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Showing posts with label Investment Ideas. Show all posts
Showing posts with label Investment Ideas. Show all posts

Thursday, June 14, 2012

Investment Idea - Amara Raja Batteries

Dear Readers,

Everyone wishes to own a 2-wheeler or a 4-wheeler and every 2/4 wheeler needs a battery. Further, every battery has on an average a life span of 3-4 years and thus one needs to change battery in his/her automobile every 3-4 years. Similarly, it goes for UPS and their batteries. Thus, manufacturing batteries seems like a good and recurring business, so why not look at one of the major companies that deals in Automotive and industrial batteries.

Amara Raja Batteries (NSE Code – AMARAJABAT), in case the name sets you thinking about this new brand in the segment of batteries apart from the well known Exide and Amaron, it would be interesting to mention here that Amara Raja is the company behind the well known AMARON and Powerzone brand in the segment of automotive and industrial batteries respectively.

Yes, Amara Raja Batteries (ARBL) is the second largest battery maker in India, after Exide, and is already challenging Exide’s un-disputed leadership in the automobiles battery segment, while commands a leadership position in the Industrial battery segment.

Basic Details:

ARBL was set-up in 1985. The company began commercial production in 1992 and got its first bulk order of 200 sets of batteries from the Department of Telecom (DoT) around 1993, followed by a commercial order in 1995. ARBL was the first company in India to launch batteries based on VRLA (Valve regulated lead acid) technology and back in early 1990s DoT was their biggest client.

Realizing the need to diversify and not be dependent on the Government alone for the business, in Dec’97 the company entered into a Joint Venture Agreement with US based Johnson Controls Inc (JCI), the world’s largest manufacturer of automotive batteries, to manufacture automotive batteries in India with an advanced technology. Thus, in 2000 ARBL entered the segment of Automotive batteries with the launch of AMARON batteries based on Zero maintenance technology for the first time in India, the key differentiator in an otherwise cluttered automotive battery market.

Since the company started business by focusing on the industrial segment, it commands a market leadership in Telecom and UPS battery business with 45% and 32% market share respectively.

In the Automotive battery business, Exide commands the leadership position by a wide margin, however it is important to note here that ARBL started with the automotive battery division in 2000-01, while Exide’s been in the business since 1950s. In the light of the same, we like the fact that on the back of improved technology and a differentiated distribution strategy, ARBL has been able to garner a market share of 25% in OEM and 30% in after market segment in just 12 years in the organized four-wheeler battery business.

Until 2007-08, the company was not providing batteries in the two-wheeler automotive battery segment; however, since the launch of Amaron Pro Bike Ride brand in the two-wheeler segment in May’08, the company has been able to garner a market share of 25% in the organized replacement battery market, despite the fact that they still don’t have any presence in the two-wheeler OEM segment.

It is important to note here that the replacement market has better margins and is relatively insulated from tightening interest rates that tend to affect auto and auto ancillary sales.

Operating Performance:


As can be observed from the above illustration, the company’s performance has been very good over the years and consistently delivered return on equity in excess of 20%. Company has still been able to grow at 23% on annualized basis during the last 4 years and it is important to note here that during the same period the automotive industry went through extreme lows and highs.

Besides, the company achieved the above performance on the back of debt free balance sheet and consistent yet effective capacity expansion. Even during FY 12, the company enhanced its 4-wheeler and 2-wheeler battery capacities to 5.60 million units per annum (4.2 million units p.a. at the end of FY 11) and 4.80 million units per annum (3.6 million units p.a. at the end of FY 11) respectively. For FY 13, the management has indicated enhancing the capacity of 4-wheeler batteries to 6.0 million units per annum.

Despite the above expansion, as at 31st Mar’12, the company continues to be debt free with cash and cash equivalents in excess of Rs 230 crores.

Positives:

The Indian battery industry commands a certain branding power on account of being duopoly in nature with top players’ viz. Exide and Amara Raja controlling ~90% of the organized market. As I see it, amongst all the components in the automobile, battery probably commands the highest degree of branding power.

