ZEE Entertainment Enterprises Ltd : Offering growth opportunities !!

Umeed Se Saaje Jindagi

Scrip Code: 505537 / ZEEL
CMP:  Rs. 134.00; Buy at Rs. 120 - 126.00 levels; Short term Target: Rs. 150, 6 Month target – Rs. 200 ; STOP LOSS - Rs.110; Market Cap: Rs. 13,107.11 cr. 

52 Week High/Low: Rs. 164.33 / Rs. 105.80
Total Shares: 97,81,42,930 shares; Promoters : 41,84,72,440 shares –42.79 %; Total Public holding : 55,96,03,690 shares –57.21 %; Book Value: Rs. 29.69; Face Value: Rs. 1.00; EPS: Rs. 5.92; Div: 200 % ; P/E: 27.11 times; Ind P/E: 21.27; EV/EBITDA: 20.48

Total Debt: Rs. 268.01 cr; Enterprise Value: Rs. 29,409.98 cr

ZEE Entertainment Ltd was founded in the year 1982, based in Mumbai. Company was formerly known as Zee Teleflims Limited and changed its name to Zee Entertainment Enterprises Limited in January 2007. ZEEL, together with its subsidiaries, operates as a vertically integrated media and entertainment company in India. It operates in three segments: Broadcasting and Content, Education, and Film Production. The Broadcasting and Content segment develops, produces, and procures television programming and film content, and delivers through satellites, cable, and Internet. It broadcasts channels, such as Hindi general entertainment channels and regional language general entertainment channels, Bollywood channels, sports channels, English entertainment channels, alternate lifestyle channels. Company earns revenues by the way of advertisement and subscription revenues and syndication The Education segment engages in distribution of software learning products; and provides education and training in information technology. The Film Production segment produces and distributes films. The company has a library housing approximately 80,000 hours of television content; and rights to approximately 3,000 movie titles. Effective March 29, 2010, Zee News Ltd. demerged its Regional General Entertainment Channel Business Undertaking and transferred its operation to Zee Entertainment Enterprises Limited It has operations in India, the United States, Canada, Europe, Africa, the Middle East, Southeast Asia, Australia, and New Zealand.

Investment Rationale:

Zee - Turner signed a distribution JV with Star-Den which will be a game-changer, as it will significantly increase the bargaining power with local cable operators. Company’s subscriptions will be strong after this JV with Star Den which will also set up a Media Pro Enterprise India which will be 50:50 partnerships between Zee Turner and Star Den Media Services, for combined distribution of TV channels. ZEE and Star networks together controls 40 % - 45 % of viewer ship share.  The JV will be effective from July 2011 and the subscription revenue would be visible from FY13. It is expected that a 17 % Y-o-Y growth will be seen in analog subscription revenue for ZEE in FY13 as against an estimated 5 % growth in FY12. Recently on 19th June 2011, Zee unveiled its new brand identity by a new logo & a new slogan with the objective of taking forward of progressive outlook for the channel. Zee Entertainment Enterprises (ZEEL) announced a share buyback programme that will have a cash outflow of up to Rs. 700 cr. The buyback would be of its fully paid-up equity shares of face value Re.1.00 each, at a price not exceeding Rs. 126.00 per equity share. ZEEL proposes to buyback a minimum of 1.26 crore shares. The Maximum Buyback Size is within the company law limit of 25% of the aggregate of the Company’s paid-up equity capital and free reserves as on March 31, 2010. The aggregate paid up equity share capital and free reserves of the Company as at March 31, 2010 was Rs. 2,818.33 Cr. The date of opening of Buyback offer is July 27, 2011 and will end at March 23, 2012.

Concerns regarding margin pressure:

Margins are likely to be under pressure, it is believed that there could be a pressure on core business margins, as volumes will slowdown coinciding with the ramp-up in original programming hours. Original Programming Hours for the flagship channel like Zee TV has increased from 24 hours per week to 29.5 hours per week and the management targets to increase original programming hour further to 33-35 hours per week by March 2012.  On the contrary, Star Plus is currently running at original programming hours of 40 hours per week while Colors is at 30-31 hours per week.

Outlook & Valuation:

Though there are visible signs of slowdown in ad growth likely due to macro slowdown and a pause in ad spends after the spending of Rs.1,500 cr on cricket season (ICC Cricket World Cup + Indian Premier League). While there is no indication of a cut in ad-budgets as yet, advertisers have turned more cautious, thus impacting advertising volumes. A buy back & 11 % ad revenue growth in FY12 and 12 % growth in FY13 makes a buy in ZEEL with a target price of Rs. 150 The stock trades at 20x FY12E EPS of Rs. 6.70 and 16.5x FY13E EPS of Rs. 8.2 with a price target of Rs. 150 (18x FY13E EPS). I believe that buy back will be EPS accretive by 1.288 %. 

