Showing posts with label Smart Investor. Show all posts
Showing posts with label Smart Investor. Show all posts

Sunday, January 5, 2014

BSE Mid Caps - Buy on declines

Dear  Smart Investors,

We are giving  a list of Mid Cap shares that are likely to outperform the broader markets.  The strategy here should be to buy on declines and exit on getting 15 - 20% returns with a holding period of 4-6 weels.


The sharp increase in prices make these ripe for a minor correction this week.  Wait for the dips to enter into these shares.

Smart Investor
Equity Research Division

Ravina Consulting
No.24 Pattamal Plaza
3rd Cross, Kammanahallli
BANGALORE 560084

For Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
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Tuesday, September 17, 2013

Buy Sugar Stocks for Sweet Gains !! Wait for dips, buy and Hold !!

The government recently announced its decision to partially decontrol the sugar sector. This announcement brought cheer to the sugar industry. In fact, the Sugar Index outperformed the CNX Nifty 50 index by more than 10% in the first week of April, the week the news became public.

The Sugar Index, comprising frontline sugar stocks, gained close to 9% during 11 trading sessions ending 12th Apr '13. During this time period, the broader market remained in the red. The CNX Nifty 50 Index fell by approximately 2% in the corresponding time period. In view of the structural change in the industry, investors from this sector need to keep a close eye on the upcoming developments and could consider going long in selective sugar company stocks.

After years of reluctant hope and months of speculation, the Indian government's Cabinet Committee on Economic Affairs finally approved the partial decontrol of the sugar industry. The proposal seeks to abolish the levy-sugar mechanism, under which private millers have to sell a specified quantity of the sweetener to the government at concessional rates.

As per the new policy, the quarterly release mechanism of sugar has been dropped, which allows sugar mills to sell sugar into the domestic market or to export at will. The move is expected to free up cash flows for mills and allow them to better meet their cane payments to farmers, thus removing one of the major barriers to good farmer-miller relationships, which may in the end lead to less of a swing in cane plantings and more steady sugar production.

Obviously, the dropping of the levy obligation will boost profit margins of sugar companies significantly. Industry pundits estimate total savings to be in the range of `3,000 crore. The Indian Sugar Mills Association says that the two decisions combined could lead to an additional growth of 20% to 25% for the industry. Sugar production in the country is estimated to touch 24.6 million tonnes in 2012-13 marketing season ending 30th September with the cumulative turnover of `80,000 crore.

Currently, major players in the sugar industry are all domestic firms such as Bajaj Hindhusthan , Shree Renuka Sugars  , Dhampur Sugar  , Balrampur Chini  , EID Parry  and Mawana Sugars  , among others. After the decontrol policy of the government, the sector is likely to see more merger and acquisition activities.

Overseas players like Olam International, Cargill and Noble Group are looking at occupying a bigger pie of the Indian sugar industry. Foreign firms have been calling top industry people as they are lured by the size of the `80,000 crore market, which is expected to double up in five years. Trade sources say potential investors are eyeing opportunities in detail and have a preference for business in top producer Maharashtra although they are suspicious of politically meddlesome UP. As a result of all these positive developments, sugar stocks have surged upwards, beating negative trends of the overall market in the month of April.

Bajaj Hindusthan, Shree Renuka Sugars and Balrampur Chini Mills shares surged by 7.30%, 7.07% and 4.02%, respectively on the day the news was made public. Part of the overall impact had already been factored in before the news. Some momentum gained in stock prices after the news. Though the positive news will boost investor sentiments in the sugar industry, there are some concerns that need to be looked at carefully.

The relaxation in levy regulation is applicable only for two years and it is not clear what will happen from the third year onwards. Secondly, the control of sugarcane pricing still rests in the hands of select states. Depending on the political as well as investment-friendly situation of the individual states, companies' benefits would vary. Hence, investors need to carefully look at the plant location of individual sugar companies and its existing relationship with the government, among others. This means that the full benefit of a free market is yet to be realized for sugar investors.

