Saturday, October 10, 2009


At the current price of Rs.71.65, Premier Explosives Ltd (PEL) is available at 6.08x FY10 (E) EPS. We think that the stock has the potential to trade at 7 - 8x FY10 (E) EPS of Rs 11.77 in the next 2-3 quarters.

Company Background
Premier Explosives Limited (PEL) is one of the major companies manufacturing the entire range of explosives and accessories mainly for mining activities.

Starting as a Small Scale unit in 1980, it was founded by Mr.A.N.Gupta, a Gold Medallist in Mining Engineering. Its current turnover is about Rs. 690 million (FY09). The export earnings of PEL are about Rs. 38 million (FY09).

PEL has set up all the manufacturing units with totally in-house technology at a remarkably low capital cost.

PEL has a wide range of products and technologies in the manufacture of Explosives & Accessories. These include Emulsion and Slurry explosives, LD cartridge explosives, Bulk Explosives, Small-dia non-permitted explosives, Permitted explosives, Cast Boosters, Pillow-packs for secondary blasting; Detonating Fuse of various core-loads, Plain detonators, Instantaneous Electric Detonators, Electric Delay Detonators, Permitted Detonators, Cord Relays and Amardet NoN Electirc Shock-tube Detonators.

Apart from providing regular support services to customers, PEL also undertakes complete drilling & blasting contracts in collaboration with associates having resources of drilling and excavation equipment & manpower.

PEL’s R &D facility is recognized by the Centre for Scientific and Industrial Research (CSIR), Government of India, as an established research center. It is also recognized as a research base for Ph.D. work by the Osmania University, Andhra Pradesh.


Growth in the mining sector to boost the demand for explosives in the country
PEL produces explosives that are mainly used by the mining companies in their businesses. Future projects of explosive companies depend on the performance and the outlook of the mining industry as a major chunk of the business for PEL comes from the mining sector. The mining activity in India is growing at a rapid pace. There is a huge growth in the power and infrastructure industries in the country, which has increased the need for more coal. Coal availability in the country is reducing thereby indicating the need for more coal mining in the country. Coal mining forms more than 70% of the total mining in the country. As growth surges in these sectors the demand for explosives will continue to rise and help PEL in growing its topline substantially going forward.

Capacity expansion in metals, power and cement industries, which are among the major users of coal, is expected to heighten coal mining operations. The Government of India is trying to boost the power generation in the country and is therefore coming out with lots of policies in order to increase the overall power generation in the country. This initiative would in turn increase the demand for coal, leading to larger requirement of explosives in the country. India would require an additional 70,000- 75,000 MW of power during the 12th Five Year Plan (2012-17). Most of this additional power would come from hydro and thermal power. Incremental thermal power capacity is likely to be 45,000 MW, which would drive the coal consumption.

India is among the top 10 countries globally in terms of iron ore, coal, and bauxite resources. The mining opportunity in India is huge and a lot of miners are tapping this opportunity as lack of availability of coal and iron ore as compared to their growing demand increases the need for mining. The investment in infrastructure in the 11th plan is expected to be over US $ 500
billion, which is 2.3 times the amount spent in the 10th 5-year plan. As per the plan estimates, total investment in infrastructure as a percentage of GDP is expected to increase to 9.22% by FY12 from 6.7% in FY09. As per PEL, the commercial explosive market is growing @ 10% y-o-y, while PEL is growing a faster-than-industry growth rate. The major investments are in power, roads, mining and other infrastructure segments. Coal production, which was 487 Million MT in 2008-09, is expected to increase to 684 million MT in 2011-12. These factors will drive the demand for explosives. PEL has a decent market share of about 6% in the country and since it is one amongst the organized sector, PEL has enough potential to tap this opportunity and grow its topline over the coming couple of years.

Over the years the coal production in India has consistently risen with slight reductions in between. The total coal production during April 2006 was 31.53 million tones, which by March 2009 shot up to 55.7 million tones. The mining and quarrying IIP figures have also risen steadily over the past 3 years indicating that going forward there is ample scope for rise in the demand of explosives as both the above activities generate high demand for explosives.

To see full report: PEL

>Monthly Market and Sectoral Perspective – Technicals (HDFC SECURITIES)

Markets close at new 09 highs
After taking a breather in Aug 09, the month of Sept 09 saw the bulls taking control. The month however began on a shaky note as the markets were in a corrective mode. The main indices nonetheless soon found support at the 15,356/4,576 levels and from there the bulls were unstoppable.