Result Update:

Zee Entertainment Enterprises Ltd (ZEEL) posted 13.28 % decline in its consolidated net profit at Rs. 130.16 Cr for the first quarter ended June 30, 2011. In the same quarter of the previous fiscal, the company’s net profit was Rs. 150.10 Cr. For the three months ended June 30, 2011, the company’s consolidated sales increased 3.14 per cent to Rs 698.30 crore compared with Rs. 676.99 crore in the same quarter of 2010—11. The company’s advertising revenues increased 0.5 % during the quarter to Rs. 378.74 crore (Rs 376.91 crore). As said earlier, with the onset of festival season, the company is expecting to see normalcy in advertising spends. ZEEL’s subscription revenues increased 16.7 % during the first quarter of the current financial year to Rs. 305.09 Cr v/s Rs. 261.42 Cr in the same quarter last fiscal. Zee final Dividend of 200 % i.e Rs. 2.00 on 28th July 2011, AGM on 10th Aug 2011. Book Closure from 30th July 2011 to 5th Aug 2011  

KEY FINANCIALS	FY10	FY11E	FY12E	FY13E
SALES (Rs. crs)	2,196.60	2,941.40	3,238.20	3,674.30
NET PROFIT (Rs. crs)	468.60	570.00	660.20	803.10
EPS (Rs.)	5.20	5.80	6.70	8.20
PE (x)	25.80	23.20	20.00	16.50
P/BV (x)	3.50	3.10	2.80	2.60
EV/EBITDA (x)	21.00	17.10	14.30	12.00
RONW (%)	13.00	13.80	14.40	16.20
ROCE (%)	17.80	19.50	21.2	23.80

I maintain my buy status on ZEE Entertainment Enterprises Ltd with the price target of Rs. 150 in short term. For long term my target is of Rs. 200. As I always say do respect the market and keep a strict stop loss of 8 % or Rs. 110 on your every purchases.

BERGER PAINTS : Paint your Imagination !!!

Scrip Code: 509480 / BERGEPAINT

CMP:  Rs. 101.45; Buy at Rs. 95 - 100 levels.
Short term Target: Rs. 105, 6 month Target – Rs. 115; STOP LOSS – Rs. 87.40; Market Cap: Rs. 3,510.90 cr; 52 Week High/Low: Rs. 123 / Rs. 73.50.

Total Shares: 34,60,72,464 shares; Promoters : 26,15,89,683 shares –75.59 %; Total Public holding : 8,44,82,781 shares –24.41. %; Book Value: Rs. 22.35; Face Value: Rs. 2.00; EPS: Rs. 4.29; Div: 55 % ; P/E: 23.55 times; Ind P/E: 33.04; EV/EBITDA: 17.90.

Total Debt: Rs. 24.57 cr; Enterprise Value: Rs. 3,590.50 cr.

BERGER PAINTS INDIA LTD was founded in 1760 but started its business in Kolkata, India in the year 1923. The company has undergone many change of hands - In 1947, it was acquired by British Paints (Holdings) UK, which renamed the company as British Paints (India). The UK Company was then acquired by Celanese Corporation, which later sold the Indian company to Berger, Jenson Nicholson Ltd in 1969. In 1983, the company was renamed as Berger Paints India and it started using the trade name of Berger. Berger Paints engages in the manufacture and sale of various decorative and industrial paints in India and internationally. The company’s products include synthetic enamels, acrylic emulsions, metal and wood paints, interior wall coatings, and exterior wall coatings. It has a wide variety of product portfolio including interior and exterior wall coatings as well as metal and wood paints. It has strong and well established brands like Berger Silk, Berger Rangoli, Berger Illusions, Berger Weather Coat, Jadoo Enamel, etc. It also provides color consultancy services. The company offers its products primarily for home owners, professionals, and industrial users. Berger Paints has six subsidiaries and two JVs located across geographies including Cyprus, Russia, Poland and Nepal.

Investment Rationale:

The Indian Paints Industry is estimated at US$ 380 Cr and is growing at 1.8-2x GDP growth since the last few years. This industry is dominated by top 4 players commanding more than 90 % share of the organized market. The per capita consumption of paints in India remains very low at 1.5 kgs, against 15-20 kgs in developed countries. This industry is categorized in two segments – decorative paints, which contributes 70 % and industrial paints that contributes 30 % to the total industry size. Berger Paints is the second largest player in the decorative paints market with a 17 % market share. Decorative paints constitute 80 % of its sales and enjoy strong brand equity in the eastern regions. It has a pan India distribution network of 14,000 dealers and 7,700 tinting machines. Further, the company also has a strong foothold in the protective coatings market, which contributes nearly 10 % to its total sales. Also the company has adopted aggressive expansion plan to increase its production capacity by 52 %, through the addition of 160,000 MT at a cost of Rs. 140.00 Cr scalable to 320,000 MT in Andhra Pradesh over the next 2 years. Berger Paints is focusing on raising the share of water-based paints in its total product portfolio and has also filled the product gap that existed with Asian Paints, through the introduction of premium products in the water-based paints. This segment will drive higher revenue growth and will also expand operating margins in the future. The shift towards water-based paint will bring high growth & also it’s a higher margin product segment compared to solvent-based paints. In FY10, it had issued 2 Cr shares on warrant conversion to a promoter group company, Jenson and Nicholson and issued additional 72 Lakhs shares to Nalanda Fund at Rs. 50.5/share to fund its growth prospects, leading to a total dilution of 8% on the expanded equity capital. It is expected that Berger Paints will not dilute equity further, as it has sufficient internal accruals to fund its growth plans over the next two years.

