>PSU Banks with High Dividend Yield – Worth Investing

Banking Sector has seen consistent pressure due to series of monetary measures adopted by RBI to curtail sticky inflation since March 2010, in turn transmitted by banking system. This along with global uncertainty resulted in high interest rates environment, slowing credit demand, and weak business sentiments in last one year. The pressure deepened further in last six months on the back of worsening domestic macro-economic factors. Concerns over several key parameters like credit growth, asset quality, profitability etc led many banking stocks to touch their 52-week low.


Bank Nifty has given negative returns in last one and three months i.e. 4.49% and 8.02% respectively.


PSU Banks underperformer as compared to Private Banks: Banks have declared their quarterly results for fourth quarter of FY12 and complete financial year 2011-12. Considering the overall pressure in banking space, performance posted by private banks is much better than PSU banks in terms of credit growth, asset quality, margins, profitability etc. Most of the PSU banks have experienced pressure on asset quality, drop in NIMs, slower growth in deposits and advances, deteriorated returns on equity and assets, etc on the back of downturn witnessed by overall economy. It was the only SBI announcing better than expected results with significant improvement in financial parameters after horrible performance in last few quarters. The prices of PSU Banks are eroded by a good percentage in last one year and many of them are trading at attractive valuations.


After a steep correction, most of the PSU Banks are trading at below their book value and adjusted book value. We are still not convinced that upcoming quarters will throw positive surprises in terms of earnings and asset quality. Now, the question arises what should be the strategy for investors for these PSU Banks?


High Dividend Yield- A Silver Lining: PSU Banks have announced dividend also along with their FY12 results varying in the range of 20% to 350%. Investment at current prices may deliver very attractive dividend yield to investors for the current year as well for the next year as we believe majority of the negative factors are already priced in at current levels and situation is going to be improved by FY13. Hence, Investment at current levels in PSU banks can reward investors in three ways- (1) Dividend Yield of FY12 (2) Dividend Yield of FY13 (3) High Probability of Price Appreciation from hereon and even if we see further downside in PSU stocks, the capital invested will be protected by the dividend amount received. Another interesting part is that dividends are tax free and do not form part of total income for the purpose of tax. Hence, we have found out few PSU Banks with good dividend track record and recommend our clients to consider investments in these stocks as a strategy to insulate their portfolio from capital erosion upto some extent.


To read report in detail: PSU BANKS
RISH TRADER

>IPO ANALYSIS: Manganese Ore India Limited (MOIL)

Fairwealth Research Desk rates the Initial Public Issue (IPO) of Manganese Ore India Ltd - Subscribe. The issue will open on Nov. 26, 2010 and close on Dec. 01, 2010 for retail investors and on Nov 30, 2010 for Institutional Investors. The face value is Rs. 10 per share and the price

band for the issue is Rs 340-375. It is a 100% book building process aggregating over Rs 1230cr.

Manganese Ore India Ltd (MOIL), a Miniratna Public Sector undertaking, is the largest producers of manganese ore by volume in India. It operates with 10 mines across India, of which six mines are located in the Nagpur and Bhandara districts of Maharashtra and four in the Balaghat district of Madhya Pradesh. All these mines are about a century old. Except three, rest of the mines is worked through underground method.

The outlook for Manganese ore looks strong on the back of strong domestic demand from steel industry and huge investment pipeline of Indian infrastructure.

VALUATIONS

On the price band of Rs 340-375, company is available at P/E of 12.68x on the lower price band and 13.98x on the higher price band based on FY10 earnings. At the book value of Rs.99.84 the stock is priced at P/BV of 3.76x on the higher price band and 3.40x on the lower price band.

MOIL has a net worth of Rs 1860cr and NAV of Rs 110.71/share.

We expect the demand of manganese ore to cross 4mt by the first half of FY13. Long term investors can consider the IPO with an expected return of 50-60% with a time horizon of 12-24 months whereas short term investors can expect listing gains of 20-30%.

