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Tuesday, November 29, 2011

IDFC Long Term Infrastructure Bond with 9% interest - Nov 2011



IDFC issues new Infrastructure bond suitable for Income Tax Exemption under section 80CCF with 9% annual interest and 10 years maturity period. The issue of New IDFC (Infrastructure Development finance Company Ltd) infrastructure bond opens in the market on 21st November, 2011 and will be closed on 16th December, 2011. Face value of one unit of the infrastructure bond is Rs. 5000.


Maturity Period and Rate of Interest: There is only one maturity period of ten years for the bond with a buy back option after 5 years of the allotment of IDFC infrastructure bond. The lock in period of the bond is 5 years and after 5 years the investor can redeem the bond by using buy back option. But the bond guarantees 9% interest.


Investment Option: The IDFC infrastructure bond is available in annual interest payment option and cumulative interest payment option and both the options are available in buy back option after 5 years, even though the maturity period is ten years for both the interest payment options.


How to Invest: You can buy IDFC infrastructure bond online and also can submit the filled up downloaded forms in collection centers.


Maturity Value: The maturity value of the single unit of IDFC infrastructure bond is Rs. 11840 for cumulative interest option and Rs. 5000 is for annual interest payment option. But the buyback amount of annual interest payment option is Rs. 5000 and cumulative interest option is Rs. 7695 after 5 years of allotment of the bond.


Listing of IDFC infra bond: The IDFC infrastructure bond will be listed in NSE & BSE after 5 years lock in period


Tax Benefit & Tax Liability: The investment up to Rs. 20000 in IDFC infrastructure bond is exempted from Income tax under section 80CCF over Rs. 100000 under section 80C. The interest earned from Infrastructure bond is taxable. In annual interest option the interest will be taxable every year and in compound interest option the margin is taxable under capital gain tax.


Ratings: The ICRA & Fitch rating of the IDFC infrastructure bond is AAA.


The new issue of IDFC infrastructure bond is convenient to invest in and it is more beneficial than other issues of infrastructure bond by providing a slight difference in interest rate of 9%. But now the interest rate of bank deposits also higher than earlier. So the response of investors is not sure right now and can confirm only after closing the issue on 16th December, 2011.


Monday, November 28, 2011

How to Buy Mutual Funds Schemes Online



Buy Mutual Funds Online by selecting the Mutual Fund Schemes.

 

Invest in Mutual Funds Online Mutual Funds Online

 

Download Mutual Fund Applications / Forms from all AMCs:

 

Download Mutual Fund Applications

 




Transact Mutual Funds Online

Invest In Mutual Funds Online, at your comfort, from this single location.




Your one-stop solution for buying and investing in mutual funds from the comfort of your home / office / any location.

Buy Mutual Funds Online by selecting the Mutual Fund Schemes.





Invest in Mutual Funds Online Mutual Funds Online





Download Mutual Fund Applications / Forms from all AMCs:





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IDFC Long Term Infrastructure Bond Tranche 1 Application Form



Download IDFC Long Term Infrastructure Bond Tranche 1 Application Form http://tinyurl.com/88ky74g


Download application forms for Infrastructure Bonds for year 2011 – 2012.





These Bonds are Tax Saving Infrastructure Bonds. By making investment of Rs 20,000 in Infrastructure Bonds, you can avail tax exception under Section 80CCF.



Section 80CCF is in addition to Investment of Rs 1, 00, 000 that you can make under Section 80C and Rs 20,000 under Section 80D and Section 80E for Education loans of the Income Tax Act.



You can Download Infrastructure Bonds application forms for:



1) Infrastructure Development Finance Company (IDFC)


2) Larsen & Toubro Infrastructure Finance Company Limited (L&T)


3) IFCI


4) Rural Electrification (REC)


5) Power Finance Corporation (PFC)


6) Life Insurance Corporation (LIC)



Documents Required:



1) Filled Up Application


2) Copy of the PAN card (Self-attested)


3) A Cheque in favour of the


4) KYC Documents: Self-attested copies of the following documents are required to be submitted by the Applicants as KYC Documents:


a. Proof of identification for individuals: Any of the following documents are accepted as proof for individuals:


Ø Passport


Ø Voter's ID


Ø Driving Licence


Ø Government ID Card


Ø Defence ID Card


Ø Photo PAN Card


Ø Photo Ration Card.



b. Proof of residential address: Any of the following documents are accepted as proof of residential address:


Ø Passport


Ø Voter's ID


Ø Driving Licence


Ø Ration Card


Ø Society Outgoing Bill


Ø Life Insurance Policy


Ø Electricity Bill


Ø Telephone Bill (Land/Mobile).