Outlook & Valuation:

Berger Paints (I) Ltd is the second largest player in the decorative paints market with a 17 % market share and is expected to benefit from the long-term steady demand in paints industry. Revenue and earnings CAGR of 19 % - 20 % over FY11-13E can be expected from Berger Paints, leading to a comfortable cash flow position; Additional fund raising is ruled out. Focus towards water-based paints to augur well will be added advantage for operating margins. Company witnessed 18 % CAGR over FY06-11, while concerns on the short-term demand scenario remains; It is believed that over a longer term, the company is on the way for a healthy growth. The company has already undertaken a 7 % price hike in 1QFY12, which will further help overall sales growth in coming quarters. Company’s subsidiaries  are expected to contribute 7 % to the consolidated sales by FY13E. At the current market price, the stock is trading at 20 x FY12E EPS of Rs 5.00 per share and 16.0x FY13E EPS of Rs 6.20 per share. At 16.36 x FY13E EPS, it is trading at 38% discount to the market leader, Asian Paints. Historically, the company has traded at an average discount of 40% to Asian Paints’ one-year forward mean Price Earning Ratio. It is believed that going forward this discount should narrow due to reasons like Gaining considerable size with a revenue CAGR of 19% over FY11-13E; Product mix focus shifting towards higher growth and better margin business of water-based emulsion paints; Increasing presence across India with rising penetration in the south. Initiate buy with ACCUMULATE on the BERGER PAINTS with the target price of Rs 105/share for the short term valuing it at 17.5x FY13E (30% discount to Asian Paints) EPS of Rs 6.20/share

KEY FINANCIALS	FY10	FY11	FY12E	FY13E
SALES (Rs. crs)	1,891.30	2,328.10	2,896.70	3,317.40
NET PROFIT (Rs. crs)	120.40	150.10	173.30	215.30
EPS (Rs.)	3.50	4.30	5.00	6.20
PE (x)	28.60	22.90	19.90	16.00
P/BV (x)	7.40	5.60	4.70	3.90
EV/EBITDA (x)	16.60	13.40	11.60	9.60
ROCE (%)	24.70	23.30	23.10	24.30
RONW (%)	22.60	25.10	25.90	28.00

I would buy BERGER PAINTS (I) LTD with a price target of Rs. 105 for the short term and Rs. 115 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. 87.40 on purchase.

As the author of this blog I disclose that I do hold BERGER PAINTS in my investment portfolio.

JSW STEEL : A Growth potential Stock !!!

Scrip Code: 500228 / JSWSTEEL

CMP:  Rs. 882.55; Buy at Rs. 865 - 875 levels ; Short term Target: Rs. 915, 6 month Target – Rs. 1150; STOP LOSS – Rs. 812.00; Market Cap: Rs. 19,674.47 cr; 52 Week High/Low: Rs. 1400.00 / Rs. 750.85 ; Total Shares: 22,31,17,200 shares; Promoters : 8,41,43,661 shares –37.71 %; Total Public holding : 13,89,73,539 shares –62. %; Book Value: Rs. 421.41; Face Value: Rs. 10; EPS: Rs. 90.12; Div: 95 % ; P/E: 9.78 times; Ind P/E: 10.67; EV/EBITDA: 6.46.

Total Debt: Rs. 14,160 Cr; Enterprise Value: Rs. 33,834.47 cr.

FAIR VALUE – Rs.1,516.00 .  

JSW Steel Limited (JSW) is an India-based company engaged in the business of production & distribution of iron and steel products. The company has two primary business segments, Steel and Power (used mainly for captive consumption). The Company's products include hot-rolled coils/steel plates/sheets, rolled products (long), cold-rolled coils/sheets, galvanized plain/corrugated/color coated coils/sheet, steel billet, and bars and rods. The Company has an installed crude steel making capacity of 7.8 metric tons per annum (MTPA) in India, consisting 23% of value-added flat products (capacity of 1.8 MTPA), spread across four locations, which are Vijayanagar Works in Karnataka, Salem Works in Tamil Nadu, and Vasind and Tarapur Works in Maharashtra. In January 2011, it bought assets of Bellary Steel.

Investment Rationale

Ispat will be a positive surprise in December 21st, 2010, JSW STEEL acquired 41.29 % of ISPAT IND for Rs. 2157 Cr; Ispat will be renamed as JSW Ispat Steel. JSW to get 108.66 crore equity shares of Ispat on a preferential basis at Rs. 19.85/sh totaling to Rs. 2,157 Cr. JSW has made an open offer for an additional 20% to the minority shareholders of Ispat at a marginal premium of Rs. 20.54, which would be an additional spending of around Rs. 1,200 Cr. This deal will not only make Jindal the largest private sector steelmaker by capacity in India, but it will also bring Ispat back to the profit path after its debt of Rs. 7,500 Cr is refinanced and Rs. 3,100 Cr injected into the company as capital expenditure. With the start of Chile shipments, Ispat industries have posted a net profit of Rs. 70 Cr for Q4FY11, with EBITDA/ tonne of Rs. 5700. This has been a positive surprise and could be achieved because of better realizations of Rs. 40,700/ tonne and one time tax benefit to the tune of Rs. 35 Cr. Japan’s 2nd largest steelmaker JFE has acquired 14.99% stake in JSW (on a fully diluted basis) at Rs. 5,410 cr @Rs1,500/share. The current stake of 16.17% will come down to 14.99% after the conversion of 1.75 Cr warrants by JSW’s promoters. This has helped JSW in bringing down its financial leverage to a manageable level & to meet its funding requirements for the many growth projects in the pipeline. It is believed that technological collaboration with JFE would help JSW to improve product mix & to achieve further operational efficiencies, leading to EBITDA/tonne expansion. JSW has received all permits for coking coal sales in US and expects 0.5mnt shipment in FY12. Company also plans to increase Vijayanagar capacity by 2.0mntpa through debottlenecking at an attractive capital cost of US$ 300/tonne. JSW Steel and Essar Steel have hiked prices of flat products by up to Rs. 600–1,000/tonne with effect from June 1, 2011, on account of higher raw-material costs. 1QFY2012 benchmark coking coal contracts have been settled at US$330/tonne due to floods in Australia, and 2QFY2012 contracts have been settled at higher levels of US$315/tonne. In case of iron ore, 1QFY2012 contracts were settled higher by 20%, while 2QFY2012 contracts are expected to remain flat vs. 1QFY2012. On the other hand, steel companies may not hike long product prices as the monsoon season is approaching, when construction activity slows down

