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Stock Analysis and Outlook - Camson Bio Technologies Ltd

[ Saturday, May 9, 2009 | 10 comments ]
Amardeep Singh wanted to know about the fundamentals and long term outlook for Camson Bio Technologies Ltd. Presented below is an detailed analysis of the stock and my opinion on Camson for long term.

Company and Industry: Camson Bio Technologies Ltd is in the Floriculture industry.

CMP and PE Ratio: Rs. 28.75 with a PE ratio of 3.62

Industry and Stock Outlook : Positive for long term

Financial Analysis:
  • Camson Bio Tech has shown robust revenue growth in the last five years. During the same period the operating margin, gross margin and net profit margin for the company has also increased significantly. For the first nine months of FY 09, the company has clocked a turnover of Rs. 42 crores with a bottomline of 8.16 Crores. Thus, we can expect a lower PE in the future as the current PE is based on FY 08 EPS.
  • The company has a decent balance sheet. The equity share capital has been expanding over years, which is natural for any growing company. In my opinion the management has bought new funds to good use as indicated by the revenue growth. The debt equity ratio of the company is also very low at 0.07. This gives room for the company to leverage itself for more funds in the future.
  • The company has also been generating positive operating cash flow for the last two years. This is another healthy sign. Positive operating cash flow allows the company to fund its working capital and expansion through internal accurals. The last two years have also seen good capital expenditure incurred by the company. This should translate into higher revenue growth for the company in the future.
  • The book value per share for Camson, as on 31st March 2008 was Rs. 26.07. Thus, Camson is just trading marginally above its book value. This coupled with good financial growth and a low PE makes Camson an attractive bet for long term.
Business Analysis and Growth Drivers:
  • Camson Bio Technologies mainly derives its revenue from sale of seeds and agricultural products. In my opinion both of these are areas of high growth in the long term. Thus, I am personally very bulish on the business of the company.
  • Camson has launched, fresh vegetables and fruits under its brand “Camson Zero Residue Vegetables and Fruits”. Camson “Zero Residue” products are safe food without any pesticide residue in them. In my opinion this segment will be a major growth driver for the company in the future. With increased health awareness, these products should be successful in Indian as well as International markets.
  • Camson is also in the production of huge variety of hybrid seeds. These privide excellend and high quality end products and the market for hybrid seeds and products should expand in a big way in the near future, fuelling the company's topline.
In all the government stresson agroculture will be the biggest growth driver for the company. Any political party coming to power has to lay stress on agriculture if India has to grow at over 10% in the long term. This will surely boost the business of companies like Camson Bio Technologies Ltd.

My Opinion:
  • I am not sure if the stock will go lower in near term. But in my opinion Camson is a great stock for long term investors.
  • Since the markets has made a more then 40% rally in 2 months, it is advisable to wait for a better entry opportunity.
  • I personally didnt like the very low promoter holding in the stock. But I believe that there are greater positive factors to make this company a buy.
  • In my opinion, investors holding this stock for 5+ years should get returns which will outperform the index return by a long way.
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Stock Analysis and Outlook - Moser Baer India Ltd.

[ Sunday, April 26, 2009 | 5 comments ]
Antriksh Patel wanted to know about the fundamentals, business and outlook for Moser Baer India Ltd. for long term. Presented below is a basic fundamentl analysis for Moser Baer and my opinion on the stock for long term investing.

Company and Industry: Moser Baer India Ltd. is a diversified player with storage media being its main business line till now.

CMP and PE Ratio: Rs. 66.15 with a PE ratio of 0.00 (due to net loss for last fiscal)

Current Business Segments:
  • Optical Storage Media
  • Photovoltaics (PV)
  • Home Entertainment

Financial Analysis: (standalone basis)
  • The revenue trend for the company has been volatile over the past five years. With the company registering a net loss of Rs. 137 Crores in 2008 as compared to a net profit of Rs. 62.0 Crores in 2007.
  • The company has significantly diluted its equity share capital in the last year for expansion and growth purpose. So in the near term this will lead to lesser EPS. However, if the PVC business does will then it should not be a matter of concern. As of 31st March 2008 the company had a debt equity ratio of 1.33. This does not leave room for the company to leverage itself more in the near future.
  • Moser Baer has been generating positive operating cash flow in the last five years. At the same time the company has been making big investments in capital expenditure. If these come off well then the long term revenue growth of the company should be robust. A positive operating cash flow is also a good thing for a company which has good amount of debt in its books.

Future Growth Drivers for Moser Baer:

The most important thing every investor should look into is what will drive growth in the future for any company. Even if the company has great fundamentals, but, its in a industry which has slow growth then its stock procie might not move a great deal.

For Moser Baer, the following will be the key growth drivers and hence the stock price drivers in the future:
  • Photovoltaics (PV) - The Photovoltaic domain of Moser Baer commenced its commercial operations during the second quarter of 2008. In the very first year of commercial production the company generated US$ 42 million revenue from this business. The PV in my opinion will be the major revenue driver for the company in the future. It will lead to robust revenue growth and hence considerable stock price appreciation for the company.
  • Currently, PV generates less than one percent of the world’s electricity needs, leaving a massive potential market. The International Energy Agency (IEA) estimates that governments and the private sector will invest around US$10 trillion to expand and upgrade global electricity infrastructure over the next 30 years. The Indian government has several subsidies and incentives for the PV business and this should help the company do well and execute its plans in time.

