NHPC IPO -
The meeting was held to fix the NHPC IPO price band. Deputy Chairman of the Planning Commission Montek Singh Ahluwalia as well as the Finance Minister were present at the meet, which took place at around 3’oclock today at the Finance Ministry. The Minister said that it is definitely more than what they had expected.
Earlier a conservative estimate was made of between Rs 20-25 per share and the aggressive estimate was between Rs 30-36 per share for that IPO.
SK Garg, CMD, NHPC said, IPO price band set at Rs 30-36 per share. “The price band is based on 2 times price-to-book ratio," he said. The IPO issue will open on August 7 and close on August 12," Garg added.
The overall mandate from the government is 24%, but they have asked the company to go for in the first tranche with only 10% of fresh equity and plus 5% of disinvestment of the government’s own equity. The company’s current capacity was at 5175 MW and plans to increase to 9600 MW by 2013.
So in all NHPC is coming to the market in 15% (around 196 Cr equity shares), if we take the upper band of Rs 36, then it translates into Rs 6,000 crore, so out of Rs 6,000 crore 2/3rd will be flowing to NHPC, around Rs 4,000 crore and Rs 2,000 crore will go to GOI. This Rs. 4000 Cr will be spent on projects which are under construction right now, seven projects are lined up which will be funded out of this equity inflow to the company and 1/3rd will go to the government of India.
Current Capacity & Future Plans -
NHPC has lined up almost 11 projects. By the end of 2013, NHPC’s capacity would be touching around 9,500 MW. So a lot of investment will be coming & giving yield on that ROE also. So there will be an impressive book value as against the current one around 12 plus.
Right now NHPC has capacity of around 5,175 MW with 13 power stations. One more project of 120 MW will be commissioned by the end of the year in J&K. Apart from that, another six projects we will be delivering in 2010-11 and the total capacity will be around 2,200 MW, rest one project we are likely to give in 2011-12 and one would be coming in 2013 December.
So in all by 2013 or so, the total capacity of NHPC is nearing 10,000 MW.
2010 is the base year where it is going to deliver almost six projects to the nation and huge capacity is going to be added and followed by other big projects in Arunachal Pradesh, which partly will come in this plan and partly in the first year of the 12th Plan period. One project is slated to come in 2013 December in Himachal Pradesh.
INDIA is endowed with economically exploitable and viable hydro potential assessed to be about 84,000 MW at 60% load factor (1,48,701 MW installed capacity). In addition, 6780 MW in terms of installed capacity from Small, Mini, and Micro Hydel schemes have been assessed. Also, 56 sites for pumped storage schemes with an aggregate installed capacity of 94,000 MW have been identified. However, only 19.9% of the potential has been harnessed so far.
The Company has been conferred with Mini Ratna (Category-I) status by the Ministry of Power w.e.f. 28th April 2008. This status will not only entitle the Company to incur capital expenditure on new projects, modernization, purchase of equipment, etc. without Government approval up to certain specific limit but also entitle it to establish JV within stipulated limits, enter into technology JV, strategic alliances and certain other benefits.
Hydro Power has higher efficiency (over 90%) compared to thermal (35%) and gas (around 50%).
Financials -
FY-09 Revenues were 2672 Cr (2301 Cr) & NP Rs. 1042 Cr (Rs. 1004 Cr). For last 6 months of FY-09, Sales were Rs. 890 Cr (Rs. 627 Cr) but it suffered loss of Rs. 65 Cr (profit of Rs. 262 Cr). This was due to the higher expenditure which grew by more than 100%. The reserves as on Mar-09 were Rs 6798 Cr.
NTPC –
As on date, the installed capacity of NTPC is 27,904 MW.
Capacity aggregating 13,360 MW is under construction at 11 different locations. For another 8,000 MW plus capacity, they intend to finalize the orders within this year. Apart from thermal power projects, the utility is implementing three hydro power projects. The NTPC will be having 50,000 megawatt (MW) by 2012.
Jul 29, 2009
NHPC (Mini Ratna) IPO brief
Jul 28, 2009
Is Real Estate Sector Improving?
FIIs, who resumed their buying spree after a brief pause in the run up to the Budget, are placing their bets on realty stocks. FIIs, who have net bought equity worth more than $6 billion so far this year, have increased their stakes substantially in top realty companies in three months, boosting prices of stocks in the sector.
FIIs have more than doubled their stake DLF, in the country's top real estate company. FII holding in DLF stands at 15.4% for June, the highest since its listing. FIIs have more than trebled their stake in Unitech, which has raised $900 million between April and June.
BSE Realty index, which is among the top performers in the current rally, gained most last week moving up 13.3% while sensex registered 4.3% increase. The rally was led by DLF, which zoomed 18.3% followed by HDIL and Unitech that gained 15.9% and 14.3% respectively.
Stock prices (of realty firms) had corrected 90-95 % from their peaks. But the latent demand (for property) is still high. Now, big investors have come in and realty firms have also reduced debt and as a result equity values have gone up.
FII holding in Unitech, the country's second largest property developer have jumped from 5.96% in December to 22.79% in June, the highest exposure in more than three years. FII stake in the top two realty majors has hovered between 6-8 % in the past two years. FIIs have also increased their stakes in Indiabulls Real Estate (from 41.73% in March to 61.71% in June), Housing Development and Infrastructure and Orbit Corporation.
Snapshot of FIIs’ holding in some real estate sector companies –
Some +ves -
Jun08 / Dec08 / JUN09
DLF - 6.55 / 6.85 / 15.40
UNITECH - 5.41 / 5.96 / 22.79
IBREL - 41.69 / 42.92 / 61.71
HDIL - 9.34 / 10.02 / 7.05 - No. of FIIs increased from 63 to 113.
