A mega real estate deal in Mumbai

A mega real estate deal is brewing in Mumbai. Axis Bank is in advanced talks with the Wadia Group for Rs.640 Cr deal for a Central Mumbai property.

Axis Bank has been negotiating for several properties in the Bandra Kurla Complex and Central Mumbai. Sources said the bank is in advanced talks with the Wadia Group to buy a 4 lakh square feet building at the Bombay Dyeing Mills compound at Worli in Central Mumbai. The bank is likely to pay about Rs.16,000 per square feet for this property buy, which means it will be paying Bombay Dyeing around Rs.640 Cr.

 

The deal is in advanced stages and is likely to be finalised by next week. The bank is likely to shift its head office to this new building. The building is going to be a seven storey building with an 8th floor in the making.

 

Bombay Dyeing has a land-bank of nearly 90 acres in Dadar and Worli which comes upto 60 lakh square feet taking FSI of nearly 1.33.

Sintex Industries - Betting On Srong Fundamentals & Domestic Demand

Equity Capital – Rs.28 Cr

No. of equity shares – 136494833

Promoter holding – 30.15 %

Institutions – 62 %

General Public holding – 7.56% (10318849)

Market Cap – Rs.3750 Cr

Reserves – Rs.1600 Cr

EPS (Rs.) – Rs.19.62

52 week high/low – Rs.296.90/Rs. 70.30

CMP – Rs.274

Domestic plastic business picking up; Revenues in line:

Sintex Industries' (Sintex) consolidated Net Sales grew by 3.4% to Rs848cr (Rs820cr) in 3QFY2010; however, sequentially they grew by 18.5%, in line with our estimates. The strong sequential revenue growth was largely led by the domestic single storey pre-fabs and the domestic custom moulding segments, due to better capacity utilisation and a pick-up in orders. The monolithic segment witnessed a moderate Y-o-Y growth of 1.6%, much below our expectation, due to slower execution. The management has maintained its annual revenue guidance of ~Rs700cr. Standalone BT Shelters and the textile segment continue to drag the revenues. The benefit of higher raw materials prices will kick-in from the ensuing quarters, there by boosting Sintex's Top-Line.

Operational performance impacted by a lower contribution from the textile and monolithic segments:

Sintex's 3QFY2010 consolidated Operating profit was at Rs.126.9cr (Rs127.3cr), flat Y-o-Y due to lower contribution from the high margin monolithic and textile segments. The OPM for the quarter stood at 15.0%. The international business has shown stability in its operating margins, due to the ongoing integration process. The EBIT margin for the Plastic segment improved by 85bp Y-o-Y, but was lower by 308bp Q-o-Q, due to lower contribution from the high margin monolithic segment. Though the quarterly margins are not a fair indicator, we can expect a high contribution from both the segments in 4QFY2010.

Management maintains its FY2010 guidance:

The management has maintained its annual revenue guidance of Rs.3,300 Cr and of a 5% Y-o-Y PAT growth in FY2010. As on 2QFY2010, Sintex has a cash balance of Rs.1,100 Cr and debt of Rs1,900cr on its books; thus sufficiently funded for capex and for acquisitions.

Outlook and Valuation:

Sintex's higher exposure to government orders provides it with higher visibility and a lesser risk of cancellation in the domestic plastic segment. The Monolithic segment has an order book position of around Rs1,500cr. Going ahead, we can expect the company's business to be primarily driven by its domestic plastic segment, on account of the government's higher thrust on infrastructure and a pick-up in private capex.

We expect growth to accelerate in the ensuing quarters, as the company starts passing on the higher input prices to its customers; additionally, the recovery in the domestic auto and electrical segments will boost its custom moulding segment.

We believe that Sintex will resume its historical growth trajectory from FY2011 onwards. The integration of foreign subsidiaries will act as a key catalyst for the stock's performance. However, early signs of margin recovery are already visible.

At Rs270, the stock is currently trading at a P/E of 9.4x its FY11E & 7.7x its FY12E Earnings and at 1.4x its FY2012E Book Value. Historically, Sintex has traded at 13.6x its one-year forward average (two, three and five-year) P/E. So if we consider P/E of 13x, price target for FY11E should be Rs.370 & for FY12E it should be Rs.450. So this makes the current valuations attractive. Moreover, its fundamentals have been strengthened with a well-capitalized balance sheet, strong revenue visibility (monolithic order book of Rs.1,500 Cr), and a demand revival in its domestic plastic segment.

