>AUTOMOBILE SECTOR: Declining trajectory

The change in macro economic variables (Inflation, Interest Rate, GDP, IIP, Household savings) over the past year has altered the dynamics of the automobile industry with the broader segments growing at a slower pace and selective segments showing higher growth. FY09 was a year, which impacted the automobile industry. The Commercial Vehicle Industry was impacted to a far greater extent as compared to the Passenger Car or Two wheeler industry. In order to boost consumption ‘then’, the Government had given stimulus in the form of lower excise duties and wage increases through MGNREGA scheme , which propelled demand.

The current cycle is different from 2009 as it’s associated to sticky inflation, lower household savings, high interest rates and thus slowing growth. This is apparent from lower GDP & IIP numbers, which are a proxy for Commercial Vehicle growth. The current slowdown started with passive passenger car offtake, which then led to lacklustre performance of the CV segment and now is also being reflected among the two – wheeler industry. 2W Industry is taken to be a barometer for rural demand, therefore the plunge in the same reflects signs of lower GDP growth spreading to rural consumption. Tractor sales have also been on a declining trend and deficient rainfall among the highest selling states – Punjab, Andhra Pradesh & Haryana accentuated the same.

In our view the rapid growth of 2010 and 2011 has overstated a portion of future consumption. We would need a series of rate cuts to propel long-term demand, but that also would show the poor state of the economy. As of now, SBI has cut lending rate despite the fact that RBI has not cut repo rate. We can see many such events happening in the future.

CV - Lower availability of cargo from SME’s, lower arrival of fruits and vegetables from Agricultural Produce Market Committee has resulted in truckers reporting 10% - 15% drop in trips on major truck routes in Q1FY13. Simultaneously truck rentals fell by 8% - 11% in Q1FY13 as compared to a 35% jump during October 2009 – March 2012. Rising costs and drooping freight rates have taken a toll on fleet operators profitability. As trucks operate on diesel , a hike in diesel prices would further squeeze their margins. In our view, in order to see rapid expansion of CV’s we would have to see rapid expansion in freight availability, else tonnage growth of the last few years would imply surplus capacity in the system.

2W – Rural spending was higher than urban consumption in the 2 years upto 2012, which led to high 2w growth. But this was devoid of reforms on the fiscal front, which is hitting future rural income growth.

Cars - This segment has been a clear victim of higher fuel prices and higher interest rates as 70% of car population runs on petrol and is financed. Selective pockets have seen growth on account of new launches and price divergence between petrol and diesel prices. In our view, future growth would be a function of rise in per capita income and better fuel economy.

The most sustainable way to solve these problems should come from industry upgrades, company cost rationalization, technological development, innovation and associated government regulations and policies.

To read report in detail: AUTOMOBILE SECTOR

>SUGAR INDUSTRY: Is Sugar cycle near bottom for next Structural up move!

Sugar cane crop in the country appears to have reached near peak level: Major
upside potential for sugar cane crop from current level of 343mnt appears limited. Negligible
addition to cultivated land, rising profitability of farmers from other competing crops, increased
cane arrears during SY12 in UP will limit further addition to cane cultivation and stable drawal
rate. Below average monsoon expectation in Maharashtra and high cane arrears in UP likely to
affect sugar cane production mainly in SY13e.

Steadily rising demand vs. near stable crop: SY12 sugar production of 26mnt appears to
be near peak level considering stagnant acreage towards cane and stable drawal rate. Going
forward we expect sugar production go down to 23.5mnt in SY13e level. Sugar demand is
steadily rising at 3% reaching 22.5mnt in SY12. Reducing demand supply gap within domestic
market will reduce inventory level within system. However with somewhat lower crop in SY13
season and expected reduction in drawal rate, we expect sugar inventory to reduce from
current level of 5.9mnt to 5.7mnt by FY13e and 5.0mnt by SY14e. This is likely to push prices
upward going forward over next 1-2 years.