Procedure:



1) Print the application form, print and Fill it up


2) Attach the required Documents


3) Submit the form in a collection canter near you



Find a collection canter:



Collection canter near you



What is Tax Saving Infrastructure Bond?


These bonds are options given to infrastructure finance companies (IFCs) to support their lending to avoid dependence on banks. IFCs are not supposed to take deposits from retail customers.


The bonds would be issued in the dematerialised format and investors can even buy it in physical format if they don't have a PAN card or demat account.


The bonds will be listed on the Bombay Stock Exchange (BSE) and investors can exit the bonds in the secondary market after the completion of the lock-in period.

How to Buy Mutual Funds Schemes Online




Buy Mutual Funds Online by selecting the Mutual Fund Schemes.



Invest in Mutual Funds Online Mutual Funds Online



Download Mutual Fund Applications / Forms from all AMCs:



Download Mutual Fund Applications


L&T Long Term Infrastructure Bond Tranche 1 Application Form

Download L&TLong Term Infrastructure Bond Tranche 1 Application Form
 
 

Download application forms for Infrastructure Bonds for year 2011 – 2012.

 

These Bonds are Tax Saving Infrastructure Bonds. By making investment of Rs 20,000 in Infrastructure Bonds, you can avail tax exception under Section 80CCF.

 

Section 80CCF is in addition to Investment of Rs 1, 00, 000 that you can make under Section 80C and Rs 20,000 under Section 80D and Section 80E for Education loans of the Income Tax Act.

 

You can Download Infrastructure Bonds application forms for:

 

1)      Infrastructure Development Finance Company (IDFC)

2)      Larsen & Toubro Infrastructure Finance Company Limited (L&T)

3)      IFCI

4)      Rural Electrification (REC)

5)      Power Finance Corporation (PFC)

6)      Life Insurance Corporation (LIC)

 

Documents Required:

 

1)      Filled Up Application

2)      Copy of the PAN card (Self-attested)

3)      A Cheque in favour of the

4)      KYC Documents: Self-attested copies of the following documents are required to be submitted by the Applicants as KYC Documents:

a.       Proof of identification for individuals: Any of the following documents are accepted as proof for individuals:

Ø      Passport

Ø      Voter's ID

Ø      Driving Licence

Ø      Government ID Card

Ø      Defence ID Card

Ø      Photo PAN Card

Ø      Photo Ration Card.

 

b.      Proof of residential address: Any of the following documents are accepted as proof of residential address:

Ø      Passport

Ø      Voter's ID

Ø      Driving Licence

Ø      Ration Card

Ø      Society Outgoing Bill

Ø      Life Insurance Policy

Ø      Electricity Bill

Ø      Telephone Bill (Land/Mobile).

 

Procedure:

 

1)      Print the application form, print and Fill it up

2)      Attach the required Documents

3)      Submit the form in a collection canter near you

 

Find a collection canter:

 

Collection canter near you

 

What is Tax Saving Infrastructure Bond?

These bonds are options given to infrastructure finance companies (IFCs) to support their lending to avoid dependence on banks. IFCs are not supposed to take deposits from retail customers.

The bonds would be issued in the dematerialised format and investors can even buy it in physical format if they don't have a PAN card or demat account.

The bonds will be listed on the Bombay Stock Exchange (BSE) and investors can exit the bonds in the secondary market after the completion of the lock-in period.


 

Wednesday, November 9, 2011

Stock Review: Titan

 

IF there were an appropriate tagline for Titan today, it would probably say: 'We also make watches'. Even as the growth in its same-store watch sales continues to be in double digits, the company is fast evolving into a lifestyle company, with a sharp focus on premium accessories. While on the one hand it is planning to enter new categories in accessories like silver watches, on the other it plans to expand its existing footprint in the jewellery business with Tanishq.

However, a segment of analysts has reservations about the company's ability to grow Tanishq sales, thanks to the sharp rise in gold prices. But Edelweiss Capital maintains that Titan has historically had apositive correlation with gold prices, primarily on account of a gradual increase in margins. Also, a gradual upside in gold has little impact on demand, it says. Having said this, it cannot be denied that jewellery volumes across retailers have slowed over the past two months. But analysts expect volume growth to inch up in the second half of 201112, thanks to the onset of the festive season and the recent correction in gold prices.

What will help the company beat the demand scenario is its focus on the wedding market. So far, it has targeted the `30,000-50,000 bracket; but now, with its large-format stores, Tanishq plans to increase its same-store sales through selling higher grammage per square foot that can increase to offset decline in gold prices, if any.

