RBI's Report Of Banking Sector

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Motilal Oswal - Nagarjuna Constuction

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Motilal Oswal - Himatsingka seide

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Educomp Solutions - Indiainfoline

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Celebrity Fashions - IPO Analysis

Costly fashion

Aiming to push up exports as well as domestic retail sales

Celebrity Fashions (CFL) designs, manufactures and sells men's garments, catering to leading international brands and also to the domestic market through own brand, Indian Terrain. Set up in 1988 as a small 50-machine factory with 72 people in Chennai, the company has grown to eight factories (4,283 machines), housed over 300,000 square feet, employing over 5,000 employees.

The IPO will raise Rs 72.8 crore to Rs 81.9 crore. CFL proposes to spend Rs 46.26 crore to finance the acquisition of Ambattur Clothing, with a capacity of 6 million trousers per annum, and Rs 9.34 crore to set 20 exclusive Indian Terrain stores over the next three years. Moreover, the company will set up a new factory at Irrutgattukottai to manufacture tops with a capacity of 920 machines at a cost of Rs 23 crore. The company will utilise Rs 18 crore for working capital.

Strengths

• The abolition of the quota regime has opened new growth avenues for export-oriented garment companies such as CFL.

• The Indian retailing industry is set to grow and CFL, which has built its brand,is well positioned to ride the boom.

Weakness

• CFL’s revenues are highly dependent on a limited number of buyers. For example, its top most customer contributes nearly 32% of its export revenue. The loss of business from any one of its major buyers may adversely affect the top line and bottom line.

• CFL’s Indian operations, consisting of sales from Indian Terrain, were making losses till FY 2005 due to the high advertising expenses. They have started making profit from the current year.

• Bennet, Coleman and Company has been allotted 7.34% of the post-issue equity at Rs 110 (post-bonus), for which CFL would receive benefit over the next three years.

• CFL plans to spend huge amount on advertising.

• There are no plans to enter new segments like women’s wear or kids’ wear.

Valuation

In FY 2005, CFL reported a profit of Rs 5.80 crore with an EPS of Rs 3.2 on diluted equity. The PE ratio stands 50 times at the lower end of the offer price (Rs 160) and 56 times at the higher end (Rs 180). Gokaldas Exports and Zodiac Clothing, much better placed than CFL, are trading at PE of 19 and 31 times, respectively.

The first half results of FY 2006 give an annualised EPS of Rs 5.8. Considering this EPS, PE will be 27 to 31 times. On the same basis, PE on an annualised EPS of Gokaldas Exports and Zodiac Clothing is 15 and 33 times, respectively. As recently as October 2005, CFL allotted equity shares at Rs 110 to private equity investors.

Educomp Solutions IPO Analysis

Good market potential

Focus areas have good growth success in the US can open up huge opportunities

Educomp Solutions is promoted by the husband and wife team of Shantanu Prakash (IIM, Ahmedabad alumunus) and Anjlee Prakash (PHD in education). Headquartered in New Delhi, Educomp employs more than 850 professionals and has a presence in 27 locations in India. It has a fully owned subsidiary in the US.

Educomp Solutions focuses on K-12 (Kindergarten to Class 12) education. It mainly operates in four segments, Smart Class, Professional Development, ICT (Information Computer Technology) and Others (Retail). Smart Class is a technology-enabled learning solution, which caters to private schools in India under the BOOT (build, own, operate and transfer) model. In FY2005, this segment contributed around 8.5% (Rs 2.95 crore) of the total revenue and 3.5% of the total gross profit (Rs 63 lakh), with a gross margin of around 21.4%. The company is also planning to increase its presence in the US market through this product in the coming years. However, in the US market, only the content solution will be provided under license to private schools, and not the hardware as is done in the Indian market.

The professional development segment focuses on training teachers, by providing them skills in inquiry-based learning, creative thinking, and building problem-solving skills among students. In this segment, Educomp partners with Wipro, Microsoft, and the Azim Premji Foundation. This segment contributed around 30% to the top line in FY2005 and 40% to the gross profit, with an impressive gross margin of around 65%.