Some –ves -
Jun08 / Dec08 / JUN09
Orbit Corp - 11.63 / 6.35 /6.50
Ansal Infra - 12.05 / 17.00 / 7.78
Ansal Housing - 19.56 / 16.69 / 3.81
Mahindra Life - 21.74 / 26.74 / 18.27
Subscribe to ADANI POWER
The price band has been fixed between Rs 90 and Rs 100 per equity share.
The minimum bid lot has been fixed at 65 equity shares by the company in consultation with the global coordinator and book running lead manager. The issue will close on July 31, 2009.
Experts suggest that one should subscribe to the IPO as it leaves good profits for investors on the table.
Investment Advisor, SP Tulsiani, said he would subscribe to Adani Power IPO. "If one gets the share at Rs 100, I think this is quite interesting and it should leave good profits for the investor on the table," he added.
KRChoksey recommends investors to 'Subscribe' to the company’s IPO. Based on its calculation, the company’s fair value comes at Rs 104 per share & believes that the downside risk is negligible and one can look into the issue for listing gains.
Nirmal Bang believes that Reliance Power is the best comparable company as both the companies are implementing large power plants and do not have any existing operational revenue generation. It recommends investors to 'Subscribe' to the company.
According to the research firm Sharekhan, the NPV (Net Present Value) works out to Rs 84 per share. Add to this the cash of Rs 12.5-14 per share raised from the public issue, the fair value per share is close to the higher end of the offer price band.
Reliance Money says the company gets a BV of Rs.33.5-36.3 at the price band of Rs.90-100. The stock quotes at P/BV of 2.7x and 2.8x post dilution. Looking at the long term growth prospects, it believes Adani Power Ltd is a good opportunity for investors and recommends 'Subscribe' with a long-term prospective.
Angel Broking believes that the IPO is fairly priced and keep a Neutral view on it. The research firm has valued all upcoming projects of the company individually and arrived at a Fair Value of Rs82/share, while strictly adhering to the Execution timeline given in the RHP.
Kotak Securities says Adani Power valuations may not sustain over 3 years.
The issue constitutes 13.84% of the post-issue paid-up equity share capital of the company. The issue includes a reservation of up to 80,00,000 equity shares for eligible employees. The issue less the employee reservation portion comprises a net issue of 29,36,52,031 equity shares. The net issue will constitute 13.47% of the post-issue paid-up equity share capital of the company.
At least 60% of the net issue will be allocated on a proportionate basis to qualified institutional bidders (QIBs). And 5% of the QIB portion will be available for allocation on a proportionate basis to mutual funds only and the remainder of the QIB portion shall be available for allocation on a proportionate basis to all QIB bidders, including mutual funds, subject to valid bids being received at or above the issue price. The QIB portion includes anchor investor portion as per the SEBI Guidelines. Further, not less than 10% of the net issue will be available for allocation on a proportionate basis to non-institutional bidders and not less than 30% of the net issue will be available for allocation on a proportionate basis to retail individual bidders, subject to valid bids being received at or above the issue price.
The company intends to utilize the net proceeds of the issue to part finance the construction and development of Mundra Phase IV Power project for 1,980 MW and fund equity contribution in its subsidiary, Adani Power Maharashtra Limited, to part finance the construction and development cost of power project for 1,980 MW at Tiroda, Maharashtra.
The equity shares offered through the red herring prospectus dated July 14, 2009, of the company are proposed to be listed on the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited.
The global coordinator and book running lead manager for the issue is DSP Merrill Lynch Limited. Book running lead managers for the issue are Enam Securities Private Limited, IDFC-SSKI Limited, JM Financial Consultants Private Limited, Kotak Mahindra Capital Company Limited, Morgan Stanley India Company Private Limited, ICICI Securities Limited and SBI Capital Markets Limited.
Jul 27, 2009
HCC - Company Creating Wonders
Promoter holding – 47.17 %
General Public holding – 16.94%
Face Value - Re. 1
Market Cap – 3244 Cr
Book Value – Rs. 38.62
Free Reserves per share – Rs. 36.55
Reserves – Rs. 964 Cr
EPS (Rs) – Rs. 4.89
Cash EPS – Rs. 9.39
Bonus – 1:1 (1995)
Price/Book Value – 3.26
52 week high/low – Rs. 128.90/Rs. 28.80
CMP – Rs. 108
Hindustan Construction Company executes the construction of technically complex and high value projects across segments such as Transportation, Power, Marine Projects, Oil and Gas Pipeline Constructions, Irrigation and Water Supply, Utilities and Urban Infrastructure.
HCC is the first construction company in India to be certified for ISO 9001, ISO 14001 and OHSAS 18001 for the Quality.
Since it’s inception in 1926, HCC has completed various “first of its kind in India” projects. It has constructed first nuclear power project in Rajasthan (unit 1 & 2). Recently HCC has created another wonder, Bandra-Worli Sea Link for which it has won prestigious IIBE national award.
Financials:
HCC had registered an impressive performance for the year ended 31st March 2009. The Company’s turnover jumped 13.3% to touch Rs 3518.32 Cr, compared to Rs 3104.34 Cr last year. Its net profit increased by 15% to Rs 125.35 Cr, compared to Rs 108.77 Cr in the previous financial year. The Operating Margins (EBIDTA) grew to 13% from 11.9% in FY 2007-08.
The power sector contributed 51% of the new orders, whereas water solutions and transportation sectors have contributed 31% and 17%, respectively. The Company is awaiting further award of projects worth Rs 1,000 Cr where its bid is lowest (L1). HCC also has bids under evaluation for Rs 10,000 Cr approximately.