Outlook & Valuation:

The company has a net debt of Rs. 14,160 Cr and a cash balance of Rs. 2300 Cr as on 31st March 2011. The consolidated D/E remains at 0.84. The company has repaid Rs. 450 Cr and drawn Rs. 760 Cr new debt during FY11. Raw material as percentage to sales has been lower during the quarter, as the company has been using its comparatively low priced coking coal inventory. The scenario however is not likely to remain same in the short to medium term, as the macro economic situation in the country has been getting more challenging with rise in inflation and interest rates.  This would put pressure on margins. Steps by Karnataka government and other concerned authorities to stop illegal mining in the state may also proved to be negative for the company, as that might restrict availability of low grade fines at a cheaper price. On the positive side, contribution form Chile iron ore mines are likely to visible during FY12. The sales volume of 0.8 mt and 1 mt for FY12 and FY13 respectively from Chile are considered. Company is expecting 0.5 mt coking coal from US during FY12. Despite some pain in the short to medium term it can be expected that the stock has a potential to outperform on a longer term basis backed by strong volume growth and higher integration. The company has indicated its seriousness in having stronger backward integration even by acquisition of mines if available at a right price. At the CMP of Rs. 882.55, the stock is trading at 7.18 x FY13E EPS and 5.1 x FY13E EV/EBITDA. Looking at the positives and concerns, the value of the company comes at Rs. 1,500/ share which I believe is a fair value of the stock.

KEY FINANCIALS	FY09	FY10	FY11E	FY12E
SALES (Rs. crs)	19,073.80	24,116.10	37,073.20	37,713.30
NET PROFIT (Rs. crs)	1,597.60	1,754.00	2,583.00	2,953.30
EPS (Rs.)	71.60	78.60	107.40	122.80
PE (x)	12.90	11.70	7.80	7.50
P/BV (x)	1.90	1.40	1.00	1.20
EV/EBITDA (x)	7.50	7.30	4.10	5.20
ROCE (%)	17.80	11.70	14.70	15.50
RONW (%)	7.20	6.90	8.60	8.20

I would buy JSW STEEL LTD with a price target of Rs. 915 for the short term and Rs. 1150 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. 812.00 on purchases. JSW STEEL to hold its EGM on July 25, 2011 for the purpose of Rs.12.25 per share (122.5%) Dividend, the book closure for the same has been fixed from July 13, 2011 to July 15, 2011.

OnMobile Global : Highly under valued stock !!!

Scrip Code: 532944 / ONMOBILE

CMP:  Rs. 100.55; Buy at Rs.98 - 101 levels.
Short term Target: Rs. 115, LT – Rs. 150;

STOP LOSS : Rs. 92.00 ;

Market Cap: Rs. 1180.27 cr;

52 Week High/Low: Rs. 190.70 / Rs. 90.28;

Total Shares: 11,79,09,086 shares; Promoters : 5,70,68,638 shares –48.40 %; Total Public holding : 6,08,40,448 shares – 51.60 %; Book Value: Rs. 69.14; Face Value: Rs. 10; EPS: Rs. 7.77; Div: --- ;P/E: 12.88 times; Ind P/E: 20.33; EV/EBITDA: 12.06.

Total Debt: Rs. 181.87 cr; Enterprise Value: Rs. 1415.14 cr. 

OnMobile Global Limited was formerly known as OnMobile Asia Pacific Private limited and changed its name to OnMobile Global Limited in August 2007. OnMobile Global Limited was founded in 2000, headquartered in Bangalore, India. It provides telecommunications value added software products and services in India and internationally. It offers m-commerce, entertainment, media portals, interactive television programming, mobile marketing, user-generated content, social networking, mobile utility data, 3G, network products through mobile access channels, such as voice, SMS, WAP, USSD, video, on-device portal, and Web. The company’s product lines include speech products, speech ports, voice based search; network products comprises of ring back tones, missed call alert, and OnMobile developer network; pollenStudio 2.0; messaging and m-commerce products consisting of mobile adversting, cell broadcast. It also offers various applications, including music, entertainment, sports, live streaming, infotainment, and user generated content; data products comprising phone backup, network/social address book, mobile paparazzi, ODP applications. Company's subsidiaries include OnMobile Singapore Pte. Ltd., PT. OnMobile Indonesia, Vox mobili S.A., Vox mobili Inc., Phonetize Solutions Private Limited, Telisma SA, OnMobile Europe B.V., OnMobile USA, LLC, Servicios de Telefonia Onmobile, S.A. de C.V. and OnMobile Australia Pty. Ltd.

Investment Rationale

OnMobile witnessed strong traction in the international revenues, during 3QFY11, despite lower domestic revenues, as expected, further with the launch of 3G services by operators and access to 3G video technology of Dilithium it is believed that this will drive data revenues for OnMobile as 3G and Value Added Services (VAS) revenues are expected to be critical for growth of telecom in aspect of revenues. The company is expected to complete the deployment in the Latin American regions by March 2011, after which it is expected that the adoption rates will go up which in turn will help growth in international revenues. OGL dominates VAS market with 33% share & has firmly secured itself in the leadership position as the dominant VAS provider to majority of domestic telecom companies. OGL is expected to register revenues to a tune of 25% CAGR during FY10-12 and net profits to a tune of 67% CAGR during the same period. OGL will continue with its aggressive deployment of Telefonica projects in these regions. The company is now live in six countries of Latin America with the launch of services in Brazil, Argentina and Venezuela. The company has indicated that the deployments are on track. They expect all the deployment to complete by March 2011. OGL has won an embedded deal with one of the major handset OEMs for its video stacks in China. OGL’s dynamic churn management solution helped to add 2% to their top line revenue for a leading telecom operator in Asia, resulting in an astounding 88% increase in subscriber recharging.