Analysts maintain the company is targeting sales of `3,500 crore from watches by 2014-15, which will be driven by network expansion, introduction of new designs, as well as a shift towards the branded segment. Titan aspires to expand the category in eyewear and accessories (currently 177 stores) by getting into new sub-categories. A report by Prabhudas Lilladher says: "The company is targeting FY13 breakeven and believes potential margins can be higher than in watches. It intends to enter new lifestyle categories in the medium to long term." What analysts like is the company's shift in focus to high-end studded and gold jewellery and prescription-driven eyewear, not merely sunglasses.

So far, the big concern has been expensive valuation. However, in this uncertain market, defensives continue to rule. Titan continues to remain the top pick of most brokerages. The stock is trading at 32.1x FY12 and 24.9x FY13 earnings per share.

Stock Review: Surya Roshni

Surya Roshni is our pick because of its marketcap to sales ratio. We gave a similar recommendation for Atlas Cycles . It gave almost 80-100% return in no time. I don't think Surya Roshni will have the same fortune as Atlas Cycle but the downside from here on is locked.

Technically, the stock is into disastrous selling mode breaching all its support levels. But, the promoters of the company have converted warrants even at Rs 111 level. This triggered and open offer at Rs 111 where only 6% of 20% got subscribed. This means people were not willing to sell even at Rs 111. This may be because of  their real estate story.

They have land bank in BahadurGargh which the management wanted to monetise it sometime back, but nothing happened. The promoters converted their warrants into equity. So, there might be a catch that this particular land bank can fetch them much more than their conversion price.

In terms of current valuation, the company is expected to do a sales of Rs 3300 crore and market cap of Rs 277 crore on the conservative side. Even if they do 2% net profit margin and there is no sign of improvement going forward, they will still their consolidated PAT would come around Rs 65-70 crore. That would mean a PE of less than 5.5 times going forward.

Thirdly, what has to see what happens once this particular land bank story materialises. Taking a quant call, the stock has always been a performer near Diwali time. It peaks out for the year at that time. So, if someone wants to invest 500 shares, he can easily bookout 200-250 shares somewhere near Diwali. I am expecting a price of close to Rs 85 levels during that time and forget the rest from a longer-term perspective.

This stock will hog limelight and is a good stock in terms of dividend history. They haven't missed a single dividend for the last 21 years. The technicals are pointing out, the downside risk is around Rs 57-58 levels. The stock will bottom out very soon.

Stock Review: DLF


FROMthe start of this year, a segment of analysts has held on to its bullish view on the real estate sector. After eight months and 11 rate increases, things have only worsened for developers. The BSE Realty Index lost 15 per cent of its market cap in August. All these factors have hit the country's largest developer DLF, too, even as analysts maintained their bullish view in the hope the company would improve its cash flows.

However, the Competition Commission of India's (CCI) August 12 order on DLF has come as the proverbial straw on the camel's back.

CCI levied a penalty of `630 crore on DLF, which is seven per cent of the average turnover over the last three years. According to Emkay Global, after the recent order on the company due to complaints by Belaire Association, CCI has received more than 10 complaints from other DLF projects' associations such as Park Place, Magnolias, Aralias and New Township Heights. The commission is scrutinising these. While DLF can appeal to an appellate tribunal and even as CCI's penalty charges will not increase, the consumer associations can increase their demands for compensation. Even if DLF strikes an out-of-court settlement with consumers, the CCI order will stand, explains Emkay Global's analysis, on the basis of an interaction with CCI member R Prasad.

On Tuesday, as news of stock downgrades started coming in, DLF shares fell 4.43 per cent to `199. Morgan Stanley downgraded the company's stock on the belief the company "could remain in a financially tight situation in terms of lower profits and stretched balance sheet for the next few quarters. Hence, we have downgraded our rating to equal weight and our new price target is `177." Also, with the macroeconomic situation continuing to worsen, all hopes of the company improving its sales seem to be diminishing. DLF's new sales have been stagnant for three years at 10-12 million sqft ( `6,000-7,000 crore) and the land under execution has been flat for the last six quarters, explains Morgan Stanley. As the older projects get delivered over four-six quarters, DLF will become more dependent on new launches for cash generation. In addition, high input costs and higher interest expense will hurt earnings. Though analysts expect the company to seriously start reducing debt from the third quarter of FY12, it is unlikely to result in a rerating.

 

 

Stock Review: TATA POWER

 

Tata Power touched a 52-week low of `995.2 on September 5, amid growing concerns about the impact of higher imported coal costs on its flagship Ultra Mega Power Project (UMPP) at Mundra in Gujarat's Kutch district, after the change in mining laws by the Indonesian government. And, recent reports suggest the Gujarat government, which had signed to buy about 2,000 Mw from there, is not in a mood to pay the higher costs. Although the company is speaking to the Union government for a rate increase (as is Reliance Power for its UMPP in Andhra Pradesh), as well as planning other measures to mitigate the impact, the Street is not impressed.

