PRAJ INDUSTRIES : In a Trading Range, But with bullish signs

Praj Industries has been finding exact support at the upward sloping trendline joining the significant bottoms. The upmove from Rs.70 to Rs.100.85 was retraced by about 61.8% to around Rs.81 after which the stock started moving up.

The downmove from Rs.100.85 to Rs.81 took 13 trading days (Fibonacci time period) which was completely retraced only in 5 trading sessions (again a Fibonacci time period). This is called “Faster Retracement” and is a bullish indication.

The downward sloping trendline joining the significant tops has been breached by the stock in the last week and the close has been significantly higher than this trendline. The stock has been consistently making higher bottoms, which is once again bullish for the stock. The volumes have increased in the last few trading sessions indicating participants increased interest in the stock.

Also there will be news soon about the company completing its process of divesting its US-based subsidiary, Praj Schneider due to economic scenario in US.

The mid-cap engineering firm has an equity capital of Rs 36.94 crore. Face value per share is Rs 2.

The current price of Rs 87.70 discounts the company's Q3 December 2009 annualised EPS of Rs 6.31, by a PE multiple of 13.89.

The company has retained rights for process technology for bio-diesel in North America. Meanwhile, the company has launched a new company in US, Praj Americas Inc, operating out of Houston, to address the markets in North, Central and South America.

Praj Industries offers innovative solutions to significantly add value in bio-ethanol, bio-diesel and brewery plants and related wastewater treatment systems for customers, worldwide.

GRASIM SAMRUDDHI DEMERGER: A COMPLICATION, A CONFUSION.

Grasim has declared the demerger of Samruddhi cements, its ratios and demerger process has become some what complicated and confusing for any common shareholder, here I have tried to elaborate some of its key points –

The demerger scheme says every shareholder of Grasim will get 1 share of Samruddhi. Now, Samruddhi has 26 cr shares, with the Face Value of Rs.5.00, Book Value of Rs.250. Grasim will transfer Rs.2100 cr of debts to Samruddhi.

Grasim will hold 65% in Samruddhi & 35% of Grasim shareholders will hold 35% in Samruddhi.

Samruddhi will be listed in stock exchanges hence, providing exit option to its shareholders, further it will be merged with Ultra Tech Cement.

The record date for this merger has been set as 1st October 2009,

So, a share holder of Grasim will get 1 Samruddhi for every 1 Grasim held,

And he will get 4 Ultra Tech Cement shares for every 7 Samruddhi he holds as on record date declared by Ultra Tech Cements. So the price of Samruddhi will depend on the last closing price of Ultra Tech Cements.

On 10th March 2010, A block deal of 100000 shares of ULTRA TECH CEMENTS at Rs.1103/share was done.

Grasim Industries Ltd

I expect the Cement Sector to add around 76mtpa of capacity over FY2010-12E. Such a large capacity addition is expected to eventually create over supply in the market, as demand is not expected to catch up with supply in the short term. Nonetheless, on a positive note, a stable government at the Centre is expected to boost infrastructure spending in the country and, along with the ongoing recovery being witnessed in Real Estate activities, concerns on the demand front appear to have reduced considerably. However, All-India capacity utilisation is expected to drop to 78% in FY2010 from around 85% in FY2009. In the case of Grasim, it is currently in the process of increasing its cement capacity by 4.5mtpa at Kotputli and by 4.4mtpa at Shambhupura, by 3QFY2010E, taking its total standalone capacity to 25.8mtpa in FY2010E. Along with the capacity expansions of 4.9mtpa at Ultratech, the total capacity of the merged entity will touch 48.9mtpa by end-FY2011E. Grasim is India’s sole player in the VSF business and exports a substantial portion of its output. The division, after going through a lean patch over the past one year, due to the overall economic slowdown, has begun to show signs of revival in the current quarter. The company recorded its highest-ever quarterly sales for this division during 2QFY2010, while also achieving the highest-ever operating profit, on account of a substantial reduction in the prices of raw materials such as pulp and caustic soda. The company plans to set up an 80,000MT Greenfield project, at a cost of Rs1,000cr, to meet the growing demand. Going ahead, the volume outlook for this division looks positive, both in the domestic and the international market, although there is little scope for any further price increases, due to a growing price differential between other textile fibers, such as polyester and cotton. We have derived the value of Grasim on an SOTP basis.