Global PV Market in 2006 and 2011: (Source: Company Presentation)


  • The other businesses of the company are optical storage media and home entertainment business. In my opinion these businesses are very competitive and do not give very high margins. Thus in the future, the main growth engine for the company will be its PV business.

Key Infrastructure capabilities of Moser Baer in its PV Business:
  • A first of its kind 80MW, state-of-the-art fully automated in-line crystalline silicon cell
    manufacturing facility.
  • A 40MW module manufacturing facility and a 40MW thin film module manufacturing capacity.
  • A high concentrator module manufacturing facility.

Inorganic Route for Growth:

Moser Baer has also been acquiring stake in companies abroad to expand its presence in the PV business. In my opinion this inorganic growth strategy should also work for Moser Baer and help it boost revenue significantly. Some recent acquisitions by Moser Baer include:
  • A significant equity stake in Solaria, a US-based technology Company that has developed a unique form of low-concentration solar PV technology.
  • A significant minority stake in Stion Corporation, a nanostructures development Company based in the Silicon Valley, California, for producing extremely lowcost solar power generating surfaces.
  • Acquisition of 40% equity stake in Solar Value, Proizvodnja d.d, a solar grade silicon production facility in Slovenia, to provide access and assurance of supply to low-cost solar grade silicon.

My Opinion on Moser Baer:
  • Optical Storage Media business for the company might grow but will not be a major revenue driver for the company.
  • Home entertainment business again is very competitive and should not grow at a very robust pace.
  • The PV business is the segment which should lead revenue growth and hence act as a upside trigger for the stock price in the future.
  • Huge capital investments initially will lead to losses, overleveraging and dilution of equity. So in very short term the stock might not be an outperformer.
  • In long term, if the management is successful in executing their ambitious plans well then Moser Baer should be a multibagger.
So if anyone has the patience to hold on to the stock for long term then its a good stock to hold in my opinion. I believe the near term prices would be volatile in line with the volatile markets and also its volatile earnings.
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Fundamental Analysis and Long Term Outlook for Hindalco Industries Ltd.

[ Saturday, April 25, 2009 | 4 comments ]
Raghavender Reddy wanted to know about the fundamentals and long term outlook for Hindalco Industries Ltd. Presented below is a basic fundamantal analysis for Hindalco and also my opinion on the stock for long term investing.

Company and Industry: Hindalco Industries Ltd. is primairly in the Aluminium and Copper Industry.

CMP and PE Ratio: Rs. 57.25 with a PE ratio of 3.51

Financial Analysis:

Presented below is a table which shows the past five year performance for Hindalco Industries on several key financial parameters. The financials are for the consolidated entity.


Hindalco has shown robust topline growth over the past 5 years. The growth in 2007-08 looks particularly impressive because of the acquisition of Novelis Inc., a foreign subsidiary, acquired by the Company on 16.05.2007 through its wholly-owned overseas subsidiaries. With the acquisition of Novelis, Hindalco has also become the world’s largest rolling company.
  • Hindalco has leveraged itself significantly in the last fiscal but the debt - equity position is still comfortable. The company has also expanded its equity base, which has affected the EPS in the near term. But since its for acquisition and growth related activities, its not a concern for shareholders.
  • The company has been generating decent positive operating cash flows. This is a good thing for a company which has significantly leveraged itself. Positive operating cash flow ensures ample liquidity for working capital and other near term needs.
  • The return on equity and return on capital employed for Hindalco has been affected in the near term because of the acquisition and significant expansion of equity base. In my opinion it will improve in the future with higher commodity prices coupled with robust performance by the company.
Near Term Outlook:

In the near term, revenue growth and bottomline for Hindalco will be under pressure in my opinion. The global economy will remain weak and the demand for commodities will not be robust. This will lead to decline in margins and also decline in topline for the company.

The two charts below show the same. For both Copper and Aluminium the prices have corrected sharply and global inventory level has gone up at the same time.

1)Aluminium Price and Inventory (Source: Company Presentation Q3 2008-09)



2)Copper Price and Inventory (Source: Company Presentation)



Long Term Revenue Drivers For Hindalco

While Hindalco has strong fundamentals it is important for investors to figure out what would drive the revenue for the company in the future. This in turn triggers a upmove in the stock price of the company. In my opinion some important factors driving revenue growth for Hindalco in the future would be:
  • A significant rise in Aluminium prices
  • A significant rise in Copper prices
  • A significant rise in Gold prices (constituted 4.5% of company's reveune mix in FY 2007-08)
So basically its the coming bull run in commodity prices which would act as a growth driver for the company. In my opinion whenever the world economy starts to grow significantly, there will be much higher inflation lead by commodities.

Aluminium consumption in India is low in comparison to developed and several developing countries. So when the this trend reverses there should be a significant surge in demand.