Further, companies like Amara Raja and Exide are able to pass on the rise in input costs, primarily lead, in the replacement market. With OEMs, they have a “lead pass through agreements”. These contracts are linked to LME prices, such that a rise in cost of production due to lead is passed on to OEMs, though with a certain degree of lag.

Strong replacement market is another positive for battery manufacturers. At the end of FY 03, there were 6.7 crore registered vehicles in India while the number of registered vehicles are expected to have crossed a mark of 14.5 crore at the end of FY 11. Since the average life span of battery ranges from 2-4 years and since the battery replacement decision cannot be deferred, companies like Amara Raja are expected to benefit immensely from the ever increasing number of registered vehicles on the Indian roads.

Even though automobile industry witnessed muted growth in FY 12, over the longer term the industry is expected to maintain the growth rate of ~13-15%. Besides, in the automotive battery business, the unorganized segment still accounts for ~45% market share, however it’s steadily declining in favor of organized segment and thus there lies a good opportunity for ARBL.

What is best about ARBL is its constant search for better technology and these days’ customers are willing to shell extra money in the name of advanced technology.

Areas of concern:
For FY 11, ARBL derived ~20% of its revenue from Telecom sector. Off-late ARBL’s been witnessing pricing pressure on telecom batteries as the telecom industry is facing a lot of headwinds and the companies are resorting to cost cutting measures such as sharing of towers, thus bringing down the expansion of telecom infrastructure. However, company has still been able to manage low double digit volume growth on account of good order flow from Airtel’s expansion in Africa and since the company enjoys the “Preferred supplier status”.

Lead accounts for ~85% of the total raw material cost of the company and the prices of lead have been very volatile in the past. Though ARBL enjoys “lead pass through agreements” with OEMs, there’s a certain degree of delay before the company is able to pass on the hike to the customers and thus in a year with a sharp increase in prices of lead, the margins of the company can come under pressure.

Lastly, Mr. Jayadev Galla, the Managing Director of ARBL evinced interest in joining politics and this is a much bigger area of concern for us.

Valuations:

The stock is currently available at a market cap of Rs 2600 crores, i.e. 12 times trailing twelve months’ earnings of Rs 215 crores. The company is debt free (78 crore outstanding interest-free sales tax deferment loan representing a financial incentive by the state of Andhra Pradesh for setting up industry in a backward area. The sales tax collected by the Company in a particular year needs to be paid to the government after 14 years) with cash holdings in excess of Rs 230 crores.

We believe that valuations are attractive given the fact that both Amaron and Power Zone are two major brands in the automotive and industrial battery segment respectively. Further, on the back of advanced technology and the differentiated distribution strategy the company has been able to convert the industry from Exide’s monopoly to ARBL and Exide’s duopoly in just 10 years, which speaks volumes of the management’s execution ability.

The growth outlook is very bright for the battery segment and ARBL has been consistently expanding its capacity and its distribution network in order to sustain the growth momentum.

Note: This is not to say that the stock cannot witness any short term corrections, however 10-15% correction to ~Rs 255-265 will make the stock extremely attractive for long term investment.

Disclaimer: This note on Amara Raja Batteries is only for the purpose of information on the stock. Please carry out your own due diligence before buying/selling the stock.
Below is the article published on Amara Raja Batteries by Saral Gyan Team on 27 May 2010 - As on date returns on investments @ 88%


Value Pick - Amara Raja Batteries (Click on the link to view previous article)


Amara Raja Batteries Limited engages in the manufacture and sale of lead acid storage batteries for industrial and automotive applications in India. Its industrial products include Powerstack used in telecommunications, power utilities, railways, defense, and other heavy industries; and Amaron Quanta, a UPS battery with a back-up for a back-up. The company’s automotive products comprise PRO Hi-life, FLO, GO, Black, Fresh, Hi-way truck, Harvest, Shield, and Optima batteries under the AMARON brand.