To see issue details: MOIL

RISH TRADER

>NAHAR SPINNING MILLS LTD. (FAIRWEALTH)

Nahar Spinning Mills Limited is a Ludhiana based company operating in the textile industry. The company was incorporated in the year 1980. The company basically operates in two segments: yarn and garment segment.

Key Highlights

• The company is the best company among its peers as it is available at attractive P/E of 5.92.
• The company exports its T-shirts to international brands such as GAP, Arrow, Van Heusen.

Future Outlook
At Current market price of Rs 92 , the stock is available at P/E of 6.20 of its FY10 earnings,
and P/E of 4.41x of its FY11. Fairwealth Research Desk recommend BUY with target price of
Rs 115 , given that company’s future shows potential.

To read the full report: NAHAR SPINNING

>Educomp Solutions Ltd Q4FY10 results were In-line With Our Expectations

The top-line of the company appreciated 48.65% YoY to Rs 273.37cr (inline with our expectations of Rs 264cr).

The bottom line performance of the company was marginally below our research estimations, to Rs 67.52cr. (as against our expectations of Rs. 72 crore)

The EBITDA expanded by 33.27% to Rs 160.08.cr and there was a 23.85% YoY increase in the net profit to Rs 67.52cr. A good revenue growth can be attributed to School Learning Solutions segment which grew by more than 60% Y-O-Y and accounts for 98% of the total revenues of the

company.

COMPANY PROFILE

Educomp Solutions Ltd, formerly known as Educomp Datamatics Limited, was incorporated in 1994 and is based in New Delhi, India. It is India's largest educational service provider with foremost emphasis on the K-12 space.

Educomp group serves over 19,000 schools, 9.4 million learners and educators across the world. Company operates private schools across various cities and has also collaborated with various state governments.

It has 27 offices worldwide. In addition, the Company operates through its various subsidiaries including author GEN, Three brix eServices, Learning.com, USA, AsknLearn Pte Ltd, Singapore and via its associates such as Savvica in Canada.

To read the full report: EDUCOMP SOLUTIONS

>OUDH SUGAR MILLS LTD (FAIR WEALTH)

COMPANY PROFILE: Established in 1932, Oudh Sugar Mills Limited is a KK Birla group company. KK Birla group apart from sugar is a leading player in key industries like fertilizer, chemicals, heavy engineering, textiles, shipping, media, etc. UGSIL has its manufacturing units in UP, Bihar and Assam.

The Company Operates Through Following Divisions:-

SUGAR:
This division consists of manufacturing and selling of sugar, molasses and bagasse.
Presently company has Four sugar manufacturing unit with aggregate crushing capacity of 28700

TCD:-

■ Hargaon Sugar Mills, Hargaon, Dist Sitapur (U.P.) with a crushing capacity of about 10,000 tonnes of sugarcane per day.

■ Rosa Sugar Works, Rosa, Dist. Shajahanpur (U.P.) situated in Uttar Pradesh with a crushing capacity of about 4200 tonnes of sugarcane per day.

■ New Swadeshi Sugar Mills, Narkatiaganj, Dist West Champaran (Bihar) with a crushing capacity of about 7,500 tonnes of sugarcane per day.

■ New India Sugar Mills, Hata. (U.P.) with a crushing capacity of about 7,000 tonnes of sugarcane per day commenced operations this year.

DISTILLERY:
Company has following two distilleries:-
Hargaon facility with a capacity of 100 KLPD of Industrial Alcohol/ ethanol.
Narkatiaganj facility with a capacity of 60 KLPD of Industrial Alcohol/ ethanol.

CO-GENERATION:
This division, presently, operates through two units with aggregate capacity of 25 MW. This segment is involved generation and transmission of power.
■ Hargaon Co-generation power plant with a capacity of 15 MW power.
■ Narkatiaganj Co-generation power plant with a capacity of 10 MW power.
■ Company has setup New Co-genration plant at Hata, (U.P.) with a capacity of 35 MW.