Hindalco is very well placed to capitalize on the future surge in commodity prices because of the following factors:
  • With the acquisition of Novelis, the company has become the world’s largest rolling company. Novelis is the world’s largest manufacturer of aluminium rolled products and is the leader in Europe, Asia and South America.
  • The Nifty Sulphide Copper Mining Project in Australia is the largest underground Copper mine commissioned in the last decade anywhere in the world. Copper is one commodity which will see huge demand in India and China in the next 10-15 years and even more.
  • Hindalco's brownfield expansions in Muri and Hirakud are expected to be commissioned this year and this will enhance enhance sales and EBITDA streams.
Conclusion:
  • In the near term, volatility in commodity prices coupled with weak GDP growth will lead to volatility and downside in the stock price for Hindalco.
  • In the long term, Hindalco should be a value creator. Investors looking at exposure to this stock with a 5+ year perspective should get good returns.
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Stock Analysis and Outlook - Thermax Ltd

[ Saturday, April 18, 2009 | 2 comments ]
Rex wanted to know about the long term prospects and fundamentals for Thermax. Presented below is an comprehensive analysis of Thermax and my opinion on the stock for long term.

Also Read My latest post in the "Stock Market and Economic Analysis Blog"

Company and Industry: Thermax Ltd is primarily in the pollution control equipment industry.

CMP and PE Ratio: Rs. 239.60 with a PE Ratio of 10.2

Thermax revenue mix for year ended 31st March 2008
  • Boiler Capacity Above 30 MT - 35.13%
  • Power Plants - 27.05%
  • Boilers Capacity Upto 30 MT/Chillers - 13.87%
  • Air Pollution Control Equipment - 6.91%
  • Water Treatment Plants - 6.76%
  • Accessories & Spares etc - 4.96%
  • Resins Ion Exchange - 3.8%
  • Others - 1.47%
Five Year Financial Overview and Analysis for Thermax:

The table above gives a five year financial performance for Thermax on several key parameters. The following inferences can be drawn from the company financials about its fundamentals:
  • Thermax revenue has grown at a robust pace over the last four years resulting in an increase in EPS from Rs. 4.4 in FY 2003-04 to Rs. 23.6 during the financial year ended 2007-08.
  • Thermax has generated positive operating cash flows in the last five years. Over the same period the cash earnings per share for the company has increased significantly. This again is good for the shareholders and also for the company. Thermax has also made significant capital expenditure in the past few years and this should ideally result in robust topline growth in the future as well.
  • In my opinion the balance sheet of Thermax is excellent. The company has got good reserves and its also a debt free company. This gives room for the company to leverage in the near future to fund its expansion plans even if equity dilution is not possible due to bad equity markets.
  • The return on capital employed and the return on net worth for Thermax has been excellent and improving in the last five years. This is indicative of an excellent management which has been employing its capital effectively in order to generate returns for the company and its shareholders.
Future Business Growth Drivers for Thermax:
  • The top 4 client segments for Thermax for the first nine months of FY09 have been Power, Metals, Refineries and Cement. In the near term there is bound to be a slowdown of orders primairly from the metal, refineries and cement segment. This will affect the revenue growth for Thermax in near term. But Power sement should help largely offset the revenue downturn from these segments.
  • The manufacturing facility for boilers is expected to be ready by the end of the current financial year. When complete, the output of boilers will double from the present capacity. With huge demand for boilers, this should give significant boost to company's revenue.
  • Rapid urbanisation and growing cities have created the paradox of depleting water supply and increasing amounts of sewage. This segment is a big business opportunity for the company and in my opinion should drive future revenue growth in a big way.
  • Thermax also has a technology tie-up with Balcke-Dürr of Germany for production of pollution control equipment. This technology tie-up will give the company the edge in procuring orders for pollution control equipments from industries with higher levels of emission – iron & steel, power and cement, among others.
My Opinion on Thermax:
  • A good company with an efficient management
  • Strong fundamentals will help the company sail through these difficult times easily
  • Near term revenue growth might get affected owing to a global slowdown
  • Over long term Thermax should do very well
  • The markets have gone up significantly and any big correction is a good entry opportunity in this stock
  • Investors looking at a 5+ year investment perspective should get above average returns from this stock
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Stock Analysis and Outlook - Apollo Tyres Ltd

[ Tuesday, April 14, 2009 | 5 comments ]
Harpreet Singh and Ashish Pradhan wanted to know about the long term stock outlook and fundamentals of Apollo Tyres Ltd. Presented below is an comprehensive fundamental analysis for Apollo Tyres and my opinion on the stock.

Posts in "Stock Market and Economic Analysis Blog"

Industry: Tyres & Tubes.

CMP and PE Ratio: Rs. 22.40 with a PE ratio of 5.15

Peer Companies for Apollo Tyres: MRF Ltd, Ceat Ltd and JK Tyre & Industries Ltd.