For Jun-09, sales were Rs. 876.01 Cr Vs Rs. 865 Cr Y-o-y but Net profits were Rs. 18.19 Cr compared to 30.64 Cr Jun-08.
Its order book position has improved significantly to Rs 16,400 Cr, which is almost 5 times its total income for last year, a YOY growth of 61%.
In the engineering and construction space, HCC won 11 major contracts for more than Rs 9,000 Cr, including the Package MC3 of the prestigious Punatsangchhu HEP (1200 MW) in Bhutan. The infrastructure development business expanded to three projects in FY 08-09, from just one in FY 07- 08. In this year, HCC is preparing to bid for and develop projects in all infrastructure segments, including roads, hydro power, airports, and water solutions and ports development projects.
Creation of great enterprise value:
The interest in this stock is generated due to the following two reasons.
1) HCC holds around 63% stake in Lavasa Corporation through HCC Real Estate. Axis Bank has invested Rs. 250 Cr in Lavasa in the form of convertible preferential shares & debentures, making Lavasa’s valuation at about Rs. 10,000 Cr whereas market-cap of the company is Rs. 3200 Cr only. This shows that the HCC has very high embedded value and when this value is unlocked through an IPO of Lavasa Corporation, HCC will see sharp appreciation in its share price. So, I would recommend accumulating this stock on declines for getting many-fold gains in future. Also Bank of India, Allahabad Bank and Bennett, Coleman and Co. Ltd has made investments in Lavasa.
Overview of Lavasa:
Lavasa is a planned city called as Lavasa Lake City, billed as India's first hill station since Independence, being developed in accordance with the controversial Hill Station policy passed by the Maharashtra government in 2000. The project is being developed primarily by HCC India near Pune and Mumbai and is spread over 12,500 acres, located in the Western Ghats, on the banks of the Baji Pasalkar Reservoir behind the Varasgaon Dam (Varasgaon Dam & Reservoir), in Raigad district, between Pune and Mumbai. The project covers approximately 25,000 acres of land. Lavasa is planned for a permanent population of 2 lakh residents and a tourist inflow envisaged at 20 lakh per annum. Lavasa is planned in four phases out of which, Phase I in Davse will be operational from 2010 with almost 1,000 villas and 500 apartments. The development of Phase II will begin next year and would be ready by 2014. The 3rd and 4th phases would be ready by 2017 and 2021 respectively.
Lavasa sold 1500 residences and concluded lease arrangements for 22,500 sq. ft. retail space to renowned brands. Lavasa has also achieved pre-sales of Rs 800 crore. To date, it has concluded 22 tie-ups with organizations in education, hospitality and healthcare segments. In the hospitality segment, ITC Fortune Dasve, the first hotel at Lavasa, started operations in March 2009. The company also signed a JV agreement with the reputed chain, Hilton ‘Double Tree’, to construct a hotel with 125 rooms. With over 1,000 hotel rooms under development currently, Lavasa is fast emerging as a hospitality hub. The upcoming education facilities at Lavasa are expected to create seats for more than 10,000 students in various disciplines.
Thus Lavasa Corporation has a great future. Thus, Lavasa is a prime offering from HCC, with a level of city infrastructure yet to be experienced in India, thus setting a new benchmark in planning, construction and service delivery.
Most importantly, Lavasa showed impressive financial performance for the year 08-09, included EBT margin of 64% at Rs 135 Cr on an income of Rs 212 Cr and a net profit of Rs 123 Cr. Institutional and residential land sales contributed Rs 143 Cr; build-up space sale of villas, apartments and retail contributed Rs 67 Cr and project management consultancy contributed Rs 2 Cr.
The HCC Real Estate business is also moving ahead at a fast clip. In the 247 Park project at Vikhroli, Mumbai, 50% of the space has been leased and clients have begun work on the interiors.
2) Huge investments in power projects is also going to help HCC, & also GOI has plans to foray into Nuclear power projects full-fledged which augurs well for HCC.
HCC specializes in pre-stressed containment structures for reactor buildings.
HCC has been in the forefront of construction of Nuclear Power projects and has built over 50% of India’s nuclear power generation capacity & has built 4 out of India’s 7 operational nuclear power plants. Apart from that it has constructed 18 thermal power projects and 3 gas based power projects. At present the company is executing two nuclear power projects including the Asia’s largest nuclear power plant in Kudankulam (2 X 1000 MW) and unit 5 & 6 of Rajasthan Atomic Power plant.
The management of the company has very good capability & efficiency when it comes to executing the projects. Lavasa faced lots of issues from various wings of society; however that has not deterred the plans of management to execute Lavasa. Lot of projects that have been completed for the 1st time in India after independence, are completed by HCC. Thus they are pioneers of Indian infrastructure industry. The management is very innovative in that they have vision to foresee needs of India which is developing at rapid pace & participate such projects aggressively, one such project is Mumbai’s wonder, 4.7 KM long Bandra-Worli Sea-link.
Considering all these facts, I recommend to buy HCC for a longer term view for multiple gains.
Outlook for the market
For long to medium term investors, this is extremely good opportunity to invest. In the short term, market might take a pause around 4600 nifty, then come back to 4200 or so. Near term trigger would be Andhra Pradesh elections, in that if Congress wins, which is very much on the cards, also they happen to be the biggest spender on Agriculture sector. You can take a short term investment call on IVRCL infra & Patel Engineering (Also read Patel Engineering – Dark Horse), as these companies have major exposure in AP.