Outlook & Valuation:

With the domestic revenues accounted for 33% of the addressable Value Added Services (VAS) market (ex-P2P SMS & non-aggregator share of revenues) worth Rs. 1000 cr – Rs. 1100 cr. Telefonica deal will ramp up revenues beyond FY11. In June 2009, OnMobile signed an agreement with Telefonica which is the world’s largest mobile operators, for an exclusive period of 5-7 years and non-exclusive market rights to deploy several of its VAS products. These include Ring Back Tones (RBTs), Music Radio, and Soccer Portal etc in 13 Telefonica operating Latin American countries. OnMobile is likely to complete roll out by Mar’-Apr 2011. As of Q2, company has gone live in 3 countries including Mexico, the first large-scale deployment. The real impact of the deal would be felt from FY12 as rapid revenue ramp up will occur from next fiscal. OnMobile is set to report increased traction in revenues driven by leadership in domestic business and upsides from Telefonica and Vodafone deals. It would incur a cap ex of Rs. 70 cr – Rs. 80 cr and to pay Rs. 170 cr in deferred liability to Telefonica in the current fiscal, comfortably supported by Rs. 150 cr in operating cash flows. Recovery in operating margins should be seen on stable content cost except for one-offs in Q4 FY10. As revenues kick in from international deals, benefits of operating leverage could help expanding operating profit margins by 2.80 % over FY10-12. Robust EPS CAGR makes a BUY on OnMobile Global with price target of Rs. 115 for the short term and Rs. 150 for the long term.

KEY FINANCIALS	FY09	FY10	FY11E	FY12E
SALES (Rs. crs)	406.4	454.4	571.8	695.6
NET PROFIT (Rs. crs)	85.2	42.8	84.14	95.4
EPS (Rs.)	14.7	7.3	14.3	16.3
PE (x)	19.0	38.1	26.9	17.1
P/BV (x)	2.3	2.2	2.7	1.8
EV/EBITDA (x)	10.4	17.5	13.0	10.0
ROCE (%)	13.0	6.0	10.8	11.1
RONW (%)	16.9	7.5	10.2	12.8

I would buy onMobile Global with a price target of Rs. 115 for the short term and Rs. 150 for the long term. As I always say do respect the markets and keep a strict stop loss of 8 % or Rs. 92.00 on your purchase.

Pipavav Shipyard Limited : A major Defence sector player !!!!

Scrip Code: 533107 / PIPAVAVYD

CMP:  Rs. 80.70; Buy at Rs. 78 - Rs. 80 levels.
Short term Target: Rs. 85, LT – Rs. 100 ; Market Cap: Rs. 5,372.99 cr ; 52 Week High/Low: Rs. 119.70 / Rs. 62.00

Total Shares: 66,57,98,388 shares; Promoters : 29,95,76,180 shares –45.00 %; Total Public holding : 36,62,22,208 shares – 55.00 %; Book Value: Rs. 24.81; Face Value: Rs. 10; EPS: Rs. 0.60; Div: --- ;P/E: 134.5 times; Ind P/E: 13.17; EV/EBITDA: 110.08.

Total Debt: Rs. 1,329.59 cr; Enterprise Value: Rs. 6,702.59 cr. 

Pipavav Shipyard Limited promoted by SKIL Infrastructure was formerly known as Pipavav Ship Dismantling and Engineering Limited and changed its name to Pipavav Shipyard Limited in April 2005. Pipavav Shipyard Limited was incorporated in 1997 and is based in Mumbai, India, company engages in the defense shipbuilding, and construction of offshore oil and gas assets, as well as provision of commercial shipbuilding and repairs, and heavy engineering services in India. Pipavav is the only private shipyard in India to have license to produce frontline warships from the Govt. of India giving it significant opportunities in the defence space. The company also offers very large crude carriers, suezmax tankers, aframax tankers, capesize bulk carriers, panamax bulk carriers and tankers, handymax and handysize bulk carriers and tankers, and product and chemical tankers; and specialized vessels, such as LNG carriers, LPG carriers, reefers, containerships, offshore support vessels, ferries, and dredgers. It also provides offshore platforms, which include rigs, jackets, and single buoy mooring systems; naval vessels; and ship repair services, such as refit/dry docking, a-float repair, and conversions. Pipavav Shipyard (PSL) is the largest shipyard in India and the 5th largest in the world in terms of its size (400000 dwt). Pipavav’s dry dock capacity is larger than top 5 yards in India put together.

Investment Rationale:

Pipavav recently signed a contract with the Ministry of Defence for construction of 5 naval gunboats worth Rs. 3000 cr. The company has also been active in signing MoU’s with international defence majors such as SAAB Dynamics, Northrop Grumman, and Babcock Group UK which will make the Company’s position as leader in the defence segment. The company is also planning to rename itself Pipavav Defence and Engineering Company Ltd. to highlight its objective to become a major defence player. Company has a strong and diversified order book of Rs. 6300 crore which is expected to result in CAGR of 48.8% over FY10-FY13.

