TITAN INDUSTRIES LTD : BE MORE !!!

Scrip Code: 500114 / TITAN

CMP:  Rs. 220.00; Buy at Rs.200 - 215 levels. Short term Target - Rs. 240;
6 month Target – Rs. 285; STOP LOSS – Rs. 184.00; Market Cap: Rs. 19,531.29 cr; 52 Week High/Low: Rs. 237.75 / Rs. 140.00.

Total Shares: 88,77,86,160 shares; Promoters : 47,32,67,660 shares –53.31 %; Total Public holding : 41,45,18,500 shares – 46.69 %; Book Value: Rs. 13.01; Face Value: Rs. 1.00; EPS: Rs. 5.55; Div: 250 % ; P/E: 39.59 times; Ind. P/E: 42.76; EV/EBITDA: 46.25

Total Debt: Rs. 1455.96 cr; Enterprise Value: Rs. 20,987.25 cr.

TITAN INDUSTRIES LTD:  The Company was founded in 1984 and is based in Bengaluru, India. Titan Industries Limited manufactures and sells in retail watches, jewelry, clocks, and eye wear primarily in India and internationally. The company provides its watches under its brand names Titan Edge, Titan Raga, Nebula, Sonata, Xylys, Fastrack. It also markets brands, such as Tommy Hilfiger, Hugo Boss, and FCUK under a licensed agreement. It also offers jewelry under the Tanishq and Goldplus brand names, as well as operates a chain of luxury jewelry boutiques under the Zoya brand. In addition, the company provides sunglasses under its Fastrack brand; and prescription eyewear, such as lenses and contact lenses. It sells frames, sunglasses, and accessories of proprietary brands and other premium brands, as well as provides optometry services. Further, the company provides precision engineering components and sub-assemblies, machine building and automation solutions, tooling solutions, and electronic sub-assemblies for use various industries, in aerospace, automotive, oil and gas, engineering, hydraulics, solar, and medical instruments. It operates approximately 665 retail stores, including approximately 311 World of Titan showrooms; approximately 124 Tanishq boutiques and Zoya stores; approximately 29 Gold Plus stores; and approximately 150 Titan Eye+ stores. The company also sells its product through departmental stores such as Shoppers stop, Central, Westside, Pantaloons & Reliance retail.  

Investment Rationale: Titan plans to aggressively expand its mass market jewellery franchisee – Goldplus. The company also plans to launch lower price jewellery using a diamond-like material – Diamantine to cater to the aspiring middle-class consumer. Titan has also tied up with Muthoot Finance to offer a new scheme — Swarna Samridhi — in the Andhra Pradesh market. Under the scheme, customers have to pay 20 % of the actual price during purchase while the remaining is to be paid through installments to Muthoot Finance. These installments can be paid between 12 - 24 months, with an 11.5 % interest rate. Customers will be given a 30-day interest-free period to repay the loan amount. Once this model stabilises it will be taken to other parts of the country as well. Also Titan is planning to enter the Indonesian market in six months through a distribution tie-up. This is in line with the company’s strategy to expand into one new country each year. Price hikes in watches and eyewear segment will protect its margins, Titan is planning to take a price hike to the extent of 4 % to mitigate the impact of input cost increases. Titan buys some of its watches and eyewear products from China. China has steadily raised labour costs over the last three years. Hence, the company will need to take price hikes to pass on the impact of the same in order to protect its margins. In Watches, Titan targets Rs. 3,500 Cr turnover by FY15E (Rs. 1,250 Cr in FY11) to be driven by network expansion, introduction of new designs as well as shift towards branded segment. Titan aspires to expand the category in Eye-wear and Accessories (currently 177 stores) segment by getting into new sub-categories. It’s targeting FY13E beak-even and believes potential margins can be higher than Watches. It intends to enter new life-style categories in medium to long term.

Outlook and Valuation:

A growing economy, increasing Per Capita income & improving lifestyle helps Titan to get continuous benefit from the shift of consumer preference from unbranded to branded jewellery. Notwithstanding the higher Gold prices, Titan continues to charge an average 22 % of Gold price as its making charge. Titan has not experienced any impact on account of government regulation regarding PAN card (for any purchase of above Rs.5 Lakhs in Jewellery, PAN number is mandatory) as its ticket size is far lower at Rs. 30-50k. As there is no specific reason to rise in Diamond prices (which are up 90% in 6 months), management expects to pass on any correction in Diamond prices to consumers. Titan sources its Diamonds from India and doesn’t hedge. Titan enjoys 10 % premium on Diamond compared to its competitors in normal scenario. Studded jewellery sales were 23 % of Jewellery revenues in 1QFY12. Titan targets 40 % by FY14E. As per Titan’s research, wedding jewellery buyer prefers larger store owing to availability of wide range of designs. Also, the service levels in large format stores are better. From Titan’s viewpoint, large format stores not only help increase sales/sq ft but also increase its market share and build a better brand image. As per management, large format stores are used as brand positioning tool. After opening a large format stores in Mumbai and Pune, 2 more are in pipeline in Hyderabad and Kolkata. As per management, large format stores take less than 2 years to break-even. Chennai store is expected to achieve its breakeven in less than 18 months. Currently out of 124 Tanishq stores - 90 are Franchisee stores. All large format stores are company owned stores. Titan offers 9 % of sales as margins to Franchisee partners in Jewellery segment. Titan also aims to tap into youth segment so as to create a loyal customer base for future. It believes Youth segment has high potential and needs to be lured via innovative designs and price points. Given the rising gold prices and anticipated potential impact on its volumes, in the medium term Titan aims to work around the price points by offering lower caratage jewellery (18c, 14c etc) and creating more opportunities of purchase. Titan’s distribution network is its biggest competitor advantage. Titan has a vision to establish Eyewear as “Function + Style” product. 25m pieces market is growing at 20-25 % per annum & unbranded market constitutes sizable chunk of the opportunity. With the market size of around Rs. 2,500 Cr this segment is highly fragmented with no national brand. Currently in Eye-wear, Titan has a network of 177 stores (90 owned) and offers 35 % of its sales as franchisee fees. Management believes that potential margins in Eyewear segment are higher than Watches. It expects margins to converge with Watch margins in 3-4 years time. At the current market price of Rs.220.00, the stock is trading at 33.33 x FY12E and 26.50 x FY13E respectively. Earnings per share (EPS) of the company for FY12E and FY13E are seen at Rs. 6.60 and Rs. 8.30 respectively. It is expected that the company will keep its growth story intact in the coming quarters also. TITAN Q2 RESULTS ARE ON 24th OCTOBER 2011. One could BUY TITAN INDUSTRIES with a target price of Rs. 285.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 240.00 