Jul 23, 2009
Aban Offshore Ltd. - Higher Oil Prices will benefit
No. of equity shares – 3,78,02,300
Face Value – Rs. 2
Promoter holding – 60.83%
General Public holding – 19.55%
Book Value – Rs. 187
Reserves – Rs. 700 Crore
52 week high/low – Rs. 2835 /Rs. 224
Aban Offshore Limited offers a diverse range of offshore drilling services to clients in India and abroad.
**Exploratory services
**Drilling services
**Production of hydrocarbons
**Manning and management
Order Book:
The company has 162 rigs in the order book, of these 84 uncontracted rigs, 44 are being delivered over the next 2 years. Out of these 44, 40 of them are jack-ups (91%). Thus, pressure on day-rates would be restricted to jack-ups due to increased supplies in this segment. A majority of new deepwater assets are contracted for long-term, and will not be available for a few years going forward. We, therefore, expect day-rates for deepwater assets to remain relatively strong.
Valuations:
At current price of Rs 920 the stock is trading at P/E of 13 x TTM EPS of Rs.67.62 and it is trading at TTM EV/EBITDA of 5.65x.
Recent Developments:
Aban Offshore stock has gained around 40% in last few trading sessions. And has risen from year low of Rs. 224 made on 9-Mar-09. The reason for the move over the past couple of months has been the rise in crude oil prices. According to a Morgan Stanley report, the outlook for the offshore jack-up industry is improving with crude oil prices rising from $40 per barrel to $60 currently.
That is expected to result in higher rig rates and more contracts for the company. Already, oil services companies are understood to be seeing better demand across the globe and it could mean that at least three of Aban’s seven idle rigs will be deployed in the near future.
Also, with credit markets easier than they were even six months back, there is a higher probability that Aban will now be able to restructure its financials.
The company needs to strengthen its balance sheet and bring down the debt-equity ratio from around 9. As Morgan Stanley points out, Aban can do a placement
of shares to institutional buyers and also restructure its $3-billion foreign currency debt. Aban is required to pay off a small part of its borrowings by the end of the year, after which repayments at regular intervals include bonds due for conversion in 2012.
Improving cash flows from operations would also help. Aban is expected to report losses for the first half of 2009-10 with many of the firm’s assets remaining unutilized. However, things should improve with most of the company’s assets expected to be deployed by the end of 2010-11.
The company is expected to turn in revenues in the region of Rs 3,400 crore in the current year, while operating profits are expected to come in close to Rs 1,910 crore. These figures are almost 3 times as that of FY-09.
Concerns:
Currently 7 out of 13 rigs of Aban Singapore , Aban's wholly owned subsidiary are sitting idle and two more rigs are about to complete their contracts by June and Sept 2009. These rigs have revenue generation capability of close to USD 400 mn and their idle status is severely impacting Aban cash flow generation capabilities.
On a consolidated basis Aban needs to retire about USD 435 million or 13.4% of its USD 3.2 bn debt in FY2010. Out of this USD 142 mn will be maturing on 22 Dec 2009 to honor the bullet payments of Norwegian Kroner bonds on book of its subsidiary Sinvest (which in turn is a 100% subsidiary of Aban Singapore).
On the back of recent rally in crude prices, we now expect the day-rates for jack-ups to remain stagnant at current levels for another 2 years.
Industry Scenario:
An offshore platform, often referred to as an oil platform or (somewhat incorrectly) oil rig, is a large structure used to house workers and machinery needed to drill wells in the ocean bed, extract oil and/or natural gas, process the produced fluids, and ship or pipe them to shore. Depending on the circumstances, the platform may be fixed to the ocean floor, may consist of an artificial island, or may float.
Most offshore platforms are located on the continental shelf, though with advances in technology and increasing crude oil prices, drilling and production in deeper waters has become both feasible and economically viable. A typical platform may have around thirty wellheads located on the platform and directional drilling allows reservoirs to be accessed at both different depths and at remote positions up to 5 miles (8 kilometers) from the platform.
Remote sub sea wells may also be connected to a platform by flow lines and by umbilical connections; these sub sea solutions may consist of single wells or of a manifold centre for multiple wells.
Demand for global exploration and production (E&P) capex to ease in medium term; long-term trajectory intact: Global E&P capex, the key demand driver for oilfield services (OFS), is partly correlated to crude price movements and crude demand. Global E&P capex is likely to pick up going forward with a revival in crude prices. However, the long-term demand trajectory for OFS is likely to remain firm as mature field decline rate increases and rising project complexity and ageing global offshore/onshore infrastructure necessitate committed E&P capital spending.
New supply in many sub-sectors to ease pricing:
New supplies in most sub-sectors like jack-up rigs, offshore supply vessels, US onshore rigs, and offshore seismic streamers ( capacity to double) are likely to come on-stream through CY08- 11E. On the other hand, already booked new supply of floaters indicates expected tightness in the market. Over the long term, though shipyard capacities are likely to ease (due to global weakness), weak new order booking is expected to give some respite to the long-term supply situation.
Domestic OFS an emerging opportunity; medium-term headwinds: Unexplored frontiers, restricted equity access to global reserves (making Indian E&P attractive), and significant New Exploration Licensing Policy (NELP) commitments (USD 21 bn for NELP-I to VI), present an emerging opportunity for Indian OFS. Hence, domestically-driven companies and sub-sectors (onshore drilling, and engineering and construction), whose pricing is not fully driven by global industry dynamics, are likely to fare well. However, the medium term demand-supply scenario is expected to impact rates of Indian offshore drillers and OSV companies. Onshore seismic is likely to provide moderate growth opportunities.