To read the full report: OUDH SUGAR MILLS

>AUTO ANCILLARY SECTOR (FAIR WEALTH)

The Indian auto ancillary industry is one of India's sunrise industries with tremendous growth prospects. The automotive industry is an important segment of the economy in any country as it links many industries and services.

The Indian auto industry has the potential to emerge as one of the largest in the world. Presently, India is:

• The largest two-wheeler manufacturer in the world.
• The largest three-wheeler market in the world.
• The second-largest two-wheeler market in the world.
• The fourth –largest commercial vehicle market in the world.

The fortunes of the automotive components segment are linked to the performance of the auto industry. The auto ancillary industry gives support to sectors such as metals that includes steel, aluminum, copper and also to many other machine tools, plastics, rubbers, polymers, glass, surface transport.

As per Indian Suppliers’ report, the automotive sector in India contributes to 5% of the nation’s GDP and 17% of the indirect taxes as a result of which the government last year charted a 10-year blueprint for the sector’s growth. This envisages the automotive sector “output reaching a level of $145 billion accounting for more than 10% of the GDP” by 2016.

Indian auto industry has evolved around three major clusters: Mumbai-Pune-Nashik-Aurangabad (west); Chennai- Bangalore-Hosur (south); and Delhi-Gurgaon-Faridabad (north).Export-oriented companies have formed base in the west/ south regions, due to proximity to port.

Foreign Investments:
India enjoys a cost advantage with respect to casting and forging as manufacturing costs in India are 25 to 30 per cent lower than their western counterparts. Seeing the growing popularity of India in the automotive component sector, the Investment Commission has set a target of attracting foreign investment worth US$ 5 billion for the next seven years to increase India's share in the global auto components market from the existing 0.9 per cent to 2.5 per cent by 2015.

■ French tyre major, Michelin, has gained clearance from the Foreign Investment Promotion Board (FIPB) for its US$ 2.26 billion foreign direct investment (FDI) proposal to set up a manufacturing facility in Tamil Nadu.

■ Ford motor car is investing about 500$ million (Rs. 2,445 crore) to double capacity at its India plant, which will become a strategic global production hub.

■ Bosch will continue to maintain its focus in India in spite of global recession as it is planning to set up manufacturing units for electronic control units (ECU) by investing US$ 26.76 million.

■ Volkswagen has set target to capture 8-10 percent of market share in the passenger car segment in India by 2014 with a series of launches and by doubling the number of dealers.

Domestic Investments:
The market is so large and diverse that a large number of players can be absorbed to accommodate buyer needs. The sector not only has global players looking to invest and expand but leading domestic component companies are also pumping in huge sums into expanding operations. Indian tyre makers are rolling out investment plans worth US$ 1.24 billion, due to the rising popularity of radial tyres in the commercial vehicles segment.

Some other investments include:

• Hero Motors will invest US$ 19.84 million in association with Austrian firm BRP Power train for manufacturing automotive transmissions in India.
• Indian arm of Swedish automotive component maker SKF is investing US$ 30 million in a new ball bearings manufacturing plant at Haridwar.
• Mahindra & Mahindra will invest approx US$ 400 million for setting up an integrated auto facility in Tiruvannamalai(Chennai).
• An auto park is coming up near Hyderabad with investments worth over US$ 409.30 million from around 34 automotive ancillary units.

Low labor costs gives Indian auto ancillary companies an absolute cost advantage. ACMA numbers suggest that wage cost accounts for 3% to 15% of revenues for Indian manufacturers as compared to 20% to 40% for US players. Historically, India's strength in exports lies in forgings, castings and plastics. But this is changing with more component manufactures investing in up gradation of technology in recent years.

To read the full report: AUTO ANCILLARY

>JINDAL SAW LIMITED (FAIR WEALTH)

Jindal Saw Limited is the flagship company of O.P. Jindal Group, one of the leading groups in India. The company is a leader in Submerged Arc Welded (SAW) pipes that are used for transportation of Oil & Gas and now increased its focus on Ductile pipes which is used for water and waste transportation.

Why to invest in shares of Jindal Saw Limited?