According to analysts, the Mundra UMPP is expected to incur losses, given the current rate structure and new higher costs. However, part of the costs will be compensated by higher coal realisations, due to its stake in Indonesian coal mines. In this backdrop, analysts are cautious in the medium term, despite an 18 per cent correction witnessed last month. Some have even downgraded their price targets and ratings.

NEW RULES

The Indonesian government recently implemented the Indonesian Coal Price Regulation, which requires prices for all transactions to be benchmarked against a set of international and domestic indices and all sale contracts to be modified retrospectively by September.

Mundra (capacity of 4,000 Mw), India's first UMPP, is expected to be fully commissioned by 2012-13 (two units of 800 Mw each are expected to be commissioned by March 2012). It was awarded to Tata Power through competitive bidding, on a rate of `2.26 per unit. It has a 10.11-million tonne annual coal supply contract with its Indonesian coal companies (30 per cent stake each in KPC and Arutmin), part of which would be used in Mundra UMPP. In the original coal supply contract, Mundra UMPP was to get 75 per cent of the coal at index-linked prices, while the balance 25 per cent was to be supplied at a lower price (about $40 per tonne), fixed for five years. After five years, the entire quantity would come at market prices.

With the change in mining policy, the fuel costs are expected to rise by about $30-40 per tonne and, hence, the project is estimated to incur losses if the company is unable to pass on the higher costs. Analysts peg the gross impact of this move on Mundra's profitability at about $500 million over five years.

Meanwhile, the management has presented its case to the Indonesian government and has also asked the Union power ministry here to discuss the higher cost of coal with state electricity boards (SEBs). Analysts say the government is unlikely to intervene, as other private players would then ask for the same treatment. While the company is also looking at options such as blending cheaper low-calorific coal to rationalise the cost, the move could impact efficiency of the plant, say analysts.

However, all is not over for the company. Losses at Mundra would also be mitigated through better financial performance of the coal business, thanks to higher coal realisations. The net impact on the combined valuation of Mundra and the mines is around five per cent.

OUTLOOK

Analysts have cut their target share price estimates by 17 per cent (consensus average) to adjust for losses in Mundra. Some, like Morgan Stanley and HSBC, have also downgraded their ratings. The outlook in the medium term is cautious but can change if the company is able to raise the mine capacity from the current 60 mt to 100 mt earlier than 2012-13, as that would help compensate for losses at Mundra—in other words, nullifying the impact at the consolidated level. Also, the company will have to exhibit faster progress on projects under development (of more than 5,000 Mw). Else, there is no significant capacity addition expected for the next three to four years, besides under-construction projects. Any rate rise accepted by SEBs fully or partially or a favourable decision by the Indonesian government would be a significant positive trigger.

Tuesday, November 8, 2011

Stock Review: Mastek

 

Mastek's scrip has lost one-fourth of its value since its FY11 financial results in the last week of July. The mid-sized IT company, headquartered in Mumbai, reported a net loss for the year on account of lower additions of new clients and sluggish demand from existing clients. While a turnaround in operations is not immediately in the offing, Mastek is expected to report a slower decline in its performance in the coming two quarters considering product development investments in the past which would help secure new business and the current momentum in its order booking from wealth management and insurance segments.

Mastek is among the mid-tier IT firms worst hit by the subprime crisis, which could never make a comeback even though overall outsourcing demand picked up in the past six quarters. Its revenue fell sharply to . 614 crore in FY11 from . 965 crore two years ago.


One reason of the depressed performance could be its niche focus on insurance vertical and government projects. During the crisis, both segments were impacted. However, the company is showing early signs of a revival. In the two quarters ended June 2011, it added 10 clients. It also bagged two multimillion dollar deals in the UK recently. Its reported 11% sequential jump in the order book size at . 309 crore in the June 2011 quarter.

Another factor that should help in a turnaround is Mastek's investment in product development in the past couple of years. It has invested nearly . 40 crore in each of the past two fiscals in its product portfolio. The improved capabilities are likely to help in new client acquisitions.

Investors may also expect the company to reduce its net loss over the next few quarters. One reason for this is the fact that of the . 55.9-crore loss reported for FY11, over . 27.2 crore was non-cash goodwill write-off pertaining to one of its earlier acquisitions. Being a onetime charge, it will not figure in the company's future profits.

In the September quarter, Mastek is expected to take a hit of up to 300 basis points in operating margin due to annual salary hikes. Its FY12 performance will depend upon how well the company manages to win new deals.

Stock Review: Titan Industries

 

Titan Industries  is a company in transition. The Titan brand holds two different connotations for people separated by age. Our parents still regard it as a wrist watch company. Our generation knows Titan more for its Tanishq brand — the stores where we can buy our better halves the only branded gold and diamond jewellery that is available throughout the country.