KEY FINANCIALS	FY10	FY11	FY12E	FY13E
SALES (Rs. Crs)	4,677.20	6,533.00	8,533.00	10,356.80
NET PROFIT (Rs. Crs)	251.30	433.10	585.10	732.80
EPS (Rs.)	2.80	4.90	6.60	8.30
PE (x)	71.70	41.60	30.80	24.60
P/BV (x)	24.60	17.40	12.10	9.00
ROCE (%)	39.00	49.00	46.30	41.90
RONW (%)	35.10	46.00	44.50	40.90

I would buy TITAN INDUSTRIES LTD with a price target of Rs. 285 for the 6 month target for short term players target should be Rs. 240. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 184.00 on every purchase.

GITANJALI GEMS : JEWEL FOR EVER !!!

Scrip Code: 532715 / GITANJALI

CMP:  Rs. 453.00; Accumulate at every levels. 

Medium to Long term Target – Rs. 510; STOP LOSS – Rs. 415.00; Market Cap: Rs. 4,170.56 Cr; 52 Week High/Low: Rs. 455.65 / Rs. 250.95

Total Shares: 9,20,65,491 shares; Promoters : 5,43,16,116 shares –59.00 %; Total Public holding : 3,77,49,375 shares – 41.00 %; Book Value: Rs. 275.10; Face Value: Rs. 10.00; EPS: Rs. 28.05; Div: 30.00 % ; P/E: 16.11 times; Ind. P/E: 11.10; EV/EBITDA: 10.53.

Total Debt: 2,056.00 Cr; Enterprise Value: Rs. 6,542.72 Cr.

GITANJALI GEMS LTD:  Gitanjali Gems Ltd was incorporated in 1986 and is based in Mumbai, India. The company was started as a partnership in the year 1966, it was the first group company to engage in cutting & polishing of diamonds in Surat, Gujarat. It came with an IPO in the year 2006 with 1.70 cr shares at the price band of Rs. 170 – Rs. 195. Gitanjali Gems has got two-diamond manufacturing facilities located at Borivali in Mumbai and at the Special Economic Zone in Surat. It has also got a 100 % export oriented unit in SEEPZ Mumbai, which produces gold and platinum studded jewellery. There are also jewellery-manufacturing facilities at MIDC, Andheri, which produces branded jewellery for the retail operations in India. The company has a workforce of over 2300 employees. Company sells its jewellery under the brand - Asmi - Premium work wear collection & has 104 outlets, 2 exclusive stores; Sangini - Entire product range including bridal jewelry; Nakshatra - Entire product range including bridal jewelry available with 374 retailers and 1 franchisee. More franchisees are being added; Gilli - Diamond jewelry at reasonable prices having 256 outlets of which 3 are exclusive stores; Vivvaha - Wedding jewelry; Maya - Gold jewelry for wedding and other similar events; D’Damas - International quality designs combined with Indian values sells through 380 retailers, 2 exclusive outlets, 3 shop-in-malls and 21 franchisees; Hoop - Fashion Silver Jewelry. The Gitanjali Group has acquired Lucera for Rs 25 crores in 2008. In October 2009, the UK-based Brand Finance, valued the four leading brands of the company at Rs.514 crores (Nakshatra), Rs.468 crores (Gili), Rs.309 cr. (D'Damas) and Rs.210 cr. (Asmi), respectively. GGL is not only gearing towards improving sales but is also looking at multiplying the value of these brands by 1.5 to 2 times by 2011-2012. With a manufacturing presence in India, its operations span the globe from the U.S., the U.K., Belgium, Italy, the Middle East, Thailand, South East Asia, and Japan. The company’s retail and distribution network comprised approximately 2,000 outlets, including 200 distributors, 94 exclusive stores, and 63 franchised stores. In December 2010, it acquired 90 % interest in Glantti Italia S.R.L. On March 17, 2011, it acquired 100% stake in N & J Finstocks Private Limited. In July 2011, it incorporated a wholly owned subsidiary Italian Jewels S.r. In August 2011, it incorporated a subsidiary Aston Luxury Group Limited. On December 2, 2011, its subsidiary Aston Luxury Group Ltd., acquired Crown Aim Limited. Gitanjali Gems Ltd is globally compared to Lao Feng Xiang Company Limited, Bulgari Societa per Azioni and Surana Corporation Limited in India.