Amara Raja Batteries markets its products through franchisees and retailers, as well as to original equipment manufacturers. The company exports its industrial and automotive batteries to Singapore, Malaysia, Hong Kong, Thailand, Indonesia, Vietnam, Taiwan, Philippines, China, Japan, Greece, Sri Lanka, Mauritius, Australia, Kuwait, Dubai, Iran, Yemen, Omen, Bahrain, Qatar, the United Arab Emirates, Tanzania, and South Africa. Amara Raja Batteries Limited was founded in 1985 and is based in Hyderabad, India.

India’s second largest battery manufacturer has registered a 50 per cent CAGR in revenues over the five year period FY04-FY09. The company whose revenues are split equally between industrial and auto segments is expected to end the current fiscal with revenues of about Rs 1,400 crore.

For the quarter ended March 2010, the company's total income for the quarter rose 30.92% to Rs 433 crore, and net profit increased to 36.70 crore from 28.05 crore when compared with the prior year period.

Amara Raja Batteries Ltd recommended a dividend of 145% i.e. Rs 2.90 per share of Rs 2 on 19th May.

For the December quarter, its revenues were higher by 10 per cent to Rs 366 crore and it doubled its net profits to Rs 40 crore. Operating profit margins improved by 500 basis points to 19 per cent over the year ago quarter.

Going ahead, lead prices which have doubled over the past year are expected to stabilise in the $2200-$2400 per tonne range. This is a positive as the raw material accounts for four-fifths of expenditure and further increases could have a dramatic impact on the margins, unless the company passes on the costs increases to customers. To overcome the slowdown in the telecom business (60 per cent of industrial segment revenues), the company is looking at the railways and the utilities segments. In the automotive segment, sales in the latest quarter were helped by strong demand from OEMs and commercial vehicles.

The replacement market, which gets two thirds of the automotive segment revenues, is also expected to do well going ahead given the company’s strong presence here. At Rs 160, the stock is trading at at P/E of 8.16 with FY 2010-11 estimated EPS of Rs 21 and should fetch about 25-30 per cent returns over the year.

Note: The stocks discussed in Saral Gyan through posts are not a part of "Hidden Gems" or "Value Picks" issue which we recommend to our paid subscribers only. These are just stock specific views by Saral Gyan Team; one must do the due diligence before doing any investment based on our recommendation.

Thursday, July 8, 2010

Betting high on Volumes & low on Prices

Company which bet high on volumes & low on prices emerge as a clear winner!

Being the lowest-cost producer (having significant cost advantages), when coupled with large volumes helps a company grow its sales & profits, even when it prices its products competitively. With a big chunk of the Indian consumers being highly price sensitive; this advantage helps establish the company as an important player in that segment.

1) Working on high-volumes: What happens when a company offers very low & attractive prices for its products or services, so low that nobody can match? Very obviously, it attracts a large number of customers which leads to increased sales volumes. For this the company needs to gear up everything for the large volumes i.e. procurement, manufacturing, selling etc in such a manner that it gives them a cost advantage.

2) Working on a cost-leadership strategy i.e. the lowest-cost producer: This can be achieved by
  • Working on low-costs for everything; procuring raw material, low manufacturing expenses, low selling & marketing expenses etc
  • Having the power to negotiate lower costs with its suppliers. This power usually comes from long-term relations with suppliers, placing orders well in advance (by forecasting demand).
  • Inventing a cost-effective process 
One of the famous text-book example that has sustained this competitive advantage for years is Wal-Mart. Wal-Mart’s rise to massive market capitalization from its modest beginnings was largely a result of its aggressive cost controls which enabled it price lower than competing retail outlets.

An Indian company that exemplifies this advantage is Amul. Amul has been a market leader for the last 4 decades now. It adopted a low-cost strategy for selling its products like ice-cream, butter etc & has since then emerged a winner in this segment. It has a cost advantage as it gets milk directly from a large number of farmers. Amul has always been known for providing value-for-money products, with no compromise on quality.