To understand the transition at Titan, consider this. Founded in 1985, the company started its jewellery operations 10 years after incorporation. Sixteen years hence, Titan currently derives 76 per cent of its revenues and 72 per cent of its operating profits by selling gold jewellery.

 

 

Source of moat


The Tata stamp. What helps Titan is the Tata brand name backing it and the high level of trust that people repose in that name. "The Tatas will not cheat" is a strong perception among the general public — a very advantageous association to have, especially when selling jewellery.


The nation's time keeper. Watches bring a little less than 20 per cent of Titan's revenues, but the lower contribution hides Titan's real strength in that market. With a 25 per cent volume share and 45 per cent value share in the Rs 3,800 crore Indian watch market, no other branded watch maker has the same brand equity and customer reach as Titan's popular brands that include Titan, Sonata and Fastrack.


Management — Titan's real competitive advantage. Titan's fortunes were not as robust as they are today. As late as 2004, the company was weighed down by debts of over Rs 400 crore (debt to equity ratio stood at 3.5) while return on capital employed (RoCE) stood at sub 10 per cent levels.
The management's decision under Bhaskar Bhat, the managing director, to focus on jewellery has paid off handsomely. The company is now net debt free with free cash flow estimated at upwards of Rs 600 crore (FY11). RoCE has improved significantly: between 2000-05, RoCE averaged 11 per cent. In the next five years, as the jewellery business's contribution started dominating Titan's sales, RoCE jumped to an average of 34 per cent.


The management team headed by Bhat has to be credited for the turnaround. A Tata veteran, Bhat joined Tata Watch Project (later christened Titan Industries) in 1983, and has been leading Titan as its MD since 2002.
Bhat is now betting big on eye wear. With 150 stores, it is already the country's largest optical retail chain. Will he achieve the same degree of success as with the Tanishq brand? Only time will tell.


Whether it is watches, jewellery or eye wear, Titan under Bhat has successfully branded somewhat generic categories and carved a niche for itself. What if the next MD is not as keen-sighted or is, well, not another Bhat?

 

Growth drivers: jewellery business


Opportunities galore. Driven by rising disposable incomes and strong social association (which marriage in our country is not accompanied by purchase of gold?), India has turned out to be the world's largest gold market, with an estimated size of around `90,000 crore (FY10). About 75-80 per cent of this demand comes from jewellery. Most of gold buying has traditionally been done through local jewellers who roughly have 94 per cent of the market to themselves, leaving the remaining to organised players.


According to the World Gold Council, the total market for gold in India is expected to double by FY16. That is a humungous opportunity, especially for branded players like Titan who are able to charge a premium for their brand. Expanding presence. Titan has 150 jewellery stores in 75 towns. The company plans to expand to the tune of 60,000-70,000 sq ft in FY12, which will augment the current base of 0.32 mn sq ft (FY11). Store size too is set to increase from the current average of 2,000 sq ft to 20,000 sq ft in tier I cities. The larger size is expected to improve inventory turnover, besides increasing visibility.


Titan does not intend to ignore tier II cities either. It is looking to expand its "Gold Plus" stores targeted at semi-urban and rural areas (estimated jewellery market size of Rs 30,000 crore). From the current base of 29 stores, Titan plans to add two to three stores every year to extend its reach in this segment.
Finding moolah in diamonds. Increasingly, Titan is pushing the sale of diamond jewellery. Diamonds are more attractive as they have higher gross margins than gold — 40 per cent against an estimated 20 per cent for gold. The company started selling diamonds through its Zoya stores only in FY10, targeting the premium and young consumers in tier I cities. Within this short time, diamonds are estimated to account for a third of Titan's jewellery sales. To further augment diamond sales, Titan plans to launch lower-priced 18 carat diamond jewellery targeted at the mass market.

 

Watches: in with the times


Existing opportunities. Do you think watches are ubiquitous? In reality, only 27 per cent of Indians own a watch! Titan has a 45 per cent market share (by value) of the Rs 3,800 crore watch market in India. The low penetration offers a huge opportunity even for the market leader.


Lower price points. Around 65 per cent of the 4.8 crore watches sold every year in India are those under Rs 500 apiece. Titan has launched the Sonata range at the Rs 275 price point to grab entry-level customers.


Expanding store network. Titan plans to add around 30 new Helios stores (multi-brand outlets) in FY12 to its current base of three. An additional 150 "World of Titan" (exclusively Titan) and Fastrack stores will be added to their current tally of 291 and 43 respectively.

 

What could cause moat to be breached


Gold rush. Tanishq's success has attracted a number of players. Leading among them is Gitanjali (Gili brand) which owns 485 stores (compared to Tanishq's 150). Other smaller competitors include Big Bazaar (49 stores), Rajesh Exports (26), and Reliance Jewels (22). Even though the number of organised players looks set to rise, none of them has the same customer recall, reach and the Tata brand association.