The ICT business segment caters to government and state schools in India. In this segment, Educomp Solutions enters into a long-term (usually five years) contract with the government schools to provide the entire IT solution for schools / institutes covered by the contract. The contract is a BOOT arrangement, translating all assets to the school at a nominal residual value at the end of the contract period. The payment terms are usually on a quarterly basis. The company has worked with a number of states in India such as Karnataka, Tamil Nadu, Andhra Pradesh, Assam and Orissa. This segment contributed around 38% of the total revenue in FY2005, and 20% of the gross profit, with gross margin of around 25%.

The forth segment is meant for catering the retail market, with a range of toys like Playgo, and Learning Road and educational CDs. Educomp Solutions plans to launch a chain of retail stores, "Play – n – learn", on a franchise model. The first of such stores has already been launched in Gurgaon, Haryana.

There are some other businesses like online tutoring for the US market, learning portal PlanetVidya.com, campus management system, eCampus, and annual maintenance contracts. The other business segmenst contributed around 24% of the total revenue with a gross margin of 88%, generating 41% to the gross profit in FY2005.

The proceeds of the current IPO will be utilised to fund the capex required for the Smart Class project (Rs 15.93 crore), capital expenditure for the Education Infrastructure Projects (Rs 30.83 crore), capital expenditure for the content development facility in Bangalore, India, for US Smart_Class project, (Rs 10.98 crore) and investment in US subsdiary (Rs 8 crore). Educomp Solutions has also earmarked Rs 10 crore for acquisition.

Strengths:

The market size is apparently huge as computer literacy is still very low and an increasing number of schools and state governments are realising the need to provide computer literacy and computer aided learning to students as well as teachers.

Over the next few years, Educomp Solutions plans to expand its global business with a focus on North America. It will also build on its existing initiatives to provide digital content to schools as well as online tutoring in the US, which is the world's largest education market, with a K-12 content spend of over $10.2 billion (2004 figures) and an online tutoring market spend of over $4 billion.

Weaknesses:

Educomp Solutions derived around 32% of its total revenue from the orders placed by trusts managed by the related parties. In FY 2005, Rs 10.29 crore of income (32.06% of total income) was generated from trusts and in the April-June quarter of FY2006; Rs 1.99 crore of income (36.64% of total income) was generated from trusts.

In the last three years (till FY 2005), the top line of Educomp Solutions grew at a CAGR of only 16% to Rs 33.13 crore. Net profit spurted from Rs 1.26 crore to Rs 7.93 crore, mainly due to the jump in the operating profit margin to 47.6%.

Educomp Solutions business is seasonal and most of the revenue and profit is booked in the second half, specially the fourth quarter.

Valuation:

The offer price band of Rs 110-125 discounts FY 2005 EPS of Rs 5 on post-issue equity capital by 22 to 25 times. The PE is high for a small company. But considering the market size in India and the US market opportunity, the offer looks interesting.

Bartronics India - IPO

Price is a big bar

The value-added reseller in a niche field is going for acquisition-based international growth

Bartronics India (BIL), a leading automatic identification and data collection (AIDC) and radio frequency Identification (RFID) solutions provider, is entering the capital market by issuing 65 lakh equity shares through a 100% book-building offer. The price band has been fixed in the range of Rs 63 to Rs 75. With the money raised through this issue, the company plans to enhance its technological base through R&D capability and to expand its business overseas.

The company ‘s current promoters are A B Satyavas Reddy and R Satish Reddy, both of whom are technocrats with about a decade of experience in various industries.

The business

BIL offers consulting services, design, software, hardware, customisation and full implementation of integrated and tailor-made AIDC- and RFID-based systems. The company also provides business and technology strategy, systems design and architecture, applications implementation, network and systems integration in this field.