For risk takers our recommendation - Buy Bajaj Hindustan below Rs.10 Shree Renuka below Rs.15 holding period 12-18 months

For long term our recommendation - Buy Dhampur Sugars below Rs.30 and Balrampur Chini below 36 holding period 18 - 24 months

Smart Investor
Equity Research Division

Ravina Consulting
No.24 Pattamal Plaza
3rd Cross, Kammanahallli
BANGALORE 560084

For Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

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Wednesday, May 8, 2013

Buy PVR Limited


We recommend a buy in the mass media scrip PVR from a short-term horizon. It is apparent from the charts of the stock that since its March 2011 low of Rs 94, it has been on a long-term uptrend. Following a corrective decline from early December 2012 peak of Rs 341, the stock found support at Rs 250 in late January and early February this year. The stock resumed its long-term uptrend taking twin support at Rs 250. Both medium- and short-term trends are up for the stock.
Reinforcing the uptrend, the stock advanced 2 per cent accompanied by above average volumes recently. It is trading well above its 21- and 50-day moving averages. The daily as well as weekly relative strength indices are featuring in the bullish zone. Moreover, both daily and weekly price rate of change indicators are hovering in the positive terrain implying buying interest.
Our short-term outlook on the stock is bullish. We expect its uptrend to continue and reach our price target of Rs 400 or Rs 421 in next 2 months. Traders with a short-term horizon can consider buying the stock with stop-loss at Rs 335 level.
Smart Investor
Equity Research Division

Ravina Consulting
No.24 Pattamal Plaza
3rd Cross, Kammanahallli
BANGALORE 560084

For Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
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Monday, March 25, 2013

Smart Investor - Weekly Analysis 25 March 2013


Traders will have field day with wild swings expected on both sides.  Only brave hearts and those who can afford to lose money quickly should venture.

For investors this is a time to take a break from the market and keenly await the Advance Tax numbers for pointers.  Stay away from market and track the market on sidelines.

Avoid PSU basket as more carnage is expected in Coal India, Engineers India, Hindustan Copper.

Smart Investor
Equity Research Division

Ravina Consulting
No.24 Pattamal Plaza
3rd Cross, Kammanahallli
BANGALORE 560084

For Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
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Sunday, March 17, 2013

Tata Global Beverages - Buy on Declines !


We recommend a Buy in the stock of Tata Global Beverages from a long-term horizon. It is apparent from the charts of the stock that after marking a new high at Rs 181 in mid-November 2012, the stock reversed direction. This reversal was triggered by negative divergence in weekly relative strength index and daily moving average convergence divergence indicator. Since then, the stock has been in a short-term downtrend.

Last week, the stock breached its 21- and 50-day moving averages decisively and has been hovering well below them. The stock fell by 3 per cent reinforcing bearish momentum in the previous week. On Wednesday, the stock appears to have breached its key support at around Rs 130 by declining more than one per cent. The daily RSI has entered the bearish zone from the neutral region and weekly RSI is declining in the neutral region. The daily MACD is sloping down, in line with the stock price and featuring in the negative territory implying downward momentum.

Our short-term outlook for the stock is bearish. We expect its decline to prolong and reach our price target of Rs 115 or Rs 124 in next 2 weeks .   After hitting a 52 week high of Rs.181 the stock has been declining which is now near to the 6 months low of 127.

Smart Investors  with long-term perspective can consider buying  the stock with stop-loss at Rs 100 levels.

Smart Investor
Equity Research Division

Ravina Consulting
No.24 Pattamal Plaza
3rd Cross, Kammanahallli
BANGALORE 560084

For Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor
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Saturday, December 8, 2012

PC Jewellers - IPO - Apply


Compared to the public issues of Tribhovandas Bhimji Zaveri (TBZ) and Tara Jewels, PC Jeweller’s initial public offering (IPO) is priced lower, at a PE of 9.7-10.5 times FY12 earnings (considering post-issue capital). But that is for a reason.