In a particular industry, you are likely to find only such player existing; who has managed to convert its low cost of operations into attractive pricing & hence earn profits out of it. For example: It is unlikely to have another Wal-Mart in the same segment

Which companies in India have this advantage?

Consider Koutons Retail, the largest discount retailer for readymade apparels in India. Its strong retail network and a value retailing format combined with a franchise based model enables it to offer heavy discounts on apparels.

Big Bazaar a part of Pantaloon Retail (India) Ltd. provides consumers the experience of shopping at a malls and supermarkets giving them acceptable quality and service at the lowest prices. Its punch line very rightly suggests the same – Is se SASTA aur ACCHA kahin nahi!

Tata Motors is also known to provide good quality cars at very low costs. This started with Tata Indica which provided the public with an affordable alternative to the Maruti 800. Infact just hours before the car was launched, Maruti called for a press conference announcing price cuts across its lineup and introduction of more cheaper variants, fearing its bread and butter model, Maruti 800 was in trouble! And now with the entry of Tata Nano, they have carried the tradition further.

Tuesday, July 6, 2010

Sunil Hitech Engineers - Decent Buy at CMP

About Sunil Hi Tech Engineers

Within a period of 20 years, Sunil Hi Tech Engineers has emerged as one of the leading Project Executor of India in the Power and Infrastructure Sector, mainly dealing with fabrication, erection, testing and commissioning of thermal power plants and also entered in the Steel & Sugar Industries.
 
At Present the Company is executing 47 live projects at different parts of the country and contributing to the commissioning of 26,070 Mw of Power in the next 2–3 years. An ISO 9001:2000 & OHSAS 18001:2007 Company certified company, Sunil Hi Tech undertakes the erection, testing and commissioning of boilers and auxiliaries of up to 500 Mw capacity, pressure parts, ESP and piping, and structural work in main plant building, bunker bay and miscellaneous structures of up to 660 Mw.

As a result of its efforts to move up the engineering value chain, the company has bagged balance of plant (BOP) power projects from Mahagenco and L&T. The advantage of this move is that the company not only qualifies for BOP contracts of up to 250 MW, it can also eye for large size projects in this segment and garner higher revenues.

Sunil Hitech Engineers: Annual Results 2009 - 2010

For the year ended on 31st March 2010, Sunil Hi Tech achieved the Turnover of Rs 728.43 crore (standalone), thereby registering an Increase of 21.64% over Rs 598.81 crore in the previous fiscal year. Profit before tax (before extra ordinary items) for the financial year ended on 31st March’ 2010 is Rs 53.89 crore which was Rs 20.68 crore in the last fiscal year, thereby registering a significant growth of 160.57%.

As investments in the power sector is gathering pace, there is dearth of companies who can provide engineering services required to build the power plants. Sunil Hitech, which is in the fabrication, erection and commissioning work, has been a key beneficiary of this demand. No wonder, the company currently has an order book of Rs 2,062 crore, which is 3.5 times its 2008-09 revenues and provide visibility for the next two years.

Sunil Hitech’s stock is currently trading at a price of 207 with PE multiple of 10 times which is attractive for a company, which is operating in a growing industry and is expected to report strong growth in earnings over the next two years. Historically, the company’s stock has been trading in the range of 10-22 multiples, hence company stock price is trading at lower side as compared to its current PE.

The gains from an investment in this stock could come from growth in earnings as well as a possible rerating. We believe stock downside is limited and it can appreciate by another 15-25 percent in near term.

Note: The stocks discussed in Saral Gyan through posts are not a part of "Hidden Gems" issue which we recommend to our paid subscribers only. These are just stock specific views by Saral Gyan Team; one must do the due diligence before doing any investment based on our recommendation.

Wednesday, May 19, 2010

How Warren Buffett decides which Stocks or Companies to Buy?

12 Important Questions: How Warren Buffett decides which stocks or companies to buy.

1. Is the business simple and understandable?

Buffett will not invest in a business he can not understand, which is one of the reasons he avoided technology stocks even during the boom of the late 1990s. If you understand a business, you have a better chance of seeing opportunities and problems before they arise.