Investment Rationale:

Gitanjali Gems is $900 million multinational group & one of the largest integrated diamond and jewellery manufacturer and retailer and diamond exporters in India. The demand for diamond and jewellery products are largely depends on higher employment and economic levels, which leave higher disposable income in the hands of the consumers. In downturn consumers can quite easily scale down their consumption of jewellery and diamonds. Gitanjali Gems Ltd has informed that Aston Luxury Group Ltd has acquired 15.3 % stake in Verite Co. Ltd in Japan. This acquisition will provide supply chain synergies to the grou. Verite Co. Ltd is a listed entity on Tokyo Stock Exchange & operates a network of 101 jewellery retail stores in Japan. This stake will also increase the presence of the Gitanjali group in one of the leading diamond jewellery markets of the world. The company launched India’s First unique and innovative Gold & Diamond ATM machines, which is a one stop shop for buying medallions, coins, jewellery etc. Gitanjali opened its first flagship store Stefan Hafner in China. The bouquet of Italian brands is now available in other markets like Russia, Saudi Arabia, the Far East & India. Gitanjali has taken strategic stake of 30 % in the GEMS TV to supply all of its diamond jewellery requirements in Japan. GEMS TV in Japan offers online shopping platform for TV channels in Japan. The Company is also engaged in retailing its diamonds and jewellery. Currently the company markets over 40 brands that are owned and franchised under its retail chain Gitanjali Lifestyle. Gitanjali Gems Ltd allotted 943,396 equity shares of Rs. 10/- each to Bennett Coleman and Company Limited (BCCL), pursuant to conversion of 943,396 warrants held by BCCL in the ratio of 1:1 as agreed upon. Consequent to the aforesaid allotment, the paid up capital of the Company has increased from 91,122,095 equity shares of Rs. 10/- each to 92,065,491 equity shares of Rs. 10/- each.

Gitanjali opens stores at DUBAI - Gitanjali group opened the largest B2B Trade showroom in the Middle East Region at Alms Tower, Dubai-UAE.

GITANJALI JEWELS LLC -
Showroom at Meena Bazaar, Dubai

The store offers extraordinary range of jewellery keeping in with the preferences of international clientele visiting Dubai, the 2,000 sq.ft is poised perfectly to attract Asians with an impressive array of renowned Gitanjali brands. Gitanjali Gems’ net profit jumps to Rs. 151.65 Cr against Rs. 132.24 Cr in the corresponding quarter ending of previous year, an increase of 14.68 %. Revenue for the quarter rose by 24.01 % to Rs. 3928.25 Cr from Rs. 3167.64 Cr, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 16.47 a share during the quarter, registering at 7.52 % increase over previous year period. Profit before interest, depreciation and tax is Rs. 271.25 Cr as against Rs. 221.36 Cr in the corresponding period of the previous year.

Outlook and Valuation:

India possesses world's most competitive gems and jewellery market due to its low cost of production, highly skilled, low-cost and best artisan force for designing and crafting jewellery, along with strong government support in the form of incentives and establishment of Special Economic Zones (SEZs). India is emerging as a huge consumer market for jewellery and other luxury products and thereby appears as a very attractive opportunity for major brands to establish their presence in the Indian market. In fact, the five-day long 29th edition of the Indian International Jewellery Show (IIJS) event organized by GJEPC, witnessed the participation of over 800 companies from India and overseas and received 20,000 pre-registration from national visitors and over 3,000 from international visitors. The event had a congregation of delegations from trade associations across India and from a host of international destinations like Bangladesh, China, Dubai, Hungary, Iran, Japan, Malaysia, Nepal, Poland, Russia, Saudi Arabia, Singapore etc. IIJS displayed the widest range of gems and jewels under the categories of couture, loose diamond, plain gold jewellery, mass produced, allied, machinery and international jewellery and loose diamonds. Gitanjali has increasingly undertaken retail expansion through the organic, inorganic and partnership routes. The retail space is around 1 million sq ft from 65,000 sq ft a year ago. The company has over 3000 Point of sales (POS). Gitanjali occupies nearly 60 % of the India’s entire organized mall space belonging to the jewellery category; it has aggressive retail expansion plans. Gitanjali expects to increase its retail presence to 2 million square feet, primarily in the domestic outlets in the next three years. All this features helps one to get that extra comfort in the stock. The total exports of gem and jewellery from India during April 2012 to September 2012 stood at $1990.24 Cr including that of cut & polished diamonds at $782.47 Cr, gold at $1071.77 Cr & coloured gemstones at $16.71 Cr. The domestic jewellery market is pegged at $1600 Cr - $1800 Cr. The gems & jewellery industry in India registered a growth in its volume of exports from $2,540 Cr in 2009 to $4,636 cr in 2011 an net growth of 82.5 %. In my view Net Sales and PAT of the company are expected to grow at a CAGR of 26 % and 32 % over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at 2.98 x for FY13E and 2.42 x for FY14E. The second quarter witnesses a healthy increase in overall sales as well as profitability on account of powerful combination of exciting products, an enhanced store network and robust infrastructural Support system. At the current market price of Rs. 453.00, the stock is trading at a PE of 6.47 x FY13E and 5.10 x FY14E respectively. The company can post Earning per share (EPS) of Rs. 69.98 for FY13E and Rs. 88.68 for FY14E. It is expected that with the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also. One can ‘BUY’ in Gitanjali Gems with a Medium to Long term investment for a price of about Rs. 510.00.

