>PIRAMAL GLASS LIMITED (PGL): Manufacturer of glass containers for the Cosmetics & Perfumery (C& P), Pharmaceutical and Specialty Food & Beverages (SF& B) industries

Piramal Glass Ltd (PGL) has a multi product industrial profile and is a global leader in deliveringworld-class packaging solutions. It is a manufacturer of glass containers for the Cosmetics & Perfumery (C&P), Pharmaceutical and Specialty Food & Beverages (SF&B) industries. PGLhas its manufacturing facilities in India, US and Sri Lanka with 11 furnaces having a total installed capacity of 1145TPD(tonnes per day).


■ Focus on high-margin C&P business to drive revenues: PGL believes the market share in the C&Ppremium segment can grow to 7-8% over the next two years from current levels of ~3%.PGLcurrently has a global leadership position in the colour cosmetic (Nail polish bottles) segment with a 50% market share. We believe that as the contribution of theC&Psegment to the revenue increases and with the share of the premium segment within the C&P segment also increasing rapidly, will drive growth and improve margins going forward.


■ Significant cost advantages Labour Arbitrage: In countries like US, which accounts for 37% of the global C&P premium segment, 80% of the C&P requirement is imported. The total cost of production in India, where manpower is among the cheapest in theworld is ~60% of the global costs and is less than half of that in France and almost half of that in the US. This gives PGL to have a significant cost advantage over its global peers.


■ Stronger balance sheet to support growth:  PGL had a debt of INR 9200 mn (as per FY11 Consol. balance sheet) and debt/equity of 3:1. In H1FY12 the debt/equity ratio was reduced to 2.5:1 from 3.4:1 in H1FY11. The debt service cover improved to 3.2 in H1FY12 as compared to 3.4 in H1FY12. PGL has been able to restructure its debt by going into to relatively lower interest rate of 7.5% foreign currency loan from peak rate of 13% to strength its cash flow. PGL follows an active hedging policy to its naked exposure which is currently to the tune ofUSD12-14 mn.


■ Capacity expansion to meet the future demand: For FY12 and FY13, the company has a planned capex of INR 2600 mn, with INR 1000 mn assigned to a Greenfield expansion of 160 TPD for the C&P segment to the at Jambusar. This project is scheduled to be operational by March 2012. The remaining INR 1600 mn will be spent on realignment of 4 existing furnaces which will increase the capacity by ~50-60TPDand will increase the total capacity by ~210 TPD.


Valuation:
At theCMPof ~INR92, the stock trades at ~8.0x and 5.2x of its FY12E and FY13E earning respectively. The company has been steadily shifting its product mix from low margin commodity business to high yield specialized business of C&P. We expect the C&P contribution to company's revenue to increase from 49% in FY11 to 56% in FY13E which is expected to boost EBITDAmargins from 23% in FY11 to 25% in FY13E.We have valued the company at ~8x of it FY13E earnings which is at premium compared to other domestic peers, due to PGL's better margins profile and return ratios. We maintain our BUY rating on the stock with a target price of INR143.


RISH TRADER

>RBI’s mid quarter monetary policy review (December 16, 2011)

On the backdrop, of challenging global & domestic economic environment RBI in its mid quarter review halted its monetary policy tightening measure as per our expectations. RBI decided to


• keep the cash reserve ratio (CRR) unchanged at 6%
• keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.5%
• Consequently, the reverse repo rate under the LAF will remain unchanged at 7.5% and the
marginal standing facility (MSF) rate at 9.5%.


The RBI's view on rates is based on
Growth momentum is weakening in the advanced economies amidst heightened concerns that
recovery may take longer than expected earlier.


This, combined with the slowing down of domestic demand, to which the monetary policy stance is also contributing, suggests that risks to the growth projection for 2011-12 made in the January


Review are on the downside.
Meanwhile, RBI maintained its inflation projection for March 2012 at 7% due to moderation in food inflation in November 2011 and expected moderation in aggregate demand leading to decline in non-food manufactured products inflation.