The bulls gradually lifted the main indices as they made new 2009 highs in the process. The main indices also managed to break out of a trend line that held the highs of June 09 and Aug 09.
While the BSE Sensex closed with a Month-on-Month gain of 9.32%, the Nifty gained 9.05% over the same period.

Volumes were higher M-o-M indicating an increase in market participation. While average daily volumes on BSE during the month of September 2009 rose 5.4% MoM, NSE daily average volumes were higher by 5% -MoM.

Sectorally speaking
The month saw all the sectoral indices ending higher. The top gainers were the BSE Bankex, Metals, Auto and Healthcare indices. The indices that gained the least were the BSE FMCG, Realty and Power indices. Broad market indices under performed marginally. While the BSE 500 ended with M-o-M gains of 8.41%, the BSE Midcap and Small Cap indices ended with M-o-M gains of 7.50% and 8.48% respectively. The NSE Nifty Junior however outperformed the main indices with M-o-M gains of 9.58%.

The month of Sept 09 saw the BSE Bankex finally breaking out of the 7,156-8,671 ranges in which it was trading for the previous three months. The index ended with M-o-M gains of 18.11%. With long-term momentum readings not yet over bought (See the chart on the next page), we remain bullish on this sector and expect the index to test the next major resistances at 10,396 in the next one month. With Cmp at 9930, this implies potential upsides of 4.7%. Stocks that could take the BSE Bankex to these levels are SBI, ICICI Bank, Axis Bank and Kotak Bank.

Medium term market perspective
The month of Sept 09 saw the bulls in control as the main indices gradually moved up and made new 2009 highs in the process. The main indices managed to break out of a trend line that held the highs of June 09 and Aug 09 (see the chart).

The upmove also led to an expansion in trading ranges. While the month of Aug 09 witnessed a High-Low range of 1318/390 points on the Sensex/Nifty, it expanded to 1786/511 points in September 09.

Technically speaking, the trend continues to remain UP on all time frames (Short, Intermediate and Long Term) as the main indices continue to respect the basic tenet of an uptrend, which are higher bottoms and higher tops. The main indices also continue to trade above the 13 day, 13 week and 13 month simple moving averages.

With the uptrend intact, there are basically two scenarios that could play out in the next 1-2 months. The first scenario envisages the markets trading in a tight range with the recent 2009 highs of 17,195/5,110 acting as a strong resistance. On the downside, the 16,622-16,494/4,930-4,900 short-term support levels could act as a base.

The second scenario envisages the markets moving up and breaking out of the current 2009 highs of 17,195/5110. A frenzied move could then follow driven by large scale short covering and panic buying by investors who do not want to be left out. This frenzied move could create a bubble top, as it would push the main indices to the previous intermediate tops of 17497-18,895/5170-5370 seen in 2008. A sharp correction could then follow, as there could be aggressive selling by investors stuck in the 2008 bear market.

In case the markets fail to move up from current levels and the current short-term trend reversal levels of 16,622- 16,494/4,930-4,900 fail to hold, look for a quick correction to the 16,255-16,120/4,800-4,786 levels. The 50-day simple moving average and the trend line that has held the highs of June 09 and Aug 09 reside in this area making it a reasonably strong support.

Given that the intermediate potential upsides on the main indices are limited to 10-12% from current levels, we recommend trading with a short-term perspective. Traders can enter stocks showing relative strength and making fresh break outs on higher than average volumes. Profits need to be taken when there is a reasonable profit to avoid being trapped when a correction sets in. Trailing stops can also be kept to protect profits.

To see full report: MONTHLY MARKET


Incorporated in 1992, Mr. Vinod Ramnani promoted Opto Circuits India Ltd. (OCIL) is engaged in the design, development, manufacture & marketing of Medical Electronic Devices and health care products, in both invasive and non-invasive segments. Its range of products includes Digital Thermometers, Pulse Oximeters, Fluid Warmers, Patient monitoring systems, Medical sensors, cardiac stents and catheter systems.

OCIL has a strong presence in Medical Equipment industry with diverse range of critical care & tertiary care medical devices. The industry is relatively insulated from any economic slowdown as these are non-discretionary spends. As per World Health Organisation (WHO), the industry, which has been growing in excess of 15% p.a, is expected to grow 10% p.a. over next decade. This will lead to medical equipment market size of USD 428 bn by CY2013. OCIL, being one of the leading players in the industry is expected to capitalise on the growing opportunities.

