Stock Review: Kingfisher

Paying Off Dues To Oil Cos Brings A Breather To Kingfisher Air Investors

 

THE Kingfisher counter witnessed renewed investor interest on Thursday after the company announced that it has paid off its dues to oil companies that provide aviation fuel. Kingfisher's stock rose by 7% to 67.7 on Thursday from the previous day's close. The news has come at a time when Kingfisher Airlines is struggling to maintain its bottomline growth.

   Its performance in the past two quarters has been hardly encouraging. In contrast, its domestic peers have shown significant improvement in their net profits. In this backdrop, the news that it has paid off its creditors may offer some breather to investors.

   In the past two quarters, the fortunes of airline companies have changed dramatically. A growth of 22% in passenger movement and benign crude oil price propelled net profits of both SpiceJet and Jet Airways during the June 2010 quarter. SpiceJet, for instance, reported two-fold jump in its topline. And Jet Airways, the country's largest carrier, turned profitable during the quarter. In contrast, Kingfisher is yet to reflect any positive impact of higher passengers traffic. It reported losses for the quarter ended June 2010.

   An important reason for Kingfisher's dismal performance is the sluggish demand in its international operations. These are yet to generate revenue proportionate to the investment made in the past two years. The expenditure on international operations has stretched Kingfisher's financials.

   The debt on its balance sheet has shot up from 914 crore in FY07 to 5,665 crore in FY09. In FY09, the company's revenue in foreign exchange was just 4% of the total revenue.

The company had recenlty announced plans to raise around 5,000 crore through rights, GDR and preferential issues. It remains to be seen how successfully it can complete the fund raising exercise. It has already taken a step in this direction by increasing its authorised capital from 1,000 crore to 4,250 crore.

But even if it succesfully raises necessary funds, the company may face the dilemma of either reducing its humongous debt or pumping the money to strengthen its domestic and international operations.

Going forward, a keen focus on domestic operations by sticking to the low-cost carrier model - similar to Jet Airways - would be a crucial factor in driving its topline.

 

Stock Review: Resurgere Mines

 

Debt-Equity Ratio, At Around 0.3, Gives Room For Expansion

   THE stock of Resurgere Mines and Minerals has seen high volatility recently. It touched a high of Rs 140 on July 27 and fell back to its initial levels of around Rs 75 on Tuesday. The company has reported a triple-digit profit growth in the past three consecutive quarters. Going ahead, the company is poised to benefit from recent increase in iron ore prices and higher production from its iron ore mines.

   Resurgere Mines and Minerals is a Mumbaibased company engaged in processing and sale of minerals with exploration and development of mining asset capabilities. The company, at present, operates two iron ore mines in Orissa, one bauxite mine in Maharastra and one soapstone mine in Rajasthan.

   The total iron ore reserve of the company currently stands at 114 million tonnes. Apart from this, the company is also in the advanced stage of negotiations for four leases, of an area of 1,000 acres, with reserves of 100 million tonnes on the west coast of India. The company can leverage all these mining assets to fulfil growing demand from steel manufacturers. It intends to integrate forward by setting up a steel plant. This may offer some hedge against fluctuation in iron ore prices.

   The company recently raised around $53.75 (Rs 252.6 crore) million through the issue of global depository receipts (GDR). The GDR is listed on Luxembourg Stock Exchange. Money raised by this GDR will be used to fund its pelletisation plant and to acquire new mining assets, both nationally and internationally.

   On the financial front, though sales and profit growth is strong, the company has not been able to generate operating cash flows. This is a typical situation in the case of new mining and steel companies since they have a long cash conversion cycle, which is time taken to convert finished goods into cash. The company has a receivable period of 88 days, which is very high compared to the industry average of 50 days.

   On the positive side, it has a debt-equity ratio (D/E) of around 0.3, which leaves future scope for further debt raising to fund expansion plans. The company doesn't undertake any long-term sales. It operates in the spot market, given higher profit margins. Going ahead, the company expects to double its net margin in the current fiscal from the current 6%.

   At the current market price of Rs 80, the stock is trading at 13.5 times its trailing 12-month earnings. This is at a significant discount to some of its mining peers, which are trading at a P/E of above 20. The company's price to book value stands at 1.2, much lower than that of companies like Sesa Goa and NMDC.

 

Stock Review: DB Realty

The Mumbai-based realty developer, DB Realty, is seen as a frontrunner when it comes to revival of real estate stocks. After getting battered immediately after its listing at `468 on February 24, the share price plummeted to `355, but has now recovered to settle at `430 levels. It still remains below the listing price. However, acquisition plans of around 44 million square feet land in and around Mumbai has boosted sentiment. These will be through the joint development or joint venture route and will mostly involve redevelopment and rehabilitation. The initial cost of these acquisitions is expected to be around `3,300 crore. Analysts estimate the company can manage it with its strong cash position. The company's net worth is almost `3,000 crore.

It has a cash balance of around `660 crore, while sales are expected to bring another `1,000 crore, say analysts at Enam Securities.

The gross debt is expected to increase to `1,470 crore from `580 crore. Analysts at Antique Securities expect the company to have anet debt of around `930 crore in the year ahead. The interest cost will also rise, but the growth in net earnings will be stronger, reckon analysts. The June quarter saw net profit double to 61.8 crore as against `25.2 crore a year ago.

Till August 24, the company had sold around 1.12 million square feet property at around `566 crore. This should give traction to revenues and earnings, despite an increased interest cost. The price to earnings for FY10, at around 42.3 times, is expected to rationalise in the current financial year at around 15 times. This would be a solace for investors, especially those who bought shares in the initial public offering. Steady execution and visibility in earnings could be added bonuses.

A series of acquisitions and projects will prop up earnings to normalise valuation parameters