Outlook & View
RBI has clearly indicated a threat to domestic economy from uncertain global macro-economic
environment. As a consequence of all-round slower growth, inflation has also started declining, both in advanced countries and EMEs. This will affect the composition of capital flows from developed economies. On the domestic front, monsoon rains so far have been normal. The first advance estimates for the 2011-12 kharif season point to a record production of rice, oilseeds and cotton, while the output of pulses may decline. Fiscal deficit target of 4.6% has become a challenge due to various developments in macro economic environment. On the expenditure side, the subsidy burden will overshoot the budgeted amount in 2011-12 significantly, despite the recent revision in petroleum product prices.


As we have mentioned in our RBI’s monetary policy expectations report, among the four factors (higher inflation, interest rates, lack of reforms and currency depreciation), inflation has started to fall along with RBI intervention to arrest the rupee depreciation. This will help the economy to stablise from slowdown witnessed in near term. Also RBI has assured that monetary policy actions are likely to reverse the cycle, responding to the risks to growth. The halt of interest rate hikes is positive for the banking sector, which are facing challenges like slower growth of credit & deteriorating asset quality. RISH TRADER

>INVESTMENT STRATEGY: Based on Dividend Yield

High Dividend Yield would be one of the factors to select stock in the current scenario where market is at its low.

High dividend yield becomes an important criteria for investment when stock prices are at

two year low and short term scenario is uncertain. Dividend yield is simply the amount of

dividends paid by the company, divided by the share price which is the clear cash return to

the share holder.

Investors expect dividends to increase as business profits improve on the other hand, companies

reduce dividend or eliminate dividends altogether, in response to economic recession and falling

profits or during the expansion phase. High dividend yield indicates the financial strength and

business safety of the company while low dividend yield in few cases is an indication of

overvaluation. In addition to this, high dividend yield also counteract inflation risks

associated with rising price levels and lost of purchasing power (economic fluctuation). We

have used dividend-yield as a yardstick to pick few of the stock which could provide some

protection against inflation and are potentially strong enough to participate in the market rally in

the long term.

We are recommending the five stocks with high dividend yield ratio (~3.5% or more) which are

considered to be fundamentally strong with, high level of cash, low debt to equity ratios, and

strong balance sheet. Any one or in combination the following stocks could be added to your

portfolio to get better overall returns.(dividend yield + capital appreciation)

To read more about: INVESTMENT STRATEGY

RISH TRADER

>INR - USD APPRECIATION (UNICON INVESTMENTS)

INR appreciation – Concern for export oriented sectors
The INR has appreciated by 2.4% and 3.3% in the last one month and the last three months respectively. The USD- INR has crossed the psychologically important level of 45 on the back of higher foreign inflows (~USD 4bn, the second highest ever for a month) as funds are being pumped into the Indian equity markets by the FIIs. Resultantly, the stock markets are trading at near one year highs, with Nifty trading currently at over 5300 levels.

This appreciation of INR would affect the export oriented sectors such as Information Technology, Pharma & Textiles. The CNX IT Index has pared 2.5% in the last few trading sessions and the CNX Pharma Index has pared 1.7% from the highs of 26th March due to the appreciating INR.

As can be seen from the above chart, from the highs of over 50 in Feb ‘09, the INR has been gradually appreciating against the USD on the back of robust GDP growth, stronger economic fundamentals (even boosted by an inclusive and progressive budget, which also looks to cut the fiscal deficit), rising inflows into the equity markets from the FIIs, rollback in stimulus packages in the west and a weak sentiment against the USD.

Rising Dollex due to higher risk appetite
From ~75 levels in Nov-Dec, during which the US economy was coming out stronger from the recession than the Euro area, the Dollex has been rising consistently reaching above 80 levels as the Euro and Yen started appreciating against the Dollar. In the last few days, the announcement that Eurozone leaders would help Greece with its debt servicing problems has allayed concerns and resulted in short covering helping the Euro appreciate against the USD.