KEY FINANCIALS	FY11	FY12	FY13E	FY14E
SALES (Rs. Crs)	9,456.40	12,498.27	15,997.80	19,037.37
NET PROFIT (Rs. Crs)	354.81	487.25	637.66	808.03
EPS (Rs.)	41.81	53.47	69.98	88.68
PE (x)	9.66	7.56	5.77	4.56
P/BV (x)	1.36	1.19	0.99	0.81
EV/EBITDA (x)	5.44	3.85	2.98	2.42
ROE (%)	14.16	15.79	17.22	17.95
ROCE (%)	12.34	13.95	16.08	17.49

I would buy GITANJALI GEMS with a price target of Rs. 510 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 415.00 on your every purchase.

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

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RETURN ON CAPITAL

NMDC LIMITED: Accumulate And Buy on Dips !!!

Scrip Code: 526371 / NMDC

CMP:  Rs. 166.25; Buy at Rs. 160 -164 levels.
Medium to Long term Target: Rs. 187; STOP LOSS – Rs. 153.00; Market Cap: Rs. 65,913.40 cr; 52 Week High/Low: Rs. 280.00 / Rs. 135.60

Total Shares: 396,47,16,000 shares; Promoters : 356,84,18,180 shares –90 %; Total Public holding : 39,62,97,820 shares – 10 %; Book Value: Rs. 66.79; Face Value: Rs. 1.00; EPS: Rs. 18.33; Div: 330 % ; P/E: 9.6 times; Ind. P/E: 16.36; EV/EBITDA: 6.70.

Total Debt: NIL; Enterprise Value: Rs. 65,992.69 Cr.

National Mineral Development Corporation LTD:  The Company was founded in 1958 and is based in Hyderabad, India. It was formerly known as National Mineral Development Corporation ltd and changed its name to NMDC in January 2008 is an iron ore producer & exporter, operating in Chhattisgarh & Karnataka. NMDC ltd engages in the exploration and production of various minerals in India and internationally. It explores for iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite & beach sand. The company also focuses on coal and gold properties, as well as platinum group of elements and bauxite. It has iron ore deposits in Bailadila Chhattisgarh, Iron ore mines at Donimalai Karnataka; diamond mines at Panna Madhya Pradesh; magnesite mines at Jammu; & Arki lime stone project in Himachal Pradesh. In addition, the company involves in investing in the development of renewable energy resources, which include wind mill projects of approximately 10.5 MW capacities at Karnataka. NMDC supplied 2.3752 Cr tons of iron ore to domestic industries & had exported 25.63 lakh tons of iron ore. On December 10, 2010, NMDC announced a joint venture (JV) with OJSC Severstal (a vertically integrated steel maker from Russia) to build an integrated 2mn tonne steel plant in Karnataka. This JV will have captive coking coal mine in Russia, while it will have an iron ore mining subsidiary in India. On September 2011, NMDC purchased a 50 % stake in Australian-based Legacy Iron Ore (Legacy) as a cornerstone investor for Rs. 92 Cr. On December 12, 2011 the company incorporated NMDC POWER LTD as is wholly owned subsidiary. NMDC is compared with SESAGOA LTD in India, Cliffs Natural Resources Incorporation and Ferexpo Plc globally.

Investment Rationale:

NMDC management targets its production to reach 40mn tonnes by FY2014E–15E through increased exploration of its existing mines and development of new mines, i.e., Deposit 11B and Deposit 13 in Bailadila and Kumaraswany, respectively, in Karnataka. It is expected that NMDC’s sales volumes to post a CAGR of 10.2 % during FY2011-13. With a strong balance sheet along with net cash of about Rs. 20,000 Cr, acquisition of more mining assets overseas cannot be rule out by the company, in September 2011, NMDC purchased a 50 % stake in Australia-based Legacy Iron Ore (Legacy) as a cornerstone investor for Rs. 92 Cr. Also, the company is currently prospecting various mining assets, including an iron ore mine and a phosphate mine in Australia, an iron ore mine in Brazil and a coking coal asset in Russia. However, given that NMDC is a government-owned company, it is not expected to foresee a big-ticket acquisition. Seeking to diversify into steel making, NMDC management intends to diversify its operations by moving downstream through establishing steel plants and pellet plants. Accordingly, on December 10, 2010, the company signed a joint venture (JV) with OJSC Severstal (a vertically integrated steel maker from Russia) to build an integrated 3mn tonne steel plant in Karnataka. This JV will have captive coking coal mine in Russia, while it will have an iron ore mining subsidiary in India. Over 90 % of land acquisition is complete, which gives comfort as land acquisition has been a major bottleneck to Greenfield projects in recent times here in India. NMDC is setting up a 3 MTPA steel plant in Chhattisgarh, and hopes to start its production from 2014, coinciding with the commissioning of facility for the alloy. In a recent presentation to the steel ministry, NMDC has said that it is taking "all necessary steps" to start production from the Shahpur West block in Madhya Pradesh in 2014. Coal Ministry has already given approval to the mine closure plan for the block. The coal ministry had allotted two blocks - Shahpur East and Shahpur West in Shahdol district of Madhya Prdesh to NMDC in 2009. Following this, a Memorandum of Understanding (MoU) was signed between NMDC and Mineral Exploration Corporation (MECL) to carry out exploration in both the blocks. NMDC applied for environment and forest clearance and as per the approved mine plan, coal production is expected to start from 2014.