ACCUMULATE this stock, with a Target Price of Rs.370 & then Rs.450.

Y/E March (Rs cr) - FY2009; FY2010E; FY2011E; FY2012E

Net Sales - 3,136; 3,280; 3,845; 4,595

Net Profit - 325.1; 306.5; 375.8; 455.6
FDEPS (Rs) - 24.0; 22.6; 27.7; 33.6

P/E (x) - 10.8; 11.5; 9.4; 7.7
P/BV (x) - 2.4; 2.0; 1.7; 1.0

Bombay Dyeing - Multibagger

The Bombay Dyeing and Manufacturing Company is an India-based company. The Company operates in three segments: textile, polyester and real estate. The Company's products include bed linen, towels, furnishings, fabrics for suits, shirts, dresses and saris in cotton and polyester blends. It has a range of industrial fabrics that include microdot interlining, and fabrics for shoe uppers, adhesives, abrasives, leather cloth, and filters. White Horse Real Estate Private Ltd. is a wholly owned subsidiary of the Company. Its operating facilities are located in India. In textile, they have a good network; they have close to 200 retail shops.

Bombay Dyeing is all set to develop residential and commercial projects. It has a land-bank of nearly 90 acre in Dadar and Worli. If we translate this to per lakh square feet, it comes upto 60 lakh square feet taking FSI of nearly 1.33. The average land rate in Dadar and Worli is 10,000 per square feet. The land value is seen around Rs.6,000 Cr whereas the company’s current market capital is Rs.1,900 Cr with CMP of Rs.498. So on a conservative estimates, we can keep the target of around Rs.1400. In the coming four-five years, the realty arm could be de-merged and be listed separately.

Bombay Dyeing had awarded Larsen & Toubro an order valued at Rs.2,000 Cr for developments at the textile mills and spring mills at Worli and Wadala respectively. The project will be completed in 46 months by the end of December 2011. The turnkey construction project involved construction of mixed-use developments on 4 million sq ft for the textile mills at Worli and 5 million sq ft for the Spring mills development at Wadala. The value of these properties can get valued close to about Rs.7000-8000 Cr. The activity has started day before when they released a full page ad in the media for sale of the premises. So I think the effect of that can come in a very big way maybe in FY11 or any of the quarters and they will start selling the premises.

The equity capital of the company is around Rs. 38 Cr out of which the promoter holding is around 47%. The Company’s bleeding balance sheet is a major concern. It had total Debt / equity ratio of around 10 as on Mar-09.

Also the polyester & Textile business, which forms almost 70% of total revenues, are making losses. They earned profits of around Rs.78 Cr from realty business in the Q2Sep-09, but whatever realty profits the company have been booking on part development of the property at Wadala or Dadar has been getting used or utilized for financing their losses of other businesses.

Orient Paper Industries Ltd. - Value Pick

No. of shares – 19,28,05,900

Equity – Rs.19.28 Cr

Promoter Holding – 33.86

FII - 1.64

MF/UTI - 19.92

Insurance/Bank - 9.66

Body Corporate - 17.24

Public & Others - 17.68

52wk H/L (Rs) - 61.25 / 18.40

CMP – Rs.54.30

Orient Paper Industries Ltd. (OPIL) a part of CK Birla Group is a diversified conglomerate operating in 3 segments:

1) Cement (60% of its revenues)

2) Electrical Consumer Durables (20% 25% of its revenues)

3) Paper & Board (15% 20% of its revenues).

OPIL’s final phase of expansion of cement capacity from 3.4 MT to 5.0 MT is scheduled to be completed by Nov. 2009. It has already expanded its clinker capacity to 3.4 MT in June, 2009.

OPIL has also set up a captive power plant with a capacity of 50MW, of which 25 MW has been commissioned in Aug. 09 & another 25 MW will be commissioned by Nov. 2009. It is also planning to set up another 43 MW plant to meet the enhanced need of steam & power for its paper plant.

OPIL has also expanded the tissue paper capacity by 15 000 MTPA to 25 000 MTPA To further 15,000 25,000 MTPA. improve margins from tissue paper, the company has finalized plan to convert soft tissue into the final products like toilet paper rolls, facial tissue, napkins, etc.