The parent company of Pipavav Shipyard Ltd, SKIL Infrastructure promoted by Nikhil Gandhi, primarily is an infrastructure development company, with interests in shipyard, special economic zones, free zones, logistics, port, education and defence sectors, filed its drafted documents on 7th June 2011, to raise Rs. 1,125 Cr through IPO. SKIL Infra controls 43.14 % (a 28,72,26,686 shares) in Pipavav Shipyard and 21.02 % (a 40,00,000 shares) stake in Everon Education. Proceeds from the IPO will used to retire its debts of Rs. 800 Cr & will set aside Rs. 150 cr to acquire companies in education, infrastructure & defence sectors.  As of March 31, SKIL Infra had total debt of Rs. 1351 cr, excluding vehicle loans.

Investment concerns:

There was a delay of 15 months in the construction of the shipyard and the facility became fully operational only in December 2010 with the installation of Goliath cranes. The delay in construction of the shipyard has, in turn, led to significant delay in the delivery schedule of vessels. Although Pipavav has a strong and diversified order book valued at Rs. 6300 crore, the first deliveries of panamax and offshore vessels is likely only from Q2FY12 onwards i.e. delay of 18 and 3 months respectively. Pipavav is in a growth phase so a significant premium over global shipyards would not be justified until execution improves.

Outlook & Valuation:

Company posted 18 % YoY revenue growth in Q4FY11, after excluding subsidy of Rs. 75 cr and trade sales of Rs. 257 cr. The Company received a new order of Rs.3000 cr taking the total order book to Rs. 6300 cr. EBIDTA for the year turned green to Rs. 170 cr with margins at 20%. PAT at Rs. 44 cr. The order inflows and recent initiatives of the company give confidence that the company is on track to become a major defence player. At the CMP of Rs.80.70, Pipavav is trading at 19.6 x FY13E EPS and 2.55 x FY13E P/BV. In my view it can be a Bought with a price target of Rs. 100.50/share valuing the company at 11.3x FY13E EV/EBIDTA comparing it to defence player.

KEY FINANCIALS	FY10	FY11E	FY12E	FY13E
SALES (Rs. crs)	629.4	882.7	1,598.5	2,073.7
NET PROFIT (Rs. crs)	- 48.2	- 1.7	126.1	269.6
EPS (Rs.)	--	--	1.9	4.1
PE (x)	--	--	41.7	19.5
P/BV (x)	3.2	3.1	2.9	2.5
EV/EBITDA (x)	--	80.3	20.6	11.3
ROCE (%)	--	2.5	10.2	17.8
RONW (%)	--	--	6.9	12.8

I would buy PIPAVAV SHIPYARD LTD with the price target of Rs. 85 in short term. For long term I would be looking at a target price of Rs. 100. As I always say do respect the market and keep a strict stop loss of 8 % on your every purchase.

QE2 coming to an end and QE3 could follow!!!

As told on blog on QE earlier, by JUNE 30^th 2011, the Fed will be winding down its second round of quantitative easing. I.e.QE2. By announcing quantitative easing Fed made an impression to the world that they’re willing to do whatever is necessary to maintain growth, which promoted higher stock prices, made people and companies feel a little more financially stable and wealthy, which will then translate into consumer spending & subsequently unemployment will go down. The employment situation do showed some increase in hiring & a drop in the unemployment rate below 9.0 %, all due to QE program. Now when the unemployment rate ticked back up again above that high benchmark of 9.0%, and weekly initial jobless claims have been firmly above 4,00,000 for several weeks, people have started talking about QE3 i.e. third round of quantitative easing !!!

Well, the perception of “easy money” was enough to encourage speculators and traders to make a leveraged bets on both stocks & commodities. As said, stocks and commodities went higher. And the jobs data improved a little bit all due to blessing of QE2.

Now, when the QE2 is coming to an end, the perception of 2011 recovery has evaporated as the economic data from mid-summer signaled another round of recession coming back. At the opening of the year, many economists were projecting U.S. to grow as high as 5 %; the Fed was thinking 3.4 % to 3.9 % of growth which was above average year of economic expansion.

The U.S. has grown at a historical average of 3 % per year. Even with unprecedented stimulus it’s been growing below the trend since 2006. Recent data suggests that another round of recession is coming …A recent study showed that since 1948 whenever the US GDP fell below 2 %, it normally predicted recession for the U.S. economy.

In April 2011, the Bureau of Economic Analysis (BEA) gave their advanced estimate for Q1 2011 which said that growth will be at 1.8 %, Unemployment will hover around 5 % higher than pre-crisis levels.

Even after the two rounds of quantitative easing by the Fed and two rounds of fiscal stimulus by the U.S. government, employment will still sits about 5 % over the long run “natural rate” of unemployment, housing prices will remain anywhere from 20 % to 50 % below its peak levels. The government has recapitalized the banks, the Fed has kept mortgage rates historically low, and various failed mortgage revival programs have been floated, housing is still at 32 % down from 2006 highs.

As all can see that consumer credit peaked in 2008 when Lehman Brothers failed, it likely means that the world is in for another seven years of economic uneasiness.

In Asia, traders have been anticipating QE3, sending the Indian rupee, Singapore dollar, Malaysian ringgit, Indonesian rupiah & even Thai bhat went higher, QE3 could turn into massive capital inflows in Emerging markets like India boosting growth, creating an illusion of false recovery, but in reality they would be just bubbles. If QE3 is not announced then in that case US markets can collapse by 10 % or so making treasury yields to rise, USD would strengthen and commodities like Gold, Silver & Oil would see a minor dip in their prices.  And if QE3 happens it will make US $ to crash. US $ will loose its value among all major currencies across the world , crude oil prices will jump up, prices of commodities like Gold will shot up, Equity markets around the world especially Emerging markets will rise and India will be benefited by it if India’s own internal problems are solved by that time.