BIL has three business segments: AIDC Solution, RFID Solution and Retail Solution. In the AIDC solution segment, the company provides bar code- and biometrics-based solutions, where the data related to the process flow get automatically fed into the computer system of the client. In the RFID solution segment, similar solutions are provided through RFID technology. However, in the Retail solution segment, inventory management solutions are offered based on both bar code- and RFID-based technology.

All the major equipment required for the solutions are imported. BIL provides the middle-ware solutions along with the imported hardware so as to integrate the systems to the requirement of the client. On an average, hardware constitutes approximately 60% of the contract value.

In FY 2005, BIL generated 80% of its revenue from the AIDC, 15% from RFID and 5% from Retail business. In half year ending September 2005, the contribution was 50%, 40% and 10%, respectively. Going forward, the revenue contribution will tilt more towards the RFID and Retail segments. On an average, the annual maintenance (AMC) revenue constitutes 20% of the company’s turnover and 60% of the business comes from repeat orders.

Project cost

For its new initiatives, BIL has planed a project cost of Rs 29.8 crore. Of which, a significant part goes to the establishment of the R&D center and international expansion. The company is raising Rs 34 crore to Rs 40.5 crore from the public issue. The surplus money will go for acquisition, for which Rs 4.5 crore has been earmarked.

Strengths

*BIL operates in a niche area of AIDC business, which is essential for the automated business processes of today. The implementation of organisationwide ERP software has made the requirement of automatic data-capturing and feeding to the automated systems essential for enhancing the pace of the business processes for organisations.

* Established in its field, BIL has a reputed clientele including corporate houses Tata Steel, Tata Motors, HLL, ITC, Ashok Leyland, TVS, CMC, Ranbaxy, Compaq, VST, Whirlpool, ITW, Dr.Reddy’s, and Nagarjuna Construction. .

* The recent focus on RFID technology, which will replace some bar code-led business, will enhance BIL’s scope of repeat business along with new business.

*The government of India favors foreign direct investment in the retail sector. Bar code technology plays a very important role in this sector. The hardware and software tools of this technology have become essential for retailing. With its experience, BIL is at an advantageous position to meet the demands of the retail sector.

Weaknesses

*The bar code business has reached saturation in the country. Therefore, the growth for BIL will come from adding more international clients and enhancing the RFID business. The company is targeting acquisitions abroad to enhance its international exposure. However, any overseas business, and that too based on acquisitions, involves risks.

*The technological depth of the business is low. It is more of a value addition. So the entry of global players with good technological depth is a threat to BIL’s new RFID business.

*All the service contracts entered by BIL are based on fixed price. Also, the project-based business model requires significant working capital till completion. Notably, the general contract size spans more than 180 days. In this context, any rise in cost of the project may affect the margin.

Financials

In FY 2005, BIL reported sales of Rs 18.06 crore and net profit of Rs 2.4 crore. Compared to the previous year, the operating profit was marginally affected due to rupee-dollar volatility. The company imports all its raw materials. In half year ended September 2005, BIL reported sales of Rs 12.77 crore and net profit of Rs 2.68 crore.

Valuation

*At the issue price of Rs 63 on an expanded equity of Rs 14.57 crore, the first half FY 2006 annualised EPS works out to Rs 3.7. PE stands at 17. At the issue price of Rs 75, PE works out to 20. There is no comparable listed player and PE is high for a small company.

Bartronics India: Invest at cut-off

AN investment can be considered in the initial public offering of Bartronics India as it has immense growth potential; it offers product-tracking services that are likely to play an increasingly important role with companies focussing on logistics to improve profitability. The boom in organised retailing, the increasing awareness of the need to ensure quality products and packaging, and the likelihood of mandatory tracking information for an expanding range of products in the domestic and overseas markets should drive growth.

Bartronics is likely to benefit from new product tracking services that are gaining popularity and may become the norm over a five-year period. Opportunities in the healthcare and security spaces are also likely to expand in the developed countries and in India. We expect Bartronics to post robust revenue growth.