I have valued the company’s 65% stake in Samruddhi at an average of an EV/tonne of US $100/Tonne and an EV/EBITDA of 6x FY2011E, based on the de-merger plan. I have arrived at a value of Rs725/share for Grasim’s direct holding in Samruddhi. The value attributable to the 35% stake of Grasim’s shareholders in Samruddhi stands at Rs434/share. We have valued the VSF business at 5x EV/EBITDA, implying a P/BV of 1.75x on an FY2011E basis. I have assigned the valuation multiple based on the VSF business’s superior RoCE as compared to its global peers (which are trading at 3x P/BV, based on CY2010E book value). I have valued the company’s 54.8% stake in Ultratech by assigning a holding company discount of 20%. Hence, our SOTP Fair Value for Grasim works out to Rs2, 548. I upgrade the stock to buy.

SUZLON ENERGY Q3 FY2009-10 RESULT INSIGHTS

NET DEBT REDUCTION- Q3 FY 10
-Consolidated net debt as on 31st March 2009 - Rs. 11800 cr.
-Consolidated net debt as on 31st December 2009 - Rs. 10488 cr.
-Net consolidated debt reduced by Rs. 1312 cr.
-Profit from the Sale of 35.22% OF HANSEN TRANSMISSION Rs. 252 cr.
-GROSS REDUCTION OF DEBT BY APPROX. 15% OR USD 350 MILLION.
-Acquition loan of USD 780 million PAID-OFF.
-HANSEN STAKE NOW AT 26.06%. (174632079 voting rights)
-REpower Systems AG stake now at 90.71%.

SALES FIGURES- Q3 FY 10
-India contributed 140 Mw v/s 168 Mw in Q3 FY 2008-09.
-Internationally, volumes were 264 Mw v/s 511 Mw in Q3 FY 2008-09.
-Total Mw Sales (Suzlon Wind) - 404 Mw v/s 679 Mw.

ORDER BOOK – Q3FY 10
-As on 30th January 2010 – 1484 Mw.
-Order book value as on 30th January 2010 – Rs. 8128 cr.
-Average realisation of Order Book -
INDIA – Rs. 5.43 cr/Mw.
INTERNATIONAL – Rs. 5.49 cr/Mw.

REVENUE - Q3 FY 10
-Suzlon Wind Business Revenue – Rs. 2453 cr.
-Consolidated Revenue – Rs. 5590 cr.
-Income from operation & maintance activities-
India – Rs. 196 cr
International – Rs. 83 cr.
-Karnataka wind energy tariff Rs. 3.70/Kwh from Rs. 3.40.
-Gujarat wind energy tariff Rs. 3.56/Kwh from Rs. 3.50/Kwh.
-Global Market Share – Suzlon – 9%; RE power - 3.3%; GE wind – 18.6%; Vestas – 19.8%; Siemens – 6.9% as on 31st December 2008.

OTHER FINANCIAL DETAILS -
-Net operating working capital as on 31st December 2009 – Rs. 5179 cr.
-Absolute reduction of working capital of Rs. 974 cr from March 2009 levels.
-Acquition Loans – Rs. 2159 cr.
-FCCBs – Rs. 2229 cr.
-Capex Loans – Rs. 1077 cr.
-Working Capital & Other Loans – Rs. 5009 cr.
-Gross External Debt – Rs. 10474 cr
-Loans from Promoter group – Rs.1175 cr.
-Cash Holdings – Rs.1041 cr.
-NET DEBT – Rs. 10608 cr.
-NET EXTERNAL DEBT – Rs.9433 cr.
-Gross Profit/Mw - 9m FY 2009-10 – Rs. 2.03 cr v/s Rs. 2.07 cr in 9m FY 08-09.

DEBT MANAGEMENT EXERCISE –
- DEBT REDUCTION –
- Monetized 35.22 % stake in Hansen Transmission, realized GBP 224 millions through placement of 236 million Depository interest at a price of 95 pence per depository interest, proceeds used to repay part of acquisition loans.
- Refinancing of loans in Rupee-denomination from SBI.
- Holiday of 2 years in principal payments done.
- Issue of GDRs for USD 108 million (Q2 FY 2009-10)
- Cash infusion of USD 94 million through additional Convertible Bonds issue (Q2 FY 2009-10)

CAPACITY & EXPANSION PLANS –

SUZLON (GDR- SUEL:LI Suzlon Energy Ltd)
CURRENT CAPACITY- 4200 Mw
EXPANSION PLANNED- 1500 Mw
TOTAL POST EXPANSION- 5700 Mw

RE POWER SYSTEMS AG - RPW:GR
CURRENT CAPACITY- 1250 Mw
EXPANSION PLANNED- 450 Mw
TOTAL POST EXPANSION- 1700 Mw

HANSEN Transmissions International NV - HSN:LN
CURRENT CAPACITY- 7300 Mw (Gearbox)
EXPANSION PLANNED- 8000 Mw (Gearbox)
TOTAL POST EXPANSION- 14300 Mw (Gearbox)