2. Does the company has a consistent operating history?

Although past performance is no guarantee of future results, it does show whether a business can operate in a variety of business conditions.

3. Does the business have favorable long-term prospects?

This may seem like a no-brainer, however Buffett believes in holding good companies for the long term and that meant seeing a clear future. Companies that operated on trends, fads and technology that is out of date tomorrow didn’t fit his model regardless of how profitable they were in the short run.

4. Is the management rational?

Buffett places a great deal of importance on management and one of the areas he focuses on is how excess cash is used. If the company can generate above average returns by reinvesting the cash in the business it should do so because this builds shareholder value. However, if not the management should return the cash to shareholders. In other words, the decision should be rational.

5. Is the management candid with shareholders?

Although strides have been made in opening company books, Buffett believes that many company executives still hide behind accounting conventions and don’t fully report to shareholders. He admires managers that admit mistakes and take responsibility for the company.

6. Does management resist the institutional imperative?

Buffett describes the institutional imperative as that need for managers to act and do like their peers no matter how irrational it may seem. Call it peer pressure for CEOs.

7. What is return on equity?

Buffett focuses on return on equity rather than the more popular earnings metric in evaluating companies. His rationale is that earnings are fleeting and can be manipulated. Long term, return on equity will have a more profound effect on the company’s fortune than earnings.

8. What are the company’s “owner earnings?”

Buffett uses a rough calculation that replaces the traditional cash flow calculation to give him a clearer picture of company value. His calculation includes estimates of future capital expenditures, something missing in cash flow calculations.

9. What are the profit margins?

If a company can’t convert sales into profits, it has obviously failed. One of the ways this happens is to keep expenses to a minimum. Buffett avoids companies with bloated expenses because it reflects a lack of discipline even if the company is profitable – it would be more profitable if expenses were always controlled.

10. Has the company created at lease one dollar of market value for every dollar retained?

Buffett notes that this is the test of correct capital allocation. Has the company correctly use capital to created market value (shareholder value) with cash it retained? If the company is holding on to cash, but not creating value for shareholders, what’s the point?

11. What is the value of the company?

Buffett says the value of a company is simply the total of the net cash flows (owner earnings) expected to occur over the life of the business, discounted by an appropriate interest rate. This model differs from most you’ll find because it depends on being able to predict earnings for the life of a company. Buffett says if you pick company that has the attributes mentioned above, you can do this.

12. Can it be purchased at a significant discount to its value?

This is pure Buffett and where he gains his margin of safety. By buying at a discount, he knows that even if he is off somewhat of his evaluations, the discounted price will cover the difference. However, my guess is he doesn’t need that margin very often.

Can you duplicate Buffett’s success? Probably not, but there are valuable lessons here for us all.

Source: “The Warren Buffett Way” by Robert Hagstrom. Published by Wiley Books.

Saturday, April 17, 2010

Buy Pioneer Investcorp Ltd - Bet for long term

Pioneer Investcorp Limited: The Group's principal activities are providing Project and Financial Advisory Services and Financial Solutions for Corporate and Industrial Houses Development Projects. It operates under three segments: Advisory & Merchant Banking, Income from Securities/Investment and Equity Brokerage and related income. Its offerings include formulating capital structure, raising capital, debt restructuring, project financing and other corporate advisory services.

Better known for its research division PINC research, Pioneer Investcorp is an integrated financial service company promoted by Charted Accountant, Gaurang Manhar Gandhi (Ex.ICICI). This two-decade-old company is still unknown because of its less concentration in retail broking business and brand building efforts. In 2007, there was some strong news in the market that Citigroup Venture Capital International (CVCI) is close to acquiring an equity stake in Pioneer Investcorp for about Rs 400 crore. Later, Pioneer Investcorp announced a massive expansion in all its verticals, the Promoter cum Managing director Mr. Gaurang Gandhi took 15,00,000 Warrants (convertible into one Equity Shares of the face value of Rs 10/- each) at a price of Rs 630/- per Warrant (including a premium of Rs 620/- per Warrant). The said deal could not struck due to the unexpected global financial crises and the problems faced by the Citi Group.