Earnings are also to follow a similar path, though profitability levels could slip, as the company deals with bigger players in the years ahead. However, higher revenue growth could compensate for the slip in margins. The Bartronics IPO is in the Rs 63-Rs 73 price band. In line with the IPO trends over the past six months, this, too, appears a tad stiffly priced; there would have been a greater degree of cushion for investors had it been priced at the lower end of the price band. The stock is priced at 10-12 times its earnings for FY-07 based on conservative estimates of earnings growth. We expect the company to grow at higher rates and this could enhance the comfort level for investors. As a small-cap stock, Bartronics will be subject to a high degree of volatility; the returns are, however, likely to compensate for the risk element.

As a company that offers technology-based product tracking solutions and services, Bartronics is likely to be perceived as a logistics play. Stocks from this space have attracted investor fancy over the past year and as we expect this trend to continue, Bartronics is also likely to be a beneficiary. Our recommendation does not, however, factor gains on listing. Bartronics offers services that enable automatic identification of products and persons and creates the infrastructure to keep track of their movement. Such services are critical to efficient management of the supply chain; the availability of high-speed computer networks enhances the scope for using information generated in such a tracking process in a comprehensive manner and capitalise on every opportunity to maximise efficiency in logistics.

Bartronics has so far focussed on the manufacturing sector and has a clientele that includes frontline players in several industries. Even as opportunities open up in this space, we expect retailing to emerge the major avenue for such services in India.

Domestic retailing companies appear to be moving gradually towards comprehensive tracking information as it improves inventory management, ensures superior control over payments and billing, and enhances the ability to stock fast-moving products. Recently, they indicated that such information should be made mandatory. As suppliers benefit from such systems, we expect the market to grow at a rapid pace over the next five years.

As FDI in retail is only a matter of time in the Indian context, the entry of global majors will also lead to adoption of best practices. If their outsourcing from India increases in the process (as has happened in China), it could boost the product-tracking services.

But the demand for the more contemporary tracking services is likely to improve only when prices decline to form a small percentage of the cost of a product. This is likely to happen over three/five years as demand for such products rise in the global markets, driven by initiatives by companies such as Wal-Mart, Metro and Carrefour, to name a few. Declining costs of technology processors will also further the process.

As security concerns mount across the globe, tracking services in airports, Railways and where people congregate, will offer a revenue opportunity. Bartronics has implemented people management systems in Vaishno Devi and Tirupati and this should stand it in good stead to tap opportunities driven by security concerns.

We also note that the company, despite its small size, has pursued growth using debt, and managed to service it comfortably. Now, it aims to use the offer proceeds to acquire a debt-free status, the savings in interest cost will boost earnings. Expansion of its service network, and investment in a research and development facility are likely to prove beneficial over the longer term.

The principal risks to our recommendation are a threat from global players which may eye the Indian markets, and the possibility of a decline in profitability levels. The risks of a small-cap status will be neutralised by commensurate returns. Buy with a one-to-two year perspective.

Offer details: Bartronics is offering 6.5 million shares and will mobilise Rs 40 crore-50 crore depending on the pricing. The offer opens on December 20 and closes on December 24. The lead managers to the book-built offer are Karvy Investor Services and Centum Capital. The final offer document is available on www.bartronicsindia.com and www.sebi.gov.in.

Sharekhan - Investor's Eye

3i Infotech
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs186
Current market price: Rs148

Revenue guidance may be upgraded
According to media reports, 3i Infotech may raise its revenue growth guidance upwards for the current fiscal due to the incremental revenues from the inorganic initiatives taken over the last few months. The three acquired companies, Innovative Business Solutions Inc, FormulaWare Inc and SDG Software Technologies, have cumulative annual revenue run rate of around USD$10 million. Consequently, the management has indicated that the revenue growth guidance of 25-30% given earlier may be revised upwards in the forthcoming board meeting next month.

