Reliance Industries : A great wealth being created.

Scrip Code: 500325 / RELIANCE

CMP:  Rs. 992.05; Buy at Rs. 930 - Rs.950 for LT.
Short term Target: Rs. 1030.00, LT – Rs. 1350
Market Cap: Rs. 3,24,659.03 cr.
52 Week High/Low: Rs. 1149.70 / Rs. 885.10

Total Shares: 327,26,07,533 shares; Promoters : 146,39,23,343 shares – 44.73 %; Total Public holding : 58,60,93,502 shares – 17.91 %; Book Value: Rs. 392.21; Face Value: Rs. 10.00; EPS: Rs. 59.95; Div: 70 % ; P/E: 16.54 times; Ind P/E: 17.80; EV/EBITDA: 11.72 .

Total Debt: Rs. 62536.25 cr; Enterprise Value: Rs. 3,87,195.28 cr

Reliance Industries out put is of 1.8 bn cubic feet of gas a day which is equal to 1,25,000 barrels of oil production per day a nearly 40 % of India’s total gas production, all comes from D6. RIL owns 2,7o,000 Sq Kilometers of exploration circles or 28 blocks.

British Petroleum (BP) global oil major has announced an historic deal with India’s largest private sector oil major Reliance Industries to buy RIL’s 30% stake in 23 oil and gas blocks on 21^st February 2011. As per the partnership deal, BP will buy 30% stake in 23 oil & gas production sharing contracts that RIL operates in India, including the producing KG-D6 blocks at $7.2 billion (Rs.44.99/$) Rs. 32400 cr, and will also form 50:50 JV for sourcing and marketing gas in India. This JV is also an attempt to accelerate the creation of infrastructure for receiving, transporting and marketing natural gas in India. RIL will get $7.2bn in 3 trenches - $2 bn as upfront payment, further $2.3 bn on completion of deal & the final payment of $3 bn in October 2011. BP could invest US $20bn in RIL which would go to Reliance Gas Transportation Infrastructure Ltd. This deal is positive for RIL as the combined expertise of both the parties would result into optimisation of producing blocks and enhancing the resources in exploratory blocks. The transaction amount gives a value of Rs. 363/share to the east coast blocks, as BP is expected to incrementally incur its share of capital expenditure into the commercialisation and development of blocks, which have already been factored in for valuation.

Outlook and Valuation

The deal is an earnings & value accretive in the long term, considering the technical expertise BP brings on table. Once the deal goes through, dip in valuation on account of shedding 30% share in east coast blocks will be offset by cash consideration and re-rating of blocks on account of synergy arising out technical expertise of both the proficient parties. This deal will put RIL in a position to be “DEBT FREE”. My view on the stock is of BUY with a price target of Rs. 1,160 when the share price is at Rs. 957.00

Y/E March (Rs. Cr)	2009	2010	2011E	2012E
SALES (Rs. crs)	1,51,224	2,03,740	2,43,815	2,83,665
NET PROFIT (Rs. crs)	14,969	15,897	19,835	22,305
EPS (Rs.)	50.3	53.4	66.6	74.9
PE (x)	19.0	17.9	14.4	12.8
PRICE/BOOK (x)	2.3	2.0	1.8	1.6
EV/EBITDA (x)	15.6	11.8	9.3	8.1

Evaluation of RIL’s east coast blocks

Prospective Basins	Estimated 2P Reserves (mmboe)
KG - Basin	2,413
MA - Oil	150
NEC - 25	793
D3	884
D9	512
Total	4,751
Value given by British Petro.
Deal Value (Rs. Cr @ Rs. 45/$)	1,08,000
EV/Share (Rs.)	363

Union Budget 2011-12 -

In this budget finance minister proposed the Minimum Alternate Tax (MAT) on Special Economic Zones (SEZ) & Limited Liability Partnership (LLP) from 1^st April 2012. LLPs will have to pay MAT at 18.5 % but will be exempted from Dividend Distribution Tax of 17 % on the dividend declared. In LLPs MAT will be known as Alternate Minimum Tax (AMT). AMT will be applicable to LLPs @ 18.5 % AMT will apply to the adjusted income & not on adjusted book profit. AMT credit is available to an LLP for 10 years. The LLPs was used by some promoters of cooperates to save tax on dividends declared by their companies. RIL promoters created 29 LLPs in August 2010 which will own 32.75 % of Reliance Industries. These 29 LLPs collectively earned Rs.750.77 cr as dividend last year saving both MAT & DDT.  But when the new AMT norm becomes affective these LLPs will have to pay tax of Rs.139 cr if the RIL maintains the same dividend rates.