SECTOR:
■ With rising Oil prices, Oil & Gas companies increase their level of exploring and drilling activities. And also, demand is expected to increase with new Oil and Gas finds, and creation and strengthening of national Gas Grid. Players like reliance, ONGC and Cairn are making
investment for setting up pipe infrastructure for Oil & Gas transport.

■ The country is in the midst of huge investments in Oil and Gas pipelines, this will continue for a few more years. Penetration level of pipelines in Oil & Gas transportation is low at 32% as against 59% in the USA and 79% globally, which provide a huge opportunity for
companies like Jindal saw to capture the market.

■ Asia to lead pipe demand with strong growth in energy consumption. Simdex data shows that 33% of the global pipeline demand will come up in asia.

■ The Government has increased budget for Rajiv Gandhi Rural Water mission from at Rs 7400cr, which is a boost for the sector requiring
huge amount of Ductile Iron Pipes.

■ Rs 1200cr is granted for Rural Sanitation program, that will create demand for Ductile Pipes

■ Indian player have the advantage of proximity to the Middle East, which makes Indian imports cheaper than Japan or European

■ Replacement demand for older pipes will also contribute to the growth of the sector.

To read the full report: JINDAL SAW LIMITED

>UPPER GANGES SUGAR & INDUSTRIES LIMITED (FAIRWEALTH)

COMPANY PROFILE: Established in 1932, Upper Ganges and Sugar Industries Limited (UGSIL) is a KK Birla group company. KK Birla group apart from sugar is a leading player in key industries like fertilizer, chemicals, heavy engineering, textiles, shipping, media, etc. UGSIL has its manufacturing units in UP, Bihar and Assam.

THE COMPANY OPERATES THROUGH FOLLOWING DIVISIONS:

SUGAR
This division consists of manufacturing and selling of sugar, molasses and bagasse.
Presently company has three sugar manufacturing unit with aggregate crushing capacity of 18000 TCD:-

■ Seohara Sugar Mills, Seohara, Dist. Bijnor (U.P.) with a crushing capacity of about 10,000 tonnes of sugarcane per day.

■ Bharat Sugar Mills, Sidhwalia, Dist. Gopalganj (Bihar) with a crushing capacity of about 5,000
tonnes of sugarcane per day.

■ Hasanpur Sugar Mills, Hasanpur, Dist. Samastipur (Bihar) with a crushing capacity of about 3,000 tonnes of sugarcane per day.

To read the full report: UPPER GANGES SUGAR

>ICSA (FAIRWEALTH)

Investment Period: 3-6 Months.
We initiate a Buy call on ICSA (India) Ltd with a 58% upside potential on the stock from the current levels. Investment advice is based on strong growth in top line, diversified businesses and strong outlook for the power sector over next 10 years. We expect top line to grow by 30-35% over next two years and our conservative projections suggest that bottom line will grow at compounded annual rate of 15%. Stock is currently trading at 4.6 x its FY09 Earnings and 4.6x and 3.7x its FY10E and FY11E earnings.

Investment arguments:

■ Strong order Book Position: The order book at the end of the quarter stood at Rs 1915 crore executable over 12-18 months. Embedded Technology segment has order book of Rs 650 crore executable over next 6-9 months and balance is for Infrastructure EPC segment. The order pipeline is about Rs 700 crore.

■ Allocation Of funds by govt: The RAPDRP(Restructured Accelerated Power Development and Reforms Programme) is the restructured version of APDRP, which has a budget of Rs 50000 crore to be spent over 3 years of which Rs 10000 crore is towards Technology acquisition (the segment which the Company caters to).

■ Increased allocation of Government projects under Rajiv Gandhi Grameen Viduytikaran Yojana (RGGVY) to 7000 crores up by 27% will have see significant orders coming in for ICSA.

■ Inorganic Growth: As a part of its inorganic growth, last year ICSA acquired the energy Meter plant of ECE industries in Hyderabad, thereby enabling itself to manufacture energy meters on its own capacity. Moreover in order to enhance the revenue and enjoy the tax benefit, it has diversified into non conventional energy and is setting up a 20 MW capacity wind power project in Andhra Pradesh out of which nearly 10MW has already being commissioned.

