FINANCIAL TECHNOLOGY:UNLOCKING VALUES !!!

Scrip Code: 526881 / FINANTECH

CMP:  Rs. 929.95; Buy at every dips.
Medium to Long term Target: Rs. 1130.40; STOP LOSS – Rs. 855.55; Market Cap: Rs. 4,285.07 Cr; 52 Week High/Low: Rs. 1221.90 / Rs. 551.55

Total Shares: 4,60,78,537 shares; Promoters : 2,10,42,582 shares –45.67 %; Total Public holding : 2,50,35,955 shares – 54.33 %; Book Value: Rs. 532.75; Face Value: Rs. 2.00; EPS: Rs. 112.37; Div: 400 % ; P/E: 8.27 times; Ind. P/E: 21.00; EV/EBITDA: 5.75.

Total Debt: 562.72 Cr; Enterprise Value: Rs. 4,191.79 Cr.

FINANCIAL TECHNOLOGIES (INDIA) LIMITED: Financial Technologies was incorporated in 1988 and is based in Mumbai, India. The company was earlier known as e-Xchange on the Net, in Aug 2001 the company changed its name to Financial Technologies India Ltd. Financial Technologies (India) Limited provides technology solution, intellectual property and domain expertise for digital transaction and financial markets across all asset classes including equities, commodities, currencies and bonds. It has set up 8 exchange ventures and 6 ecosystems venture – MCX, MCX-SX, IEX, DGCX (DUBAI), GBOT Mauritius, IBS FOREX, NSEL and SNX are all exchange ventures, while NBHC, Ticker Plant, Infovending, Atom technologies, Riskrat Consulting, FT Knowledge Management Company (FTME) are ecosystem ventures. It provides exchange, brokerage, messaging, consulting, and connectivity solutions. The company’s exchange and trading technology platform creates electronic, organized, and regulated financial markets for the asset classes and investor classes. The company offers comprehensive end-to-end solutions for the securities industry vertical encompassing the entire trade lifecycle of pre-trade, trade and post trade processing. In Brokerage Solutions its main product is ODIN. During March 2012, the company’s exchange technology (ET) division deployed energy solution Power Automated Risk & Matching System (PowerARMS) to enable trading risk management and clearing & settlement for Day Ahead Market at the Indian Energy Exchange. Financial Technology India Ltd is compared with Bursa Malaysia Berhad of Malaysia & Daiichi Commodities Company Limited of Japan.  

Investment Rationale:

Financial Technologies (India) Limited (FINANTECH) is the flagship company of the Financial Technologies Group co-promoted by Jignesh Shah an electronic & telecommunications engineer from Kandivali a small suburb of Mumbai who was the man behind the creation of Dubai Gold and Commodities Exchange and Singapore Mercantile Exchange, he started his career with BSE in its Rs. 100 Cr ambitious project to built BOLT. FINANTECH set out by introducing India's first derivatives trading platform, with the launch of ODIN in 1995, which enjoys 80% market share. It powers the Group's exchanges with its technology, and has demonstrated ample expertise in creating robust solutions for exchanges across asset classes and geographies. FINANTECH is one of the leading software and technology providers to institutional investors and their related counterparts. Its technology vertical is sub-divided into four solution suites: (1) Exchange Solutions, (2) Brokerage Solutions, (3) Messaging Solutions, and (4) Consulting Solutions. FINANTECH has graduated from technology to Exchanges to Ecosystem, it ventured into a Regulated business and obtained license by multiple regulators and has become a Market leader across ventures. FINANTECH further integrated by setting up its own exchange - Multi Commodity Exchange (MCX) a state-of-the-art electronic commodity futures exchange, offering futures trading in 47 commodities. FINANTECH further promoted MCX-SX India's third full-fledged Equity stock exchange which was recently launched by the present finance minister Mr.P. Chidambaram on 9^th Feb 2013. Like BSE and NSE, it has now from 11^th February 2013 started offering trading in equities, equity derivatives and other asset classes. Currently, MCX-SX index is named SX-40 comprising 40 diversified stocks & offers trading in equity cash & futures contracts & in bonds etc. MCX -SX has 1,116 companies listed on it as compared to 1,662 on the NSE & 5,195 on BSE, with around 700 member out of which 405 members have received approvals from SEBI rest to follow soon. Its international exchange ventures - Singapore Mercantile Exchange (SMX), Global Board of Trade (GBOT) and Bahrain Financial Exchange (BFX) - are relatively new and still in investment mode, growing on a low base in their respective regions. Its newest exchange venture, Bourse Africa, is all set to commence operations. It will be Africa's first commodities spot and multi-asset derivatives exchange, equipped with a central counter party (CCP) clearing house and depository platform. FINANTECH four ecosystem ventures, which together addresses upstream and downstream opportunities in the financial market which are - National Bulk Handling Corporation (NBHC); Atom; TickerPlant; Financial Technologies Knowledge Management Company (FTKMC) a leading provider of solutions and services in the realm of financial sector knowledge. It offers numerous products and services in the areas of executive education, financial literacy, financial certification, research, consultancy and advisory.

