prices, there has not been any timewise correction. What will really test people’s belief in this market and country will be when the market corrects not so much valuewise but corrects valuewise and timewise. I can’t believe we are going to have a ride from 3,000-40,000-50,000 where investors’ conviction and patience are not going to be tested.

Q: You see this as a likely scenario. Is 16,000 not inconceivable or are you looking at that big a correction?
A: Our last rise was from 14,000 to 20,000, so surely we could carry a 50-60% rise. Things internationally are going to turn far ugly than what people have anticipated. I don’t know valuewise, but timewise we are going in for a good correction. The sheer momentum with which any stock that has some kind of story build around it goes up at unbelievable volumes. I feel the market is ignoring a lot of stocks, these are the first signs of danger. For the whole rise, the market is going to test us timewise and valuewise.

Q: Are you getting the first sense of euphoria creeping into the screen after those 20-25% blowouts that you have seen in the last few weeks?
A: Absolutely, blowing into all kind of stocks. There are some bull and cock story scrips that are seeing tremendous volumes, unbelievable price rises, and nobody wants to talk any sense there. Somebody guesses, spread some story, and advises a buy and investors just go and buy. These are signs, the markets always do that, there is noting surprising about it. But when markets do this, it is time to be alert in my opinion.

Q: Are you surprised that Infosys is hitting a 52-week low while the market hits new highs. Is it a sector write off for you or do you see value there?
A: A bull market does not mean that some stocks just go up and everything else goes down in value. We are in the initial stages of what is going to be a very big, long-term bull market. In the last two-three months, along with international uncertainty we are staring at local elections in the next 6-12 months, which the markets may not like. Don’t forget that the worst mistakes are made in the best of the times.

I don’t agree with this theory that interest rates in America will go down, all problems will be solved, and all assets in the world will inflate. Markets have had a too good and easy this Goldilocks situation. This is a dream run, in the world this has never happened that you reduced interest rates and all ills are over.

You have given USD 2.5 trillion in one-year to people who did not have money to repay. I don’t buy this theory that he will keep reducing interest rates and we will keep buying emerging markets. You can’t take valuations to any level and expect people to keep on buying. Why have flows slowed down in the last two-weeks? Why is China down 5% today? All of Asia and all emerging markets have been weak in the last 10-12 days.

Q: Let me come to another sector which have been one of the pillars of this bull market, telecom. The big pillars like Bharti and even Reliance Communications have started correcting. What do you see for the next one-year for this space, is the best behind them?
A: Some of the dreams of corporate India are now going beyond all reality. Look at the people applying for telecom license, I don’t know what kind of background and qualification they have to go into the telecom business. Someone is doing a broking business and he wants to get into real estate, someone is doing real estate and he wants to get into the telecom business. The way the markets are giving money to public issues, it seems that nobody is even looking at the prospectus or reading it. They are just finding what the prices are in Rajkot and how much is the issue going to be oversubscribed. If you give money Rs 50,000-1 lakh crore or even Rs 10 lakh crore it is not going to be enough because of the way dreams are expanding and the way in which people are getting money, these are all danger signs.

Q: What is your sense on this whole oil and gas space, especially exploration and refining, and the way the market is valuing some of these stocks?
A: I do not apply my mind at all there. There is surely value in oil refining companies. IOC has got a lot of non-refining and non-marketing income. The market doesn’t want the government to decide what income they will have and whether there is very good yield. Never forget in all this momentum that in 1992 the price of Hindustan Lever was Rs 18.20 whereas the index was 4,300, but in 2003 when the index was 2,900 then HLL was Rs 328. As an investor I found that it is not how high my scrip goes, it is at what level it settles after it goes high. If a stock moves from Rs 100 to Rs 1,000 and comes back to Rs 20, then nobody really gains. But if the stock grows from Rs 100 to Rs 1,000 and then does it stop at Rs 600 or Rs 500, I don’t know.

Q: You were speaking about excesses. Have you found some excesses in any of the stocks which we discussed over the last few weeks?
A: I don’t know what is RNRL business, I am confused and didn’t make any effort to find out also.

Q: But RPL tippled and that has a business?
A: It has a market cap of more than Infosys. I can’t say anything beyond that. I am told it has a market cap of more than the entire refining sector.

Q: Some other ideas?
A: In four years, a share of Great Eastern Shipping has appreciated about 25 times. It was Rs 25, when the management bought back six crore shares, they got all those shares in the range of Rs 5-7.

Q: Will you remain cautious for the next few months or a year?
A: We live in uncertain ages and times. Let us see how this will pan out. We will react to it but let us be prepared. We will react to it as it pans out. I don’t know whether the index will stop at 16,000 or if it may have a bottom there, there may be no correction at all. I have some feelings and am going to react to it as the circumstances arise.

As humans and investors we must have the maturity to realize that we can’t earn the wealth without time passing, without it being tested, and without our conviction being tested. Nobody has earned wealth easily and retained it.

I feel we have had it too good and easy to really last. We are going to be tested. In view of the narrowness, rise of uncertainty in the world financial markets, the fact is that we are going to face an election, and the speed at which we have gone up, the only thing I am saying is be alert and cautious and always be there in the market.

Diwali Picks

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Grey Market - Mundra, Reliance Power, Empee

Reliance Power -- 60 to 62


Mundra Port & Sez 400 to 440 520 to 540


Empee Distilleries 350 to 400 100 to 110


Edelweiss 725 to 825 725 to 750


Varun Ind. 60 45 to 46


Religare Enterprises 185 280 to 300


Barak Valley Cement 37 to 42 17 to 18


Rathi Bars 35 +/- 1.50 to 2


Allied Computers 12 12 to 13


SVPCL 40 to 45 +/- 2 to 2.50

Diwali Picks - Atul Suri

Fundamental reasons may be right why we might fall

Technically, market may take sharp upmove and see a bigger correction later

Sad part is that participation is bad - among stocks - some stocks haven't moved at all

Upmove limited to some stocks

Nifty might go to 5500 and then sharp upmove

Would be worried

1. If move is limited to few stocks

2. If move doesn't lead to higher top


Market is segmented