Company has written off Rs.150 crore in Q4 FY09 on account of impairment charge. As of FY2008 the unamortized capital expenditure for Murmanskaya was Rs150 Cr which should have been charge off over the remaining period of the lease (19 months up to November 2009) implying a quarterly charge of around Rs 24 Cr. However, the company did not provide for this in the first nine months of FY2009 and charged the entire amount in 4QFY09 since the rig is not expected to get a contract anytime soon.
Financial Analysis:
Higher sales – Aban off shore reported Q4FY09 revenue of Rs 774 Cr, an increase of 17% y-o-y. The operating profit margin (OPM) expanded by 480 basis points to 55.7%. Gained by higher sales and jump in the OPM, operating profits increased 29% to Rs 431.31 Cr. (Consolidated performance as per Indian GAAP)
Operating performance – EBITDA of Rs.431 Cr increased by 29% y-o-y but down by 9% q-o-q. Revenues were impacted by: (i) jack-up DD 7 lying idle during the quarter, and (ii) drillship Aban Ice being dry-docked during the quarter. While 1Q EBITDA should recover with commencement of contribution from drillship Aban Abraham, this could be partly offset by higher capital costs on the same.
Impairment and interest cost result in net loss: Aban reported net loss of Rs93.08 Cr in 4QFY09. The company provided Rs150 crore for the impairment of the capital expenditure incurred on the rig Murmanskaya which has been taken on bare-boat charter. Interest cost for the quarter was Rs225.8 Cr this was mainly on account of increase in the high cost loans raised at the parent level to replace debt at Aban Singapore.
Risks:
Falling crude prices is a concern for the company.
Idle Rigs lying affect the cash flow and also the deployment of regs at lower rates could affect the profitability.
Jul 21, 2009
KLG Systel Ltd. POWERed Growth Ahead
No. of equity shares – 12,624,600
Promoter holding – 28.60 %
General Public holding – 36.69%
Market Cap – 214 Cr
Book Value – Rs. 155
Reserves – Rs. 227 Cr
EPS (Rs) – Rs. 26.37
Bonus – 1:1 (27-01-06)
52 week high/low – Rs. 471.25/Rs. 47.40
CMP – Rs. 169
KLG Systel Ltd provides Solutions for Engineering & Construction, Infrastructure, Energy (Oil/Gas/Power), Manufacturing, and a host of Industries and Government Departments. KLG Systel is one of the very few companies in this space with ISO 9001 certification for design, development, supply, support and service of application software.
Business:
KLG Systel Ltd. is an India-based company that provides support and information technology (IT) enablement to Top 500 Indian companies (both from the government & private sector) and the Indian arms of Fortune 500 companies. Its major service offerings include deployment of software solutions for enterprise project management, enterprise project management office consulting, program management and enterprise portfolio management solutions.
The Company operates in two sectors: Business Life Cycle Solutions and Power System Solutions.
Business Life Cycle Solutions includes Computational Engineering and Sciences, Enterprise Project Management, Automation and Manufacturing, and Enterprise Business.
Power System Solutions includes Distribution Management Solutions, Revenue Management Operations, Engineering Procurement Construction, Utility Distribution Franchising and Demand Response.
Growth driver:
The new government at centre is bullish on rural development and plans to spend more on different rural development schemes. This will be to enhance rural & urban infrastructure for which KLG is providing software solutions & it will definitely be benefited from this.
KLG has evolved as one of the key players in the Indian Power Industry enabling the ailing utilities to understand, rectify and meet the challenges of the complex power transmission and distribution system. KLG has several Intellectual Property Rights to its credit which have been developed indigenously with research and development initiatives taken by the Company. Its products, SG-61, Vidushi and Connectgaia are path breaking achievements of the Company.
Restructured Accelerated Power Development and Reforms Program (R-APDRP) scheme of Government of India is focused on establishment of baseline data & reduction of Aggregated Technical & Terminal (AT&C) losses to 15% through strengthening & up-gradation of sub-transmission & distribution network & adoption of IT. The total fund allocated to the scheme is Rs. 50,000 Cr.
For the implementation of R-ADRP, KLG Systel Ltd has been empanelled as an IT Implementation Agency for three roles, System Integrator (SI), GIS Solution Provider (GSP) and Meter Data Acquisition Solution Provider (MDASP).
Under this, KLG’s Power System Solutions (PSS) Division has been awarded many orders from various SEBs for the up-gradation & implementation of power systems such as - orders of Rs 40 Cr (approx.) from Punjab State Electricity Board (PSEB) for EPC project on turnkey basis; order of Rs 8.36 Cr from West Bengal State Electricity Distribution Company Ltd for the billing software and services for nearly 3.64 lacs consumers; orders of Rs 132 Cr from Punjab State Electricity Board (PSEB)under Rajiv Gandhi Gramin Vidyutikaran Yojna for design, engineering, erection and commissioning of 11 KV lines, 25 KVA substations and release of around 1.48 lacs new connections to Below Poverty Line (BPL) households. There will be many more orders bagged by the company due to its expertise in executing these projects.
Financials:
KLG Systel’s equity base is very small around Rs. 11.76 Cr whereas the reserves are Rs 170 Cr. Thus the free reserve per share comes to around Rs. 144 whereas it is currently ruling at a price of Rs. 170.
The recent performance, for the fiscal year ended 31 March 2009, KLG Systel Ltd.'s revenues were Rs 235 Cr (Rs. 272 Cr) Net Profit decreased 37% to RS 33.37 Cr (Rs. 52 Cr) is not very positive, however company has given 28% Dividend (Rs. 2.80 per share) & going forward, company is going to receive many more orders from the GOI under various development schemes. Its proposed state - of - the – art, Automatic Meter Reading (AMR) for the utility business manufacturing plant at Davni, near Baddi in Himachal Pradesh, with installed capacity of 25,000 units per month will be operational by third quarter of the year 2009 which will be adding revenues from Q4-09.