Pioneer Investcorp is one of the worst affected stocks in the 2008 market crash, which eroded almost 98% of its value as it fell from Rs. 930 to Rs. 13. As expected, the promoter did not convert his above mentioned warrants. But it is noted that he converted 85000 warrants (which he took earlier) at a price of Rs.110/- at a time when the market price was only Rs.35/- in October 2008. Aquiring shares at almost 200% premium to the market price by the managing director is really a confidence booster.

For nine months ended December 2009, the company reported an income of Rs 27.8 crores and net pofit of RS 9.14 crores. On an equity base of 12.2 Cr, nine months EPS stood at Rs 7.5. The company’s promoter is holding 51.36% stake in the company. Another 19% stake is holding various Pvt Ltd. Companies which seems as promoter related entities. Now the stock is trading at Rs. 62. But, still the company is one of the cheap and best quality stocks in the promising financial service industry in India.

Another interesting fact is Pioneer Investcorp is noticed and rated by Wright Investor's Service. Wright Investor's service is an internationally recognized investment management and financial advisory firm headquartered in Milford, Connecticut, USA. Wright Investor's Service has recently published its corporate research report and rated Pioneer Investcorp as LDNN (Limited Investment Acceptance & Fair Financial Strength)

Saral Gyan Recommendation:

Since there is sanity and hope of revival in financial service sector globally, company may revive its big plans in near future. Price movement of past few month has shown signs of accumulation at 47 - 50 Rs levels. Considering all the above facts, we recommend a buy on Pioneer Investcorp with a long term view. Long term Investors can add this stock in their portfolio. Good levels to enter in Pioneer Investcorp is at a range of Rs. 50-55.

Note: The stocks discussed in Saral Gyan through posts are not a part of "Hidden Gems" issue which we recommend to our paid subscribers only. These are just stock specific views by Saral Gyan Team; one must do the due diligence before doing any investment based on our recommendations

Sunday, February 21, 2010

Buy PAE LTD - Target Rs 56

Most of us are aware of the fact that ever increasing global energy consumption equals environmental disaster unless we move to a de-carbonized energy system. IPCC (Intergovernmental Panel on Climate Change) has created too much hype around melting of glaciers by 2035 and that too without doing a detailed study, but one cannot sit back and say that we have enough fossil fuel for our lifetime, and global warming isn't going to effect us.

Countries like China, are already putting in great deal of money on securing their energy needs from both fossil fuels and from alternative sources of energy. In India, many smaller companies at their own level are working on various alternative sources of energy. Solar and wind are the two forms of energy. Solar energy had its share of criticism on various grounds, most important of them being cost and availability of raw material, which in most of the cases is silicon. Keeping the above factors in mind, our Saral Gyan team explored a company that is into potential alternative source of energy, and may not have to face constraints with respect to availability of raw material.

PAE LTD.

PAE is not into Solar Panels manufacturing on its own. On standalone basis, it is into the business of marketing and distribution of Lead Acid Storage Batteries to provide power storage in power back up systems. In addition to batteries, PAE also buys and/or builds power back-up systems from manufacturers and sells to OE, dealers and end users. It also provides total power solutions to end customers by doing installations, commissioning and service of large power back-up systems. Hence, PAE Ltd. is into power related business, but most of it is in the form of distribution and marketing. This is also evident from its low margin results. On a net sale of Rs 250 crore for FY 2008-09, it could only make a net profit of Rs 5.36 crore.

But looking at recent updates, PAE has forayed into Solar Panels manufacturing by taking a controlling stake (51%) in Shurjo Energy Private Limited, which was in need of funds to expand its capacity to 10MW from 2MW. In terms of the agreement, the company has totally invested Rs 5.06 crore in Shurjo Energy for acquiring 51% stake in the company.