Though the promoters have more than two decades of experience in the jewellery business, the company is relatively new (compared to its nearest competitors, particularly TBZ) in the jewellery retailing business. Second, its operations are concentrated in the northern region, with Delhi NCR forming 57 per cent of domestic revenue in the first half of FY13. On the flip side, it has reported strong growth in the past, coupled with healthy margins. Growth rates should remain healthy and geographical concentration risk will ease, thanks to expansion. In this backdrop, investors can subscribe to the offer.


The company is engaged in manufacture, retail and export of jewellery, with five manufacturing facilities spread over 83,000 sq ft. Exports (on a wholesale basis to international distributors) formed 33 per cent of revenues in the year’s first half, but its share is expected to go down with a focus on domestic business.

By FY14-end, the company aims to have 50 owned-stores across India, from 30 stores in 23 cities and eight states currently, with addition of 20 stores (half in the western and southern; rest in north and east), which is to be funded through the IPO proceeds. Retail area would also jump 81 per cent from the current 164,000 sq ft. While the expansion should mitigate the geographical concentration risk, establishing a strong brand name (as in northern India) in the new regions might not be easy.

The company’s ‘Jewels for Less’ scheme (50,000 members) started just two years earlier, has seen good response and its policy of ‘full refund’ for jewellery returned within seven days of purchase are positives and should help on this front.

The company has reported rapid and profitable growth in a short span of time, which instils confidence. Says CRISIL in its IPO grading note, “The pace of expansion has been faster compared to other players with addition of 25,000 sq ft every year. The stores have been profitable from the first year of operations."

Apart from expansion, sales growth (CAGR of 70 per cent in FY09-12, highest among its competitors) is also aided due to a focus on wedding jewellery (80 per cent domestic revenues), the largest segment and relatively less affected by slowdown since it is an essential (planned) purchase.

The company’s strategy is to open large formats (average size per store of 5,500 sq ft). Of the 30 stores, 27 have an area of over 3,000 square feet each, which includes 11 showrooms of more than 5,000 sq ft each (four above 10,000 sq ft).

Says Balram Garg, managing director of the company, “The large format reinforces our positioning as trusted jewellery retailer, enabling us to attract a diverse customer base, offers a wide range of jewellery, ensures effective inventory management and provides benefits of scale."

Put together, these moves along with the increasing contribution of diamond jewellery (32 per cent of revenues in the first half from 18 per cent four years ago) have led to higher operating profit margin (OPM) than its peers. And there is further scope for margin improvement. Says Garg, “We are more focused on bottomline growth as it will help expand our network faster." Declining share of exports in total mix will also help. Buying gold on lease basis (against purchase) since inception has ensured less pressure on the balance sheet. All these have helped net profit grow at a faster pace.


Smart Investor 
Equity Research Division

Ravina Consulting
No.24 Pattamal Plaza
3rd Cross, Kammanahallli
BANGALORE 560084

For Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor
http://www.google.com/profiles/intellinvestor

Thursday, November 15, 2012

IVRCL - Buy


We recommend a buy in the stock of IVRCL from a shortterm perspective. The stock has strong support at Rs 37 and it bounced off this level in June this year.
The stock once again took support at this level towards the end of August and after hovering here for two weeks, it reversed higher on Friday. The stock is up 15 per cent in the last two sessions signallingthe onset of a short-term uptrend.
It has moved above its 21- as well as 50-day moving averages. Momentum indicators such as daily relative strength index have moved into the bullish region implying that the up-move can continue in the shortterm.
The stock can move up to Rs 46.7 and then Rs 48.2 in the near-term. Short-term investors can buy the stock with stop at Rs 35
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Smart Investor
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Ravina Consulting
Pattamal Plaza
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BANGALORE 560084
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Monday, November 5, 2012