Valuation:
The company’s earning per share (EPS) is Rs 26 for FY ’09.
At the current price level of Rs. 170, the price-earning (P/E) multiple works to be around 5. The industry P/E is around 15. Even if we do not give that P/E & consider it around 10-12, then also there is good upside potential for the price. Its dividend yield comes to around 1.64. Secondly, it is one of the earliest entrants in the power sector which is going to see a great transformation towards the technology oriented power systems, KLG can hugely benefit out of it as explained earlier. So Investors with a long term horizon can consider buying this stock.
Jul 20, 2009
Glodyne Technoserve - Good Bet for Medium-Long Term
No. of equity shares – 1,11,09,223
Promoter holding – 66.46%
General Public holding – 22.75%
Book Value – Rs. 68.43
Reserves – Rs. 63.56 Crore
EPS (Rs) – Rs. 66.39
52 week high/low – Rs. 699/Rs. 162
CMP – Rs. 488
Among the few companies which have maintained its growth momentum in the ongoing economic slowdown is Glodyne Technoserve. It has a presence in infrastructure management services (IMS) and domestic e-governance projects. The company is expected to benefit significantly from the rural development initiatives of the central government.
Business:
Glodyne currently derives around three-fourths of its revenue from IMS and the rest from software services, mainly projects related to e-governance. Both these business segments have remained relatively insulated from the slowdown. Infrastructure management is an operational expense for its customers and is non-discretionary in nature. Rather, it lowers the operating expenses of its clients significantly. The company is trying to manage an increasing amount of IMS activities from remote locations, thereby improving the operating margin. In e-governance, the company is focused on the domestic market. It has bagged a contract, called e-Shakti project, from the government of Bihar which will help monitor National Rural Employment Guarantee Scheme (NREGA) projects in that state. The contract initially, estimated at around Rs 285 Cr, is expected to go up to Rs 500 Cr due to the increased scope of the contract.
Financials:
Glodyne’s equity base is very small around Rs. 10 Cr whereas the reserves are Rs 63 Cr. The Company’s net sales have been growing at a compounded annual rate of around 80% for past four years. It managed to report around 70% growth in net sales of Rs. 460.58 Cr (272.97 Cr) & Net profit was Rs. 73.75 Cr (33.55 Cr) for the financial year ended March 2009, giving an EPS of about Rs. 66. Thus at current price of Rs. 488, it’s PE is just about 7 or so.
More off-shoring of its IMS business has improved the overall operating margin by around 300 basis points to 21%. As a result, the net profit for the FY ’09, continuing the previous trend, almost doubled to Rs 78 Cr. The company’s net debt has more than doubled to Rs 85 Cr. But its interest coverage ratio is still at a comfortable level of more than 13.
Growth driver:
The new government at centre is bullish on rural development and plans to spend more on different rural development schemes. It has increased allocation to NREGS and other such schemes in its recent budget. The company, being a first mover, is going to benefit from this. It is already working with many state governments on some pilot projects and if everything goes smoothly it is likely to bag big-ticket orders from them. Its recent acquisition of Broadllyne Technologies shows its continuous focus on the domestic market. The acquisition is an all-stock deal and would not affect the company’s cash flow. The company is also looking at small overseas companies mainly to increase its client base.
Valuation:
Though the company has maintained more than 80% growth in top-line, which may not be sustainable in the coming years. The company’s top-line is expected to grow at 40% next year and its operating margin will be maintained. The new acquisition is also expected to add around Rs 8-10 Cr to the bottom-line.
The company’s diluted earning per share (EPS), after adjusting for issue of a total 15 lakh of equity shares and convertible debentures, is calculated as Rs 90 for FY ’10.
At the current price level, the forward price-earning (P/E) multiple works to be around 5. The stock has traditionally traded at a P/E band of 7-12. Hence there is a possibility of strong upside potential in the next 1-2 years. Investors with a medium to long term horizon can consider buying this stock.
Jul 17, 2009
Manaksia – Available at cheap valuation
No. of equity shares – 6,95,34,050
Face Value – Rs. 2
Promoter holding – 58.10%
General Public holding – 16.15%
Book Value – Rs. 75
Reserves – Rs. 508 Cr
Total Debt / equity – 0.35
52 week high/low – Rs. 88/Rs. 24
Manaksia Limited (formerly Hindusthan Seals Ltd., incorporated in 1984) is a multi-division and multi-location conglomerate. It possesses 15 manufacturing plants in India and three abroad; two in Nigeria and one in Ghana.
Manaksia specializes in the manufacture of packaging products (crowns, closures and metal containers), metal products and fast moving consumer goods, among others.
They came out with a public issue at about Rs 160 per share. But due to the bad market condition it got hammered after listing & made a year low of Rs. 24. But if you look at the performance & financials, even at current price of Rs. 45 or so, it looks very cheap.
Manaksia had revenues of close to Rs 973 Cr (Rs. 784 Cr) & Net profit of Rs. 24 Cr ( Rs. 39 Cr). Net profit got hit due to relatively high raw material expenses.
Their equity is quite low, at about Rs 14 Cr with a face value of Rs 2. They had an EPS of about Rs 15 while their cash EPS is quite high at about Rs 23 & a book value of Rs 75. Their market cap is just Rs 300 Cr and right now, it is ruling at Rs 45. The dividend of 110% (Rs. 2.20 per share) has been paid for the last year. Price to book ratio is at 0.5 with a good dividend payout and good growth.
So, at Rs 45, investors can buy some shares with a long term view to earn handsome gains.