Shurjo Energy Pvt. Ltd. is into manufacturing solar panels using CIGS Copper Indium Gallium diSelenide (CIGS), thin film technology which has "off grid" and "on grid" applications. The company has its manufacturing facility in Kalyani, West Bengal. Point to be noted is that CIGS technology does not use silicon as the active photovoltaic semiconductor and therefore does not suffer from any raw material supply problems. Shurjo also recently passed IEC 61646 & IEC 61730 tests (The certifications required for solar modules used in solar power plants in most markets worldwide) for its CIGS solar modules, opening up the Grid-connect market for its modules.

Studies show that CIGS material actually yields more energy per kW installed, compared to traditional crystalline products, due to its better performance in low light conditions (Source: web). As mentioned earlier the installed capacity stood at just 2MW, which will be ramped up to 10MW. One can expect additional revenue and profitability for PAE Ltd, because the company has 51% stake in Shurjo Energy Pvt Ltd.

PAE has touched 52 week high price of 57 Rs on 21st Dec 09 with couple of bulk deals on the same day (Source: BSE). Chairman and Managing Director of PAE Ltd, Mr Arvind Doshi shared his views on his company business and see profitability improving from FY 2011 onwards.

As per him, at present the company is doing 100% export to the tune of approximately Rs 10 crore. It is a small unit manufacturing latest models of solar panels, the latest technology is called CIGS. We recently got international certification also for these panels manufactured in India.

The basic film comes from a company in USA called Global Solar. PAE intend to market these panels including some of the equipment as complete units for domestic power generation as well as power generation for offices and industries in India. Initially, this will take a slow start in India. But we hope with the Copenhagen discussion this will gather a faster momentum in India. We will see a greater future in this line.

Saral Gyan Recommendation:

PAE last closing price on BSE was 40.25 with a market capital of 38 crore. Standalone PE ratio of PAE is 8.5. Looking at last 3 quarters share holding patterns, promoters have increased their total holdings continuously in last 3 quarters (48.78 % in June 09, 49.13 % in Sep 09, 50.12 % in Dec 09), hence management is confident to deliver good growth with increase in profit margins in future considering entry into solar panel business. Current market stock price of PAE Ltd gives an opportunity to buy the stock at current levels with limited downside risk.

We recommend buy for PAE LTD with a target price of 56 (appreciation of 40 % from current market price) in a time horizon of next 6 to 9 months. We believe investments in such stocks should be done keeping a long term view, hence partial profit booking is advised to investors once target price is achieved.

Note: The stocks discussed in Saral Gyan through posts are not a part of "Hidden Gems" issue which we recommend to our paid subscribers only. These are just stock specific views by Saral Gyan Team; one must do the due diligence before doing any investment based on our recommendation.

Saturday, January 23, 2010

Buy Tide Water Oil - Target Rs 7200

Tide Water Oil Co. (I) Ltd. is a PSU company. Tide Water Oil Co. (I) Ltd., is a part of the multi divisional Andrew Yule group that has diverse interests in Engineering, Electrical, Tea Cultivation, Power Generation, Digital Communication Systems and Lubricants.

Tide Water has been a pioneer of Automotive and Industrial lubricants in India since 1928 and has five plants at Howrah, Oragadam, Turbhe, Silvassa and Faridabad. Its repertoire of automotive products includes engine oils for trucks, tractors, commercial vehicles, passenger cars and two/three wheelers. It also produces gear oils, transmission oils, coolants and greases for automobiles. For industrial application it manufactures industrial oils, greases and speciality products like metal working fluids, quenching oils and heat transfer oils.

Tide Water has tie-ups for manufacture of genuine oils with a number of renowned OEMs in the automotive and industrial equipment segment. The company also has technical collaboration with Nippon Oil Corporation, the No.1 petroleum conglomerate in Japan. Company sells oil in automotive segment under the brand name Veedol, enjoys high brand recall. Superior quality lubricants under the brand name Eneos are also manufactured and marketed in India by Tide Water Oil Company.