■ Discounted Valuations: Share is trading at 72% discount to its adjusted all time closing high of 587. India power and Infra sector have strong growth ahead, and ICSA will continue to be a part of it.

To see full report: ICSA

>PATEL ENGINEERING LIMITED (FAIRWEALTH)

We initiate a buy on dips call for Patel Engineering. One can buy at levels from around 300 to 340 for a target of 550 with a time horizon of 3 months. This call presents an upside potential of 40% and 70% for investors.

Investors having a holding period of 1-3 years can invest at current levels for a target of 720.

We have valued the company through SOTP valuations, Valuation of Rs. 720 has been arrived by valuing core operations at Rs. 325(10x EBITDA multiple) per share and Real Estate business at around Rs.325 share (30% discount to market value). Core Operations of the company have been valued at EV/EBITDA multiple of 10, while real estate has been valued at 35% discount to the market value

Key Investment reasons are strong order book (more than 5 times FY08 sales) expertise in complicated and high margin Hydro power and upstream irrigation projects. Leadership in Hydro power projects with 22% market share and prequalification for 12,000 crores of upcoming Hydro Power projects. Huge Land Bank valued at over Rs. 2000 crores. And increasing interest in Power Generation Business.

Quarterly highlights:
March 24 (Reuters) - Patel Engineering Ltd won an order worth 7.99 billion rupees for tunnelling work from the Narmada Valley Development Authority. Order book size stood at 7100 cores in Dec’08.

May: Order worth INR 554.67 Crore was bagged from the Vidarbha Irrigation Development Corporation, Maharashtra for the construction of pump house with pumping machinery, electric overhead travelling crane, switch yard and construction of rising main with manifold and water hammer control device

May: order worth INR 153.37 Crore was bagged from the Himachal Pradesh Power Corporation for the construction and completion of a powerhouse complex for the 111 MW Sawra Kuddu hydroelectric projects in Shimla district.

Order book to cross 9000 Crore by middle of this year with bulk of the orders coming from Hydro sector hydro power related projects (60%), followed by irrigation (20%) and remaining is spread across transportation and micro-tunnelling.

Result Analysis:
Top line grew by a decent 31%: Patel Engineering (PE) registered steady growth in 3QFY2009. Consolidated Sales of the company were in line with our expectations increasing 31% Y-o-Y to Rs495cr (Rs379cr) on the back of a strong Order book of Rs7,100cr. For 9MFY2009, Top-line growth was a tad better at 32% to Rs1495cr (Rs1133cr).

As of 31st March Order book stood at Rs. 9000 Crore

Operating Margins higher than peers: PE enjoys higher Margins than peers as it caters to technology-intensive businesses like Hydro Power and Upstream Irrigation Systems. For 3QFY2009, the company’s OPM at 18.1 %( 15.6%) exceeded our estimates. PE has been clocking high Margins on account of operating efficiencies and having built-in price escalation clauses in place in the contracts. The pass on of incremental costs is high in the Hydro Power and Upstream Irrigation segments (which constitutes a major part of PE’s Order book) compared to other segments like Roads.

Net Profit flat on account of higher Interest cost and Depreciation:
PE posted Net Profit growth of mere 2.2% for 3QFY2009 to Rs39.7cr (Rs38.9cr) in line with our estimates. Interest costs spiked 380% to Rs21.0cr, which was however in line with our estimates. On the Tax front, the company maintains its stance that it is entitled to avail Section 80IA benefits. As a result, it provided Tax at only 18%, which we have not considered in our estimates. We have adopted a more conservative approach and factored in Tax at a marginal rate. For 9MFY2009, PE has provided for Tax at 16% v/s our provision of 30%.