CLICK HERE FOR RIL SHARE HOLDING PATTERN

UNION BUDGET 2011 - 12 : HIGHLIGHTS

GROSS DOMESTIC PRODUCT ESTIMATES IN FY12 ARE  Rs. 71,57,000 LAKH CR AND AT 2004-05 PRICES 48,86,000 LAKH CR.

TOTAL SUBSIDES AT Rs. 1.43 LAKH CR.

FERTILIZER SUBSIDIES AT  Rs. 50,000 CR,
FOOD SUBSIDIES AT  Rs. 60,500 CR
OIL & PETROL SUBSIDIES AT  Rs. 23,600 CR.

FISCAL DEFICIT AT Rs. 4,12,817 CR.

MARKET LOANS = Rs. 3,43,000 CR

STATE PF = Rs. 10,000 CR.
EXTERNAL AID = Rs.14,500 CR.

LESS OTHERS = Rs. 13,866 CR.
THE CENTER'S EXPENDITURE 2011 - 12 IS PROJECTED AT Rs. 12,57,729 Cr.

IN FLOW (Rs. in Cr)
TAX RECEIPTS	6,64,457
CORPORATE TAX	3,59,990
INCOME TAX	1,72,026
CUSTOMS DUTY	1,51,700
EXCISE DUTY	1,64,116
SERVICE TAX	82,000
TAX OF UNION TERRITORY	1,973

NON TAX RECEIPTS	AMOUNT
INTEREST RECEIPTS	19,578
DIVIDENDS & PROFITS	42,624
EXTERNAL GRANTS	2,173
OTHER NON TAX RECEIPTS	59,891
RECEIPTS OF UNION TERRITORY	1,169
TOTAL	1,25,435

NON DEBT CAPITAL RECEIPTS	55,020
RECOVERY OF LOANS & ADVANCES	15,020
MISC. CAPITAL RECEIPTS	40,000

* Out of the Tax Receipts the Centre has to keep aside States share of Rs. 2,63,458 cr & for Calamity & Contingency Fund of Rs. 4,525 crs.

OUT FLOW (Rs. in Cr)
PLAN EXPENDITURE	4,41,547
NON PLAN EXPENDITURE	8,16,182
OR
REVENUE EXPENDITURE	10,97,162
CAPITAL EXPENDITURE	1,60,567
DEFENCE	1,64,415
SUBSIDIES	1,43,570
GRANTS TO STATES & UTs	66,311
PENSIONS	54,521
INTEREST PAYMENTS	2,67,986
LOANS TO PSUs	496
OTHER GENERAL SERVICES	19,105
LESS OTHERS	368
CENTRAL PLAN	3,35,521
POSTAL DEFICIT	5,018
EXPENSES of UTs with out Legislature	3,592
NON PLAN CAPITAL OUTLAY	13,212
ECONOMIC SERVICES	25,391
GRANTS TO FOREIGN GOVT.	2,301
CENTRAL PLAN AID TO STATES	1,06,026
SOCIAL SERVICES	20,862
POLICE SERVICE	29,685

SOME MORE POINTS FROM BUDGET

à    PSU Banks to get Rs. 20157 cr in FY12.

à    Priority Home Loans up from Rs. 20 lakhs to Rs. 25 lakhs.

à    1 % Interest subvention on Home Loans of Rs. 15 lakhs.

à    FY12 disinvestment target Rs. 40,000 crs.

à    Equity Fund of Rs. 100 cr for Micro finance companies.

à    Farm GDP was 5.4 % in FY11 in GDP growth of 8.6 %.

à    To give 3 % Interest subsidy to farmers on early payment of loans.

à    To allow Foreign Direct Investments in Mutual Funds.

à    Cold Storage Chains will be given Infrastructure status.

à    Exemption of Rs. 20,000 on investment in Infra bonds continued for 1 more year.

à    Tax free bonds of Rs. 30,000 cr for Infrastructure sectors to be declared.

à    Rural infra bonds of Rs. 18,000 cr to be declared.

à    Social Schemes allocate Rs. 58,000 crs.

à    Education sector allocated Rs. 52,057 cr up by 24 % in FY12.

à    Corporate surcharge reduced from 7.5 % to 5 %.

à    Dividend from foreign subsidiary to Indian companies down from 30 % to 15 %.

à    Minimum Alternate Tax raised from 18 % to 18.5 % of Book profit.

à    Developer of SEZ & SEZ operators, LLPs brought under MAT.

à    Ship owners allowed duty free import on spare parts.

à    Custom duty on imports of Micro irrigation systems down from 7.4 % to 5 %.

à    10 % Excise duty on Branded garments

à    20 % Ad volerm export duty on Iron ore.

à    NO Excise duty on Ultra Mega Power Projects equipments.