Market Share of Apollo Tyres compared to its Competitors:

Source: Company Presentation

Apollo Tyres sales product mix for FY 08:
  • Automobile Tyres - 91.47% of Sales
  • Automobile Tubes - 6.92% of Sales
  • Flaps Automobile - 1.59% of Sales
Apollo Tyre Buyback Offer Details and Advantage:
  • Apollo Tyre board approved a buyback of its equity shares for an amount not exceeding Rs 1220 million constituting around 10% of the paid-up capital and free reserves of the Company as on March 31, 2008.
  • The maximum buy-back price is Rs 25/- per equity share.
The buyback of equity shares by Apollo Tyres is an encouraging thing for investors and shows the confidence the management has in its business. Moreover, the buyback will lead to better returns in terms of EPS for investors not selling their shares in the buyback.

Financial Analysis:
  • Apollo Tyres has got strong fundamentals with steady topline and bottomline growth over a period of five years. During the same period the company has also improved on its operating, gross and net profit margins.
  • Apollo has got a strong balance sheet with good reserves and not significant amount of leverage.
  • The operating cash flow for Apollo Tyres has been impressive over the last five years. Moreover, the company has made significant capital expenditure over the same period and this has helped revenue to remain robust.
Why Buy Apollo Tyres:
  • Leading tyre major in India & South Africa and India’s only multinational tyre manufacturer.
  • Stock with good fundamentals avaliable at attractive valuations. The near term results of the company might be hit due to slowdown in the auto sector but the long term prospects are very bright.
  • Better operating, gross and net profit margins as compared to its peers (MRF and JK Tyre) as on 31st March 2008.
In my opinion Apolly tyres is a good buy for long term. The current stock market rally has lead to significant upmove among all stocks. Thus any correction would be a good entry opportunity in my opinion for long term investors.

Key Risk Factors:
  • Continuing raw material cost pressure - any significant rise in price for natural rubber would lead to margin pressure if the company is not able to pass on the entire increase in cost to the end user.
  • Mantaining current profit margins is a big challenge for the company. It is one of the best in the industry.

Key Future Growth Strategy: (Source:Company Presentation)
  • Become a significant player in new markets - Europe
  • Become a major player in PCR segment – significant capacity expansion
  • Further consolidate market share in existing leadership categories
  • Explore further strategic inorganic growth opportunities
Thus, Apollo Tyres would also be looking at acquisitions for expansion and entry into new markets.

Final Call on Apollo Tyres: Buy on declines for long term.
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Aries Agro Ltd - Stock Analysis and Outlook

[ Saturday, April 11, 2009 | 2 comments ]
Harpreet Gugnani wanted to know about the long term prospects and fundamentals of Aries Agro Ltd. Presented below is an comprehensive fundamental analysis for Aries Agro and my opinion on the stock for long term.

Also check my latest post on "Best Long Term Investment Themes" in the Stock Market and Economic Analysis Blog.

Company and Industry:


Aries Agro Ltd products caters to the Pesticides/Agro Chemicals industry.

CMP and PE Ratio: Rs. 40.8 with a PE ratio of 4.6

Peer Companies for Aries Agro:
  • Bayer CropScience Ltd trading at a PE of 19.92
  • Monsanto India Ltd trading at a PE of 11.67
  • Nagarjuna Agrichem Ltd trading at a PE of 4.30
  • Rallis India Ltd trading at a PE of 4.13
Product offerings of Aries Agro:
  • Plant Nutrition Products
  • Seed and Plant Protection Products
  • Farm Equipments
Growth Drivers for Pesticide/Agro Chemical Industry:



Click to enlarge the chart which shows the numerous factors which will drive the Pesticides and Agro Chemicals growth in the future for India.

Some other numbers and statistics which indicate a bright future for the Pesticide and Agro chemical industry are:
  • Micronutrients consumption level in India is one of the lowest in the world. With increased stress on agriculture expected in the future companies such as Aries agro will benefit.
  • 60% of the Indian micronutrients industry is unorganized and highly fragmented. This can be a threat also but its more of an opportunity for organized players to grow and consolidate the industry.
Financial Analysis:
  • Aries agro has shown good revenue growth over the past few years and sales has increased from Rs. 26 crores in FY 04 to Rs. 103 crores in FY 08. The FY 08 EPS for the company stood at Rs. 13.1.
  • The company has not been able to generate positive operating cash flows in the last two years. This is a matter of some concern, as negative operating cash flow would typically mean that the company would have to fund its day to day operations with internal accruals or debt.
  • The company had come out with a IPO sometime back and has expanded its equity base. The funds from the IPO will help the company fund its expansion plans and can be also used for its working capital requirements. The company is not highly leveraged, which is a good thing for any company.
Key Business Strengths for Aries Agro:

Aries Agro is listed in a space where there are already many players in the market with some really good players. Some of the key business strengths for Aries agro is as follows:
  • Aries has a very strong distribution network and claims to place a new product in 69,000 retail shelves within 1 day of its launch. A very good network is more then essential in this industry and this gives Aries a competitive advantage.
  • Aries is also steadily increasing its international reach. The company has already appointed distributors in UAE, Nepal and Bangladesh. The company has also made investment in Golden Harvest Middle East FZC, Sharjah - now an Aries subsidiary.
  • Aries agro also has customized variants of products based on ongoing research of soil, crop and geography specific nutrient needs. This will make its products more acceptable in different regions or geographies for which it is specially made.
My Opinion on Aries Agro:
  • In my opinion the agriculture industry in India and the world will gain increasing importance with time. Players like Aries Agro, which are catering to the agri sector will be big time beneficiaries of this growth. I feel the current market fall gives investors golden opportunity to pick up some of these stocks for long term.
  • Aries Agro which is currently trading at a PE 4 is a good buy for long term in my opinion. I frankly dont know if it will go down to Rs. 30 or even less in near term. What I know for sure is that if anyone invests in this sector or stock with a 5+ year investment horizon then he/she will make really good money.
I think the Indian markets have gone up a long way from its bottom in March. So in my opinion any correction from here should be a good time to enter this stock for long term.
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Stock Analysis - IKF Technologies Ltd and Unitech Ltd

[ Wednesday, April 8, 2009 | 6 comments ]
Vinay Kumar wanted to know about the fundamentals and long term outlook for IKF Technologies Ltd while Nitin Sancheti wanted to know about the fundamentals, outlook and prospects for Unitech Ltd. Presented below is my analysis on both the stock picks and my opinion on them.

Some latest posts in my "Stock Market and Economic Analysis Blog"
Since I am using this blog just to answer reader specific queries on individual stocks, I am writing my views on stock markets, economy and giving my stock picks in the above blog.


Company: IKF Technologies

Industry: IT and Bio Diesel

CMP and PE Ratio: Rs. 2.74 with a PE ratio of 66.99

Peer Companies for IKF: Southern Online Bio Technologies Ltd

Sales Mix for FY 08: 99.99% of the revenue for the company came from IT enabled services during the year ended 31st March FY 08.

Bio Diesel Industry Outlook:
  • Industry still at a very nascent stage in India. So enormous growth opportunities exist.
  • High raw material cost is a big concern for the industry and margins for bio diesel companies are not expected to be great.
  • Many big players like Reliance, Emami, Jain Irrigation, Tata Chemicals are already planning or making big time entry into this industry.
IKF - Financial Analysis:
  • The company is still at a very early stage of its growth and hence it would not be fair to talk much on its financials as of now. The company has expanded its equity base significantly over the past few years for its expansion activities. The positive thing is that IKF is a debt free company.
  • For the fiscal year ended 31st March 2008, revenue surged nearly 100%. But the operating cash flow for the company turned significantly negative.
  • Being a small company, IKF might find it difficult to raise more funds in this scenario for any further expansion it might be looking at. This is a big challenge for the company.
Business Analysis:
  • So far, the main revenue generator for IKF has been its IT and IT enabled services. The bio diesel initiative has not started to contribute to the company's revenue as on 31st March 2008. In my opinion even the IT and ITES segment revenue for the company will be affected going forward owing to the current global crisis.
  • While the company has talked a lot about its bio diesel initiatives in the past, nothing substantial has happened so far. In my opinion this initiative for the company might not be a great success. Moreover the company its small and just at its beginning it is trying to put its hands into too many things. This might not work out well for the company in the short term as well as in the long run.
In my opinion IKF is not a great stock to invest in. If at an early stage only a company tries to diversify, it does not reflect great things about the management. If anyone is really bullish on Bio diesel then there are many big companies with big investments waiting to get into this sector. Exposure to those might give better returns in my opinion.

Vinay has also pointed out in his mail that he has heard that the management is good. Well, I personally have not heard anything good or bad about the management so cant comment on that. But from their activities I dont see them doing anything great.

Many people would also say that one should take the risk of investing in such small companies. I would agree with them, but at the same time I would say that I would not take the risk of investing in a company whose management itself does not know what they want to do. So they are trying everything possible. So in my opinion IKF is a avoid.


Company: Unitech Ltd.

Industry: Real Estate

CMP and PE Ratio: Rs. 37.50 with a PE ratio of 5.91

Industry Outlook:
  • Before October 2007, real estate in India was one of the hottest industry with real estate stocks making new highs and sustaining unbelievable valuations. Now almost everyone is bearish on real estate and real estate stocks. In my opinion the industry wll remain affected for maybe a few years, but the industry should make a big reversal sometime in the future. The reason being that there is immense scope for low cost housing and real estate development in tier 2 and 3 cities in India.
Company Analysis:
  • During the boom time, Unitech was just one of the real estate companies posting stellar resuts and going for massive expansion plans. This lead to the company over leveraging itself and Unitech is one of the highest leveraged companies in the real estate pack. So right now, with real estate industry slowing down significantly the company is having immense problems servicing its debt.
  • From the buy or sell perspective I would personally not take any long term position in real estate stocks for now. There will be trading opportunities and capitalizing on them would make more sense. I can assure readers that real estate industry and real estate stocks are not going up in a hurry. Infact more problems might come up for real estate players in the next 1-2 years. So my view is that any long term position in real estate should be avoided for now.
In accordance with this general view my suggestion would be not to buy Unitech. Of course when markets reach levels like 7000-8000 on the Sensex, then there are trading opportunities even in real estate stocks.