Levy quota likely be withdrawn or lowered: Much hyped positive expectation for the
industry is de-control of the industry wherein, near term possibility is withdrawal of levy quota
or lower % of levy sugar as per production and stocks available with government. Currently
sugar companies are selling 10% of their production at `1970/qtl which is 35% below market
price. There is expectation that Govt. will likely lower levy quota by atleast 5% or may
withdraw completely. This will benefit around `1200-2500cr to the industry.

By-products profitability: Power and distillery play very important role in improving
profitability of the mills. Rising import bill makes ethanol blending attractive thus, improving
demand prospects for distillery. Prolonged coal deficit in the country is shifting focus towards
alternate fuels improving prospects for co-generation. Most of sugar refineries have signed PPA with State Electricity Boards (SEBs).

Exports: India is likely to export around 3mnt of sugar in SY12e. Out of this, industry has
already expected around 2.5mnt by June 2012. Exports of around 5mnt over last two years
helped reducing countrywide sugar inventory which has prevented sugar prices sliding down.

Conclusion: It appears that worst for domestic sugar industry is over and sugar prices have upside potential from current level over long term. Domestic sugar cane crop appears to have reached peak level with marginal upside due to limiting factors such as limited addition to cultivated land, rising profitability of alternate crops and stable drawal rate. It also faces near term challenges in terms of below average expected monsoon for 2012 and rising cane arrears in UP.


Domestic consumption of sugar is rising at a steady pace of 3% reaching 22.5mnt in SY12. Surplus in the domestic market during last two years is absorbed globally with exports reaching around 3mnt in SY12. Thus, country is likely to end SY12 with inventory level of 5.9mnt. Reducing production and rising consumption to reduce inventory level to 5.7mnt and 5.0mnt in SY13e and SY14e respectively.  Reducing inventory level is likely to push sugar prices upward in the long term. Sugar companies stock prices are at trough level discounting major concerns thus, any positive would lead to re-rating of the stocks. We have a long term POSITIVE view on the sector. Companies which we prefer in the sector are: 1. Balrampur Chini Mills Ltd. 2. Dhampur Sugar Mills Ltd. 3. Triveni Engineering & Industries Ltd.


To read report in detail: SUGAR INDUSTRY

RISH TRADER

>Mcleod Russel (India) Ltd.

Continuous reduction in global carry forward inventory during CY08 and CY09 lead to higher tea prices internationally. CY10 saw a good crop with Kenya ( world’s largest exporter) reporting highest ever production at 399 mn kgs. But globally still the prices remained firm on the back of strong demand for black tea.CY11 followed as a stagnant to lower production year.


We believe that we are in a structural shift with a rising demand and supply gap, which is not likely to get resolved over the next few years, unless crop from Kenya increases substantially which is unlikely.This can lead to price rise which can last for few years.


The country has witnessed stagnant production over the last 4-5 years while domestic
consumption has been growing at a CAGR of 2.5%+ over the last 10 years.


India has been witnessing falling yields over the last 5 – 7 years due to the aging of bushes. Of the 11th Plan target there was 66 per cent shortfall in sanctions against a target of 54,524 ha area for replanting in the first four years (April 2007 - March 2011) as only 18,642 ha area was sanctioned for replanting. The impact of replantation efforts will be visible from FY14-15 as the pace of it picks   up, however by that time domestic consumption too would have grown resulting in no major  buffer.

Consolidation initiatives by Mcleod have started contributing from FY11.Improved profitability and  return ratios to enable the company to increase its operating cash flows and hence reduce
leverage.


To read report in detail: MCLEOD RUSSEL

RISH TRADER

>MT EDUCARE LIMITED: IPO ANALYSIS (WAY 2 WEALTH)

MT Educare (MT Edu), promoted by Mr Mahesh Shetty, provides educational coaching services for classes 9 and 10 (State board, CBSE and ICSE), classes 11 and 12, graduation (commerce), preparatory/entrance tests (engineering, medical and MBA) and professional courses such as chartered accountancy.