à    Air Conditioner restaurants serving liquor, hotels charging Rs.1000/day will attract Service Tax.

à    Service Tax on Domestic Air tickets Rs. 50, & on international tickets Rs.250

Jain Irrigation Systems Ltd : Best AGRI Sector BUY.BUDGET STOCK

Scrip Code: 500219 / JISLJALEQS

CMP:  Rs. 207.75; Buy at Rs. 200 - 206 levels.
Short term Target: Rs. 230.00
Best buy : At Rs. 180 - Rs. 195 , LT - Rs. 350. Market Cap: Rs. 7,921.3 cr.
52 Week High/Low: Rs. 258.5 / Rs. 157

Total Shares: 38,11,86,460 shares; Promoters : 11,72,43,245 shs – 30.76 %; Total Public holding : 26,15,17,545 shs – 68.61 %;

Book Value: Rs. 35.18; Face Value: Rs. 2.00; EPS: Rs. 7.95; Div: 45 %.

P/E: 26.14 times; Ind P/E: 29.62; EV/EBITDA: 14.79
Total Debt: Rs. 8,942.25 cr; Enterprise Value: Rs. 48,656.54 cr

Jain Irrigation Ltd has multi product industrial profile & manufacturers Drip and Sprinkler Irrigation Systems and Components; PVC, Polyethylene (HDPE, MDPE) & Polypropylene Piping Systems; Plastic Sheets (PVC & PC sheets); Dehydrated Onions and Vegetables; Processed Fruits; Tissue Culture, Hybrid & Grafted Plants; Greenhouses, Poly and Shade Houses; Bio-fertilizers; Solar Water Heating Systems and Solar Photovoltaic Appliances (Solar lighting systems) and Bio- energy sources. Company renders consultancy for complete or partial project planning and implementation e.g. Watershed or Wasteland and / or Crop Selection and Rotation.

About Company - It is the market leader in micro irrigation systems (MIS) in India with over 50 % market share. Having been present in this segment for more than 15 years, there is very strong association of the company with MIS in rural India. Its dealer and sales network is also significantly larger than any of its competitors. As a result, Jain Irrigation is expected to retain its market leadership in the future. MIS alone contributes to more than 50% of its revenues and 70% of EBITDA. Due to its large subsidy business, management of working capital cycle has been a key concern for Jain Irrigation and is a risk to its growth. However, the company has now started factoring its receivables, which should help keep working capital cycle in check. JISL is the biggest player and controls over 1/3rd of the market in drip irrigation, second is Netafim from Israel, Finolex Plasson, Premier Irrigation Adritec.

Future scope of business -  So far only about 4.5 mn hectares (ha) has been brought under MIS compared to government target of 18 mn ha by FY12 and addressable area of 70 mn ha. The government subsidies a minimum of 50% of cost of installation and budget allocation to MIS has been in increasing trends. In FY11, central budget allocation was more than doubled to Rs.1000 cr and recently it was accorded “National Mission” status, which assures funding under the government’s 5-year plan. Government funding for MIS is only likely to go up - MIS is a relatively low hanging fruit for the government in its effort to improve farmland productivity. The MIS market in India is at Rs. 2700 - Rs. 3000 cr, 3/4th of which is for drip irrigation which helps to save water & fertilizer. Agriculture consumes 80 % of water in the country & it makes sense to use drip & sprinkler irrigation systems. In February 9th M&M entered into micro irrigation sector by acquiring 38 % stake in 30 year old Nashik based company EPC for around Rs. 43 crore, M&M will give an open offer of additional 20 % stake in EPC on April 6th. 

Valuations and outlook

JISL has plans to raise Rs. 700 cr through QIP to repay its debt, to provide capital to its new NBFC and to support its future growth. Company believes that fund raising would happen in the next 3-4 months, depending upon the financial market conditions. I have not considered any equity dilution in my estimates. Company declared 1 bonus DVR SHARES (JISLDVREQ DVR shares ) on every 20  Equity Shares held. DVR with 10 % voting rights (click here for DVRs). I therefore recommend Buy and accumulate Jain Irrigation at every dip. My views are positive on the business of JISL and their future prospects on the back of untapped potential of MIS, agricultural business model and strong domestic presence. At present with the drip irrigation market is growing 40 % annually, stock is trading at 22.3x at FY12E EPS as against its historical one - year forward trading band of 10 x 32x. I recommend BUY on the stock with the target of Rs. 350.00

KEY FINANCIALS	2010	2011E	2012E	2013E
SALES (Rs. Cr's)	3,439.7	4,425.6	5,164.2	6,028.1
NET PROFIT (Rs. crs)	245.7	277.4	366.8	489.3
EPS (Rs.)	6.5	7.3	9.6	12.8
PE (x)	33.2	29.5	22.3	16.7
PRICE/BOOK (x)	6.6	5.5	4.5	3.6
EV/EBITDA (x)	16.8	13.6	11.5	9.5

I recommend BUY on the stock with the target of Rs. 350.00 for the long term.