SKF India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs406
Current market price: Rs270

Rolled up to Rs406
SKF India's transformation from a product company to an engineering solution provider will reduce its dependence on the automobile sector (which is cyclical in nature) and could act as a big re-rating trigger for the stock. We maintain our Buy recommendation on the stock with a revised price target of Rs406. At our price target the stock would be trading at 13 X its CY2007 earnings and 7X its CY2007E EBIDTA.

UTI Bank
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs360
Current market price: Rs286

Price target raised to Rs360
At the current market price of Rs286, the stock is trading at 14.4x its FY2007E EPS and 2.5x its FY2007E book value per share. We reiterate our Buy recommendation with a price target of Rs360 with a 12-month perspective, which represents 20% upside from the current market price.

Ramsarup Industries - Indiainfoline

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Tulip IT Services - Way2Wealth

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IndiaInfoline - Punj Lloyd - AVOID

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Punj Lloyd

Pricey but Solid

Punj Lloyd is one of the largest engineering construction companies in India. It provides integrated design, engineering, procurement, construction and project management services for (a) energy industry (onshore and offshore pipelines, gas gathering systems, oil and gas tanks and terminals including cryogenic LNG and LPG storage terminals, process facilities in the oil and gas industry including refineries for power plant projects); and (b) infrastructure sector projects (highways, flyovers, bridges and elevated rail roads). Other services include comprehensive plant and facility maintenance and management.

Punj Lloyd has also executed small orders for laying optic fibers for the telecom sector. The company's operations are spread across the Middle East, the Caspian, Asia Pacific, Africa and South Asia with 12 project and marketing offices and 13 subsidiaries. With over 20 years of experience in construction projects Punj Lloyd has erected more than 5,300 kilometers of pipelines and four million cubic meters of tanks and terminal capacity and has executed 11 refinery modernisation and quality improvement projects. In FY 2005, it sold its equity in an annuity-based NHAI project and also earned bonus for early completion of the project. The current order book (November 2005) stands at Rs 7000 crore with an unexecuted order backlog of Rs 3700 crore (of which 47% is from NHAI).

The net proceeds from the issue of new equity shares will be utilised for investment in capital equipment (Rs 150 crore), prepayment of debt (Rs 300 crore) and investment in infrastructure projects (Rs 50 crore) besides for general corporate purpose.

Strengths:

1. Punj Lloyd is one of the few Indian construction players to own a large fleet of sophisticated construction equipment.
2. Projects under the higher-margin driven energy segment (40% of the order book), its area of specialisation, have relatively shorter completion period of 8-15 months as compared to two-three years of road projects (60% of the order book), where the margin is lower. In FY 2005, about 80% of the total revenue came from the energy sector
3. More than 180 projects executed in over 12 countries. In FY 2005, approximately 58% of consolidated sales and contract revenue generated from projects executed outside India. This is the highest in the Indian construction industry.
4. Worked on projects for leaders in the energy industry in India and abroad and has got repeat orders despite increased competition with 58% of the order book (FY 2005) comprising export orders. Moreover, has presence in all areas of oil and gas project management. Thus, the geographical spread has no concentration in a single region or country and non-dependence on single project is a major positive.
5. Successful execution of projects in different parts of the world adds to knowledge of working in different terrain and cultures. Additionally, its experience in the segment gives it a better chance at the pre-qualification stage. It is one of the few companies to have laid pipelines, including those with a 48-inch diameter, in shallow water and swampy or marshy terrain.
6. The recent discovery of large oil and gas reserves in the world (including India) is expected to increase the demand for pipelines, storage tanks, terminals and process facilities in the oil and gas industry. The national pipeline grid by Gail, the east-west pipeline by Reliance Industries and the increasing capital investment by major players in the energy industry in India are expected to further fuel this growth. Moreover, the increased thrust by the Indian government on increased and better infrastructure involving speedy procedures and new public-private partnership models augur well.