Watches — a dying industry? How many times have you reached out for your cell phone when you wanted to see the time? A lot of us do that unconsciously now — sometimes several times a day — which begs the question: would you miss your wristwatch if you had only your cell phone with you?


The threat from the cell phone is more relevant in the lower-priced watch segments. A plethora of cheap cell phones —Nokia 1280 (Rs 1,200), Samsung Guru (Rs 1,100) and a host of Chinese unbranded cell phones that come at even sub Rs 1,000 — all tell the time. They could potentially pose a threat to Titan in future.


The same argument, however, is not likely to hold true for premium brands: would you replace your Omega, Rado or Tissot for your cell phone? Most likely not!

 

Financials
Titan reported a 40 per cent jump in net sales in FY11 to Rs 6,533 crore. PAT came in 74 per cent higher at Rs 436.5 crore. Revenues from watches grew 24 per cent to Rs 1,266 crore while the jewellery business saw revenue growth of 44 per cent to Rs 5,027 crore. Watch margins improved 60 basis points to 14.7 per cent, while jewellery margins jumped 127 bps to 8.5 per cent owing to higher diamond sales. The company added 122 stores in FY11, taking total retail store count to 665, which includes 360 outlets for watches, 150 for jewellery, and 150 stores under Titan Eye+.

 

Valuation

At Rs 216.80, the stock is close to its all-time highs. Titan now trades at 43.23 times its FY11 earnings, which makes it more expensive than the BSE Consumer Durable index, which is currently at a multiple of 19.62. Titan's current PE is also way above its five-year median PE of 38.82.


At a price-earnings to growth (PEG) ratio 1.10 (based on five-year EPS in the denominator), Titan does not seem to offer value. That is because maintaining its five-year compounded annual growth rate of 39.45 per cent in EPS may prove difficult in future. Even the more optimistic analysts see the company reporting earnings growth ranging from 30-35 per cent in FY12. As such, there is no comfort in the stock for investors looking to buy it at current valuations. Exercise patience till the stock's price cools down from its current peak levels.

Stock Review: GODREJ PROPERTIES

Shares in Godrej Properties Ltd (GPL) have returned 11 per cent since the start of the year, compared to a 39 per cent drop in the Bombay Stock Exchange Realty index. The index is down due to macro headwinds like falling demand, high interest rates, 2G scam fallout and fears that recent land acquisition and regulatory action by the Competition Commission of India could impact the entire sector. GPL is among the few realty stocks that have outperformed, thanks to its business model and better revenue visibility.

Against the traditional model of buying land, analysts say, GPL's joint development approach seems to be a better model, given that land is the largest cost component. Suman Memani of Pinc Securities says the joint development model helps bring down the cost of land and this translates into less debt and in a high interest rate environment, lower interest outgo. In addition to this model, what has helped the stock deliver better returns is the perception that the company scores high on the corporate governance parameter, he says. While the company has a robust business model and recently took on value accretive projects such as the Jet Airways deal, most of the upsides are factored in the current price of `722.

VALUE ACCRETIVE DEALS

The company signed two major deals last month. The first was to develop a million square feet of commercial space at Bandra Kurla Complex (BKC) in Mumbai, while the second was to develop two million square feet of residential space at Gurgaon.

The management has indicated the BKC deal could bring in revenues of `3,500-4,000 crore, based on realisations that are expected to be upwards of `30,000 per sq ft. The Gurgaon project is expected to yield `700-800 crore and add 18 per share to the net asset value. The BKC project, on the other hand, is expected to generate earnings of `45 per share, believe J P Morgan analysts Gunjan Prithyani and Saurabh Kumar. While the BKC deal is value accretive, the `360-crore debt obligation and `135-crore upfront payment will mean an increase in debt of nearly `500 crore. This will take the total debt to `1,440 crore and net debt-equity ratio to 1.4 times, one of the highest among listed entities, feel Prithyani and Kumar. Further, with GPL footing the development cost (estimated at `810 crore over the next four years by IDFC Securities), cash flows are likely to be strained. However, the GPL management has indicated it will bring in a private equity (PE) player to mitigate the cash flow pressures due to the project.

MARGINS HIT

While the company recorded robust revenue growth, margins fell to 18 per cent in the June quarter, compared to 45 per cent in the year-ago period. It attributed the lower Ebitda margins to higher sales at its commercial project in Kolkata (Godrej Waterside). It garnered `32 crore from the project, with an average price of 5,100 per sq ft. Given the construction cost of `3,000 per sq ft and 58 per cent area shared with land owners, GPL just managed to break even, pushing the margins down. In addition to this, there were no PE deals in the quarter, which typically are at higher margins. This further dented profitability. However, Pirojsha Godrej, executive director at GPL, believes margins are likely to move to the historical average of 30-40 per cent. Net profit, at `10 crore, was much below estimates due to a sharp fall in other income and higher tax rates.