For short term if one wants to play Budget -  Buy at Current Market Price with the target of Rs. 230, But please do keep a STRICT STOP LOSS OF 8 %. 

For LONG term investors BEST buy is at Rs. 180 - 195.

LARSEN & TOUBRO :GREAT BUSINESS

Scrip Code: 500510 / LT

CMP:  Rs. 1556.10; Buy at Rs. 1450 - 1500
Short term Target: Rs. 1800
Market Cap: Rs. 94,764.5  cr.
52 Week High/Low: Rs. 2212.70 / Rs. 1410

Total Shares: 60,78,05,009 shares. Public holding – 21,41,87,305 – 35.24 %

Book Value: Rs.300.50; Face Value: Rs. 2.00; EPS: Rs. 61.04; Div: 625 %.

P/E: 25.50 times; Ind P/E: 16.56; EV/EBITDA: 14.44
Total Debt: Rs. 6,863.95 cr; Enterprise Value: Rs. 1,02,511.17 cr

 LARSEN & TOUBRO – L&T is India’s largest conglomerate. One of the largest company diversified into Power, Nuclear, Hydrocarbons, Cements, Critical Engineering’s, Procurement, Construction (EPC) businesses. It also operates & handles roads, railways metros, bridges, ports, airports infrastructure projects. Company is also into power Transmission & Distribution (T&D) , equipment manufacturing (switch gears), Finance & IT software.

  

I initiate my coverage on L&T with Buy, on the back of its robust core businesses, infrastructure opportunities and potential for value unlocking in its subsidiaries. Core business would drive earnings, as it has robust order book and good revenue visibility. Subsidiaries in IT Services, Financials and Infra would be valuation triggers. The infra-led growth would also be backed by growing portfolio and geographical reach via JVs/acquisitions. Good revenue visibility. L&T is geared to meet growth guidance of 20% in sales in FY11, given its robust order book of Rs. 1.1trn (3.1x FY10 standalone sales; up 26% yoy), orders (Rs. 494bn; up 8% yoy in 9MFY11), and pick up in execution. JVs/acquisitions to expand portfolio and market reach. Increased presence in key infra segments (thermal, nuclear power, oil & gas, ports), power equipment manufacturing and geographies would complement core competency in EPC. Value unlocking in subsidiaries. Revival in IT business and high growth in financial services and infra development would be

catalysts for valuations upside. L&T’s financial services arm is likely to get listed by FY12, followed by other subsidiaries.

Valuation -  

My long term target price is Rs. 2,040 –core business at Rs. 1,564 based on 22x FY12e EPS; subsidiaries and other businesses at Rs. 476. The only key risks are lagging in execution of orders and slow revival in industrial Capex and exports.

YE31 MARCH	FY09	FY10	FY11E	FY12E	FY13E
SALES (Rs. crs)	40,511.1	43,969.8	53,082.8	64,773.2	79471.6
NET PROFIT (Rs. crs)	2,907.8	3,324.4	4,174.4	5081.9	6,399
EPS (Rs.)	47.9	54.8	68.8	83.7	105.4
PE (x)	34.8	30.4	24.2	19.9	15.8
PRICE/BOOK	6.7	4.6	4.0	3.4	2.9

PUNJ LLOYD LTD : ONE MORE VALUE PICK

Scrip Code: 532693 / PUNJLLOYD

CMP:  Rs. 91.25; Buy at current levelsTarget: Rs. 100.00. Long Term : Rs. 200.00Market Cap: Rs. 3,030.37 Cr. 52 Week High/Low: Rs. 188.6 / Rs. 90.05

Total Shares: 33,20,95,745 shares; Promoters : 123373635 shares – 37.15 %; Total Public holding :20,87,22,110 shares – 62.84 %; Book Value: Rs. 107.71; Face Value: Rs. 2.00; EPS: Rs. 7.21; Div: 7.5 %; P/E: 12.65 times; Ind P/E: 13.97; EV/EBITDA: 8.05

Total Debt: Rs. 3,503.00 Cr; Enterprise Value: Rs. 6,533.37 Cr

FAIR VALUE : Rs. 155.00

Punj Lloyd Ltd – The company was founded in 1988, headquartered in New Delhi, India. The company is engaged in providing integrated design, engineering procurement, construction and project management services for energy and infrastructure sector, operates in four segments: Energy, Civil and Infrastructure, Power and Renewable. Its Energy segment comprises process plants, pipeline and tankage. Its Power segment provides Thermal power plants in India, up to 660 megawatt. Civil and Infrastructure business is carried on in India and Middle East & North Africa (MENA) through Punj Lloyd Ltd., whereas Sembawang Engineers and Constructors Pte Ltd. and its subsidiary has its operations spread across the Middle East, Africa, the Caspian, Asia Pacific and South Asia. Punj Lloyd provides engineering procurement construction (EPC) services in Oil & Gas, Process, Civil Infrastructure, and Thermal Power.