Outlook and Valuation:

NMDC has advantage in setting up its steel plant as it has a captive source of coal for its steel plant which would help NMDC to hedge itself against price fluctuations, which is almost a certainty event in 2014 as the raw material is getting scarcer and costlier day by day. Domestic steel manufacturers, including Steel Authority of India, is continuously facing the heat of scorching coal prices in international market as its captive source can meet only a small part of the total requirement. NMDC is setting up a 3 Million Tonnes Per Annum steel plant at Nagarnar in Chhattisgarh with an outlay of Rs. 15,525 Cr. It has placed all major orders including sinter plant, blast furnace, and raw material handling systems, steel melting shop and oxygen plant among others. Being a major iron ore producer itself, adequate supply to feed the steel plant is not a matter of concern for NMDC. The company aims to produce over 30 million tonnes iron ore in current fiscal, almost 20 per cent more than in 2011-12 by enhancing production from the existing mines. It has plans to produce 40 million tonnes iron ore by 2014-15. On performance side - NMDC's revenue fell 31 % Y-o-Y to Rs. 2,594.5 Cr in Q4FY12. The fall was on the back of lower sales volume due to damage to Essar's slurry pipeline and volume stood at 6.4 MT compared to 8.4 MT in corresponding quarter of previous year. The company reduced the iron ore prices by 20 % for fines and 3 % for lumps during the quarter which impacted the blended realization which stood at Rs. 4,054/ton ($80/ton) in Q4FY12 compared to Rs. 4,488/ton in Q4FY11. EBITDA of the company plunged by 28 % Y-o-Y to Rs. 1,977.3 Cr in Q4FY12 compared to Rs. 2,739.1 Cr in Q4FY11. EBITDA/ton declined by 5 % Y-o-Y to Rs. 3,090/ton in Q4FY12 compared to Rs. 3,261/ton in Q4FY11. Other Income grew by 23.9 % Y-o-Y to Rs. 546.7 Cr in Q4FY12 compared to Rs. 441 Cr in Q4FY11. PAT too fell by 21 % Y-o-Y to Rs. 1,642.2 Cr in Q4FY12 compared to Rs. 2,098.6 Cr in Q4FY11. On annual basis - in FY12, NMDC’s top line impacted by 1 % Y-o-Y to Rs. 11,261.8 Cr as compared to Rs. 11,368.9 Cr in FY11 on the back of the marginal 4 % growth in sales of iron ore to 27.30 MT. EBITDA and PAT improved by 1.7 % and 11.7 % Y-o-Y during the year respectively. However, total expenditure as a percentage of sales declined 200 basis points to Rs. 2,466.1 Cr in FY12E as compared to Rs. 2,722.4 Cr in FY11. This led EBITDA whopping to 1.73 % to Rs. 8,795.7 Cr in FY12 compared to Rs. 8,646.4 Cr in FY11. This was supported by the e-auction sales of iron ore which is priced higher than market prices and the company being the only miner in Karnataka faced the iron ore ban issued on 26th August 2011 in the locality. EBITDA adjusted Other Income grew drastically by 9.75 % Y-o-Y to Rs. 10,812.2 Cr in FY12 compared to Rs. 9,852.1 Cr in FY11. PBT and PAT too grew by 10.6 % Y-o-Y and 11.7 % Y-o-Y to Rs. 10,759.4 Cr and Rs. 7,265.3 Cr respectively during FY12. The company planned capex stood at Rs. 4,655 Cr for FY13 for the capacity addition. NMDC, maintained its EPS at Rs. 18.3 per share in FY12 as compared to Rs. 16.4 per share in FY11. Over the past five years, NMDC has traded at an average EV/EBITDA of 13.7 x, compared to its current valuation of 3.8x FY2014E EV/EBITDA. Valuing the stock at 4.5 x FY2013E EV/EBITDA, a fair value of NMDC comes at Rs. 187 and recommend to Accumulate on dips. In my view NMDC could report EPS in FY13E & FY14E of Rs. 19.10 / sh and Rs. 20.90 / sh, respectively. One could buy NMDC for a medium to long term target of 187.  

KEY FINANCIALS	FY11	FY12	FY13E	FY14E
SALES (Rs. Crs)	11,369.00	11,261.00	11,959.00	13,062.00
NET PROFIT (Rs. Crs)	6,499.00	7,266.00	7,553.00	8,287.00
EPS (Rs.)	16.40.70	18.30	19.10	20.90
PE (x)	10.20	9.20	8.80	8.00
P/BV (x)	3.50	2.70	2.20	1.80
EV/EBITDA (x)	5.70	5.00	4.40	3.80
ROE (%)	38.80	32.90	27.10	24.40
ROCE (%)	50.60	39.60	32.90	29.70

I would buy NMDC LTD with a price target of Rs. 187 for Medium to Long term. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 153.00 on every purchase.

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

BRITANNIA INDUSTRIES LTD: THINK BETTER, BUY BETTER !!!

Scrip Code: 500825/ BRITANNIA

CMP:  Rs. 875.60; Buy at current levels.
Medium to Long term Target – Rs. 1010; STOP LOSS – Rs. 805.55; Market Cap: Rs. 10,481.00 Cr; 52 Week High/Low: Rs. 444.90 / Rs. 881.80

Total Shares: 11,97,00,815 shares; Promoters : 6,08,68,345 shares – 50.85 %; Total Public holding : 5,88,32,470 shares – 49.15 %; Book Value: Rs. 53.52; Face Value: Rs. 2.00; EPS: Rs. 23.09; Dividend: 425.00% ; P/E: 37.92 times; Ind P/E: 37.97; EV/EBITDA: 21.52.

