Sunday, March 28, 2010


Smart Class –on track to achieve guidance
Post meeting with senior management team at Educomp & EduSmart (third party vendor) we retain our Buy rating on the stock. We believe the initial response to Smart Class advertisement has been extremely strong with school signs up exceeding 600 (vs. ~450 in 3Q) during the quarter and pipeline increasing to ~2000 (vs. 1500 in 3Q). While signs up remain robust, it expects nearly 500 schools to be implemented during 4Q, in line with its guidance. For FY11 management reiterated its guidance of adding 2500 schools. Strong pipeline provides upside risk to our assumptions for school sign up in FY11e. Forecast strong earnings CAGR of 42% over FY10-12E.

EduSmart- well placed to meet higher school signups
Our interaction with EduSmart management, reveal that the team is well placed to meet strong demand for Smart Class implementation. Educomp’s guidance of implementing Smart Class in 2500 (FY11) schools implies installing hardware in ~50 schools per week. As EduSmart outsource nearly 50% of low end installation work to local vendors and given its ability to manage hardware installation at multiple schools concurrently, we believe the current team of 70 technicians can manage installations in nearly 80 schools per week. See minimal risk to
implementation in FY11e.

Plans to enhance team strength at EduSmart
Besides 70 technicians the team includes eight zonal managers and ten regional managers and caters to hardware implementation in over 128 cities. Management highlighted that it intends to ramp up operations and would more than double its team strength over next one year. Educomp is also implementing ERP systems which will further strengthen hardware procurement, optimize inventory levels and improve service levels.

To read the full report: EDUCOMP SOLUTIONS

>The Tinplate Company of India Ltd. (BAJAJ CAPITAL)

The Tinplate Company of India is based in Jamshedpur in the state of Jharkhand. The Company is essentially a producer of a single product i.e. tinplate. The tinplate consumption in India is presently ~ 400,000 tonnes per annum and imports account for more than 50% of the market share in India.

Tinplate is a coating of tin on either side of a steel sheet that is mainly used as a packaging material in the form of cans. The coating of tin is done as it is malleable, non-corrosive, non-toxic and it gives the can their slick texture. These cans can be used for storing processed food, beverages, beer, paint, lubricants etc.

Although main consumers have been the developed nations of Europe, USA & Japan consuming more than 70% of world tinplate, of late increasing production / consumption is noticeable in developing economies. With Asia becoming the driver for growth, new capacities are coming up in emerging economies like China, India and Thailand. Major producers of Europe, USA & Australia have initiated shift of manufacturing facilities to cost advantageous regions.

■ India’s fast growing economy to boost tinplate sales
It is an established phenomenon world -wide that packaging industry growth is dependent on the rate of economic growth of a region / country. The growth at relatively higher rates in emerging economies of BRIC and Asia as compared to developed economies like USA, Europe & Japan will ensure that these markets including India will be the prime driver of growth.
Consumption of tinplate in India at approx 0.30-0.40 kg /capita is much lower compared to 8 to 12kg/capita in many developed nations. Even a similar developing economy like China, consumes 1kg / capita. With expectation of economic growth, it is estimated that the packaging industry in India is also poised for growth and hence the tinplate demand will also grow.

The company is the market leader in Industry

The company is the largest tinplate producer in South East and South West Asia. Without saying, it is the largest player in India with a 35% to 40% share of the total domestic consumption.50% of the demand in the country is met through imports while the balance 10-15% is in the unorganized sector. The company is aiming for full backward integration with the second cold rolling mill (CRM) under implementation to ensure self sufficiency of raw material for the tinning line.

Growth of organized retail in India
The growth of the organized retail sector in India would be a big boost for the growth of the tinplate Industry as this sector encourages consumers to buy more canned products.

■Most Eco Friendly packaging medium

The world is today grappling with environment concerns and packaging waste is a cause of concern. Tinplate is the most eco friendly packaging medium. This would give it an edge over other substitutes.

Excellent pedigree and related advantages
In 1982, Tata Steel bought the shareholding of Burmah Oil, the then major shareholder and took over the management of The Tinplate Company of India. The company has recently started collaborating with Corus, one of the world leaders in tinplate business and a subsidiary of Tata Steel. The company will be in a position to leverage the excellent R&D and engineering capabilities at Corus.

To read the full report: TINPLATE COMPANY


Room for more
■ Secular uptrend likely in tourist arrivals

With the economic revival on the anvil, we expect a mature uptrend of in-bound tourist arrivals to resume with CAGR of 7.7% for the next ten years. Interestingly, tourist arrivals had nosedived in 2001-02 before recovering and clocking a CAGR of 16.3% in 2003-08. It subsequently hit a trough in November 2008 as a result of the worsening global slowdown only to capitulate with the 26/11 terror attack. Now with a reversal in these trends, we anticipate the growth momentum to sustain.

■ Demand supply sweet-spot to repeat during 2012-15
We see the mismatch in demand-supply to reemerge in line with an economic revival and a delayed supply pipeline. Increase in repeat journeys and an extension in length of stay by guests would be the real multiplier of demand. Occupancy levels are set to rebound to 68%-72% while average room rates (ARRs) are set to spike to INR8700- 11200 in FY11E, driven by a reinforced economy. Growth in demand is seen across business as well as leisure destinations.

■ Spotting the winner
We find players with a significant supply addition and a diverse geographical spread during 2009-12 to be the biggest beneficiaries of the impending upturn. We also find the branded mid-market players to gain from the growing domestic tourism. IHCL emerges a clear winner with the spread increasing by 38% during 2010-12 across the country along with ‘Ginger’ to cater to value conscious guests. With a significant portion of their topline coming from overseas operations, IHCL is expected to benefit from a revival in the US and UK economies. Hotel Leela is also expected to reap benefits of new property launches, and its distributed geographical spread.

■ Valuation
We believe EV/room is a better measure to value hotel stocks as it captures the effects of a changing capital structure along with operating efficiencies on a per room basis. The EV/room valuation should be considered attractive with a significant upside when a player is available, cheaper than the average replacement cost of INR12-15mn per room, invested in the premium category and around INR6-8mn in the Four-Star category. Indian Hotels, our preferred bet, trades at an FY12E EV/room of INR9.6mn, EIH at INR18.3mn and Hotel Leela at an FY12E EV/room of INR25.7mn.

To read the full report: HOSPITALITY