Outlook and Valuation:

FINANTECH is a unique play on end-to-end presence in the ecosystem of stock exchanges and provides technology solutions for the financial markets. With the start of MCX –SX the 132 years of legacy of BSE - Asia's oldest stock exchange with 1,405 brokers & the out performance of NSE which was started in 1992 is being challenged. NSE being a relatively new entity by then was more receptive to innovation. NSE quickly realized the importance of IT and innovative products to meet the growing sophistication of the financial markets. NSE raced ahead to rule market share charts. Due to technology expertise of FINANTECH which gives the company a strong economic moat. An Economic Moat protects a company's profits from being attacked by a combination of multiple business forces. Exchanges globally have been enjoying the status of winner takes all businesses, with minimal competition. Financial Technologies forward integration ranges from trading platform to exchanges to complementary ecosystem ventures facilitate a distinctive value proposition to its customers, these cannot be easily replicated in the market and hence FINANTECH enjoys a healthy competitive advantage and sustainable profitability and which provides it Economic Moat to the company. Technology is the key requirement for an exchange hence FINANTECH is the technology supplier for all its exchanges, except Dubai Gold Commodity Exchange. Exchanges are largely a network business. The network effect lends sustainability to the business model and acts as an entry barrier. The first mover clearly holds the edge in such a scenario. The SOTP valuation of FINANTECH's comes at Rs. 1,413.12 per share and applying a holding company discount of 20% to the entities wherein FINANTECH is holding a majority stake and /or will go ahead and unlock value through sale of stake in the future comes the target price for FINANTECH at Rs.1,130.40, which implies 21.55% upside to the valuation. There are some potential triggers in the near term that could drive the valuations of the stock higher which are the Passage of FCRA bill - which allows trading of new products like options, indices on MCX, driving volumes and valuation for MCX, and consequently, FINANTECH, the Stake sale in IEX (from 33% to 26%) - which would help value unlocking in the same and the Volumes performance at MCX-SX post launch on February 9th, the valuation of which will get embedded in FINANTECH's price. At the Cmp of Rs. 929.95 the stock trades at 20.26 x P/E on estimated EPS of Rs. 45.90 for FY13E and 19.74 x the P/E on estimated EPS of Rs. 47.10 for FY14E. One can buy FINANTECH with at target price of Rs. 1130 for medium to long term .

SOTP Valuation :-

Business Subsidiary FY13E	Value Per Share (in Rs.)
FINANTECH Standalone	543.00
MCX	341.12
MCX-SX	245.00
IEX	91.00
NSEL	106.00
SMX	61.00
OTHER INVESTMENTS	26.00
TOTAL	1413.12
Disc. to Holding co.(ex. FTECH stand.%)	20.00 %
TOTAL	1130.40

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (Rs. Crs)	425.50	390.90	482.50	533.40
NET PROFIT (Rs. Crs)	490.90	211.50	216.80	250.30
EPS (Rs.)	106.50	45.90	47.10	54.30
PE (x)	10.10	23.50	22.90	19.80
P/BV (x)	2.00	1.90	1.80	1.70
EV/EBITDA (x)	20.20	22.30	15.50	13.40
ROE (%)	21.70	8.30	8.00	8.60
ROCE (%)	6.00	5.30	5.40	7.30

I would buy FINANCIAL TECHNOLOGIES LTD with a price target of Rs. 1130.40 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. 855.55 on every purchase. 

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SESAGOA : SUCCESS THROUGH RIGHT CHANNELS !!!