Objects of the Issue:

• Part financing the cost of construction – (includes the cost of land acquisition of a PUC campus in Karnataka)
• Establishing new coaching centers at 20 locations
• General corporate purposes

Investment Highlights:
■  Business Prospects: MT Educare is the one of the leading players in the Indian educational coaching industry in terms of largest number of coaching centers. It operates 190 coaching centers across 106 locations in Maharashtra, Karnataka, Gujarat, and Tamil Nadu; with primary operations in Mumbai with 138 centers.


■ Recognized Brand name: It is one of the largest and one of the oldest players in the Mumbai coaching industry under the brand name “Mahesh Tutorials”, enjoying a good brand image.


Key Concerns:
■  Geographic concentration: MT Educare is concentrated highly in the regions in and across Mumbai which contributes the most to its revenue; although the company is present in four states, out of its 190 coaching centers, ~73% (138) centers are in Mumbai. This high dependence on a single geography poses a significant risk to the company.


■  Parallel Education system - lack of governmental recognition: Coaching business forms a part of the parallel education industry which has been a key concern for the government as it lacks accountability. The Government is bound to regulate this business in the future, which will affect revenue and profitability. 


■  Intense competition: The coaching industry is highly fragmented and competitive with most of the players being strong in their regions posing risk to expansion plans in future. Also it is highly unorganized with most of the local teachers providing coaching to students. Being a low capital intensive industry, it attracts huge entrepreneurial interest thas further intensifying the competition.


Valuation & Advice:
At the offer price band of Rs 74 – 80, the issue is available at FY12E P/E of 21.1-22.8x. Career Point Infosystems Ltd, a listed entity with similar business, is valued at a historical P-E multiple of 12.7x. Though the brand name is well recognized, it is hard to quantify returns with

certainty. The business model is unsustainable in the longer term with the industry bound to be regulated by the government. Also, at a price band of Rs 74 – 80, the valuation is stressed. Considering its constraint in scalability, investors can Avoid this issue.

>National Buildings Construction Corp. (NBCC): IPO Analysis

The National Buildings Construction Corp. (NBCC) is engaged in the business of providing project management consultancy (PMC) services for civil construction projects, civil infrastructure for power sector and real estate development.


Objects of the Issue: To divest 12,000,000 equity shares and achieve benefits of listing.


Investment Rationale
■ Operations well diversified, presence in various sectors: NBCC has presence across various sectors. NBCC’s project diversification ranges from PMC, real estate, civil construction and civil infrastructure for the power sector. Though, Project Management Consultancy forms the core of its sales (90%).


■ Strong Order Book visibility: As on 31st Jan 2012; the order book for the PMC and civil Infrastructure for the power sector constituted 10,613.68 crore. The total order book constituted of 30.33% from infrastructure, 28.46% from the hospital segment, 25.85% from the institutional construction segment, 9.67% from commercial construction and 2.74% from residential construction.


■ Strong Clientele in the Govt. of India (GoI) and its various arms: Projects are awarded to NBCC on nomination basis by the GoI. It has handled various government projects such as infrastructure works for security personnel, border fencing, re-development of buildings etc as well as infrastructure projects such as roads, water-supply systems and so on. Some of its key clients are The Ministry of Defence, The Ministry of Home Affairs, External Affairs, The Ministry of Finance, IIT Patna among others.


■ Focus on high value projects: NBCC intends to focus on undertaking projects of high value, above Rs 100 crore in the PMC and civil infrastructure segments.


■ Healthy financials: It is completely debt free and has a healthy balance sheet with steady cash flows. As on H1FY12, its cash balance stood at Rs 1368.2 cr, which is ~ Rs 114/share. The company has consistently maintained a dividend payout ratio of 20%.


Key concerns:
■ As PMC contributes significantly to the Sales, any decline in this business could adversely affect NBCC revenues.


■ NBCC is currently awarded projects on nomination basis by GoI; any change in this policy could pose significant risks to business visibility.