I would also like to stress on that fact that even for long term look at real estate players who are trying to build a greater presence in tier 2 and 3 cities. Also look for players who are moving towards low cost housing projects. These will be the major long term growth drivers for the real estate industry.

Other Recent Stock Analysis:
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Investment Outlook - Jindal Drilling & Industries Ltd and Allcargo Global Logistics Ltd.

[ Monday, April 6, 2009 | 2 comments ]
Deepak Patel wanted to know about the long term stock outlook, fundamentals and business prospects for Jindal Drilling & Industries Ltd and Allcargo Global Logistics Ltd. Presented bwlow is a basic fundamental analysis of the two stocks and my opinion on them.

Company: Jindal Drilling and Industries Ltd.

Industry: Oil Drilling And Exploration

CMP and PE Ratio: Rs. 386.15 with a PE Ratio of 48.21

Peer Companies for Jindal Drilling & Industries Ltd: Oil & Natural Gas Corporation Ltd, Aban Offshore Ltd and Shiv-Vani Oil & Gas Exploration Services Ltd.

Valuation of Jindal Drilling & Industries Ltd compared to peers: Just based on the PE ratio the valuation for Jindal Drilling looks expensive as compared to its peers.

Financial Analysis:
  • Income Statement: The revenue has shown decent growth over the past 5 years with FY 08 EPS for the company at Rs. 8.3. The first nine months of the current fiscal has also been robust with the topline and bottomline showing good growth.
  • Cash Flow: Jindal Drilling has been generating positive operating cash flow in the past three years. This is always a good thing in times of slowdown and credit crunch. The company has also made significant capital expenses, particularly in the last fiscal. This should translate into higher revenue growth for the company in the future.
  • Balance Sheet: The balance sheet of the company looks good with decent equity and reserves coupled with a low amount of leverage.
Business Analysis:
  • Jindal Drilling is 100% into oil drilling and exploration activities. So the growth of the company and its margins largely depends on the crude oil prices, which is a function of the economy. The crude oil prices are expected to remain volatile with a bull run for the commodity not coming anytime soon. So in the next 1-2 years one can expect that the business of the company will remain sublime.
In my opinion Jindal group is an excellent business group and hence the long term prospects for this company should be good. But right now the valuation dont look very compelling for me to go out and buy this stock.

Compared to its peers, the company is trading at a premium and thus, whenever the markets significantly correct again i would expect the stock to come down substantially. Hence, while its a good company if I had to buy a stock in this space today itself I would rather buy a ONGC then Jindal Drilling.


Company: Allcargo Global Logistics Ltd.

Industry: Transport - Road

CMP and PE Ratio: Rs. 787.3 with a PE ratio of 18.2

Peer Companies for Allcargo Global Logistics Ltd: Transport Corporation of India Ltd and Container Corporation of India Ltd.

Valuation of Allcargo Global Logistics Ltd compared to peers: Allcargo looks relatively expensive when compared strictly on a PE basis with its peers.

Financial Analysis:
  • Income Statement: The company has shown robust topline and bottomline growth over the past few years. The operating, gross and net profit margin for the company has also improved over this period. The FY 08 EPS of the company stood at Rs. 43.2
  • Cash Flow: Allcargo has generaged positive operating cash flow and also made significant capital expenditure in the past few years. The FY 07 free reserves per share of the company was at Rs. 178.50.
  • Balance Sheet: As of December 2007, the company had good reserves and a very low debt making the balance sheet look attractive and healthy. The book value per share as on 31st December 2007 for Allcargo stood at Rs. 188.50 per share.
Business Analysis:
  • As of 31st December 2007 the main revenue generators for the company were (a)Mutimodal Transport Operations - 67.12% revenue (b) Container Freight Station - 25.85% revenue (c) Service (Freight & Hire Charter) - 6.68% revenue and Other Services -0.33%.
  • The logistics industry growth has a very high positive correlation with the economic growth. Thus, in my opinion the company will see some slowdown in its revenue in the near term. The low crude oil prices will benefit the company in many ways but the global slowdown will take its tool on the logistics industry as well.
  • On a long term basis I would say that the logistics industry in India will really make it big. Players like Allcargo, CONCOR and others will see their business grow several times from what it is now.
Still if I had to take a position in Allcargo I would wait for some more time. The first thing is that the markets have moved up over 26% from the March lows. So it has already made a significant rally. Some correction might not be surprising. Moreover, Allcargo is trading at a premium over its peers and just like the above case if I had to buy a logistics stock today itself I would go for Container Corporation of India. So in my opinion the next 6-9 months might give more attractive entry level opportunities for Allcargo Global.
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Stock Analysis - Karuturi Global Ltd. and Facor Alloys Ltd.

[ Friday, April 3, 2009 | 4 comments ]
Shalu Mehra wanted to know about the fundamentals and long term outlook for Karuturi Global Ltd. and Facor Alloys Ltd. Presented below is a basic fundamental analysis of the two stocks and my views and opinion on them.