Acquisitions & alliances have enabled OCIL to expand its product & client base & to strategically segment itself into the invasive & non-invasive markets. In the last nine years, OCIL has made eight successful acquisitions of which Eurocor & Criticare acquisitions have been major turning points. Eurocore is a pioneer in the field of invasive cardiology while Criticare has established product & technological leadership in anesthetic gas monitoring, vital signs monitoring, gas & agent analysis. These two acquisitions are expected to be the major catalyst for OCIL’s future growth.

OCIL constantly launches new & innovative products every year both under the invasive & non-invasive categories, which are expanded aggressively in new markets. OCIL has a very strong marketing & distribution network, which enables it to improve its brand image & boost the sales. OCIL’s 59.7% subsidiary, Advance Micronic devices, has been a medical equipment distributor in India for approximately three decades, while its 100% US subsidiary Mediaid distributes its medical devices internationally. Further, for promoting its products, OCIL uses alternate channels like conducting various seminars & summits & inviting cardialogists to participate.

The new launches expected this fiscal (gas bench module, modular patient monitoring system & patient monitoring system with networking capability) under the non-invasive category & Eurocor’s unique invasive products viz; ‘Magical’ (which is a combination of a drug-eluting balloon with a bare metal stent) & Cobalt Chromium stent are expected to add to OCIL’s revenue going forward. Also the strategic technology sharing agreement entered into by OCIL recently with US based Micell Technologies for jointly developing new stent & balloon systems for world markets would enable OCIL to further enhance its revenue by addressing additional market opportunities.

OCIL holds 35 patents through its subsidiaries, which enables it to change product design & configuration. IPR can also be rented to third party, which generates royalty.

To lower the production costs, OCIL has taken steps to transfer traditionally outsourced manufacturing by its US operations to its facilities in India. OCIL has shifted nearly 35% assemblies, sub-assemblies & testing practices of Criticare Inc to Bangalore. This is expected to improve consolidated operating margins. Also, two of the OCIL’s five manufacturing facilities in Bengaluru are currently registered as 100% EOUs, which enjoy tax-free status. OCIL has also set up a subsidiary ‘OCI Infrastructure Ltd’ for setting up an SEZ. In case EOU benefit is not extended beyond FY11, OCIL could shift its operation there & avail of continued tax exemption. This coupled with the expected reduction in interest liability due to repayment of loan taken for Criticare acquisition (Rs. 2040 mn) out of the recently raised QIP funds of Rs. 4000 mn is expected to keep the PAT margins on a higher side.

OCIL is an investor friendly company, which has a good track record of paying consistent dividends since FY01. Going forward, we expect OCIL to continue enriching its shareholders wealth with healthy dividend payouts.

OCIL’s consolidated turnover & PAT have grown at a CAGR of 80.2% & 75.5% respectively over FY06-09. Over FY09-11, we expect turnover & PAT to grow at CAGR of 26.5% & 28.1% respectively, which is likely to be driven by both invasive & non-invasive segment. The new products to be launched under both segments are expected to add to OCIL’s turnover & profits. However, the CAGR growth estimated is lower than that achieved over FY06-09 mainly on account of higher base & lack of contribution from inorganic acquisitions over the next two years.

To see full report: OPTO CIRCUITS

>Time for earnings to catch up…... (ICICI DIRECT)

Earnings expected to continue sequential improvement
After showing some signs of recovery in the preceding quarter, the Q2FY10E results on a cumulative basis are set to show further improvement sequentially. This is reflecting in the research earning estimates. There has been more evidence of global economic recovery during the quarter. The market has also factored in all such positives by recouping most of the losses of the previous year. Most of the sectors during the past three months have significantly outperformed both the Sensex and the Nifty. Auto remained on the top of the list, followed by IT, realty and metals. We call this a classic case of a liquidity driven market. FIIs remained net buyers to the tune of Rs 60500 crore in the equity market YTD with Rs 35600 crore infused during Q2FY10 itself.

Sectors showing improvement on QoQ, YoY basis
Sectors like metals, media, hotels, shipping and telecom, which are more relevant on a QoQ basis, are expected to show decent growth. On the profit front also, most of these sectors are expected to grow on a QoQ basis. When comparing the estimates YoY, except pharma, sectors like auto, BFSI, cement, power and sugar that are mainly viewed on a YoY basis are still likely to show modest growth in all parameters.

Positive/negative surprises to weigh on markets in the near term
The markets at 17000 levels are fairly valued and India is trading at 20x and 16x its FY10E and FY11E consensus earnings, respectively. On the brighter side, better than expected earnings followed by earnings upgrades will justify the current market multiples. On the other hand, any shortfall in earnings can dampen sentiments and may open downside risks for the indices in the near term.