Total Debt: 341.35 Cr; Enterprise Value: Rs. 10,800.50 Cr.

BRITANNIA INDUSTRIES LTD: The Company was founded in 1892 with an initial investment of Rs. 295.00 and is based in Bengaluru, India. It was earlier known as Britannia Biscuit Company and changed its name to Britannia Industries Ltd in 1979. The company is the subsidiary of Associated Biscuits International Limited. The company offered 18,00,000 shares of Rs. 10 each at a premium of Rs. 5 to the general public in the January, 1978. Britannia Industries Limited engages in the production and sale of bakery and dairy products in India and internationally. Its Bakery products include biscuits, bread, cakes, and rusk; and Dairy products comprise milk, butter, cheese, ghee, and dahi (curd), as well as milk-based ready to drink beverages and dairy whiteners. The company offers its products under various brands, including Tiger, Good Day, 50-50, Marie Gold, Treat, Milk Bikis, NutriChoice, Time Pass, Pure Magic, Little Hearts, Nice Time, Greetings, Premium Bake, and Healthy Start. It also manufactures and sells gourmet bakery products, which include specialty breads, cakes, pastries, and cookies through the company’s own retail stores under the brand name of Daily Bread. Its subsidiaries include AL Sallan Food Industries Co SAOC, Britannia Dairy Pvt. Ltd, Boribunder Finance & Investment Pvt. Ltd, Daily Bread Gourmet Foods (India) Pvt. Ltd, Ganges Vally Foods Pvt. Ltd, International Bakery Products Ltd, Sunrise Biscuits Co. Pvt. Ltd, Manna Foods Pvt. Ltd, J.B Mangaram Foods Pvt. Ltd. Britannia Ind Ltd is locally compared with Parle Products, Nestle India Ltd, Ruchi Soya Industries Ltd, Heritage Foods Ltd, Kwality Ltd, ITC Ltd, and Globally with United Biscuits of UK, ConAgra Foods Inc of USA, Kraft Food Group Inc of USA, Hershey Company of United States of America, Campbell Soup Company of USA, Dean Foods Co of USA, LaSalle Brands Co of USA, Enlightened Gourmet Inc of USA,  PepsiCo USA, Iwatsuka Confectionery Company Ltd of Japan, Bourbon Corporation of Japan, Kameda Seika Co., Ltd of Japan.

Investment Rationale:

Bakery is a traditional activity and occupies an important place in food processing industry. The bakery manufactures in India can be differentiated into Bread, Biscuits and Cakes. About 1.3 million tonnes of the bakery products industry in India is in organized sector out of 3 million tonnes whereas the rest are from unorganised and small scale local manufactures. Bakery products are an item of mass consumption which are low priced and has rapid growth. With changing eating habits of people, bakery products have gained popularity among masses. The unorganized sector accounts to about half of the total biscuit production estimated at 1.5 million tonnes. It also account for 85 % of total bread production and around 90 % of the bakery products estimated at 0.60 million tonnes, this includes pastries, cakes,buns, rusks and others. Biscuit market growth has although slowed down as indexed sales growth has registered only 35 % of earlier levels, the pace of premiumisation has also slowed down a bit, however Britannia’s premium brands straddle across price points and are affordable, enabling the company to sustain its growth in this environment. Good monsoons and Food Security bill would be seen as a boost to company’s growth rates in coming quarters. The rural India offers huge growth opportunity as Britannia’s market share in rural India is only 70 % of its urban share from the total market share of 33 %. With strong brand equity and pricing power can increase growth significantly, although the efficient and cost effective distribution remains a challenge for this company. Britannia plans a capex of around Rs. 450 Cr aiming at Bigger Units with a capacity of 15000 MT per unit; multiples lines of 3 per unit; fiscal benefits of VAT refund in Bihar and Orissa for 10 years estimated to be around Rs. 18 Cr in FY13. Britannia has reduced conversion costs by 0.90 % and overheads by 1.10 % in 1QFY14. The Cost reduction were in freight, energy (bio mass in new units), raw material sourcing (reverse auction) and distribution (integration of dairy and bakery, low volume SKU rationalisation) has led to these savings. Management is aiming at simplifying the systems and processes with focus on bigger manufacturing plants, bigger innovations, lean organisation structure and better distribution which will enable further cost reduction in coming periods as well. Volatility in input costs remains a challenge; however recent quarters show benefits of cost control measures in a stable input cost scenario. While stable input costs environment have aided this improvement, the company’s cost rationalisation efforts across the value chain have started bearing fruit. In addition to increasing premiumisation, company has worked on saving energy and distribution costs, improving revenue per employee and better manufacturing technology in its bid to improve profitability. Britannia will continue with its focus on improving margins and the management expects to maintain margins going forward as well. Stable input prices (led by a good monsoon) will also support margins. It is expected that the to expand by 2.20 % over FY13-15, led by favourable base and premiumisation benefits. EBITDA margins could see an expansion of 1.60 % over FY13-15 to 7.4 %, this margin expansion is significant given the slowing down biscuits segment (in sync with overall consumption slowdown). In the June 2013 quarter, biscuits category growth stood at one-thirds of that witnessed in June 2012 quarter. Thus, focus on profitability will enable Britannia to minimise the impact of the slowdown.