Whats the News?

Punj Lloyd has bagged three orders (two international and one domestic) aggregating to Rs. 645cr. The first order is worth Rs. 323 Cr from petroleum company Occidental Mukhaizna, Oman involves EPC of a new water treatment plant. The second order for Rs. 271cr is from an Indonesian oil company Pertamina for the construction of three well head platforms and lying of offshore gas pipeline. The third contract from GAIL worth Rs. 51cr is for laying a 112km long pipeline. This is positive for the company as the order inflow for 2QFY2011 was disappointing at Rs. 1,030cr and this order further enhances the revenue visibility, taking the outstanding order book to Rs. 29,171cr (3.2x FY2011E revenue).

The stock is down (50%) over the last 12 months, which I believe has brought it to a superb valuations giving the company’s scale of operations and the opportunities that lie ahead. Against this backdrop, it is expected that the stock will outperform over the medium to long term. Hence, maintain a Buy on the stock with a Target Price of Rs. 117- Rs. 120.

The execution of the Libyan orders was delayed significantly and this has hit the earnings in the last few quarters, as the Libyan orders form 38% of the company’s order book. Work on some of these projects began during Q1FY2011 and in Q2FY2011 the company started booking some revenue related to these projects. The management expects revenue booking to gain momentum in another 6 to 9 months. It is believed that the revenue booking from the Libyan projects during the quarter is a positive sign and provides visibility of a healthy growth in the revenue from the Libyan orders after 2 to 3 quarters as these form 38% of the total order book of the company.

Valuations and outlook - 

At the current market price of Rs. 91.80, the stock is trading at 8.9x FY2012E earning per share (EPS). PLL is present in some of the high-growth sectors (infrastructure, petrochemicals etc), which are expected to receive heavy investment in the coming years. Further, the revenue visibility from the Libyan orders is a good sign and will bring cash for the company. However, the order execution for the company has been slow in recent quarters, which is a cause for concern. Though the losses on account of the Ensus project are over, there might be more cost overruns/liquidated damages in the company’s other projects. Further, the order intake has not been very robust and this could affect the revenue growth. Stock could be bought with the price target of Rs117 (11.45x FY2012 estimates), factoring in the delay in the execution of the Libyan orders. The key risks to this call are further slowdown in order execution and cost overruns/liquidated damages in the company’s projects. In Q2FY2011 PLL secured orders to the tune of Rs1,164 Cr, which takes its order book to Rs. 25,470 crore—2.5x FY2010 revenues. 

You are getting junior L&T at discount to its Book Value of Rs. 107 and at 12x its earnings; fundamentals are strong; 100 % appreciation at least by 2012.

START playing with stock, Buy at Rs. 90.91 sell off at Rs.100 -107, again buy at sub 100 levels. KEEP A STOP LOSS OF 8% STRICTLY, when ever you buy any stock....

RESULTS ON 7th FEB 2011 - Expectation - good results

MUNDRA PORT & SEZ : A VALUE BUY

Scrip Code: 532921 / MUNDRAPORT

CMP:  Rs. 140.00; Buy at Rs.130 - Rs.135; Target: Rs. 176.00; Market Cap: Rs. 28,047.51 cr. 52 Week High/Low: Rs. 185.25 / Rs. 114; Total Shares: 200,33,94,100 shares; Promoters : 163471449 shares – 77.22 %; Total Public holding :48206111 shares – 22.77 %; Book Value: Rs. 17.41; Face Value: Rs. 2.00; EPS: Rs. 3.89; Div: 40 %. P/E: 35.98 times; Ind P/E: 23.14; EV/EBITDA: 28.00

Total Debt: Rs. 3,706.25 cr; Enterprise Value: Rs. 30,671.84 cr

Mundra Port and Special Economic Zone (MPSEZ) is one of India’s leading private ports with a current cargo handling capacity of 70mt. In addition, the company will install another 65mt of cargo handling capacity in the next 12 months. Moreover, MPSEZ has 24,000 acres of land, of which 16,000 acres have been notified as SEZ land.