2011-12: STRONG SALES, PROFIT PRESSURE

While the macro environment continues to be tough for the sector, the GPL management expects strong growth in 201112 on the back of new launches and joint development deals. The company, which sold 0.56 million sq ft in the June quarter, is likely to end the year at 4-5 million sq ft, feel analysts at Pinc Research.

While the company has a scalable business model (four new joint development deals over the last two quarters), Nitin Agarwal of IDFC Securities believes with significant portion of area/revenues shared with land owners and most projects in the mid-income segment, value creation from the new JDAs is likely to be relatively muted.

However, Sandipan Pal of Motilal Oswal Securities says traction in existing deals with group companies is a key longterm positive for GPL. "The remaining deals at Bangalore (100 acres) and Mohali (75 acres), along with huge potential in Vikhroli (500-600 acres), offer further value unlocking potential," he says. Against this backdrop, investors with a twothree year horizon may consider the stock on dips.

Stock Review: Shree Renuka

 

Shree Reunka Sugars (SRSL), the country's largest sugar refinery by revenue, reported a triple-digit growth in the bottomline for the June 2011 quarter following the contraction of growth in the net profits in the two consecutive quarters.


The robust growth in profit can be attributed to the fact that this was the first quarter to fully reflect consolidation of SRSL's acquisition of VDI, a Brazilian sugar company in March 2009. In addition, a 9% decline in the raw material cost boosted its operating margin by 20% as compared to 10% a year ago.


The company has been able to survive the downturn in the sugar sector since the past two years due to its overseas acquisitions. This has helped the company to remain as an outperformer as compared to its pure domestic sugar player.

As per the latest estimates, the sugar production is estimated to be 26 million tonnes for the current sugar season (September'10-October'11) against the domestic consumption of 24 million tonnes. However, the expectation of the increase in the export quota from 0.5 million tonnes to 1.2 million tonnes has led to 3% rally in the sugar prices in the past three months. This could support the sugar companies with better operating margin and besides lower raw material cost in the current sugar season.


The international price of raw sugar is firm due to lower-than-expected sugar production in Brazil. A clear picture of actual production in both Brazil will be visible in the next four months, when sugar production will end.


SRSL scrip outperformed the 32-stock ET Sugar Index declining by 1% in the past three months compared to a 7% drop in the sugar benchmark index and a sharp correction in the broader capital market.

 
Sugar prices are expected to remain in the range of . 28-30 in the domestic market although volatility can be seen in international sugar prices. This could have an effect on SRSL since it derives close to half of its revenue from the international market. With the expectation of more revenue from the international market, the company's financial performance may vary from that of the domestic players in the coming quarters.

 

Stock Review: HINDALCO



Hindalco reported its first quarter numbers ahead of the long weekend. Domestic operations were in line with expectations while Novelis, its Atlanta-based subsidiary, performed betterthan-expected.


Higher London Metal Exchange (LME) prices in aluminium and better treatment and refining charges (TcRc) for copper were the key factors that contributed to the company's improvement sales. However, the weakening of the dollar against other currencies coupled with higher coal and crude prices curtailed the rise in profitability.


While the correction in crude oil following the turmoil in financial markets could bring some relief, high coal prices and the depreciating dollar will continue to be a bane.


Net sales from its copper business, which contributes threefourths to its total income, rose 19% over last year to . 3,940 crore primarily due to higher copper LME and by-product realisation. This was despite the shut-down of one of its smelters at Dahej in Gujarat. The smelter began operations in July 2011.


The constrained availability of bauxite to feed to its Renukoot plant led to a fall in the production of aluminium. Bauxite is a sedimentary rock from which aluminium is extracted. Moreover, tepid market conditions led to lower production of flat-rolled products. As a result, revenue growth from this segment was a mere 12% to . 2,093.


Last week, Novelis, the company's Atlanta-based subsidiary, reported a 24% rise in sales and profit. This was mainly on account of higher shipments and demand from the automobile industry. Hindalco's standalone sales were up 16% to . 6,030.87 crore where as its net profit was higher by 21% to . 644 crore. Higher input costs brought its operating profit margin down 200 basis points to 14%.


Due to the current global macroeconomic risks, the next few quarters are likely to trying for all resource based companies and Hindalco is no exception.


In India, the company continues to be encumbered by high coal prices and insurgency problems at certain locations. Though the stock has corrected significantly with the correction in the markets, at . 150, it still quotes at 12.8 times its trailing 12-month standalone earnings per share.