Also, with the most economies coming out of woods, the risk appetite is gradually returning and the investments are more channeled towards the higher yielding currencies and away from the USD. Recently France has come up with good numbers on economic front and even countries such as New Zealand and Australia have started to report good economic growth. With this, we expect the USD to pare safe haven status in the medium term and hence one could look at a moderately rising Dollex from these levels as currencies such as Euro and Won are expected to be stronger going forward.

To read the full report: INR-USD

>BIHAR TUBES LIMITED (UNICON INVESTMENTS)

Company Description: Incorporated in 1986, BTL is a leading manufacturer and exporter of Steel Pipes & Tubes. It produces widest range of steel tubes including black tubes, galvanised tubes, pre-galvanised tubes and hollow sections and caters to industry segments like irrigation, urban infrastructure, automotive (bus bodies), airports, metro networks, etc. Ashok Leyland, Tata Marcopolo, Delhi airport, Gujarat Gas, Mundra SEZ, IRCON and Automobile Corporation of India are some of the major clientele.

Investment highlights

Strong Industry Growth
Demand for steel tubes in last three years has seen a tremendous growth following government’s thrust on urban infrastructure. With emphasis on aesthetics and complex structural designs in segments like airports, commercial complexes, usage of steel tubes and hollow sections has gone up. The entire tubes industry is situated in the north. The entire southern region is supplied by northern players who have to incur huge freight costs. BTL plans to expand in the southern region to tap this demand and cut the supply / freight costs.

Strong Expansion to drive growth
BTL has three plants in the country with an aggregate capacity of 200,000 TPA: two near Delhi and one near Bangalore. The company has inaugurated its fourth facility in Hosur, Tamilnadu in January 2010 to cater to the southern market. The facility is the largest in South India and is being built at a capital cost of INR 1bn and a capacity of 200,000 TPA. With the Hosur facility, Bihar Tubes is the largest producer of steel tubes in the country having total capacity of 400,000 TPA up to a size of 12 inches. The new facility has been built with latest machinery of
Kusakabe, Japan.

To read the full report: BIHAR TUBES

>GANESH POLYTEX LIMITED (UNICON INVESTMENTS)

Recycling waste into wealth
We spoke to the CFO Mr Gopal Agarwal of Ganesh Polytex Ltd (GPL) for an outlook on the Business and Strategy of the company. Following are the key takeaways from the meet.

Investment Highlights
Commissioning of new RPSF facility
GPL is set to become the largest player in RPSF in the country with the commissioning of its 18,000 TPA plant by the end of this month at its Rudrapur facility at an estimated cost of INR 250 mn. This will take the total RPSF capacity of GPL to 57,600 TPA beyond the current market leader Reliance Industries’ capacity of 42,000 TPA. The commissioning of this facility is expected to improve the operating margins by around 250 basis points making.

Expansion plan to drive growth
The company’s ambitious growth targets include enhancing the recycling capacity to over 100,000 TPA in stages over the next 3-4 years, building up of yarn spinning capacity to integrate its operations forward, foraying into manufacturing of downstream products and entering into horizontal integration through producing more value added products like Partially Oriented Yarn (POY), packaging sheets, etc. from pet bottle waste.

These growth plans would help the topline and bottomline to grow at a healthy CAGR of 35-40% over the next few years.

Valuation & Outlook
At the CMP of INR 42, the stock trades at 4.8x its FY11e EPS of INR 8.8 (on weighted average capital). The company’s FY10e sales are 5x the current market capitalisation and the price to cash EPS is 3.1x. The stock looks attractive considering the expansion in capacity and the growth of the user industry. We applied a multiple of 4x on FY12e EPS to arrive at our target price of INR 64. We feel investors can buy the stock at current levels for a good upside within a year.

To read the full report: GANESH POLYTEX LIMITED