Also read my latest post on "Has The BSE Sensex Bottomed Out" in my "Stock Market and Economic Analysis" blog.

Company: Karuturi Global Ltd.

Industry: Floriculture and Agriculture

CMP and PE Ratio: Rs. 8.50 with a PE ratio of 31.94
Product Mix for Karuturi Global: (1)Horticulture - 87.95% (2) Other Sales - 6.58% (3) Software development charges and other service - 5.45%

Financial Analysis:
  • Income Statement - On a standalone basis the topline growth has not been very robust so far for the company. However, the operating margin, net profit margin and gross profit margins have improved substantially over the years. On a consolidated basis the company has shown excellent growth and the trend is expected to be mantained in the near future.
  • Balance Sheet - The company has gone for significant equity dilution and has also leveraged itself substantially in the past few years. But this should not be a matter of great concern if the company is successful in executing its big plans especially in Ethopia.
  • Cash Flow - Karuturi has been able to generate positive operating cash flow on a consolidated basis and this is positive for a company which is already significantly leveraged.
Business Analysis:
  • As of 31st March 2008, Karuturi Global has 298 hectares under cultivation (excluding 40 hectares under contract farming in India). The company's 100 hecatres of land in Ethopia is expected to be fully operational this fiscal year itself. Karuturi has acuuired additional 385 hectares of land in Ethopia, of which 25 hectares will be operational in FY 09 and the remaining in FY 2010-11. This effectively will lead to doubling of rose revenue for the company.
  • The bigger business prospect for the company will be its agro based cultivation initiative in Ethopia. By FY 2011-12 the company expects its agri business to generate more revenue then the rose business. I personally believe that its a great business initiative if the company can stick to its plan and achieve it.
  • Karuturi also has plans to foray into bottling of baby corn, jalapenos & green ball peppers, for which a huge global demand exists.
  • Karuturi Global has also taken the initiative of opening floriculture retail stores in India. Its first store is already operational in Bangalore and it plans to open 50 such stores in the next few years.
My Opinion on Karuturi Global:
  • I think the company has got the right plans and it all depends on how well it can execute the plans. In my opinion if one is looking at long term investment, then the ompany is a great buy. I dont know if in the near term the stock price will go to Rs. 5 or Rs. 50. But in long term it will do very well. Agriculture is a sector which will be the next big booming sector in the world. As Jim Rogers says that it will be farmers who will be driving the best cars in the world in the next 20-25 years instead of bankers and analyst.
  • The risk and challenge for Karuturi would be that how it can manage to fund its expansion plans in such a challenging global liquidity scenario. Also KGL has pledged a lot of its shares and thats not a great thing to happen these days for any company.
In all if I were to take a call on this stock I would certainly buy it for long term and it would have been in the high risk stocks in my portfolio. But high risk can also give high returns and in my opinion Karuturi has the potential to do so.

Company: Facor Alloys Ltd.

Industry: Ferro Alloys

CMP and PE Ratio: Rs. 2.85 with a PE ratio of 0.79

Product mix for Facor Alloys: High Carbon Ferro Chrome - 99.91% and By Products - 0.08%

Application of Ferro Alloys: Ferro Alloys are used as de-oxidants and as a catalyst for imparting alloying properties to special steel and are key inputs in steel manufacturing. So clearly it depends to a large extent on the growth or de-growth of the steel industry.

Financial Analysis:
  • Income Statement - Facor has shown robust topline growth in the last four years. The operating,net profit and gross profit margin for the company has also increased over the last four years. The company has also been able to sustain stable revenue for the first nine months of the current fiscal, with a slight drop in margins. Overall the income ststement reflects decent performance by the company.
  • Cash Flow - Facor allows has mixed operating cash flow over the years and has not made huge capital investments. This is indicative of the c=fact that facor was not on a big expansion spree even during the boom period.
  • Balance Sheet - The balance sheet of the company cannot be called a really healthy or great one. But the company is not really overleveraged and in my opinion there is no big risk in the balance sheet.
Business Analysis:
  • Ferro Alloys being the key inputs for Steel Industry, and thus the future of Ferro Alloys Industry is largely dependent on the growth of Steel sector. So one can expect the company not to really do well in the near term. But for a country like India, where huge infrastructure needs to be built in the future the demand foir steel would be very high and thus the ferroy alloy industry is also bound to do well.
So in my opinion the company might not do well financially in the next 1-2 years but it should ideally do very well in the long term. A lot depends on how the management is able to sail through the current crisis.

The stock price for Facor Alloys also looks very attractive and I believe that long term investors can get good returns if the stock is bought at this level. Again I dont know if the stock price will go down more or not. It might possible go down more. But any really down market can be a good time to consider some exposure to this stock.
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Stock Analysis - Areva T&D India Ltd. and Venky's (India) Ltd.

[ Tuesday, March 24, 2009 | 2 comments ]
Jayendra sent a query on Areva T&D India Ltd. for its short term and long term outlook and also for information on the fundamentals of the stock. Puneet Rastogi had a query on Venky's (India) Ltd. regarding its fundamentals and outlook. Puneet also wanted to know more on Gujarat Reclaim & Rubber Products Ltd, a stock which I had mentioned about in one of my previous posts. Presented below is an analysis of these stocks.

