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Wednesday, September 07, 2005
Monday, September 05, 2005
Sunday, September 04, 2005
Wind Energy - Sharekhan Special
Wind energy: it is windy
Wind energy has registered a robust year-on-year growth of 44% in FY2005. The current installations in the country are approximately 3,595 megawatt (MW). The ministry of non-conventional energy has estimated that by 2012, 10% of the projected 240,000MW of the new capacity will come from renewables-mainly wind power. We are very positive on the sector since the wind power industry is on a high growth trajectory. The beneficiaries will be major suppliers of wind turbines like Suzlon, Enercon and NEPC and auxiliary service providers like Sanghvi Movers and Kemrock Industries.
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Hindu Businessline Recommendations
BUY >> Sanghvi Motors, GE Shipping, Satnam Overseas
HOLD >> Essar Steel, Aurobhindo Pharma, Clariant, Color Chem, Vanavil Dyes
Friday, September 02, 2005
Small-world effect
CONSIDER this. You receive private information that a certain stock is likely to move up. You share this information with your friend. Two days later, you find that the volumes have increased five-fold and the stock has hit the upper circuit! You wonder how the market knew about the stock. Such phenomenon can be explained by the small-world effect.
At a birthday party, you meet a person for the first time. After a couple of minutes, you find that you are related to that person, or that both of you come from the same hometown. You conclude that the world is indeed small!
In the mid-1960s, Stanley Milgram, then at the Harvard University, performed an experiment to test the small-world effect.
Suppose you give an unaddressed letter to your neighbour, asking him to give it to someone he thinks may know your friend in the US. Based on the experiments conducted by Milgram and others, chances are that your friend will receive the letter by the time it changes six hands. This came to be famously called as the six degrees of separation.
Academicians have applied these experiments to study networks. What if we want to connect various towns across the State?
The small-world effect shows that you need not build roads linking each town to every other town. Paul Erdos, the famous Hungarian mathematician, computed the minimum number required to link any network. Interestingly, the minimum number gets smaller, larger the network.
Now, we know that the investors' network is large. Your friend may have told his friend who, in turn, may have told some others. Soon, the message may have passed on to the entire market. That is, perhaps, why no market information remains private for a long time.
Hindu Business Line
Thursday, September 01, 2005
Talbros - FPO
Talbros Automotive Components
Diversifying into forgings
After establishing itself in the field of gaskets, the company is venturing into manufacture of forgings to meet group company's requirement
Talbros Automotive Components (Talbros) is a market leader in the manufacture of gaskets in India, with a market share of around 50%, and supplies to almost all leading vehicle and engine manufacturers. In the year ended March 2005, about 70% of the sales revenue came from the original equipment manufacturer (OEM) segment and about 16% from the replacement market. The remaining, about 14%, came from exports.
Long-term technical assistance agreements executed with Federal Mogul Sealing Systems (Slough) Ltd., U.K; Nippon Leakless Corporation, Japan; and Ishikawa Gaskets Company Ltd, Japan; have provided the company with contemporary technologies to cater to the demand of all kinds of gaskets to almost all OEMs in the country.
Talbros's issue is to raise funds for setting up a Rs 31.82-crore forging unit to cater to the existing demand within the group, make investment of Rs 4.80 crore in the joint venture with Nippon Leakless Corporation, Japan, for catering mainly to the Honda group of companies in India, and expansion of the current gasket manufacturing facility at the Faridabad and Pune plants at a cost of Rs 9.46 crore.
Strengths
Talbros is well positioned to benefit from the growth in the automobile industry in India. Though the growth rate of the auto industry may come down from the heady days of the last few years, it still will be decent, specially in view of the good monsoon, the continued expansion of road network and the low interest-rate regime.
Weaknesses
Talbros has increased its operating profit margin (OPM) significantly over the past year, which is unlikely to be sustained given the dynamics of the auto ancillary industry. There is a risk of lower OPM in future due to pricing pressures from OEMs, depressing the profit going forward.
Presently, Talbros derives 27% (Rs. 22.35 crore) of its revenue from sales to Honda and its associates in the domestic market. It has recently entered into a joint venture with Nippon Leakless Corporation, Japan (NLK) for catering to the Honda group's requirement, with a 40% share and NLK 60% . As per the terms of the joint venture agreement, the sales to Honda and its associates in India would be phased out of the company into the joint venture over three years. Consequently, there will be a loss of revenue to the extent of the sales transferred to the joint venture company.
Talbros is a new entrant in the forging industry and is yet to establish on quality and price parameters. Inability to meet the required quality standards and supply at competitive price will significantly affect the contribution from the project.
The forging project is being set up primarily cater to the requirement of an unlisted group company, which is engaged in the production of steerings and steering components. This gives rise to quesitons of transparency.