With all of this in mind, even though the easy money policies of the Fed have been highly scrutinized, in my view Fed may delay the announcement of QE3 which can cause markets to take a down turn for a while and on announcement of QE3 markets will raise again. There are lots of issues around the Indian equity markets such as high inflation, 2G scam, Government facing public agitation on corruption, such issues were keeping investors away form our markets for a while, but on announcement of QE3 our markets will raise again, I believe that stocks specific investments during the down turn would bring good returns, in the mean time I would be going for 45 % in stocks & 25 % in Gold & rest to hold cash, this would be my strategy for the time being.

But one thing of sure QE3 would bring another violent downturn for the global economy!!!!!

CLICK HERE FOR PREVIOUS POSTS ON QE 

SHREE RENUKA SUGAR : Best buy in Sugar Sector .

Scrip Code: 532670 / RENUKA 

CMP:  Rs. 64.35; Buy at current levels for ST;LT buy at Rs.58 - Rs.60 ;  Short term Target: Rs. 75;  LT – Rs. 100 ; Market Cap: Rs. 4,312.98 cr; 52 Week High/Low: Rs. 108.20 / Rs. 55.90; Total Shares: 67,12,80,850 shares; Promoters : 25,55,67,980 shares –38.07 %; Total Public holding : 41,57,12,870 shares – 61.93 %; Book Value: Rs. 26.51; Face Value: Rs. 1; EPS: Rs. 1.19; Div: 100 % ; P/E: 53.99 times; Ind P/E: 13.17; EV/EBITDA: 8.32. 

Total Debt: RS. 6508 cr; Enterprise Value: Rs. 10,820.98 crs.

SHREE RENUKA SUGARS LTD was founded in 1995 and is headquartered in Mumbai, India with an additional office in Belgaum, India. SRSL focuses on three businesses - Sugar, Bio-fuels & Renewable energy. The company produces power from Bio-gases - a by-product of sugar; and offers ethanol, which is extracted form molasses. In addition, it provides bio-fertilizers - a residue product from distillery operations blended with chemicals. It has cane crushing operations in Karnataka (Munoli, Athani, Havalgah and Gokak) and Maharashtra (Pathri). It also operates two leased facilities at Maharashtra (Arag) and Karnataka (Raibag). The Company has three integrated refineries in Karnataka each at Munoli and Havalgah and a port-based refinery in West Bengal. Some of its subsidiaries include Renuka Commodities DMCC, Shree Renuka Agri Ventures Limited, Gokak Sugars Limited, SRSL Ethanol Limited and KBK Chem Engineering Private Limited. On September 30, 2009, the Company acquired VALE DO IVAI S/A ACUCAR E ALCOOL (VDI), a Brazilian sugar and ethanol producer. In July 2010, Shree Renuka Sugars Limited acquired a controlling stake of 50.34% in Equipav S.A. Acucar e Alcool. Equipav will give Shree Renuka 10.5 million tons of annual crushing capacity in Brazil, the top producer, and help it meet half its raw-sugar requirement of 1.7 million tons.

Investment Rationale

SRS is the only sugar/ethanol producer in the world with almost a year-long cane crushing operations as it has operations in Brazil and India, which have complimentary cane crushing seasons. Cash flows from the Brazilian operations would be self sufficient to meet obligations and yield a surplus. SRS's integrated, diversified and flexible business model makes it more resilient to cyclical downsides. Over last couple of months there has been a strong price correction of 40% from peak due to supply pressure from change in production mix with larger players swinging towards sugar production, and additional 3 mt production surprise from Thailand (where higher sugar price makes the sugar production more profitable than tapioca). In my view domestic sugar prices would move upwards and would trade above Rs. 30/kg due to lower than expected sugar production in the country. Sugarcane prices paid to farmers in FY11 was Rs. 210/Quintal compared to Rs. 240/Quintal paid in FY10. This would result in lower sugar production in FY12. However, sugar prices in Brazil have corrected from its peak of 36 cents/lb in Feb, 2011 to 21 cents/lb currently.

Investment concerns: With the current domestic sugar prices per kilo at Rs. 27 – Rs. 28, the company is making losses on the bottom-line. It is expected that domestic sugar prices to firm up to Rs. 30/kg led by the lower than expected sugar production in India. At the same time, profitability from the Brazilian operations would improve due to the increasing ethanol prices and higher sugar realisations at 23cents/lb (the company having hedged 80% of its annual sugar production at 23c/lb via future contracts). However Rs. 6500 crore of long term debt on the book would remain an concern and a hurdle for the valuations.

Outlook & Valuation: Shree Renuka Sugars (SRS) is one of the top 10 sugar producers in the world. It is the only sugar company to have significant operations in the two most relevant locations in the world - the largest sugar exporter, Brazil, and the largest sugar consumer, India. Over FY06 - FY10, SRS grew from a very small domestic sugar player to a global giant, with an average RoE of 32.4% and EPS of 20% CAGR in a cyclical industry, which speaks a lot about its vision and capabilities.

In my view, Shree Renuka Sugars is the best company to play the global sugar industry recovery and is a direct play on rising sugar/ethanol prices. Strong cash flow visibility would allow it to de-leverage itself and will meet all the concerns regarding its high leverage. The stock trades at 8.5x FY11E EPS of Rs. 7.7, 1.3x FY11E BV of Rs. 48.4, and EV/EBITDA of 6.1x FY11E. I value SRS at Rs. 85, based on EV/EBITDA of 6x FY12E EBITDA an upside of 31%. So it comes a Buy on SRS for Rs.75 in Short term & Rs. 100 in Long term.