OPIL is considering a Greenfield Cement project at its closed paper plant at Brajarajnagar, where its existing infrastructural facilities like land, water & power can be used for the new project.

Financials:

During Q2FY10, OPIL’s Revenues were flattish at Rs. 3551.2 mn. Its EBIDTA decreased by 17.9% to Rs.730.8 mn, while its EBIDTA margins decreased by 460 bps to 20.6%. Its standalone APAT stood at Rs.405.4 mn registering a fall of 26.6%.

During HIFY10, OPIL’s net sales grew by 3.8% to Rs.702.1 Cr. Its EBIDTA fell by 21.7% to Rs.138.2 Cr, while its EBIDTA margins fell by 640 bps to 19.7%. Its APAT fell by 33.6% to Rs.74 Cr.

This was mainly due (1) prolonged shut down of the paper plant for up gradation of the pulp mill (2) lower clinker production because of shut down of both its cement plants (one for up gradation and the other for relining), which was partially made up by purchase of clinker at higher cost, which resulted in lower value addition. Now, all the plants are fully operational.

Considering its weak H1FY10 performance, we expect its FY10 APAT to fall by 17.8% to Rs.206.4 Cr. Going forward, for FY11, while the capacity addition in cement business & robust growth in its Electrical division to result in strong Revenues growth, after factoring in a 5% fall in cement prices & increased interest & depreciation costs, its FY11 PAT growth to be just at about 1% can be expected. However, we expect FY12 to be a very high growth year for OPIL.

Estimate Performance: (Figs in Million)

Y/E March - FY08, FY09, FY10E, FY11E

Revenue - 13786.7, 15083.6, 16006.4, 18763.0

PAT - 1907.5, 2510.7, 2063.9, 2066.0

EPS (Rs) - 9.9, 13.0, 10.7, 10.7

EBIDTA Margin (%) - 24.7, 26.1, 22.2, 20.1

Net Profit Margin (%) - 13.8, 16.6, 12.9, 11.0

Reserves - 5533.5, 6328.1, 8050.0, 9773.9

Cash and Bank – 270.8, 338.2, 443.3, 1628.

Business:-

OPIL’s Paper plant at AMLAI, Madhya Pradesh has manufacturing facilities to produce a variety of grades and types of papers. It plans to carve out an important niche not only in the Indian market but in several other countries as well. Its paper products are being regularly shipped to Africa, Middle East, Bangladesh, Sri-Lanka & Nepal.

“Orient fans” as it is known, started with a production of a mere 15,000 fans a year, has today grown to a production capacity of over 4.5 million units, covering a wide range of Ceiling Fans, Table Fans, Wall Mounted Fans, Stand Fans, Exhaust Fans and Multi Utility Fans and is the largest manufacturer of fans in India. Orient Fans is an undisputed leader in the subcontinent with its presence in over 20 countries worldwide. It alone contributes to nearly half of India’s organized sector fan exports. It also provides technical know-how to a few companies in Africa and Gulf.

OPIL has already submitted a feasibility report for its Greenfield cement plant in Sundergarh district of Orissa. The Greenfield venture at Sundergarh would have a capacity of 8000 tons per day (TPD) of clinker production and 6000 TPD of grinding. OPIL also plans a Brownfield venture at its existing closed paper unit at Brajarajnagar in the same district. The total investment cost is Rs.12 bn for both the plants, of which Rs.1.8 bn is for Brajarajnagar unit and the rest for Greenfield venture. OPIL plans to invest 50% of the fund through internal accruals & the rest 50% would be borrowed from banks and Financial Institutions.

Risks & Concerns:-

1) Deteriorating quality and rising cost of coal continue to be areas of serious concern. OPIL has approved linkage which covers 75% of their requirement of coal for cement production and the rest 25% they have to buy through auctions or from private parties at substantially higher prices. Therefore, landed cost of coal, which is one of the major ingredients of cement costs, continues to be uncertain.

2) According to Cement Manufactures Association about 62 mn tonnes of cement capacity is scheduled to come on stream by the end of FY10. Excess supply coming up in the overall industry could lead to fall in cement prices as well as result in lower capacity utilization.