Outlook and Valuation: 

The branded packaged segment in this sector had a size of Rs. 17,000 Cr in last fiscal and is expected to grow at 13 % - 15 % in next 3-4 years. Within biscuits there are few players like Parle, ITC and Cadbury which commands about 75 % of market share. The bakery industry has achieved 3 positions in generating revenue among the processed food sector. The market size for the industry is expected to be at US$ 760 Cr by 2015, and the shining star of the sector will be Biscuits Industry. The per capita consumption of bakery products in India is very low, about 1 to 2 kgs per annum, which is comparatively much lower than the developed countries where consumption is between 10 and 50 kg per annum. The growth rate of bakery products has been tremendous in both urban and rural areas. Britannia is stepping up its rural presence as well as expanding its food and snacks portfolio to drive long-term growth. Notably, rural markets have remained fairly stable as compared to urban markets during this slowdown and hence, company’s strategy of increasing rural penetration seems to be appropriate. Improved financial health of its Dairy and International businesses will also aid growth. While an unprecedented rise in input costs remains the key risk, monetisation of its land assets at Chennai and Bengaluru will act as key stock price catalysts. Management believes that a 2.00 % decline in overheads led by reduction in energy cost, freight, distribution, proprietary technology and own manufacturing units is sustainable Key brands like 50‐50, Goodday, Mariegold and Milk Bikis which have sustained high double digit growth rates Britannia is following 3 pronged strategy based on Innovation, cost control and revenue management to drive profitable growth for the company. Company is looking forward to restructure its cost base by implementing comprehensive projects from design to delivery. Company also focuses on its revenue management by differentiating brands and differentiating pricing. Gross Margins have expanded by 2.50 %, while EBITDA margins have expanded by 3.30 %. Britannia had a strong run in the recent past at the bourses on the back of significant improvement in its profitability which has supported its financial performance in the current slowing demand scenario. The company’s strong brands, improving sales mix (in favour of premium products) and healthy cash generation are its key positives. Most analysts remain positive on the company and expect 15-18 % from current levels. Britannia is trading at 23.3 times FY14 estimated earnings and at 15-25 % discount to listed peers ITC, Nestle, Marico & GSK Consumer, largely due to low operating margin. However, due to on-going structural changes in company’s revenue and product mix, the operating margin will improve and this discount could narrow down gradually. The global baked goods market has shown rapid recovery following the economic recession, recording strong growth over recent years. Factors fuelling market expansion include convenience, affordability and health benefits of baked goods products. Demand for healthier fortified baked products has also driven sales. At the current market price of Rs. 875.60, the stock P/E ratio is at 32.55 x FY14E and 24.45 x FY15E respectively. Company’s Earnings per share (EPS) of the company for FY14E and FY15E is seen at Rs. 26.90 and Rs. 35.80 respectively. Britannia Ind could be good buy for the target price of Rs. 1010 for Medium to Long term investment.

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	4,974.20	5,615.50	6,505.10	7,603.40
NET PROFIT (₹ Cr)	186.80	233.90	321.30	427.50
EPS (₹)	15.60	19.60	26.90	35.80
PE (x)	44.90	35.90	26.10	19.60
P/BV (x)	16.10	13.00	10.60	8.30
EV/EBITDA (x)	30.40	22.90	15.60	12.00
ROE (%)	38.50	40.20	44.70	47.40
ROCE (%)	22.70	27.70	35.40	40.80

I would buy BRITANNIA INDUSTRIES LTD for Medium to Long term for target of Rs. 1010. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 805.55 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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HINDALCO INDUSTRIES : An industry leader in Aluminium and Copper !!

Scrip Code: 500440 / HINDALCO

CMP:  Rs. 142.90; Buy at Rs.135- 138 levels. 6 month Target – Rs. 200; STOP LOSS – Rs. 124.50; Market Cap: Rs. 27,357.05 cr; 52 Week High/Low: Rs. 252.85 / Rs. 128.20; Total Shares: 191,44,19,297 shares; Promoters : 61,37,97,188 shares –32.06 %; Total Public holding : 130,06,22,109 shares – 67.93 %; Book Value: Rs. 155.12; Face Value: Rs. 1.00; EPS: Rs. 11.73; Div: 150 % ; P/E: 12.20 times; Ind. P/E: 14.89; EV/EBITDA: 10.50

Total Debt: Rs. 6359.70 cr; Enterprise Value: Rs. 33,770.35 cr.

HINDALCO INDUSTRIES: The Company was formed in 1958, and based in India. Hindalco Industries Limited engages in the production & sale of aluminium and copper in India and internationally. The company operates in two segments: Aluminium & Copper. The Aluminium segment engages in the production of alumina, aluminium metal, and aluminium metal products, such as aluminium ingots, billets, wire rods, flat rolled products, foils, and extrusions. The company's aluminium units across India encompass various operations, from bauxite mining, alumina refining, aluminium smelting to downstream rolling, extrusions, foils, alloy wheels, and recycling. The Copper segment engages in the smelting of copper and the production of continuous cast copper rods, copper cathodes, sulphuric acid, dap and complexes, gold, and silver. The integrated facility at Renukoot is for an alumina refinery and an aluminum smelter, along with facilities for the production of semi-fabricated products, such as rods, flat rolled products and extrusions. The others segment engages in the production of caustic soda and provides cellular services. The company has a joint venture agreement with Mahanadi Coalfields Limited (MCL, a subsidiary company of Coal India Limited) and Neyveli Lignite Corporation Limited (NLCL) and has formed MNH Shakti Limited for mining of coal. In addition, the company along with its partners, Dubai and Hydromine, is developing an alumina project through a joint venture company, Hydromine Global Minerals GMBH Limited. The Company's subsidiaries include Novelis Belgique SA, Novelis Benelux NV, Albrasilis-Aluminio do Brasil Industria e Comercia Ltda, Novelis do Brasil Ltda, Novelis Cast House Technology Ltd., Novelis Foil France SAS, Novelis PAE SAS, Novelis Deutschland GmbH, Novelis Aluminum Holding Company, Novelis Italia SpA and Novelis (India) Infotech Ltd.