■ Valuation and Investment Argument: At the offer price bands, the issue is quoting at a P/E of 7.3-8.5 its annualized H1FY12 earnings. Most of the infra and construction companies are available at a 7x P/E. Currently, similar companies under the sector are reeling under pressure. However, an intended increase in government spending in infrastructure and a sound order book puts the Company is a sweet spot. Though the business model is concentrated on PMC segment and primary clients being various central and state governments, its steady cash flows, debt free status and dividend yield render the issue attractive. Only conservative investors with defensive mindset can SUBSCRIBE to this issue.


To read full report: NBCC
RISH TRADER

>VATECH WABAG LIMITED: a leading technology focused Indian Multinational in the water treatment industry

VATECH WABAG Limited, a leading technology focused Indian Multinational in the water treatment industry, with market presence spanning across three Continents, offers complete life cycle solutions for sewage treatment, process and drinking water treatment, effluent treatment, sludge treatment, desalination and reuse for Industries and Municipal Corporations.


Investment Rationale
■ Water & Waste water Treatment - A Paradigm shift to preserve Natural resources
Investment in water supply and sanitation is expected to double to Rs.1222bn during 2010-11 to 2014-15 from Rs.548bn in 2005-06 to 2009-10 .The water supply segment forms 67% of investments followed by the waste water which accounts for 28%.


■ Strong Order book rendering revenue visibility of more than 2 yrs
The current Order backlog as of Q2FY12 stands at 33bn with contribution from the domestic & international segment in the ratio of ~70:30. We expect the order backlog for FY12 to be ~Rs.34bn rendering a revenue visibility of ~30mths.


■ An Asset-lite model with Core focus on Technology, Collaborations & R&D
A technological focussed patented approach, VA Tech has established R&D centres in Chennai-India, Vienna-Austria and Winterthur-Switzerland. It has a research collaboration programme in India with the Centre for Environmental Studies, Anna University. It has also technical tie-ups with Sumitomo Corporation, Japan & Zawawi group in Oman.


■ Initiatives aimed to improve operating margins
Strategic initiatives like Centralizing engineering assistance from India, implementing low cost sourcing model via global procurement policy, emphasis on higher margin O&M Segment, adopting decentralized approach & Multi-Domestic Unit concept to increase local presence are being implemented to focus on improving margins.


■ Venturing across geographies
Apart from focusing on existing international countries, it is also looking at emerging opportunities in Saudi, Tunisia, Algeria, Turkey, China, Philippines, Srilanka & Maldives. A cash rich model, notably worth Rs.3.2bn in its balance sheet, it is scouting for acquisitions to grow inorganically.


■ Valuation
At the CMP of Rs.358, the stock quotes a PE of 10x FY13E EPS of Rs.35 per share respectively. We initiate a coverage with a Accumulate Rating on the stock, with a price target of Rs.424 per share based on its PE of 12x FY13E EPS of Rs.35 per share.


To read full report: VATECH WABAG
RISH TRADER

>BHEL: Major Orders declared during Q3FY12 are Dainik Bhaskar Power Ltd, SCCL & Arcelor Mittal - Ukraine

 Weak Order inflows – Uncertain to meet its guidance
Order intake declared in 3QFY12 has been to the tune of `79bn as compared to `122bn declared in Q3FY11 down by ~35%, indicating a possibility of weak order inflows. We believe it to be a herculean task for BHEL to meet its order inflow guidance of `660bn as total order inflows declared till date has been `247bn in FY12, falling short of guidance by `413bn. More than 50% of its order inflow guidance will have to be met in Q4FY12.


Major Orders declared during Q3FY12 are

Average Revenue growth of around 22% & Pat growth of around 4%
With an order backlog of `1610bn as of Q2FY12, we expect an average growth of ~22% with an execution ratio of close to 31% & carrying a revenue visibility of more than 3yrs. With steel prices stabilizing at current market prices, we estimate reduction in consumption of its raw material as a % of sales. We expect an average PAT growth of around 4% with reduced PAT margins @13.5% as against 15.9% yoy.


Uncertain Long-term growth
The long-term outlook for order inflow remains uncertain given the fuel pressure – the domestic coal shortage coupled with high imported coal prices and competition in the BTG space from both domestic and international peers.