Outlook and Valuation
PE has ventured into the Real Estate sector by transferring the development rights of its Historical land bank to Patel Realty India (PRIL), its 100% subsidiary. It has a land bank of around 1,000 acres spread across Hyderabad (640 acres), Bangalore (106 acres), Chennai (230 acres) and Mumbai (26 acres).

PRIL plans to develop this land bank in phases and has accordingly announced plans for the Phase I development. Under Phase I, the company is developing around 10% of the total land bank.

■ IT SEZ Park at Gachibowli, in Hyderabad (2.7 mn. sq.ft):
■ A corporate park at Jogeshwari, in Mumbai (1.08 mn. sq.ft):
■ An Integrated Township at Electronic City near Bangalore (12.1 mn sq.ft)

T0 see full report: PATEL ENGINEERING

>Alok Industries (FAIRWEALTH)

Alok Industries is a leading vertically integrated textlie palyer of the country with Sales of more than 3000 crore and strong bottom line. We initiate a buy call on the company on basis of its attractive valuation, huge growth in topline over next three years and increased bottom line from higher foreign currency earnings, increased sale of Value added products and Vertical/ backward Integration. We estimate Alok Industries Net Profit to grow at 30% compounded over next 3 yers.Profit margins for FY09 are likey to taper to 6.1% for FY09 and move back to 9-10% by FY11E.

Company is currently trading at 4.5x is FY08 Earnings; At estiated profits of 290 crores and 412 crores for FY10E and FY11E stock is currently valued at 2.9 and 2.1 times its EPS of 4.8 and 6.8 respectively.

Alok Industries has its Cost of Capital lowest in industry at around 10% as company after tax cost of Debt is around 6%.Out of total Debt of 6500 crores 4000 crores has been raised as part of TUF scheme.

Earnings Estimate:
We expect company to post decent set of numbers for Q4 on account of higher Foreign Exchange Earnings. Alok Industries' March quarter sales are expected to go up 20% to Rs 870 crore on yoy basis. The company's net profit is seen flat at Rs. 53 crore on yoy basis.

Company Description
Alok Industries is the largest vertically integrated textile companies in India. Company has commenced massive expnasion plans since 2006 which is expected to be completed by Q1 FY10. As part of the expansion policy Company aims to achieve the following:

1. Integrated Operations and Economies of Scale
2. Become a ‘Nominated Supplier’ to Global Customers
3. Expansion of retail of products manufactured by the company

Divisions
1. Apparel Fabrics
2. Home Textiles
Store 21 in UK with more than 200 stores and H&A in India with more than 53 stores and target of over 100 by end of this year.
3. Cotton Yarn

Outlook and Valuation
Company has total debt of about 6500 crores out of which 4500 crore long term debt has been raised as part of TUF’s at subsidised rates rest 2000 crores is raised as working capital loans.

In view of company’s high net D/E ratio of 3:1 Company has decided to issue rights issue at
83:40 raising around 450 crores. Post right issue company’s total Net worth would reach
around 2300 crores with cash balance of around 1800 crores.

Company’s Long Term Debt: Equity ratio post right issue will be around 1.8 to 2 which
would be much more stable. Another thing in favour of the company is low cost of debt. Long term Debt has been raised as part of the textile promotion scheme, TUF which will provides 5% subsidy on interest cost of debt.

Increased Capacity to sales. Company has almost completed its Phase-IV expansion. Most
of the expansion is likely to be completed with in next 3 months. 90% of the overall capacities is expected to be utilized by 2011 from current levels of around 75%

We expect top line growth of compounded 30-35% over next 3 years, with bulk growth
coming from exports and retail sales. By 2010 exports would contribute about 50 percent of
company’s Net Sales up from current 40%.

Bottomline will get boosted through backward integration steps; company expects to meet
50% of its yarn demand in house and increased margin from dollar depreciation.

We value company at 4.5 x its 2009 expected EPS of 3.1. For FY10E and FY11E we expect company to post PAT of 320 crores and 410 crores respectively giving it a valuation
of 2.6x and 2x its FY10E and FY 11E EPS of 5.4 amd 6.9 respectively.

To see full report: ALOK INDUSTRIES