Well set to benefit from expected rise in external trade Mundra Port and SEZ’s (MPSEZ) port infrastructure is amongst the best in India, which should help it capitalise on the expected rise in external trade. In the next few years, sharp rise in coal traffic will help MPSEZ post a 35% CAGR in traffic handled at the port over FY10−FY13E, which will lead to a 35% CAGR in its revenues over this period. It is also expect land sale in the SEZ area to pick up, although clarity on the tax treatment for the SEZ remains an overhang. The March ’12 target price stands at Rs 175/sh, which comprises Rs 122/sh for the Mundra port, Rs 34/sh for the SEZ, Rs 10/sh for other port concessions and Rs 8/sh for liquid investments and cash. Potential opportunities for port development in India and international geographies can lead to further value creation. Initiate BUY for MPSEZ. Port capacity will nearly double over next one year: MPSEZ’s port infrastructure is one of the best in India with deep draft, excellent road/rail connectivity, proximity to north India (as against Mumbai-based ports) and a large storage area. Currently, MPSEZ has a handling capacity of 70mn tonnes (mt) with a 15mt single point mooring (SPM), 25mt bulk and 30mt container cargo capacities. It will add another 65mt in the next 12 months—50mt of the integrated coal terminal and a 15mt SPM facility (referred to as SPM-II). We are also building in another 110mt capacity to be added over the next decade. Rise in coal, crude imports to drive near-term traffic growth: MPSEZ will commission its 50mtpa integrated coal terminal in Q4FY11. This will cater to the coal import requirement of Tata Power (for its 4,000MW Mundra UMPP) and Adani Power (4,620MW Mundra power plant). In addition, MPSEZ will handle crude imports to be used for the 9mtpa Guru Gobind Singh refinery (GGSRL), expected to be commissioned in H2FY12. These imports (coal and crude) will account for a sizable portion (39mtpa) of incremental traffic at the port. SEZ land sale to pick up in H2: MPSEZ has 24,000 acres of land, of which 16,000 acres have been notified as SEZ land. In addition, another 8,000 acres of land are in various stages of transfer. While MPSEZ has not seen any sale of SEZ land in H1FY11, It is understood that it is looking to consummate sales of 240 acres in H2FY11. A key risk on the SEZ business is the potential removal of tax concessions for SEZ developers and units under the proposed Direct Tax Code. It has revenue/earnings CAGR of 35 % & 30 % over FY10-FY13E; the Mar ’12 SOTP-based target price stands at Rs 175/sh.  A key upside risk can come from value creation in new port projects that MPSEZ is exploring in India and overseas. Downside risks can emanate from any changes in the tax rules for SEZ developer and units.

Valuation matrix 

(X) Times	FY 10	FY 11 (e)	FY 12 (e)	FY 13 (e)
P / E @ CMP	43.7	32.4	23.2	20.0
P / E @ TARGET	52.0	38.6	27.7	23.8
EV / EBITDA @ CMP	28.0	23.5	16.0	12.9

SUZLON's chances of bankruptcy is LESS.....

People are talking about SUZLON ENERGY's bankruptcy & that the company cant service its debt in time ...blah blah...blah...Now they know the difference between a good asset company & bad asset company and still they talk like this shame....

ANYWAYS...here's what I feel about Suzlon, agreed that it has the debts of Rs.9,252 cr & Reserves of Rs.5,892 Cr.(which can take care of losses).

As for the question on loans repayments then here's the answer –

Suzlon took loans for acquisition of Hansen & REpower a german base company. They sold some of the stake in Hansen but they eventually raised their stake in REpower by 14.4 % to current 90.50%.

Share holding Pattern of Click  REPOWER AG -

SUZLON	90.50 %	83,25,845.245 Shs
FREE FLOAT	9.50 %	8,73,983.755 Shs
TOTAL	100 %	91,99,829 Shs

Current Market Price of REpower – 114.5 Euros/Sh (JAN 12 2011)(58.72/1Euro)

The Free float of REpower is 9.5% - 8,73,983.755 Shs = 100.07 m Euros, around Rs.587.62 Cr, According to German laws Suzlon has to buy the entire 9.5 % of REpower in order to integrate REpower’s assets into itself.

NOW , REpower has Total Asset of 1,032.62 m Euros; Shareholders Fund – 475.97 m Euros, EPS – 6.34 Euro/Sh; Dividend paid 1.54 Euro/sh; Total debt of 556.6 m Euros; Debt/Eq – 0.40. NP – 57.93 m Euros.

So, my friend SUZLON adds Rs.2794.89 Cr to its books by just paying Rs.587.62 Cr.Suzlon's debts of Rs.9,252; Reserves of Rs.8686.89 Cr (5,892 + 2794.89 of Repower); D/E ratio will be 1.05. NOT BAD..