Buy - Sun Pharma Advanced


We recommend a buy in the stock of Sun Pharma Advanced Research Company from a long-term horizon. It is seen from the charts of the stock that it has a significant long-term support in the base band between Rs 75 and 87. In the past, the stock has consistently reversed upwards whenever it had tested the aforesaid support band. 
Similarly, the stock took support from this support level in mid-June this year and bounced up. Since then, the stock has been on a modest medium-term uptrend. The stock surged 10 per cent with good volume, emphatically breaching its moving average compressions (21-, 50- and 200-day moving averages) at Rs 79 and its immediate resistance around Rs 95 on Tuesday.
We observe that there is an increase in daily volume in the past two trading sessions. The daily relative strength index is featuring in the bullish zone and weekly RSI is on the brink of entering this zone from the neutral region. The daily moving average convergence divergence indicator has signalled buy and is about to enter positive terrain.
We are bullish on the stock from a short-term perspective. We expect its rally to prolong and reach our price target of Rs 110 in the months ahead. Traders with near-term perspective can buy the stock with stop-loss at Rs 90 levels.
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Smart Investor
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Ravina Consulting
Pattamal Plaza
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BANGALORE 560084
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Sell Bharath Forge




We recommend a sell in the stock of Bharat Forge from a short-term perspective. It is apparent from the charts of the stock that following a medium-term downtrend from its May 2012 peak of Rs 347, the stock took support at around Rs 275 last month. This support level also coincides with the 61.8 per cent fibonacci retracement level of the stock's prior up move. After testing the support at Rs 275, the stock bounced up. 

The stock's reversal is backed by a positive divergence in daily relative strength index and daily price rate of change indicator. Moreover, the stock breached its immediate resistance as well as 21-day moving average at around Rs 290 by gaining almost 3 per cent on Saturday. Both daily and weekly relative strength indices are moving higher in the neutral region towards the bullish zone. The daily price rate of change indicator has entered the negative territory implying buying interest. The daily moving average convergence divergence indicator has signalled a sell. 

We are bearish on the stock from a short-term perspective. We expect the stock’s down move to continue and reach our price target of Rs 250 or Rs 225 in the November month. Traders can consider buying the stock around 250 while maintaining stop-loss at Rs 230 levels.

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Smart Investor
Equity Research Division 
Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084
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Monday, October 1, 2012

October 2012 - Bull run likely to continue


Ever since the government shunned its lethargy to announce some bold policy measures a fortnight ago, the equity markets have made significant headways with the Sensex rising nearly 1,000 points. 

However, market players believe that policy movements stalled over the past few years have given a new dimension to overall sentiments, and hope that the mood will remain upbeat in the near-to-medium term as fundamentals improve. The decision to allow higher foreign direct investment in aviation and retail sectors, besides increasing diesel prices and partially lifting subsidy on LPG, has triggered optimism among investors, especially FIIs. 

G Chokkalingam, ED & CIO, Centrum Wealth Management, said, “I believe the rally will sustain because there is a fundamental conviction which is driving markets. The opening up of foreign investments has set the tone. In valuation terms, Sensex PE (price-earnings) is trading at just 18 times compared with 28 times the index had commanded at the peak of 2007. The government is likely to keep up the pace of reforms, with banking amendments and insurance bill coming up next. India is a unique market and FDI in aviation and retail would provide a big boost to sentiments. We expect the rupee to appreciate up to 52 against the dollar by December and to 45 in the next one year. This will boost foreign fund inflows in a big way.” 

“The Trinamool Congress leaving the government has been a blessing in disguise for the markets. Now the government can push ahead with its reform initiatives. With either the BSP or the SP providing support to the UPA government, it should be possible for the centre to proceed with reforms,” Chok­kalingam said. 

Foreign investors have pumped in over Rs 18,000 crore into local equities in September, helping Sensex to rise nearly 8 per cent. So far, the Sensex has surged 21 per cent this calendar, boosted by foreign fund inflows of Rs 81,700 crore, or nearly $16 billion. Going by the statistics, Sensex has given positive returns in October in five of the past 10 years (see chart). Last year, the bellwether index rose nearly eight per cent in October, holding out hope that the trend would continue this October as well.

Kishor Ostwal, CMD of CNI Research, said, “The markets will rally despite the government’s not-so-impressive performance on the reforms front. They have not addressed the fiscal slippage issue. The market was oversold and hence we saw a big rally. We expect small profit-booking before Nifty rebounds thereafter. We expect Nifty to reach 5,800 in October.” 