 

 

Stock Review: RELIANCE COMMUNICATIONS



The announcement of a 20% raise in wireless tariff may provide some relief for investors of Reliance Communications who have been fretting over the company's poor financial show, quarter after quarter, for the past two years. The country's second largest telecom operator by subscriber base reported a sharp 37% drop in net profit at . 157 crore following a 4% fall in revenue at . 4,314 crore during the June 2011 quarter from a year ago. The company's management has highlighted that the sharp profit fall was largely due to a higher gain in tax account in the year-ago quarter. Though this is true, its operations have indeed suffered due to stiff competition. The revenue trend of the domestic telecom sector over the past two years reveals that Reliance Communications is among the operators who have been hit hard because of the fierce tariff war. Ironically, the race to rock-bottom call rates in turn began after Reliance Communications slashed its tariff sharply in the middle of 2009. Between FY09 and FY11, Reliance Communications' revenues from wireless operations fell by 4.6% whereas those of Bharti Airtel, the largest operator, rose by 11.6% (excluding African operations). Idea Cellular, the third largest listed telecom player by subscriber base, reported a whopping 56% jump in revenue in the same period boosted by its expansion across various telecom circles. Reliance Communications' decision to raise tariffs would play a crucial role in preventing its revenue from falling down further. But its stock is expected to trade at relatively lower valuations compared to its peers until a trend of revival in operations and clarity over legal matters pertaining to the 2G scam emerge.

Stock Review: UNITECH



The stock of Delhi-based leading real estate company Unitech has almost fallen by three-fourth in the past one year, thanks to the company's consistent poor performance in the past four quarters. This is partially explained by high debt and poor sales in these quarters. The company has remained underperformer among its peer group when compared with the financials.


For the quarter ended June '11, Unitech recorded a 28% decline in the topline on a consolidated basis, which is higher than the quarter ended March '11. With lower sales and high operational cost, it also witnessed contraction in operating margin by 32%, which is lower than 37% in the quarter ended June '11. On the non-operational cost front, the company has recorded moderation in interest cost, even though erosion in net profit can't be contained, resulting in a fall almost by half to . 98 crore.Unitech is not able to record reasonable net sales despite sustainable momentum in residential sales in the past one year, which accounts close to 80% of its business portfolio.


Unitech has not been able to contain its debt despite raising funds from QIPs and better sales in the past fiscal. It has been sitting on high debt cycle of 246 days for the current fiscal against 158 days in the past fiscal, which is putting pressure on its lenders. On the filip side, the company has recorded its operating cash flow of . 45 crore against . 1,340 crore in the past one year.


Its quarterly earnings are below analyst estimates. And its debt worries will remain as topline growth looks bleak due to its involvement in the 2G scam, but with a positive business impact in coming quarters. In addition to revision in interest rate, high inflation cost will affect sales in the coming quarters.

 

Saturday, November 5, 2011

Stock Review: Berger Paints

Berger Paints is India's second-largest decorative paints manufacturer with a market share of 17 per cent. It ranks second only to Asian Paints in the Rs 12,000 crore decorative paints segment. Berger has a presence across 14,000 dealers and 7,700 tinting machines. Some of Berger's key brands include Berger Silk, Berger Rangoli, Berger Illusions and Berger Weather Coat. When it comes to the protective coatings market, Berger pips Asian Paints to the top spot. Indian paint manufacturers have a tremendous opportunity ahead of them with the per capita consumption of paints here at only 1.5 kgs per year compared to 15-20 kgs per year in developed countries. In terms of growth rate, the Indian paint industry's fortunes are strongly tied to that of the economy: historically the industry has grown at a rate equal to 1.5x the GDP growth rate.

 

In a bid to cater to this opportunity, the company plans to increase its production capacity by 52 per cent over the next two years. On the cards is a 1,60,000 MT capacity plant in Andhra Pradesh which is expected to come online in the next two years at a cost of around Rs 140 crore. This project will be funded internally. The AP plant is expected to be scalable to 3,20,000 MT in future.

 

Berger has grown its revenues by a compounded average rate of 18 per cent over the last five years. Analysts tracking the company maintain that it should be able to grow its revenues by at least this rate in the near future. Margin concerns arise from the rising price of titanium dioxide (up 32 per cent y-o-y in Q1FY12), crude and other vegetable oils.

 

At the current price of Rs103, the stock trades at 24 times its FY11 earnings. On a five-year PEG basis, the stock trades at a slightly expensive 1.7 times. Compared to industry leader Asian Paints which trades at 33 times estimated FY11 earnings but at a lower five-year PEG ratio of 1.18, Berger looks expensive. Wait for its valuation to correct before taking a position in the stock.

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