KNR Constructions – Increased Road & Irrigation project allocation might prove beneficial
Face Value – Rs. 10
Promoter holding – 72.78%
General Public holding – 7.36%
Book Value – Rs. 77
Reserves – Rs. 198 Cr
Total Debt / equity – 0.72
52 week high/low – Rs. 88/Rs. 21
KNR Constructions Limited is into roads construction and irrigations. They have a strong presence in Andhra Pradesh and also have got projects from NHAI. They have interest in two build-operate-transfer (BOT) road projects in which they have 40% interest in each along with Patel Engineering which has 60% stake and those two BOT projects will go on stream in the next three months and another one in next 8-9 moths. The contract for the construction is given to them.
The total order book with them is close to Rs 1,500 Cr and recently they have been awarded Rs 500 Cr Coal India order, plus they will be getting another order of Rs 250 Cr. A letter of intent will get issued to them maybe in a week or so which will take them to a total order book of close to Rs 2,000 Cr which can easily take care of their next two year execution capabilities and if you see their net profit margin, it is close to 6.75% while the profit before tax (PBT) is close to 10% which is slightly above the industry norms because industry norms of about 5-6% & 8-9% respectively.
And now we see with the new state government coming into the power in Andhra Pradesh, their thrust will be more on the road and irrigation projects in which this company has the specialty. The company has its revenues divided as 80-82% in the road construction while about 15% in the irrigation & these two areas will give good order book to the company in the time to come and they will be able to consistently perform. If you see this share is also available on a historic PE of less than 5 so you have a good scope of appreciation.
Even the budget-09 shows the government’s interest & support for the construction & development of road transportation. The road ahead has just got smoother for highway developers. As per the new policy to make funds available, state-owned India Infrastructure Finance Company (IIFCL) will refinance 60% of commercial bank loans for public-private projects over the next 15-18 months. The move would ease the tight liquidity in the market for road developers and speed up highway development.
The government also increased plan allocation to National Highways Development Authority (NHAI) for the national highway development programme by 23% to Rs 8,578 crore in the current financial year. Road transport and highways minister Kamal Nath has recently announced that 20 km of roads would be laid per day. The company has already got projects from NHAI to build highways around Delhi.
The concern is that road projects have failed to meet scheduled targets due to a shortage of funds, delay in land acquisition, law and order problems and default by developers. Due to the delays, there is a risk of price escalations.
KNR has posted good results for FY-09, revenues of close to Rs 650 crore (Rs. 473 Cr) & Net profit of Rs. 44 Cr ( Rs. 31 Cr), they have posted an EPS of Rs 15 for 2009 and the price right now is Rs 70, way below the book value. They came with IPO last year at Rs 160 and the share is ruling way below that. If you see this share is also available on a historic PE of less than 5 so you have a good scope of appreciation. The promoters holding at around 72% shows confidence of the promoters in the company.
Considering all the factors, downside risk looks minimal & if all the projects get through with greater efficiency, there could be good upside potential. Investors can invest in the counter with long term view to get the benefits of the boom in infrastructure developments.
Punjab Communication - Good Potential
Promoter holding – 71.25%
General Public holding – 24.41%
Book Value – Rs. 86
Reserves – Rs. 92 Crore
Total Debt / equity – 0.01
52 week high/low – Rs. 35/Rs. 12
Punjab communication is India's premier Telecom and IT equipment and solution provider company having successfully supplied and implemented a host of state-of-the-art Telecom, Software and integrated turnkey solutions across the country.
It is ISO 9001:2000 and provide technologically superior high quality equipments and services and since inception in 1981 has developed a strong brand image amongst a vast clientele including bulk telecom users ,corporates, service providers, railways, power sector, government and security agencies. The diverse product range covers Switching and networking equipments, Broadband, Wireless, STM1/4/16, PLCC, Power plants, Security products etc. manufactured at its state-of-the-art manufacturing facility in Mohali, near Chandigarh.
Broadly its activities cover the following areas:
*Telecom equipment manufacturing
*IT and Software Solutions
*Turnkey Projects
*Repair and Maintenance
The present market cap of the company is about Rs 30 crore with equity at Rs 12 crore and market price at about Rs 24, but the company has Rs 90 crore as cash in their books of which 80 crore plus is into the banks fixed deposit on which they receive an interest of about Rs 8 crore every year.
Presently, they have declared their Q1 results for June 2009 in which they have posted an earning per share (EPS) of Re 1.70, but the entire profit has come largely from the interest on fixed deposit and the operational performance has not posted any profits though they have shown a turnover of close to Rs 65 crore by this quarter.
They have about 2 lakh square feet of area of assembly line plus they have about 350 employees, out of which 150 are the engineers. They will move profitably because there has been shortage of this servicing organization or the company and if they move their focus from production of products to servicing of the product, which may give them a good income. Even if they are able to clock up a bottom-line of close to Rs 3-4 crore from that operation and plus Rs 8 crore from the interest from the bank fixed deposit, they should be able to post an EPS of Rs 6-7 and already Rs 75 per share of cash is lying in the books while the share is ruling at Rs 24.
Jul 13, 2009
Sectors that may benefit from Budget-09
Proposal - The recent budget provides for 13% growth in agricultural credit in FY10, an extension to the interest subvention scheme, and sizeable increase in allocations for the Accelerated Irrigation Benefit Programme. Budget allocations have also been substantially increased towards the National Rural Employment Guarantee Act (NREGA) and the six schemes under Bharat Nirman.
2) FMCG:
Proposal - The government has increased its allocated expenditures on many rural deveplopment schemes leading to more money in the hands of rural consumer. Despite the central excise duty rate having increased to 8%, the government has maintained the excise duty rate on food items, items of mass consumption like pressure cookers, cheaper electric bulbs, low-priced footwear and water filters/purifiers, CFL, etc at 4%.