Following the announcement of the reform measures, several foreign brokerages upgraded the Sensex target for the year. Buoyed by the back-to-back announcements on fuel price hike and relaxing FDI norms for retail, aviation, power exchanges and broadcasting services, Citibank increased its Sensex target to 19,900 from 18,400 earlier, while Deutsche Bank forecast that the index would reach the 20,000 level by calendar end instead of its targeted 18,000 level at the start of the year. 

Morgan Stanley has raised its Sensex target for December 2013 to 23,069. BNP Paribas has indicated the revival in domestic animal spirits coupled with likely increase in global liquidity on the back of quantitative easing by the US Fed Reserve has priced out the risks faced by India over the next six-twelve months, thereby justifying the jump in equities and currency.  Citi report said the recent reforms announcement would perk up market sentiments while a mix of fairly real policy changes and global liquidity (QE3) should push Sensex higher by two to three per cent in the immediate term.

“We expect the index to continue with its tendency of 50 per cent retracement of each up-leg. The support region of 18,250-18,000 is likely to act as a launch pad for further upward rally. The next up-leg is expected to take the index towards 19,500-19,800 being the 78.6 per cent retracement of the entire decline from November 2010 high of 21,108 to December 2011 low of 15,135,” ICICIdirect said in its report. 

Market men also reckon the recent steps taken by the government to restructure the financials of state electricity boards should augur well for the power sector in the medium-to-long term.  Further, with State Bank of India taking the lead and slashing interest rates, there was hope that the high interest rate regime could be bottoming out. “One can expect other banks to follow soon in paring down lending rates,” Chokkalingam said. Lower interest rates would kickstart the investment climate and provide a leg-up to earnings over the next four-five quarters. 

The equities market will also take cues from September quarter earnings set to be announced from this month. There will not be any major disappointments in earnings and one may expect 10-11 per cent sequential growth in the July-September quarterly earnings, Chokkalingam said. Crisil Research in its report has indicated a 20-40 basis points expansion in Ebitda margins year-on-year in the forthcoming July-September earnings. 

Its study has highlighted that Ebitda margins are bottoming out after falling for the past nine quarters, as softening commodity prices and higher realisations for export-centric companies amid falling rupee would aid margins. Companies representing cement, power, steel, tyres and textiles were expected to benefit from a sharp decline in commodities such as coal, rubber and cotton, while the rupee depreciation would continue to boost margins of IT services and pharmaceuticals sectors, the Crisil report said


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Smart Investor
Equity Research Division 
Ravina Consulting
Pattamal Plaza
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iBANGALORE 560084

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Wednesday, August 15, 2012

Pratibha Industries- BUY


Dear Smart Investors,



Pratibha Industries declared strong set of numbers for the quarter ended June '12, which were in line with SPA Securities' estimates. While PIL reported a topline growth of 55.4% to Rs5598 mn driven by strong execution of order book, sharp surge in interest and depreciation expenses restricted the net profit growth by 22.2% to Rs228 mn. Operating margins improved by 107 bps aided by its high margin water projects. Order inflow remained strong as PIL booked orders worth Rs15 bn leading to total order book Rs66 bn (3.5x TTM revenues), thereby ensuring healthy revenue visibility for the next couple of years. SPA retains their BUY recommendation on the stock with a target of Rs68.

Superior execution driving revenues
PIL reported strong revenue growth of 55.4% to Rs5598 mn in Q1FY13 on the back of 66.3% growth in the construction segment. The growth was led by strong execution of ongoing projects and ramp up of revenue recognition from Delhi Metro and Delhi Jal Board project. The manufacturing division continued to disappoint with 57.3% decline in revenues. 50% of the revenue was from water segment, 35% from Urban Infrastructure segment and balance from building segment.

Healthy margins
EBIDTA in Q1FY13 grew at faster pace by 67.7% to Rs821 mn largely on the back of 107 bps improvement in operating margins to 14.3% owing to execution of high margin water projects. Commencement of revenue recognition from some of the large projects bagged in the last financial year also aided in margin improvement.