To see full report: RESULT PREVIEW


Incorporated in 1990, Era Infra is a multi-faceted engineering, construction and services conglomerate, well positioned in the fastest growing segments of the economy viz. construction, infrastructure development (including power projects construction), real estate, hospitality & entertainment and pre-engineered buildings. EIEL builds industrial complexes, residential buildings, multiplexes, super malls, power projects and airports. It has diversifying its revenue
stream by entering into new segments such as irrigation and build operate and transfer (BOT) projects.

It offers services to a diversified client base across the country. Some of its Key customers are Tata group, Bajaj group, Reliance, Bharati & L&T, Thermax, Videocon. It’s other PSU clients are NHAI, NHPC, NTPC, BHEL, RVNL, Nalco, Delhi Metro, the Railways, Central Public Works
Departments and Air Port Authorities.

EIEL has presence in 20 states in India and also expanding its footprints in the overseas markets. It has on hand capital intensive projects, BOT and annuity basis.

During FY09 its Capex plans included Rs 200 crore for its equipment division and Rs 400 crore for its ready mix concrete division. EIEL is confident of a robust growth in FY10, backed by its order book position of Rs 7,300 crore. It is targeting an order backlog of Rs 10, 000 crore by
the end of this fiscal.

EIEL has plans to foray into power generation. Era Power (India) Pvt. Ltd is incorporated to address the unfolding power generation opportunities in the country and overseas. It is working out modalities to establish a thermal power plant of 1200 MW in the State of Madhya Pradesh.

The key factor that has contributed to the company's success is its proven track record, in-house technical expertise and strong project management capabilities, which ensures timely execution of the projects within budgeted costs and continued emphasis on maintaining quality standards.

To see full report: ERA INFRA ENGINEERING



We expect Q2FY10 results for the I-Sec Media universe to report healthy ad growth, in spite of the quarter being seasonally weak. We expect ad revenue growth to be led by a turnaround in the consumer sentiment and early festive season starting from September (versus October last year). Our channel checks with media planners and advertisers suggest strong revival in the ad environment and build-up in advertising frenzy, prior to the festive season. Print companies are
expected to see improvement in EBITDA margin led by savings in raw material costs as newsprint prices remained low. General entertainment channel (GEC) players are likely to show QoQ ad revenue improvement due to low base effect owing to high ad-budget allocation to sports events in Q1FY10. We expect positive earnings surprise from Jagran Prakashan and Sun TV Network and negative earnings surprise from Zee Entertainment Enterprises (ZEEL) and Balaji Telefilms (BTL). We prefer companies with higher exposure to regional advertising and better cost control such as Jagran, Sun and ZNL; we are negative on Entertainment Network India (ENIL) and BTL.

Ad revival to drive sequential improvement in revenue growth. YoY revenue growth for the I-Sec Media universe is expected to rise to 3.1% in Q2FY10E versus a flat YoY growth in Q1FY10, led by improving ad revenue growth in general and continuing DTH revenue growth for broadcasting players. Regional players will likely continue to excel, with Jagran outperforming HT Media and Sun & ZNL outperforming ZEEL.

Newsprint prices continue to decline. Newsprint prices were down another 26.4% QoQ and have dropped ~40% from their highs in ’08. This coupled with rupee appreciation will lead to significant cost savings for print companies. While Jagran witnessed the impact in Q1FY10, HT Media will begin to feel it from Q2FY10.

Positive earnings surprise driven by strong ad growth for Jagran & Sun; we expect negative earnings surprise for ZEEL (owing to higher costs) & BTL (owing to lower realisations).

Key factors to watch for: i) indications of recovery in ad revenues, ii) decline in newsprint costs for print companies and iii) rise in DTH revenues for ZEEL and Sun.

To see full report: MEDIA SECTOR


Compelling valuations …
With consistent business growth over FY06-FY09 coupled with reasonable RoEs of 16%, we believe South Indian Bank is relatively undervalued in the midcap banking space and, therefore, deserves a re-rating.

Consistent business growth coupled with high NIMs
The bank has grown its core business by 20% over FY02-09. The loan book is highly retail centric with retail loans forming 58% of the total book. This has helped the bank to maintain higher yield on assets. Also, the bank has a good amount of NRE deposits as it is based in Kerala. NRE deposits do relatively carry less cost compared to term deposits. This, along with CASA deposits of 25%, has helped the bank to contain its NIMS at 3% levels. Going forward, we expect the bank to maintain its business growth of 20% and NIMs of 2.9-3% levels over FY09-11.