RISH TRADER

>BANKING SECTOR: Preview of Q2FY12 Results

Sector Outlook

The sector has been witnessing a healthy business growth rate till now. Even though interest rates have increased, credit growth has been at a healthy 19.5%, while bank deposits rose 17.38% as on 23rd Sept, 2011.

􀂾 The credit growth has been on account of drawdown from earlier sanctions. With investment in infrastructure slowing down and firms looking abroad for raising money due to lower cost, healthy credit growth in India will see some pressure in the near term.

􀂾 According to data released by the Reserve Bank of India (RBI), bank credit rose 3.9% in the April‐September period, lower than the 5.6% growth in the same period of the previous financial year.

􀂾 RBI has raised key policy rates by 150 basis points since April to rein in inflation and anchor inflationary expectations. In June, majority of the banks increased their lending rates & a few days back, some banks have increased their deposit rates. However, we expect margin to remain stable or slightly down from Q1FY12 levels, given the fact the wholesale deposit rates have come down significantly from June levels.

􀂾 We may see some earning pressure on PSU banks due to system recognition of NPA’s.

􀂾 NPA’s for the sector as a whole may rise from Q1FY12 levels in Q2FY12 results. However, we expect better recovery & upgradations in the sector during the second half of the fiscal and therefore NPA’s to improve in the second half of the fiscal for the sector.

􀂾 Currently, most of thebanks are available at attractive P/BV. We have listed some of them below with our rationale for the same.

To read the full report: BANKING SECTOR

>McNally Bharat Engineering

MBE declared its 1st qtr results which were below expectations, with a growth in net sales on standalone basis at 12%, operating profits degrew by 9% whereas PAT has grown by 15.8%.

1st Quarter Highlights

■ Order Book growth
Order book for the Projects business stands at 42000 mlns. Infrastructure forms 23% of the total order book, power comprises 37%, material & non ferrous segment forms 29% whereas steel mines & port forms the remaining 11% of the total. Order book for McNally Sayaji stands at 2480 mlns whereas for CMT & German Manufacturing business it stands at 3550 mlns. In May’10, MBE has bagged its first overseas order in Zambia of Rs. 1140 mlns. MBE also bagged its single largest BOP order of Rs. 8140 mlns in Apr’10.

■ Revenue Growth
MBE’s net sales stand at 2834.8 mlns out of which material & non ferrous segment contributed 54%, steel, mines & port contributed 26% power contributed 19% whereas the rest comes from the infrastructure sector. Operating margins have been lower at 5.5% due to completion of low end jobs in the 1st qtr. Outsourcing expenditure as a % of net sales have increased from 19% to 24% which has led to incremental expenditure from 93% to 95%. Employee cost has increased drastically by 70% from 5.7% to 8.7% yoy as a % on net sales. Interest cost has reduced by 24% yoy which could be due to partial repayment of high interest loan. Consequently PAT has
remained flat at 2.2% reflecting its dull performance for the qtr.

■ Bad performance from Subsidiaries
McNally Sayaji has delivered very poor results with an incremental growth of 17% in its net sales while its operating profits have degrown by 23% and and PAT has degrown by 66% mainly on account of lower volume growth, low margins jobs, higher interest outgo and higher depreciation on additional capacity created. Similarly for CMT business, revenue stands at 760 mlns, with operating profit margins at 4% and PAT margins at 3%.

■ Valuations
MBE has indicated plans to participate in a big way in the Steel sector modernization packages of SAIL , Balance of Plant(BOP) packages in Power sector, Port expansion programme of NMDP and capacity increase in nonferrous metal sector, as and when it picks up again.

At its CMP of Rs 286, the stock quotes at PE of 14x and 11x its FY11E and FY12E cons. earnings of Rs 20.7 and 26.9 respectively. We have reduced our earnings estimates based on weak Q1 performance but we remain bullish over its long term performance and give an Accumulate Rating on the stock, with a target price of Rs. 323 based on a PE of 12x consolidated FY12E EPS of Rs. 26.9 per share.