Higher interest & depreciation expense dents profitability
Net profit grew at slower pace of 22.2% to Rs228 mn and PAT margins plunged by 111 bps to 4.1% in Q1FY13. This was led by sharp surge of 2.2x in interest expense to Rs432 mn due to increased borrowings & 50.1% increase in depreciation expenses to Rs65 mn.

Healthy order book provides sound revenue visibility
PIL has a robust and well diversified order backlog of ~Rs66 bn (3.5x its TTM revenues) as on June '12 with an average execution period of 30 months, which offers strong revenue visibility for PIL over the next couple of years. 40% of orders are from water space, 25% from urban infra and 35% are from building. Order inflow remained strong at Rs15 bn in the last quarter (from tunnelling and building segment) PIL has placed bid for several projects and is L1 in projects worth Rs22 bn.

Going forward SPA expects PIL to maintain an order inflow run rate of ~Rs40 bn in each of the next two years, which would lead to 23% CAGR in order backlog over FY12-14E.

Merger of Pratibha Pipes & Structures - On track
The merger process is on track and PIL had convened shareholders meeting on 5th June to approve the scheme. Now the scheme is under active consideration of Bombay High Court and the whole process is expected to take another 2-3 months for completion.

Outlook & Valuations
SPA remains positive on the infrastructure sector and PIL with proven track record & efficient project delivery mechanisms is expected to be one of the prime beneficiaries of emerging opportunities in the sector. With the expected economic recovery, SPA expects sharp rerating of the stock with market pricing in its focussed approach, strong order backlog and sustainable high margins.

At the CMP of Rs48, the stock trades at a P/E and EV/EBIDTA of 3.9x and 4.5x its FY14E earnings respectively



52 week Price Movements NSE

http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1345041939004&chddm=1128&chls=IntervalBasedLine&q=NSE:PRATIBHA&ntsp=0

Our Recommendation :
Buy on declines around Rs.45 for a target of Rs.68 holding period of 3-4 months.


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Smart Investor
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Ravina Consulting
Pattamal Plaza
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BANGALORE 560084

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Talk / SMS 08105737966

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Thursday, August 9, 2012

Sugar Stocks - Buy on declines

Investors,

The sugar stocks have run up quite smartly during the last 1 month and they are now looking overbought.

Buy on declines of around 10% in the upcoming weeks.  We give below the buy and sell ranges for the top 5 picks in the sector

Balrampur Chini Buy - Buy around Rs.55 levels target price of Rs.75
Bajaj Hindustan Buy - Buy around Rs.30 levels target price of Rs.50
Triveni Engineering - Buy around Rs.18 levels target price of Rs.35
Shree Renuka Sugars - Buy around Rs.30 levelstarget price of Rs.50
KCP Sugars - Buy around 15 levels target price of Rs.25

Holding Period - 6 months

Related post -

 Ambareesh Baliga, COO, Way2Wealth 
 told CNBC-TV18, “Sugar space, I am cautious at these levels because unlike last time when we had the sugar prices moving up, I think the inventory levels this time are much lower and last time I suppose most of the profits was from the inventory which was there and not really from operations.”


He further added, “So this time also I expect that the margins still would be under pressure going ahead with cane prices moving up because of monsoons which we have. So I think the upside is quite limited. Possibly a stock like Shree Renuka  could move to levels of about Rs 36-37 but going beyond that would everybody quiet difficult.”

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Smart Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

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Talk / SMS 08105737966

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Monday, July 16, 2012

Bata India - Buy on declines



"Bata India Ltd. (BIL) focused on premium products and sacrificed volume, which grew by a mere 1.1% in CY11. It has started focusing again on volume and as a result, volume grew 14% in 1QCY12. As per the management, volume growth is expected to remain in double-digits in CY12. Strong volume growth along with higher realisation (due to better product mix) should result in revenue growing 20.0-25.0% as against our estimate of 19.7% in CY12E. Revenue has already grown by a robust 30.6% in 1QCY12. The management is confident of doubling its revenue in the next four-five years."