Comfortable asset quality
Over a period of time, the asset quality of the bank has improved significantly. As of Q1FY10, the GNPA and NNPA stood at 1.9% and 0.7%, respectively. Also, the restructured loans as of Q1FY10 were at 2.7% of the total loan book, which is well below the industry average. Going
forward, we believe there may be little incremental slippage in its asset
quality, which is already built in the stock price.

Sufficient capital adequacy to keep growth ticking
The capital adequacy of the bank as of Q1FY10 stood at 15.1% with Tier I capital at 13.7%. This provides significant room to the management to concentrate on the growth trajectory, going forward.

Can be a takeover target if consolidation in industry begins.
A strong base in southern India (86% branches in South India), vast technology enabled network, a loyal customer base and no promoter ownership makes South Indian Bank a good acquisition target when the consolidation in the India banking sector unfolds.

At the CMP of Rs 125, the stock is trading at 0.9x and 0.85x its FY10E and FY11E ABV, respectively. We believe that with such business credential and consistency in generating reasonable return ratios, the stock deserves a higher investment multiple. We are assigning a target of Rs 138 to the stock representing a 10% upside over three months.

To see full report: SOUTH INDIAN BANK

>What's Happening? & What's Next? (ANAGRAM)

What's happening?
What's Next?

What's Happening in the Markets?

What's Happening in India?
What's Happening in the World?
What's Next?
What's the Outlook?

  • Dollar weakness is fueling flows into commodities and emerging markets equity.
  • Markets seems to be running ahead of fundamentals, moving from undervalued to fairly valued zone
  • Investors should wait for a large pull back before committing fresh resources to equities.
  • Learning from History, we anticipate markets to remain lackluster till diwali.
  • Major resistances for the nifty lies at 5200 and support lies at 4750.
  • Markets trading in a range between 4920 and 5050.
  • On break beyond the range traders should play for 4780 or 5170 via October Nifty Options
To see presentation and graphs: WHAT'S HAPPENING?

>Everest Kanto Cylinder Limited (CRISIL)

‘Superior Fundamentals and Strong Upside’

Strong management and sustained leadership in cylinder market
Everest Kanto Cylinder Ltd (Everest Kanto) has a strong and experienced management with about three decades of experience in the high pressure cylinder industry. The management has successfully driven the company to a leadership position in the domestic as well as international markets. It is India’s largest player with 65% of market share and the second largest player in the world. The company supplies to around 20 countries and is one of the leading suppliers to Iran and Pakistan, the fastest growing

Compressed Natural Gas (CNG) markets, globally.
Domestic and international markets to provide impetus for growth In the domestic market, we expect CNG infrastructure to grow on account of increase in coverage of city gas distribution projects (from 35 to 100) and availability of gas from Reliance Industries, new discoveries by Oil and Natural Gas Corporation Limited (ONGC) and Gujarat State Petroleum Corporation Limited (GSPC) in the Krishna-Godavari (KG) basin. On the global front, rising concerns over environmental pollution by vehicle emissions and oil price fluctuations have caused governments of various countries to initiate CNG implementation programmes.

Expansion plans to meet future requirements
Everest Kanto augmented its production capacity by 400,000 cylinders in the last 3 years. It plans to increase it further by another 500,000 cylinders by the Q1FY11. This capacity expansion is expected to bridge the foreseen demand-supply gap.

Everest Kanto to demonstrate strong financial performance
Everest Kanto is well-positioned to encash the huge opportunity present in the cylinder space. Acquisition of CP Industries has enabled Everest Kanto’s entry into high margin jumbo cylinder business and access to the US market. We expect the company to witness strong growth in its gross sales at a Compound Annual Growth Rate (CAGR) of 16% over FY09-12 to Rs 13.9 Bn. PAT is expected to grow at a CAGR of 22% during the same period.

We assign Everest Kanto ‘4/5’ on Fundamental and ‘5/5’ on Valuation
Everest Kanto’s fundamental grade of ‘4/5’ indicates that the company’s fundamentals are
‘Superior’ relative to other listed securities in India. The grading factors in strong management capabilities and Everest Kanto’s leadership position in the industry. Prospects of the industry and of the company are positive as well. The valuation grade of ‘5/5’ indicates the value of the stock has ‘Strong Upside’ (Fundamental Price of Rs 270) from the current market price.

To see full report: EVEREST KANTO CYLINDER

>Tracker of Forthcoming Corporate Action from October 09, 2009 to October 22, 2009 (HDFC SECURITIES)

To see full image click on it