Valuation
The Talbros scrip currently trades around Rs 138, discounting the trailing 12-month earnings on pre-IPO equity by around 14 times, which is reasonable. However, after the current IPO, equity will almost double. The rise in OPM has been a major driver of its earnings growth, but the risk of a fall in OPM in future cannot be wished away due to the normal industry practice of OEM-led pricing pressure. The present offer is being made at a price of Rs 90 to Rs 102, which discounts the fully diluted FY 2005 EPS by 22 to 23 times. Benefits of the new projects are likely to be available mainly from FY 2007. Till then, the earnings growth will not be enough to sustain P/E of more than 20 times.
| Talbros Automotive Components :Issue Highlights | |
| Sector | Auto Ancillary |
| Sector P/E Ratio | 18.4 |
| Price | 90—102 |
| Issue Size | Rs 50 crore |
| Pre issue promoter holding | Rs 2.57 crore |
| Post issue promoter holding | Rs 2.82 crore to Rs 2.85 crore |
| Pre issue paid up capital | Rs 5.75 crore |
| Post issue paid up capital | Rs 10.65 crore to Rs 11.30 crore |
| Listing | BSE & DSE |
| Rating: 43/100 | |
Wednesday, August 31, 2005
Monday, August 29, 2005
Sunday, August 28, 2005
Amar Remedies: Invest at cut-off
Source : Hindu Business Line
AN INVESTMENT can be considered in the initial public offer of the Mumbai-based Amar Remedies. Investors can subscribe to the offer at the cut-off price. The offer is being made through the book-building route in the Rs 24-28 price band. Given the current state of the market, we believe investors should also consider booking profits if the targeted rate of return is attained on the stock's listing.
Company background
Amar operates primarily in the Ayurvedic toothpaste segment, from which it derives 85 per cent of its revenues; toothpowder, a pain relieving ointment and a balm chip in with the rest. Amar intends to launch a set of 24 Ayurvedic products to address the health-, hair- and skin-care segments. The proceeds of the IPO is to be used to set up a facility at Surat for the to-be launched products and an R&D laboratory; a portion of the funds raised would also be used for marketing and branding-related activities for the new products, and for working capital purposes.
Amar has a product portfolio of 15 brands of toothpaste, of which 12 are exported and three sold in the domestic market. In FY-05, the company began exporting its products directly instead of through intermediaries, which was the operating mode to address the export market earlier.
Financials and prospects
Amar is a small outfit and ended FY-05 (the company follows a July-June fiscal) with revenues of Rs 106 crore and earnings of Rs 6.75 crore. Revenues have recorded a compounded growth of 55 per cent over a four-year period, earnings at 74 per cent.
The competitive nature of the business is manifest in the operating margin, which, at close to 10 per cent for FY-05, represents a more than 300-basis-point improvement compared to the prior fiscal. Direct exports, which accounted for Rs 5 crore in FY-05, appear to have played a key role in boosting margins. With Ayurvedic medicines increasingly gaining acceptance, largely due to their purported benefit of not having any side-effects, prospects for companies operating in this space appear good. Such medicines are gradually being accepted in the West too, throwing up exports opportunities.
The domestic market for herbal products (including of other disciplines such as Siddha and Unani medicine) is estimated at close to $1 billion, which represents a significant opportunity for a player such as Amar.
We also note from the offer document that though Amar requires Rs 21.7 crore, it would raise at least Rs 36 crore, assuming the offer goes through at the lower end of the price band. The excess funds at its disposal may be used to repay short-term loans of close to Rs 15 crore, which, in turn, would lead to substantial savings in interest costs (Rs 2 crore in FY-05).
Valuation and view
At the upper end of the price band of Rs 28, the stock would trade at about nine times its expected per-share earnings (on an expanded equity base) for FY-06. Our earnings growth estimates are conservative, as the effect of the capex should reflect higher depreciation, though we expect it to be offset in part by a lower interest outgo. The valuation level is competitive compared to peers such as Zandu, whose stock trades at close to 18 times the trailing four quarter earnings. Amar's return on shareholder funds for FY-05, at 27 per cent, is another positive. At Rs 28, the stock would command a market cap-to-sales multiple of 0.7, which, in our view, provides room for an upside.
What to watch for
Amar's toothpaste facility at Daman enjoys tax breaks, which will be partially withdrawn from FY-07 onwards. The higher incidence of taxation thereafter will compress earnings. The inapplicability of the product patent law for Ayurvedic products, which may spawn several me-too products, is also a key risk.
Offer details
Amar is offering 1.5-crore shares in the price band of Rs 24-28. Post-public issue, the promoter holding in the company will fall from close to 100 per cent to 43 per cent. Allianz Securities is the lead manager to the issue, which opened on August 25 and closes on August 31.
Hindu Businessline Recommendations
BUY >> ESAB India, Siemens, SKF India
SELL >> Essel Propack
HOLD >> 3i Infotech
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