To read the full report: MCNALLY BHARAT

>JAYPEE INFRATECH LIMITED (WAY 2 WEALTH)

Jaypee Infratech Limited (JIL) is engaged in the development of the Yamuna expressway, and related real estate projects. It is a part of Jaypee group, incorporated on April, 2007 as a special purpose company for the development, operation and maintaince of the Yamuna Expressway in the state of Uttar Pradesh, connection Noida and Agra.

Objects of the Issue: Out of the issue proceeds, around Rs 1500 crores are to be used to partially finance the Yamuna expressway, and the remaining general corporate purposes.

Investment Highlights
■ JIL enjoys strong parentage of Jaypee Group which is a leading integrated infrastructure conglomerate in India.

■ The Yamuna expressway is a 165-kms access controlled six lane concrete pavement expressway along the Yamuna River, with the potential to be converted into an eight lane expressway. The travel time on this access controlled expressway is likely to take roughly 120-
130 minutes for 165 kms of distance.

■ The company holds the concession for developing, operating and maintaining the Yamuna Expressway from Noida to Agra for a period of 36 years.

■ They plan to use cement concrete for the pavements to cut their maintenance costs in future.

■ The company has a right to develop five parcels of land each of 1235 acres, totalling 6175 acres. The total area which could be developed is roughly 530 mn sq.ft. JIL has taken land parcels on lease agreements for 90 years therebby saving the upfront land costs.

■ Of the aforesaid saleable area, approx. 21.21 mn sq. ft. of residential area and 3.13 mn sq.ft. of commercial area has been launched for sale, which were approximately 88% sold on a square foot basis which amounts to Rs 4213 crores (residential) as of March 2010.

■ The entire expressway of 165 kms travels through a single state Uttar Pradesh, so no state toll needs to be paid by travellers, where as if they use the NH, they have to cross two states, hence pay toll. It would also reduce the traffic and the time taken to travel.

■ The company is eligible for income tax benefits under section 80 I(A) and the same is available for a continuous period of 10 consecutive years in a block of 15 years. The company has decided to claim this benefit beginning with Assessment year 2009-2010 (FY08-09).

■ The required construction deadline is April 2013, JIL plans to complete the construction by 2011, two years in advance due to contractors’ use of modern construction equipment which significantly reduces construction timeframes without sacrificing the quality of construction.

Key Challenges: The Company will face the tough task of selling the huge land bank of 530 mn sq.ft. at a place where there is already an oversupply.

Advise: The financials till now do not capture the future revenue potential from tolls once the expressway is complete and income from its real estate business (5 integrated townships covering 6175 acres i.e. ~530 mn sq.ft.). Thus valuing the Company based on past performance will not be prudent. The Noida-Agra project is the first of its kind where there will be such a
large real estate development included in the same. Investors with a long-term horizon can consider Subscribing to this issue to benefit from the huge opportunity that the project is likely to present.

To read the full report: JIL

>PRADEEP OVERSEAS LIMITED: IPO ANALYSIS (WAY 2 WEALTH)

Promoted by Pradipkumar Karia, Chetan Karia and Vishal Karia, Pradip Overseas is one of the few niche textile companies in India focused on home linen products in wider and narrow width. Currently, the company has
facilities at Changodar near Ahmedabad in Gujarat.

Objects of the Issue: The company intends to utilise the issue proceeds to part finance the setting up the proposed Manufacturing facility within the Proposed Textile SEZ, to part finance the incremental margin money requirement for working capital.

Key Points
■ The company has a unique business model where it begins its manufacturing process from post weaving stage. It sources grey fabric and then processes the same before the finished fabric is ready for stiching. The ready fabric is stitched and then converted into bed sheets and pillow covers and other material as required.

■ The company has drawn up plans to expand its current capacity from 136.5 million meters to 169.50 million meters p.a by setting up manufacturing facility in a proposed textile SEZ in Ahemadabad, Gujarat. Expanded capacity is to be commissioned by January 2011.

■ The company caters to both domestic and export markets. The order book as on February 15, 2010 was Rs 333.78 crores, comprising export orders worth Rs 101.51 crores and domestic orders worth Rs 232.27 crores. Exports constitute around 45-50% of the net sales in the past three years.