The stake buy of REpower’s 9.5% will cost Rs.587.62 cr which is possible as Suzlon has recently completed its rights issue of Rs.1180 cr & has restructured its debts .. Off course this may take long time, say up to a year but fundamentals will improve once this REpower stake is bought..

NOW WHAT YOU THING ABOUT THISSSS

Here are some details of REPOWER AG - CLICK HERE

	Fiscal 2009/10 (m Euros)	Fiscal 2008/09 (m Euros)
SALES	1,303.5772	1,209.0907
EBIT	98.316	76.8988
PBT	83.85	76.5526
NET PROFIT	57.9303	51.9365
Total Asset	1,032.6242	928.3723
Share Holders Equity	475.9717	408.34
Number of Shares (1 Euro)	9199829 shs	9177039 shs
EPS	6.34 Euro	5.75 Euro
Total Dividend	14.44373153	NIL
Opert. Cash flow	119.3
TOTAL DEBT	556.6
Net Working Capital	195.6
Net W.Capital Ratio	14.8 %
Share holders fund	464.498048
Minority Interest	11.473691
Revaluation Reserve	0.776
Retained Earnings	147.707203
Cash	211.719

My previous post on SUZLON CLICK - http://bhavikkshah.blogspot.com/2010/12/suzlon-on-restructuring-merges.html

GITANJALI GEMS LTD - Buy on every Dips

Scrip Code : 532715 / GITANJALI

CMP :  Rs. 210.85; Buy at Rs. 190-195
Target: Rs. 370.00 - DIWALI 2011
Market Cap : Rs. 1776.83 cr
52 Week High/Low : Rs. 394.95/Rs. 92.55

Total Shares : 84270000 shares; Promoters : 45472424 shares – 53.95 %; Public holding : 9754593 shares – 11.58 %

Book Value : Rs. 241.60; Face Value : Rs. 10; EPS : Rs. 20.99

P/E : 10.08 times; Ind P/E : 12.73; EV/EBITDA : 12.65
Total Debt : Rs. 1601.46 cr; Enterprise Value : Rs. 3384.28 cr.

Gitanjali Gems Ltd - Gitanjali Gems is one of the largest manufacturers and retailers of diamonds and jewellery in India. It sources rough diamonds from various primary or secondary sources then engages in the cutting and polishing the rough diamond for export to the international market as well as manufacture and sale of diamond and other jewellery through its retail operations in India and abroad. The company was started in 1966 as a partnership. It came with an IPO in the year 2006 with 1.70 cr shares at the price band of Rs.170 -195. The demand for diamond and jewellery products is largely dependents 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 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; Gili - 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 crore (Nakshatra), Rs.468 crore (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.

Recently, Gitanjali Gems Ltd. (GGL) is in talks with global PE investors Blackstone and CX Partners to divest 10 % of equity to raise $100 million in its restructured jewellery brand holding company. According to sources, in a separate valuation prepared by these PE players, the holding company is valued at close to Rs 5,000 crore, three times the current market capitalisation of Rs 1,700 crore of the entire group. Sources say, around Rs 50 crore will go to the GGL account, while the remaining Rs 400 crore will be re-invested in the company for working capital and inventory build up.

So the question comes that how the subsidiary would have a higher valuation than the parent company? The answer may be that the subsidiary would be a low-debt company, with a minimum working capital cycle, along with high possibility of return on investment. Considering half of the PE multiple of the industry leader, Tanishq, the valuation could be much higher. GGL’s current book value is close to Rs 2,200 crore. This company is in a low margin business because of raw material costs, which is Gold. Now Gitanjali holds gold stock from 11000 levels, so no more margin pressure from raw material side till now. 

On 28^th December 2010 - Promoter Mr.Mehul Choksi bought 15113 shares at Rs.195.75/sh, making his holding to 38274421 shares a 45.42%.   

On 29^th December 2010 - Promoter Mr.Mehul Choksi bought 100000 shares at Rs.213.57/sh, making his holding to 38374421 shares a 45.54%. 

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FMP's Better than Bank FD's

Fixed Maturity Plans are being offered by various banks now a days, So what are these FMP's ?


A Fixed Maturity Plans (FMP) is that instrument which invests in bank Certificates of Deposits (CD) & which are compared with bank FDs & a FMP that invests in corporate debt are compared with fixed deposits of corporates of similar rating of credit.

FMP's also invests in Debt & money market  instruments- typically AAA rate corporate bonds. The tenure's are around One year & almost 100 % of their funds are invested in Commercial paper (CP) & CD's. These CP's & CD's rates tend to shoot up in a raising interest rates regime, making FMP investment more attractive. Fund managers of  FMP's does not need to Buy/Sell the instrument on continuous basis, which means low management fees.