Check Tide Water Oil website >>> Click Here


Share holding of Tide Water Oil as per last quarter, Promoter holds 26.33% stake, institutions hold 14.31% stake, non promoter corporate bodies hold 40.93% stake and public hold only 18.43% (Only 160593 shares with 7269 share holders) stake in this company.

Last year quarter performance was above analyst expectations, June was outperforming quarter in which company has shown marvelous number, Net sales zoomed to Rs 197.65 crore from Rs 165.07 crore while net profit zoomed to Rs 15.78 crore from Rs 7.85 crore. Company has shown EPS of Rs 181.09 in June quarter itself. Company has paid 300% dividend to share holders for last year. Current level at per estimated EPS stock is trading at PE ratio of 10.

Looking at peer group, Castrol India is trading at a price of 625 with PE of 22 with a market cap of 7700 crore. Tide Water Oil stock is available at an attractive price of 5050 looking at medium to long term investment, market cap is only 440 crore with less public holding.

Company has equity of just 0.87 crore while company has huge reserve of around Rs 150 crore (More than 172 times of equity, it shows company is very strong bonus candidate).

We recommend Buy on Tide Water Oil with a target of 7200. Stock has strong support zone at Rs 4350, hence incase of severe market correction, Tide Water Oil may not go below 4350 levels and give an opportunity to accumulate more at lower levels. In the days to come, we also expect disinvestment story coming out in this company. Tide Water Oil can give 20 to 30 percent returns in next couple of months.

Wednesday, January 6, 2010

Buy PBA Infrastructure

PBA Infrastructure is a good buy at current market price. As infrastructure is a promising sector based on domestic development across the country, PBA infra is expected to deliver robust results in future. Company has strong presence in highway construction and road development.

CAGR of PBA in last 3 years is above 20 percent, operating margins have improved looking at last 3 quarter results. At current market price, stock is discounted comparing with small cap peers like subhash project, gayatri infra, unity infra and Maytas. With a market cap of around 100 crore, PBA infra is currently trading at a price of 76 with PE of merely 6.5. All other peer stocks are trading at a PE range of above 25 to 100 which makes PBA Infrastructure an excellent bet at current market price.

PBA promoters shareholding is increased by around 62 percent and is increased by approx 0.75 percent in last one year. Looking at recent annoucement by the management, company received a payment of 150 crore plus for development of 4 lane highway project at nagpur.

With strong order book of 500 crore plus, stock can shoot upto 3 digit very soon with a target of 120. Keeping a medium to long term view of 12 to 18 months, PBA infrastructure can see a price of 200.

Resistence is at 82-84 and strong support is at 68 Rs.

We suggest investors to buy PBA infrastructure with a medium to long term target of 200 Rs.

Saturday, September 19, 2009

Mid Cap Stocks to Pick

We have already seen bullish signals as Sensex level is doubled within a year.
Sensex & Nifty lows of October 2008 is a history now.
Everybody is betting on hot sectors like Infrastructure & Power.
But a million dollar question is "Is it right time to invest, if yes - where to park the fund in equity? Which stock should i add in portfolio? How long it will take to yield handsome returns?"
Its always good to keep investing... a way to create wealth in long term but we need to ensure that our pick is right at right point of time.
Below are the 2 Mid Cap stocks pick - Available at discounted price as compared to peers.

1. Gayatri Projects:
Trading at a P/E of 7, undervalued stock in Infra space. Peer group is trading at a P/E of 20+
Allotted preference shares to Reliance Trustee.
Aggresive to grab the opportunity on NHAI plans.
Stable earnings with healthy order book to be executed in next 2-3 years.


2. India Infoline:
Brokerage firms show handsome profits because of increasing volumes in trade
India Infoline offers best in class trading terminal with latest technology to trade
Increase geographical presence to provide services linked to MF, Portfolio management, Equity Research
Aggresive plans to rollout more services linked to Financial space.