■ Majority of the company exports are indirect exports and primarily shipped to American and European markets.

■ The company has also makes small quantity of garments, dress materials and bottom wear fabrics, primarily for international markets and has drawn up plans to scale it up. Apart from these value added products, it is also looking at industrial textiles as potential opportunity. The company is also focusing on value added products such as quilts and organic cotton home Lenin products.

■ In a move to strengthen the business presence, the company has also received permission from International Development LLC, Tampa, FL, USA (IDL) for using and marketing the brand, Lucy B Linens, for home linen products in India and other pertinent countries. The company distributes its home linen products through C A Patel Textiles, which has a retail network of more than 2,000 retailers across the country.

■ Its capacity utilization is continuously improving, from 86.32% in FY07 to 97.92% in FY09.

Investment Concerns
■ The Company does not have presence in direct retail.

■ It operates in a highly competitive market and faces stiff competition from other organized players in this segment and also from the unorganized sector.

■ The home textile sector is export oriented and so is more vulnerable to global economic and liquidity factors.

■ Volatility in forex market

Valuations & Advise: The company is in the highest value addition segment of textile value chain which is fabric processing and has an asset-light model. It is predominantly single product company i.e home linen. It cannot be fully compared with Alok Industries or Welspun Indian as they are integrated players and have diversified products. The full benefit of expansion will be felt in FY12 wherein the profits are expected to double from current levels. At the price band of Rs 100-110, the PE works out to 5.9-6.5x. Alok Industries and Welspun India are trading at P/E of 6.4x and 5.5x. The asking price is in line with its peers. SUBSCRIBE.

To read the full report: PRADEEP OVERSEAS

>NAVIN FLUORINE (WAY 2 WEALTH)

WHY NAVIN FLUORINE ???

INVESTMENT IDEA

• Largest integrated fluorochemicals complex in India with hydrofluoric acid capacity of more than 20,000 tpa – provides ability to speedily address new requirements of customers.

• Co has got a healthy mix of domestic and export sales. While refrigerant business is domestically doing well, export business margins are fluctuating. The products are sold under the brand name “Mafron”

• Bulk chemical business is subject to some competitive pressure. However, specialty fluoride is growing at high pace (3 yr CAGR: 18%) and the co is a leading global player in BF3.

• Key clients – Top five global crop protection companies like BASF and Bayer Cropscience; domestic clients includes Ranbaxy, Matrix, Aurobindo, Hetero, Orchid, Lupin

• Phasing out CFC as per Montreal Protocol, will be more than compensated by HCFC business, which finds its application into air-conditioners and refrigerators. HCFC business window is open till 2040.

• Consulted Mckinsey & Co to identify areas of cost reductions and profit improvement.

• Income from sales of Certified Emission Reductions (CERs) will further improve the financial profile of the company. (Refer to next slide)

• Healthy B/S and will become debt free in the current year; strong return ratios as well.

• High dividend yield of 5%

• Substantial recovery of dues from the group company, Mafatlal Industries, is expected as per the Chariman’s speech at the AGM

• Valuable property at Mafatlal Centre, Nariman Point will be free of lease by 2012.

To see full report: NAVIN FLUORINE

>Countdown to Railway Budget 2009-10 (WAY 2 WEALTH)

Countdown to Railway Budget : Stocks to Watch & Acquire

Beneficiaries of Railway Budget

There are handful of stocks to watch out for, which derive a large part of their business from the railways. These companies are gearing up to grab opportunities thrown up by the Indian Railways’ Plan entailing an outlay of Rs 2,30,000 crore during the 11th Five-Year Plan. These stocks are likely to be beneficiaries of the Railway Budget.

• BEML : To meet the growing demand of wagons and new-gen suburban rail (EMU) coaches, the railways have already farmed out orders to various coach manufacturers, prominent among them is BEML. Thus the company will likely to benefit from the additional demand for wagons and rail coaches.