"BIL opened ~67 new outlets (including Hush Puppies stores) in 1QCY12. It set up ~25 more stores in 2QCY12 and new store addition has already touched ~92 in 1HCY12, which is expected to be ~150-170 by the end of CY12. Of the total 146 outlets opened in CY11, around 53% were opened in 2HCY11, which resulted in high inventory and lower revenue from these outlets in CY11. Currently, BIL is front-loading the setting up of new outlets and out of the total target of ~150-170 outlets planned in CY12, it has already opened ~92 outlets in 1HCY12. BIL has started bar-coding its products and currently 60-70% of its products are bar-coded. As a result, BIL would be able to report healthy revenue growth and also control its inventory in CY12. BIL plans to incur a capex of Rs1,000mn - ~Rs700mn in retail and ~Rs300mn in upgrading its manufacturing facility - in CY12E."

"Footin, owned by BSO (Bata Shoe Organization), is very popular in Thailand, Bangladesh etc, catering to college-going youth in the range of 15-25 years. BIL launched Footin in India in 1QCY12, with its USP being contemporary designs at an affordable price of Rs500-700/pair. In order to de-link Bata’s brand image, BIL is setting up exclusive Footin outlets of 1,000-1,500 sq ft. It has already opened nine Footin outlets till now in Delhi and Mumbai, where the response has been excellent. Currently, the exercise is more of a trial and if the response stays buoyant, BIL plans to aggressively open Footin outlets in the next two-three years. BIL is also very bullish on kids and women segments and is looking at launching new brands, either BSO-owned or strong in-licensed brands, in India."

Valuation

"We expect BIL, which trades at CY13E P/E of 22.3x and EV/EBITDA of 13.5x, to witness a further re-rating. On the back of strong revenue/net profit CAGR of 18.8%/31.2%, respectively, likely over CY11-13E, BIL would continue to trade at premium multiples. The stock is attractively priced, with a PEG ratio of 0.87x CY12E," says Nirmal Bang research report.

Recommendation  

Bata was quoting around 530 levels on Jan 2, 2012 and has so far given investors a decent 60% appreciation.  There is more steam left in the stock as we believe it is likely to cross Rs.1000/- levels.

Smart Investor
Equity Research Division

Ravina Consulting
No.24 Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

For Free Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Monday, March 5, 2012

Sesa Sterlite Merger - Buy Sterlite

Vedanta Resources PLC on 25 February 2012 announced the merger of all its key investments in India into a single company called 'Sesa Sterlite'. The new holding company will own controlling stakes in all of Vedanta's companies in India and would be a metals, mining and natural resources giant. The merged entity would be India’s natural resources company and is expected to be seventh largest global diversified natural resources major on EBITDA basis. By this exercise, the group structure has also been simplified and cross holdings have been eliminated, which is expected to benefit the group through superior capital structure, increased flexibility to allocate capital, broader access to capital markets and enhanced visibility of earnings and cash-flow. In addition to this, increased diversification is expected to reduce volatility of earnings through commodity cycles, lowering the cost of capital and enhancing value. As per the management, the transaction is expected to be completed in CY12 and the synergies are expected to generate cost savings of Rs10bn per annum.

Restructuring done to lighten up Vedanta Plc balance sheet
Indiainfoline believes that restructuring has been done largely to lighten the parent company’s balance sheet, bring in synergies between VAL and Sterlite Energy (SEL), use the accumulated losses at VAL and reduce the financing costs for the company. Vendanta Resources Plc, the parent company had taken loan to the tune of US$2.8bn to acquire stake in Cairn India, which was to be repaid over the next two years. In addition to this, the parent company had to infuse equity in its loss making subsidiary VAL to fund its capex. Sterlite, 29.5% stake holder, had invested more capital in VAL than its equity contribution over the last two years.