Company: Areva T&D India Ltd.

Industry: Power - Transmission/Equipment

CMP and PE Ratio: Rs. 177.2 with a PE ratio of 18.7

Peer Companies for Areva T&D India Ltd: Jyoti Structures Ltd, KEC International Ltd, Alstom Projects India Ltd and Kalpataru Power Transmissions Ltd.

Financial Analysis:
  • Income Statement - Areva T&D has shown robust revenue growth in the past five years with the FY 07 EPS of the company at Rs. 9.47. The gross profit margin, operating margin and net profit margin have also been on an uptrend except for FY 07, where margins got hit due to higher expenses. For the first nine months of the current fiscal also the topline has grown while bottom line has suffered.
  • Cash Flow - The company has got a decent cash flow position with positive operating cash flows in the past 5 years. At the end of FY 07 the company had a cash and cash equivalent of Rs. 22.35 Crores.The adjusted cash EPS for the company as on 31st December 2007 stood at Rs. 50.1, which is very healthy.
  • Balance Sheet - The balance sheet for Areva also looks healthy with good and a very decent long term debt equity ratio of 0.18. The book value per share as on 31st December 2007 for the company stood at Rs. 114.9.
Business Analysis:
  • Power transmission is mainly related with bringing electricity from the source onto the transmission network. The main contributers of revenue for Areva T&D as on 31st December 2007 were Project Items (35.26% revenue), Switchgear Of All Types (28.06% revenue) and Transformers & Reactors (24.03% revenue).
  • The long term business prospects for the company are good as the power equipment business largely depends on the economic activity and its robustness. So the next 1-2 years might be difficult for the company but once the economy picks up robust revenue growth will again be seen.
This industry has a lot of players and investors should make it a point to do a peer analysis before investing in any of the companies for long term. In my opinion Areva T&D India Ltd. will see more attractive buying levels within the next one year. So if i had to buy this stock for long term I would wait for more downside. The current PE is high, especially when earnings are going down. So forward PE will be even higher and this should ideally lead to the stock correcting even more.

Company: Venky's (India) Ltd.

Industry: Livestock - Hatcheries/Poultry

CMP and PE Ratio: Rs. 78.25 with PE ratio of 2.8

Financial Analysis:
  • Income Statement - Venky's has shown steady revenue growth over a five year period. The operating, gross and net profit margins for the company had shown good improvement in FY 08 but the company has not been able to mantain this trent in the first nine months of the current fiscal.
  • Cash Flow - The company has a good positive operating cash flow for the past five years and this is always a healthy sign. Moreover the company has made significant capital investments over the same period and this will translate into higher revenue growth for the company in the future.
  • Balance Sheet - The company has a stable equity base and an steadily increasing reserves with a comfortable long term debt equity ratio of 0.8. Thus financing its operations or expansion is not a concern for the company at all.
Business Analysis:
  • The product portfolio of the company mainly includes Chicks, refined oil, De Oiled Cake, Commercial Broilers, Processed Chicken and more recently besides this the company has also made foray into nutritional health products and pet food and health care products.
  • The long term business prospects for the company do look bright and the product portfolio looks interesting. With increasing health awareness nutritional food products should do very well in India and if the company can expand and market itself in the right way it will be a major beneficiary.
This company does look like a interesting bet for long term investors. The current price and PE looks attractive but for anyone looking to investo for long term in this business it is advisable to wait for some more time as markets are bound to correct again in a big way anytime in the next 6-9 months.

Puneet wanted to know mainly about the products manufactured by Gujarat Reclaim & Rubber Products Ltd. Below are the details for the same.

Company: Gujarat Reclaim & Rubber Products Ltd.

Industry: Rubber Processing/Rubber Products

Main Products:
  • Rubber Reclaimed - 98.09% of product mix
  • Punch & Split Products - 1.50 of product mix
  • Crumb Rubber - 0.4% of product mix
Main Raw material:
  • Scrap Rubber - 86.71% of raw material used
  • Processed Oil - 12.15% of raw material used
  • Oils & Chemicals - 1.13% of raw material used
For more details on each product and its application use the company link below. It gives a very detailed list of variety of products and its application in various industries:

Gujarat Reclaim Product and Product Application

Note:

If readers have any stock specific query then you can mail me at :

humayun.faisal30@gmail.com

Please do mail only one stock query at a time as I would not be able to look into many stocks. I would not be doing any technical analysis. I can only tell more on the fundamentals of the stock and if its a buy,hold or sell in my opinion. I will publish these views in the blog itself so that other readers can also know more about the stock in question.

I will be using this blog just to post analysis on stocks requested by blog readers. All my analysis on the stock markets, economy and my stock picks for long term will be published in the blog "Stock Market and Economic Analysis" from now on.

Check my latest post on "Debt Monetization by US and its short and long term implications" at:

http://www.beatdstreet.blogspot.com
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