Weaknesses:

1. Punj Lloyd has performed substantial projects on a lump sum or fixed price. In FY 2005 and six months ended September 2005, approximately 41.61% and 35.48% of the consolidated revenue was derived from fixed price/ lump sum contracts. The actual expense for executing a lump sum or a fixed-price contract (mainly in the infrastructure projects) may increase substantially on account of unanticipated increases in input cost and delays in execution of projects. In FY 2005, the operating profit margin (OPM) slipped sharply due to the lower margin in annuity-based NHAI projects due to increased steel and cement costs.
2. Since 58% of the consolidated sales comes from projects outside India (FY 2005), there is risk arising from foreign exchange fluctuation as well as normal legal and political risks associated with operating in foreign countries.

Valuation:

With a price band of Rs 600- Rs 700, Punj Lloyd has an abnormally high PE of 113 to 131.8 times FY 2005 earning of Rs 5.3 (excluding extraordinary items) on a post-issue equity of Rs 52.22 crore. The fixed-price NHAI project has hit OPM severely in FY 2005 due to increased steel and cement prices. Moreover, the order inflow got delayed due to elections in India and Indonesia. Thus, the operating profit in FY 2005 had almost halved. However, it is expected that OPM will bounce back and growth in sales will accelerate in FY 2006. Thus, EPS in FY 2006 can cross Rs 20.4 achieved in FY 2004. This will bring down PE to around 25 to 35.

Larsen & Toubro (L&T), which is India’s largest engineering and construction company and more than 6.5 times the size of Punj Lloyd, trades at PE of 27.5 times expected FY 2006 EPS. L&T’s market cap to sales ratio is 1.57 compared to Punj Lloyd's 1.79-2.10 (at the upper and lower price band). The order backlog to sales ratio of L&T's Engineering & Construction division on September'05 stands at 1.7 against Punj Lloyd's 2.1 on November 2005. Overall the issue is costly (from short-to-medium term angle) even at Rs 600 and only long-term investors should consider the offer.

Unichem Laboratories

Cluster: Apple Green
Recommendation: Buy
Price target: Rs328
Current market price: Rs248

Unique(em)

Key points

• Unichem Laboratories (Unichem) is focusing on lifestyle drugs, like cardio vascular, neurology and diabetology drugs, which yield higher margins. With the help of new product launches it is building an excellent product portfolio, which is expected to result in higher margins.
• The new formulation plants being set up at Baddi shall increase its capacity by over 70%. The other upgradation programmes being carried out by the company shall improve its efficiency.
• The export market is expected to be the key growth driver of its formulation business. Unichem has shown a growth of 57% year on year (yoy) in FY2005 and a compounded annual growth of 118% over FY2000-05 in the formulation export market. We expect this strong growth to continue backed by the new product launches.
• The backward integration due to increasing captive use of bulk drugs by the company will lead to margin improvement. Unichem has strategically set up plants in Baddi where it can avail of tax benefits. The cumulative effect of the improved product portfolio, backward integration and tax savings will cause its net profit margins to rise from 11% in FY2005 to 15.3% in FY2007.
• The improvement in the margins due to the increased exports, a better portfolio and backward integration will lead to net profits of Rs80.8 crore in FY2007. At the current market price of Rs248 the stock is trading at 10.4x FY2007E earnings. Keeping in mind the company's growth prospects and efficiency improvements, we believe that a price of Rs328 with a price/earnings ratio (PER) of 13.8x FY2007E is a fair estimate for the stock. Hence we initiate coverage on Unichem with a Buy recommendation and a price target of Rs328.

Ramsarup Industries Limited IPO Analysis

Background :