• Titagarh Wagons : Indian Railways has decided to step up its share of procurements from private sector players for new-gen suburban rail (EMU) coaches. As part of the move which comes under its public-private partnership initiative, the Railway Board is shortly expected to invite fresh tenders for supplying 21 rakes from a clutch of companies, among which Titagarh Wagons is one. Moreover, as per railway officials, in the immediate future, the share of private players is only likely to go up, thus benefiting the company from the additional demand for wagons and rail coaches. Titagarh Wagons, which supplied the first coaches within six months of getting the final order and design, claims to be the first private sector player to supply EMU
coaches to Indian Railways. The company has set up a new facility at its existing factory at Hind Motor to meet the Railways order.

• Stone India : Stone India is engaged in manufacturing equipment for railways like alternators, air brakes and brake regulators. The company would get business from replacement of old wagons.

• Kalindee Rail Nirman : Kalindee Rail specialises in railway tracks, signaling and telecommunications. It has order book of over Rs 450 crore, including about Rs 150 crore from the Delhi Metro Rail Corporation. The huge investment earmarked by railways for freight corridor project will benefit this company. Kalindee Rail
is expected to get orders worth Rs 500 crores from the Indian Railways in next few years.

• Texmaco : It is widely expected that in the railway budget, government will add more capital assets and revise the Liberalised Wagon Investment Scheme, which could generate more demand for wagons. This will boost the prospects of wagon manufacturers like Texmaco. The company has decided to raise upto Rs 200 crore of fresh resources from the market to finance future growth plans, including the setting up of a greenfield metro coach manufacturing facility. The company turned out to be the largest winner of rolling stock orders from the Indian Railways in 2008-09. It bagged orders for 3,455 wagons courtesy belated release of orders. The current order book of Texmaco stands at around Rs 1,300 crore.

To see full report: RAILWAY BUDGET

>NIFTY CHANGES TO FREE FLOAT (WAY 2 WEALTH)

On Friday, 26th June 2009, the NSE will adopt the free-float method to calculate its benchmark indices from the existing full-float market capitalization method. This is expected to result in significant reshuffling of portfolio by fund managers of index fund in order to align their existing portfolio to the free-float methodology.

Under the Free-float methodology, market capitalization is calculated by taking the share price and multiplying it by the number of shares readily available in the market. Instead of using all of the shares outstanding like the fullmarket capitalization method, the free-float method excludes locked-in shares such as those held by promoters and government.

The free-float method is seen as a better way of calculating market capitalization because it provides a more accurate reflection of market movements. When using a free-float methodology, the resulting market capitalization is smaller than what would result from a full-market capitalization method.

Effect on components: L&T – biggest gainer, ONGC – biggest loser

Stocks which are expected to see its weightages coming down are ONGC, NTPC, Sail, Bharti Airtel, TCS, Power Grid, Wipro, DLF, Reliance Power, Wipro, BHEL etc. due to lower free float. However, Infosys, ICICI Bank, L&T, HDFC and HDFC Bank will stand to gain from this change as their weights will almost double from their current levels due to higher free float.

Impact on sectors- Banks, Engineering to gain the most

Sectors benefiting the most are Banks (weightage to increase from 11.25% currently to 17.24% post changes), followed by Engineering (weightage to increase from 3.26% currently to 7.50%), Cement (from 1.80% to 2.60%), Auto (from 3.63% to 4.35%), IT (from 9.10% to 10.10%). Sectors worst affected are Oil & Gas (from 9.68% to 3.78%), Power (11.98% to 6.09%), Telecom (9.45% to 7.41%), Metals (7.88% to 6.31%) & Real Estate (2.70% to 1.71%).

To see full report: NIFTY

>Auto Sector Two Wheeler (WAY2WEALTH)

INDEX

■ Industry Composition
■ Sales Analysis for FY06-FY09
■ Index Performance/Stock

Performance v/s Sensex
■ Conclusion: Two-wheeler

Industry: A Cyclical Reversal?
■ Company Update
■ Hero Honda Motors (HHML)
■ Bajaj Auto (BAL)
■ TVS Motors (TVS)

To see full report: AUTO SECTOR