3) Auto:
Proposal - Higher investment in rural areas and infrastructure sector will open growth avenues for the automakers. Expansion of the scope and extent of the projects under National Rural Employment Gurantee Act (NREGA), higher fertiliser subsidies and enactment of national food security bill put more money in the hands of rural households and induce investment in the farm sector. Automakers will also gain from the Budget propsal to extend tax deduction for R&D expenses.
4) Power and Infrastructure:
Proposal - The budget aims to raise infrastructure investment to nearly 9% of the GDP by 2014. In the current budget, the allocation for Highways was up by 23% while that for railways has nearly doubled. The allocation for rural electrification programme is up by 30% while Jawaharlal Nehru Urban Renewal Mission programme is set to double. The government is also readying the blue print for a National Gas Grid.
5) Healthcare:
6) Education:
Proposal - The access to education is expected to increase manifold. The Budget proposes to open a central university in all the uncovered states in the country. This is on the top of the government programme to cover the entire nation with new IITs and IIMs and National Institute of Technology. Besides, the government constitutes to expand and deepen the school education through Sarva Shiksha Abhiyan.
7) Metal and Cement:
Proposal - The budget proposes a big step-up in public investment in transport infrastructure, power, gas, housing and urban infrastructure. The government is also focusing on rural developments in a big-way. Budget also aims for slum-free cities in next five years.
8) Telecom:
Impact - In spite of a strong growth, telecom sector in India has not penetrated much into the rural India till now. As per a TRAI (Telecom Regulatory Authority of India) report, the rural teledensity at around 10-11% is almost one-seventh of urban teledensity in India. Currently, the urban circles are highly crowded with the presence of at least 5-6 operators in a circle and penetration level as high as 90%. This leaves little scope for future growth in these regions. This is why most of the companies are increasing their focus on rural areas and small towns. For instance, Bharti Airtel, the largest mobile operator in the country, recently announced the formation of a seperate business unit related to rural business. Others are also expected to follow the suit. A portion of the increased per capita income of rural consumers will be diverted towards communication related activities. The cheap handsets alongwith lower tariff rates make it compelling for rural population to use more and more of mobile telephony.
Jul 1, 2009
CORE Projects & Technologies Ltd. could prove to be multibagger due to the UPA's major thrust on EDUCATION sector.
CORE’s offerings in the education domain include products and solutions in the areas of School Management Systems, Assessment Systems, Accountability Systems and IT Infrastructure Systems.
CORE’s education customer base is spread across the USA, UK, Africa, Sri Lanka, Bahamas, Caribbean and India. CORE has been awarded a prestigious contract with the State Government of Jharkhand under the “Education for All” program (Sarva Shikhsa Abhiyan) and is looking at strengthening its foothold in India backed by its International experience.
It seems CORE has defied the economic slowdown and has come out with excellent results for FY 08-09 wherein the sales grew by 72% at Rs. 345.60 Cr (Rs. 199.97Cr) YOY whereas Net profit grew by 61% at Rs. 70.95 Cr (Rs. 44.28 Cr).
The equity of the company is around Rs. 17 Cr having no. of outstanding shares at 8,55,78,463. The Promoter Holding is around 47.69%. The company has Book Value of Rs 38; Free Reserves per share is Rs. 36.70 (as on Mar-08). Core has issued bonuses in Jun-05 (12:1) & Aug-06 (2:1). The Reserves of the company are Rs. 305.34 Cr.
The main interest for the stock is generated due to the major sops that might be given to this industry under the aegis of UPA Government's Poll Agenda "Education For All" that will provide skilled workforce for the growing economy. As per the estimates, there will be huge crunch of skilled labours going forward which could affect the overall economic growth. So to meet the demand of skilled labours, UPA government is going to act swiftly to bring out new policies & create favourable environment for this sector.
As an integral part of the coordinated action plan for skill development, the government created “National Skill Development Corporation” in July 2008 with an initial corpus of Rs. 1000 Cr to stimulate & coordinate private sector participation in skill development. There are expectations of increase in allocation for education spending in this budget as well.
Also Government may give infrastructure status to schools & institutes & allow education trusts to raise money through IPOs for their expansion plans. Apart from that, government will give licenses to the private institutes to operate full fledged, which in turn may bring many foreign institutes to set up their business here. These factors will rerate the entire industry. Being one of the earliest entrants in this sector, & having sound footing, CORE will definitely be benefited.
If you go by standards, in USA, the companies operating in this sector often trade at very high PE, at around 50-60. Whereas CORE is available at PE of around 15 (at CMP 130) & the market leader Educomp is quoting around PE of 49.
Also CORE, on February 27, 2008, has approved the issue of 4,50,000 warrants to "TGS Investment & Trade Pvt Ltd" the Private Equity Arm of the A V Birla Group on preferential basis at an issue price of Rs 305/- to be exercised / exchangeable with 4,50,000 Equity Shares of Rs 2/- each at a premium of Rs 303/- per share. So entry of A V Birla, oozes confidence in the company.
CORE has been awarded a prestigious contract to implement FAIM (A unique software system that manages ANY type of assessment process), its Admissions and Examinations Management System, by the Karnataka State Open University (KSOU) in Sep-08.
Looking at all these factors, we can safely arrive at conclusion that the education sector will be one of the leading sectors in the new bull market to come. The investments made in this sector might give you handsome returns.
As CORE is one of the leading companies in this sector & having sound fundamentals & strong management focus, I would recommend accumulating this stock with long term view of around 3-5 years to get manifold returns.