• The company was incorporated in the year 1979 as Karunanidhi Investments & Trading Company Limited. In the year 2002 it changed its name to Ramsarup Engineering Industries Limited and subsequently to Ramsarup Industries Limited (Ramsarup) on March 30, 2005.
• Ramsarup manufactures Steel Wires, TMT Bars and Rods. These products are primarily used in the power, housing and infrastructure sector. The main customers for its steel wires include Power Grid Corporation of India Ltd., L & T, Kalpataru Transmission & Power Ltd, KEC Ltd. and Apar Industries. For TMT bars, leading customers are L & T, Gammon India, Reliance Energy and HCC. The Company is a large supplier to various State Electricity Boards.
• Ramsarup is having three operating units viz. Ramsarup Industrial Corporation (RIC) at Nadia in West Bengal, Ramsarup Bars & Rods (RBR) at Shyamnagar in West Bengal and Ramsarup Vidyut (RV) at Dhule in Maharashtra.
• RIC is one of the leading manufacturers of black and galvanized steel wires in the country with an annual production capacity of 1,73,000 tonnes. RBR, engaged in manufacturing wire rods, steel wires and TMT bars, has an installed capacity of 87,000 tonnes of TMT bars and 24,000 tonnes of steel wires. While RV has been set up, in March 2005, to generate 3.57 MW of power through windmill.

Objects of the Issue :

• Modernization cum expansion of the existing manufacturing facility of TMT Bars at Shyamnagar.
• Setting up of a Structural Mill with an installed capacity of 135000 TPA at Shyamnagar.
• Enhancing the Long Term Working Capital requirements of the Company.
• General Corporate Purposes including strategic initiatives and acquisitions.
• Repayment of Unsecured Loan.
• Meeting the Expenses of the issue.

Strengths :

• The Company is a leading and a broad based producer of steel wires and TMT Bars in the country. The Company has been producing steel wires for over three decades following stringent quality norms. The industry being capital intensive by nature is an inherent entry barrier for new entrants.
• Ramsarup has risen from a start up to amongst the leading brands and is now an established player. Ramsarup has one of the largest capacities in India and is the only manufacturer to provide the whole range of TMT products under Thermax technology. Further the company is one of the largest steel wire producers in India after TISCO. This gives the company a competitive edge over its competitors.
• The customers of the company are in the power, housing and infrastructure sector. These are the sectors that are gaining currency in the present scenario and getting an impetus from the government. Measuring the importance of these sectors, it is apparent that Ramsarup has immense growth prospects.
• Return on net worth of the company is 17.5% for March 2005, which is higher than the industry return on net worth i.e. 12.5%. This indicates that company has earned high profits during the year.

Weakness :

• State Electricity Boards (SEBs) constitute a significant part of the outstanding debt of the company. SEB's are known to have a bad fiscal condition and any default may cause serious damage to the financial well being of the company.
• Operating Profit Margin (OPM) of the company is 4.96% for March 2005, which is lower than the industry OPM i.e. 7.14%. This indicates that company has high operating expenses during the year.
• Companies of Promoter group of Ramsarup have incurred losses in the last three years. This could hamper the organic growth of the company.
• Ramsarup has taken loan from banks for the expansion project. There are restrictive covenants in the loan agreement. These covenants can confine the company from declaration and payment of dividend, expenditure in new projects, transfer/change in the key managerial personnel, change in the constitutional documents etc. Failure of the company to comply with any loan conditions may hamper progress of the expansion project.

Valuation :

• Revenue of the company increased at the CAGR of 56% in the four years. In the year 2002 the value of revenue was Rs.230.91 crore and in the year 2005 it is Rs. 877.54 crore. Total expenditure of the company increased at the CAGR of 55% from Rs. 221.00 crore in 2002 to Rs. 837.25 crore in 2005.
• Interest expenditure of the company increased at the CAGR of 37% from Rs. 5.11 crore in 2002 to Rs. 13.20 crore in 2005. Profit After Tax of the company has increased at the CAGR of 75% from Rs. 2.54 crore in 2002 to Rs. 13.67 crore in 2005. The net profit margin of the company has improved in the last four years from 1.10 % to 1.56%.
• Return on Net Worth of the company, for the year 2005, is 17.5% where as in the year 2004 it was 15.6%. NAV of the company stands at Rs.73.06 as on September 2005.
• Annualized post issue EPS is Rs.15. The shares are offered at the price of Rs.60. PE Multiple of the company is 4.04 where as the PE Multiple of the Industry is 8.58.