Investment Rationale: In next 4 years company expects Aluminium capacity to increase by three folds.  A Part of the phase 1 at Hirakund has been completed in which the capacity will increase to 161 ktpa. Further, in phase 2 capacities will be increased to 213 ktpa. Capacities at Utkal Alumina & Aditya Aluminium are expected to come on line by 2 half of CY2012 & early by 2013 respectively. It is expected that production & sales volume will show significant growth over FY2011 – 2014. Most of these new capacities will be backed by captive bauxite & coal mines & hence, Hindalco will have a lower cost compared to non – integrated players. NOVELIS will also to expand its capacity by 20 % by FY2014. Novelis capacity at Pinda operations in Brazil is being increased by 220ktpa by 2012 and rest will be through debottlenecking (a 3-4 % increase in capacity every year), Novelis plans to invest up to US$400 million in expansion of its South Korean aluminum rolling & recycling plant by 1mtpa. Given its stable conversion business a steady EBITDA of US$1 billion/annum from Novelis is expected. The Pinda (Brazil) expansion is on process and is expected to complete by December 2012. This will increase the flat rolled product capacity to 600 KTPA. The expansion in South Korea and North America is expected to complete by mid 2013.  The Forest Advisory Committee has rejected the forest diversion proposal for the Mahan Coal block during the quarter. The issue has been recommended to the Group of Ministers (GoM) which has been constituted for giving forest clearance. The issue will be discussed in the next meeting of GoM. The first metal from the Mahan smelter is expected to come on by the end of DEC 2011.  The forest stage II clearance for the Aditya Aluminium has been received; hence the production is expected to start by early 2013. The majority land has been acquired for the Aditya Refinery & is expected to be operational by 2014. The land acquisition has started for the Jharkhand Aluminium.  The timely completion of the projects will be the key focus for Hindalco as the new capacities coming on stream will drive the additional growth in revenue and profitability from FY13E. However, the projects have infrastructure and administrative challenges which can lead to delay in commencement of the new projects.

Outlook and Valuation:

HINDALCO posted a 16.5 % net revenue of Rs. 6031 cr in Q1 FY12 vs. Rs. 5178 cr YoY and EBITDA was up 4.2 % to Rs. 867 cr vs. Rs. 832 cr. PAT was up by 20.5 % YoY to Rs.644 cr; other income at Rs. 178 cr. Novelis posted increase in net revenue to $3,113 million in Q1 FY12 vs. $2,533 million YoY and $2,960 million QoQ due to higher LME prices. Adjusted EBITDA was up 16.3% YoY to $306 million in Q1 FY12 from $263 million in Q1 FY11 (up 9.3% QoQ). Total shipments of the aluminium rolled products were up 3% YoY to 767 KT in Q1 FY12 vs 746 KT in Q1 FY11. Demand from the auto and beverage can segments have remained strong. The total beverage can volume increased 9% YoY (2% QoQ) and accounted for 60% of the total rolled product volumes. However the non-can segment declined 5% YoY and 4% QoQ. In the electronics segment the company is facing intense competition in the foil business from the unorganised players. The segment is not performing well due to weakness majorly in Asia in the flat panel TV segments. Novelis has a capex of $67 million against the full year guidance of $550-600 million. Hindalco is well placed to benefit from its aluminium expansion plans (capacity increasing by nearly 3 folds in the next 4 years); low production cost at its new capacities and steady capacity expansion at Novelis. Due to delay in its Utkal & Aditya projects there could be lows in production and sales volume estimates for FY12 and FY13. Higher other income was due to treasury operation, return of capital from Novelis and dividend from Aditya Birla Minerals.
HINDALCO to hold its AGM on 23rd September 2011; Book closure for dividend of Rs. 1.50/sh or 150 % from 16th September 2011 to 23rd September 2011. The valuation of HINDALCO stock on SOTP (sum‐of‐the‐parts) basis, with the standalone business comes at Rs. 196 / share for FY13E. In my view HINDALCO could report EPS in FY12E & FY13E of Rs. 12.90 / sh and Rs. 18.70 / sh, respectively. I would buy HINDALCO IND LTD for the long term with a price target of Rs. 200 with the strict stop loss of Rs. 124.50  

Business Subsidiary FY13E	Enterprise Value (in Rs.Cr)
HINDALCO (Standalone)	34,935
NOVELIS	23,946
TOTAL EV	58,882
Less : Net Debt (FY13)	23,523
Value of Investments@25% discount	2,224
Value per Share	196.00

KEY FINANCIALS	FY10	FY11	FY12E	FY13E
SALES (Rs. Crs)	60,708	72,078	75,368	83,023
NET PROFIT (Rs. Crs)	4,352	2,879	2,461	3,572
EPS (Rs.)	22.70	15.00	12.90	18.70
PE (x)	6.80	10.30	12.00	8.30
P/BV (x)	1.40	1.00	1.00	0.90
EV/EBITDA (x)	4.70	6.20	7.70	6.60
ROCE (%)	20.90	10.80	15.50	15.00
RONW (%)	14.00	9.90	10.00	10.00

I would buy HINDALCO INDUSTRIES with a price target of Rs. 200 for the 6 month. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 124.50 on your purchase.