Investment Proposition:

Here we have the well diversified business, offering ample of opportunities for growth in future in each segment, available at P/E of just 5. Apart from that, the company has strong pedigree (Birla management) which can create gold out of soil. OPIL has given dividends consistently for last 3 years; last one being 150% or Re.1 per share. The company is available at P/E of just 5 and there is a scalability of the business which will happen from 2011. So even if we give PE of 10, as per the industry standards, OPIL should be quoted at around Rs.100, So I think is a very good investment proposition.

NESCO LTD - Potential Multibagger

NESCO LTD. is a Bombay based company. This company was earlier known as New Standard Engineering and its plant was located at Goregaon. The plant has been relocated and there is about 70-72 acres of land in Goregaon (Mumbai), which the company has been using for real estate development.

 

This company derives revenues from three lines of business. Its earlier business, which is a capital goods business, contributes about Rs.30 Cr to the revenues. The company operates an exhibition center called Bombay Exhibition Centre at Goregaon, which is spread over an area of about 5 lakh sq ft and it is a largest private sector exhibition centre in the country. It ranks only next to Delhi’s Pragati Maidan, which is owned by the government. This company has about 70 acres of land on the Western Express Highway at Goregaon, on which company has built two IT parks, which have been given on rent to various corporates. The third building is also almost ready and will start contributing to the rental income in the coming quarters.

At the current price of about Rs.1,100, the market cap of the company is about Rs.690 Cr. This company is totally debt free company, it has got cash and cash equivalents of close to Rs.125-130 Cr, which means an enterprise value of about Rs.550 Cr for the company. This company made a profit after tax (PAT) of about Rs.35 Cr last year. This year, it will do more than Rs.40 Cr. So Rs.40 Cr of PAT from rental income, it is mainly from rental income and less from the capital goods business, current valuation is just about Rs.550 Cr and the company has utilized only about 20% of the total land, which is available with the company. Further real estate projects done on that land will continue to generate good rental income for the company in the coming years. So we see a lot of scalability in the business of the company, they have got cash flows to do further construction. They are sitting on cash of about Rs.125-130 Cr plus more is coming by way of rentals from the various buildings, which they have made. Going forward, the valuation of this company looks attractive and there is definitely scalability potential in the company. I think at the current price of about Rs.1,100, this company is capable of generating 50-60% return at least in year’s time.

Markets Hit new 52-week highs

Indian markets hit new 52-week highs on first day calendar year and ended on a positive note led by auto, metals and FMCG stocks. Broader markets continued to outperform the benchmarks.

Bombay Stock Exchange’s Sensex ended at 17,561.84, up 97.03 points or 0.56 %. The index touched a new 52-week high of 17582.84 and low of 17378.38.

National Stock Exchange’s Nifty closed at 5235.65, up 34.60 points or 0.67 %. The index touched 52-week high of 5238.45 and low of 5167.10.

BSE Mid-cap Index was up 1.61% and BSE Small-cap Index moved 1.63 % higher.

Amongst the sectoral indices, BSE Metal Index moved 1.93% higher, BSE Auto Index was up 1.90% and BSE FMCG Index advanced 1.30%. BSE Oil&gas Index was down 0.17%.

Biggest Sensex gainers were ACC (5.39%), Jaiprakash Associates (4.73%), Tata Motors (4.72%), Mahindra & Mahindra (4.38%) and Tata Steel (3.03%).

Mahindra & Mahindra’s sales advanced 114.8% to 24,001 units in December 2009 over December 2008.

Jaiprakash Associates’ cement shipments rose 60% from a year earlier to 1.06 million tonnes in December.

Tata Motors reported over 100% growth in its sales during the month of December 2009. The company sold 51,627 vehicles compared to 25,219 vehicles during the same period last year. The company's domestic sales of Tata commercial and passenger vehicles for December 2009 were 48,173 units registering a growth of 102 per cent as compared to over 23,894 units sold in December 2008.

NTPC (-1.61%), Reliance Industries (-1.25%), Bharti Airtel (-1.08%) and Maruti Suzuki (-0.81%) were the only losers.

Shares of Reliance Industries were witnessing selling pressure after the company sold around 25 million treasury shares to LIC in block deals on the BSE and NSE.

Market breadth on BSE showed 2137 advances against 742 declines.