KEY FINANCIALS	FY10	FY11E	FY12E
SALES (Rs. crs)	7,669.6	9,494.2	11,741.5
NET PROFIT (Rs. crs)	692.2	514.2	733.9
EPS (Rs.)	10.3	7.7	11.0
PE (x)	6.3	8.5	5.9
P/BV (x)	1.9	1.3	0.9
EV/EBITDA (x)	8.4	6.1	4.5
ROE (%)	37.1	20.7	22.6
ROCE (%)	16.4	12.2	14.3

I maintain my buy status on SHREE RENKA SUGARS with the price target of Rs. 75 in short term. For long term my target is of Rs. 100. As I always say do respect the market and keep a strict stop loss of 8 % on your every purchase.

ULTRATECH CEMENTS - Buy on every dips

Scrip Code: 532538 / ULTRACEMCO

CMP:  Rs. 1033.90; Buy at current levels.
Short term Target: Rs. 1050, LT – Rs. 1150.
Market Cap: Rs. 28,333.16 cr.
52 Week High/Low: Rs. 1163.10 / Rs. 817.3.

Total Shares: 27,40,41,665 shares; Promoters : 17,36,05,057 shares –63.35 %; Total Public holding : 10,04,36,608 shares –36.65 %;

Book Value: Rs. 224.80; Face Value: Rs. 10; EPS: Rs. 51.24; Div: 60 %.P/E: 20.10 times; Ind P/E: 13.67; EV/EBITDA: 14.23. 

Total Debt: Rs. 3,532.12 cr; Enterprise Value: Rs. 65,583.10 cr

UltraTech Cement Ltd was incorporated in the year 2000, based in Mumbai. The company was formerly known as Ultra Tech CemCo Ltd which was changed to Ultra Tech Cement Ltd in October of 2004. It’s a subsidiary of Grasim Industries Ltd from Aditya Birla Group. The Company has an annual capacity of 23.1 million tons. It manufactures ready mix concrete (RMC). The company has 5 integrated plants, 6 grinding units and 3 terminals: 2 in India and 1 in Sri Lanka. It is an exporter of cement clinker to the countries around the Indian Ocean, Africa, Europe and the Middle East. The Company's subsidiaries include Dakshin Cement Limited, UltraTech Cement Lanka (Pvt.) Ltd. and UltraTech Cement Middle East Investments Limited.

Investment Rationale

Expansion on track: As per the company’s long term strategy it is setting up additional clinkerisation capacity by 4.8 MT at Raipur, Chhattisgarh and by 4.4 MT at Malkhed, Karnataka, the combined additional capacity would amount to 9.2MTPA. The capital expenditure on the new clinkerisation plants, grinding units & bulk packaging terminals across various states is estimated at Rs. 5,600 crore. The capital expenditure (capex) will be funded through a mix of internal accruals and borrowings. As per the schedule, the project is expected to come on stream from FY2014. Since the project is expected post FY13 it is not incorporated in the volume growth estimates.

Concerns regarding margin pressure: The cement industry is expected to grow at 8-9% from FY2012 on account of initiatives taken by the government to boost infrastructure, housing activity and also rural development. However, the upcoming capacity will be creating surplus capacity and cement prices are likely to come under pressure. Further, the cost inflation in terms of higher coal prices will also continue to pressure margins in the coming quarters.

Outlook & Valuation: I like Ultratech for its diversified model & its all India presence along with its strong balance sheet. On the acquisition of Star Cement by Ultratech provided an access in growing markets like Bangladesh, Dubai, Sudan, and Bahrain. However, on account of the anticipated pressure on cement prices in the coming one year and in terms of rising coal prices, I see limited upside in the stock price from the current levels, I give Buy recommendation on the stock with a price target of Rs.1, 150. At the current market price, the stock trades at a PE of 20.2x FY2012E. On an EV/EBITDA basis, the stock trades at 9.9x FY2012E.

Result Update: Ultratech Cement’s financials for Q4 & FY11 are not comparable due to merger of Samruddhi Cements with itself. Dispatches stood at 10.68MT for Q4FY11, for full year 2011, it stood at 32.76 MT. Adjusted with white cement, wall care putty and RMC revenues, grey cement realizations stood at Rs. 3,577/ tonne during Q4FY11 v/s Rs. 3,279 in Q3FY11. Blended realizations during Q4FY11 were Rs. 4,204/ ton is much higher than pure grey cement realizations. Margins stood at 22.7% & 19.2% for Q4FY11 and FY11 respectively.  BITDA/Tonne for Q4FY11 stood at Rs. 956. Overall costs continued to remain high due to increase in raw material, coal and freight expenses, so EBITDA/tonne of Rs. 886 is expected for FY12.

KEY FINANCIALS	FY10	FY11E	FY12E
SALES (Rs. crs)	7,049.7	13,209.9	17,114.5
NET PROFIT (Rs. crs)	1,093.2	1,404.2	2,023.7
EPS (Rs.)	87.8	51.2	73.9
PE (x)	11.7	20.7	14.30
P/BV (x)	2.8	2.8	2.3
EV/EBITDA (x)	6.4	11.9	7.7
ROE (%)	26.6	14.3	17.7
ROCE (%)	28.5	14.5	20.1

I maintain my buy status on Ultra tech Cement with the price target of Rs. 1050 in short term. For long term my target is of Rs. 1150. As I always say do respect the market and keep a strict stop loss of 8 % on your every purchase.