Sterlite to witness buying
The merger ratio would boost Sterlite’s stock in the near term as it is done at a premium to Friday’s closing of Rs119. On the other hand, we expect it to be negative for Sesa Goa as the debt of VAL would be shared on its books. Indiainfoline believes the deal is largely done in a fair way except the valuation of VAL. The merged company would be a must own entity as it would provide a large diversified portfolio under one roof. Indiainfoline values the merged entity ‘Sesa Sterlite’ on sum-of-the-parts method. They have used EV/EBIDTA method to value the metal assets, price/book for the power and a holding company discount to Cairn India. They derive a target price of Rs217 per share for Sesa Sterlite (and Sesa Goa) which on an implied basis (swap ratio of 0.6x as per deal) indicates a target price of Rs130 for Sterlite. Indiainfoline maintains their ‘Market Performer’ rating on Sesa Goa and our ‘BUY’ rating on Sterlite.

Restructuring exercise
The restructuring exercise includes merger of four companies viz Sterlite Industries, Sesa Goa, Vedanta Alumina and MALCO and transfer of Vedanta’s stake in Cairn India to the merged entity with an associated debt. The steps for the proposed transaction are:

1) Sterlite will merge into Sesa Goa to create Sesa Sterlite, through the issue of Sesa Goa shares to shareholders of Sterlite. Sterlite shareholders as of the record date are expected to receive 3 Sesa Goa shares for every 5 existing Sterlite shares. Sesa Goa also intends to establish an ADS facility comparable to Sterlite’s current ADS. This would allow holders of Sterlite’s ADS as of the record date to receive Sesa Goa ADS with appropriate adjustments to reflect the foregoing exchange ratio. Each Sterlite ADS currently represents four equity shares of Sterlite.

2) Consolidation of VAL, via the merger of Ekaterina Limited (a Mauritius holding company for Vedanta’s 70.5% shareholding in VAL) into Sesa Sterlite and the issue of 72.3mn Sesa Goa shares to Vedanta after obtaining all necessary approvals. Based on Sesa Goa’s closing price on 24 Feb 2012 of Rs227/share, the equity value of VAL equates to Rs23.32bn (US$473mn).

3) MALCO to merge into Sesa Sterlite, through the issue of 78.7mn Sesa Goa shares to shareholders of MALCO as of the record date. Based on Sesa Goa’s closing price on 24 Feb 2012 of Rs227/share the value of MALCO equates to Rs17.9bn (US$363mn) including the value of MALCO’s existing 3.6% shareholding in Sterlite. As part of the merger MALCO’s existing shareholding in Sterlite will be cancelled by Sesa Sterlite.

4) Post the merger of Sesa Goa and Sterlite, Sterlite Energy Limited and VAL’s Aluminium business will be merged into the consolidated Sesa Sterlite. As wholly-owned subsidiaries no shares will be issued in consideration of the mergers. 

5) Vedanta will transfer its 38.8% direct shareholding in Cairn India to a wholly-owned subsidiary of Sesa Goa at a nominal consideration of US$1, together with the associated acquisition debt of $5.9bn (coupon of 5.2%). The debt will continue to be guaranteed by Vedanta. This transfer is not inter-conditional on the merger of Sesa, Sterlite, MALCO and VAL.

Positives of the deal:
- Consolidated balance sheet to be stronger and would reduce the cost of funds for the companies.
- Increased diversification is expected to reduce volatility of earnings through commodity cycles, lowering the cost of capital and would enhance value.
- Accumulated loss of Rs15bn at VAL would reduce the tax out flow for the group.
- Overhang of merger of VAL with Sterlite is over.
- With the merger of SEL and VAL aluminium, the capex for VAL’s power plants would reduce.
- Shareholders of Cairn India and HZL would receive higher dividend over the next two years as the merged entity has high debt repayment.
- Positive for Sterlite shareholders in the near term as the deal is done at a premium to Friday’s closing price of Rs124.


Our Recommendation :


If you are presently holding Sesa Goa shares look to sell around 225 levels.  Long term investors should buy Sterlite Industries on all dips and hold for 2-3 years for a 100% return



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