FMP's have a minimum investment of Rs 5000. Capital gains on FMP will be short term capital if hold for less than 1 year and at short term capital tax rate, which is clubbed to your income for that year and taxed according to the tax bracket you fall in. If you hold for more than 1 year than long term capital gain tax will be applicable

Whereas in FD's the tax on income is based on the tax slab the investor is in (which can be as high as 31%) the investor can earn tax free dividends (subject to dividend distribution tax of 14 % for retail investors & for corporates 22 %). So if you are in top tax bracket then the capital gain on that FMP will be taxed accordingly. Indexation method will apply to FMP's if holded over a year. So I would prefer to go for 2 year FMP rather than 1 year as they give better tax adjusted returns.

PRAJ Industries Ltd : A Value BUY!!!!

Scrip Code: 522205 / PRAJIND

CMP: Rs. 70.60; Buy at Rs. 68 - 70 levels

Target: Rs. 76.00

Market Cap: Rs. 1304.25 cr.

52 Week High-Low: Rs. 113/Rs. 63.90

Total Shares: 18,47,38,492 shares; Promoters – 4,21,06,432 shares – 22.77 %;

Total Public holding – 6,52,37,191 shares – 35.31 %

Book Value: Rs. 28.82; Face Value - Rs. 2.00; EPS - Rs. 3.69; Div – 72.00 %.

P/E – 19.08 times; Ind P/E – 23.98; EV/EBITDA: 9.73

Total Debt – ZERO; Enterprise Value: Rs. 70.50 per share;

FAIR VALUE – Rs. 77.00 per share.

PRAJ INDUSTRIES -  A global green technology provider,an Ethanol manufacturer, A ZERO DEBT company, having a confirmed order-book of Rs 600cr to be executed over 12-14 months period. Offers a very good Value buying opportunity. US senate has passed the law making 15% ethanol mixing mandatory for Oil companies. This move by US will create demand for additional bio refinery capacity of approx 4 Bn gallons per annum. Capex required would be of  $ 1.75 for each gallon of bio refinery capacity created. Thus this move will be an business opportunity of USD 7-8 Bn for Praj Industries. Company have started receiving enquiries for the same. US has promoted this law for employment generation in this business. Praj will be able to win good chunk of this business.

Management has decided to restructure its business plans. Accordingly the company has the current structure of Plant & Equipment for Ethanol and Breweries; Consultancy services to brewery & Ethanol industries.

Company will be entering into newer business lines to capitalize on its domain expertise –

Water and waste water treatment: The Company has already started with 50 man team for this business unit. The team comprises of people with relevant experience in the field. Praj has hired AT Kerney for detailed business plan and the consultant will be handing over the same to the management in next 1-1/2 month. The company has won small order in water and waste water treatment space Kerney. As per the estimates current market size in India for water and waste water treatment business is to the tune of USD 1.7 Bn per annum.

Customised Engineering and manufacturing: Company’s facilities are approved by key customers like General Electric Inc and Cargill and all their global units can source their requirement from Praj. The company has won a small order in this segment as well. The key thing to be noted here is that there are huge untapped opportunities both domestically & globally and estimated market per annum to the tune of USD 3.5Bn to USD 4 Bn. Key players in this space are L&T, Godrej & Boyce. Praj’s advantage is in customization of equipment as per clients specification. To tap this opportunity, company is erecting a new facility near Satara Road, approx 30 Km from Pune and they have facility at Kandla SEZ as well. They will be serving overseas market from Kandla facility while domestic market will be serviced from Satara facility. Their Kandla facility has been approved by GE Power, GE Oil, Cargil etc and they have registered themselves with 50 companies and are qualified to supply plants and equipments to them. Company will be spending approx Rs 100 cr to set up Satara facility.

Valuation &amp:

At the CMP of Rs 70.60, Praj is trading at 19.28 x FY11e EPS of Rs 3.66 and 9.67 FY12e EPS of Rs 7.30 which looks very attractive.

The Value of Praj at 15x FY12e EPS of Rs 7.72, gives the target price of Rs 116, an upside of 63%.

Mr. Promod Chaudhari (Promoter) has bought 14,73,379 shares from market on 25th & 26th November 2010 at an Avg price of Rs. 69.27 per share.

Ms. Parimal Chaudhari (Non Executive Director) has bought 3,25,050 shares from market on 9th & 10th of December 2010 at an avg.price of Rs.69 per share.

Mr. Promod Chaudhari lastly bought 4,34,200 shares from the open market on 9th & 10th December at an avg. price of Rs. 69.27 per share totaling to Rs. 3,00,77,627.45

As on 13th December 2010 – Mr. Chaudhari holds 3,15,00,000 shares 17.05%