Scrip Code: 500295 / SESAGOA

CMP:  Rs. 170.65; Accumulate at Rs. 165 - Rs. 170 levels.
Medium to Long term Target: Rs. 208; STOP LOSS – Rs. 157.00; Market Cap: Rs. 14,831.21 Cr; 52 Week High/Low: Rs. 270.00 / Rs. 145.00

Total Shares: 86,91,01,423 shares; Promoters : 47,91,13,619 shares –55.13 %; Total Public holding : 38,99,87,804 shares – 44.87 %; Book Value: Rs. 148.58; Face Value: Rs. 1.00; EPS: Rs. 10.86; Div: 400 % ; P/E: 15.71 times; Ind. P/E: 16.99; EV/EBITDA: 6.82.

Total Debt: 3,961.00 Cr; Enterprise Value: Rs. 18,478.00 Cr.

SESA GOA LIMITED:  SESA GOA Ltd was incorporated in 1954 and is based in Panji, Goa, India. SESAGOA is engaged in exploration, mining and processing of iron-ore. The Company operates in three business segments namely iron ore, metallurgical coke and pig iron. The pig iron business focuses on the domestic Indian market, especially to foundries and steel mills in western and southern India. It also exports to the Middle-East and South East Asia. SESA GOA is India's largest producer & exporter of iron ore in the private sector which currently accounts for 1.5% of world trade in iron ore & is amongst lowest cost iron ore mining company in the world. Its mining operations in India include Codli, Sonshi/Surla & Bicholim mines located in Goa & Narrain mine located in Karnataka. Sesagoa exported approx. 5 mn tons of iron ore, fines and lumps to Japan, China, Europe. It also has mining interests in Western Cluster Iron Ore project, Liberia. In addition, the company produces basic, foundry and spheroidal grades of pig iron to steel mills and foundries as well as slag as a by-product to the cement industry and metallurgical coke, primarily low ash coke for foundries, blast furnaces & ferrous alloy industries. Further it engages in generation & distribution of power to Goa Electricity department & owns 30 MW power plants in Goa that utilizes the waste heat gases from its coke making & pig iron facilities as well as 30 MW waste heat recovery power plant.  The company sells its iron ore primarily in China, Japan, Korea, India, and Europe. In April 2007, Anil Agarwal – Vedanta Resources acquired a controlling stake of 51% in SESA GOA from Mitsui & Co, Japan, for US$ 981 million. In April 2011, the Company acquired 10.4% stake in Cairn India Ltd (CIL) from Petronas International Corporation Ltd (Petronas). In March 2011, Sesa Goa acquired the assets of steel plant unit of Bellary Steel and Alloys Limited (BSAL). SESA GOA is compared with NMDC Limited, Godawari Power & Ispat Limited in India and with APAC Resources Limited of Hong Kong & with Ferrexpo Plc of United Kingdom globally.

Investment Rationale:

SESA GOA (SESA) has iron ore reserves and resources of 374 m tons in Goa and Karnataka. Goa's ore is medium grade and easy to extract without blasting and crushing. The iron ore from Karnataka is of high grade but found in rocky form, which necessitates blasting and crushing. SESA is India's largest private sector iron ore exporter and is an important Indian arm of Global natural resource player VEDANTA Resources PLC. 

In February 2012 Vedanta Resources Plc restructured its subsidiaries by announcing merger of Sterlite Industries into Sesa Goa in a 5:3 swap ratio. It involved transfer of Vedanta’s 70.5% stake in Vedanta Aluminum Ltd, 38.8% stake in Cairn India, 94.8% stake in Malco to new entity “SESA-STERLITE” along with the associated debt of US$5.9 billion. The company received approvals from Competition Commission of India in April 2012. The proposal received approval from 99 % from Vedanta shareholders, 89% of Sterlite shareholders & 79% of Sesagoa shareholders. This paved away the difficulties for it getting Foreign Investment Promotion Board (FIPB) approval & seeking court approvals. Post merger, Sesa-Sterlite will be one of the global commodity giant and its' earnings will be less volatile, supported by more stable operations  from Hindustan Zinc and Cairn India. Post merger Sesa-Sterlite will have contribution of earnings of about 39% from Oil & Gas; 29% from Zinc & Lead; 17% from Iron Ore; 6% from Copper; 4% from Silver; 3% from Aluminium and 2% from Energy. As on mining from Indian operations, the cost of mining and transportation is significantly lower in Goa (majority of operations) than in Karnataka and Orissa. Further, Indian miners are at an advantage over Brazilian miners due to their proximity to China, the largest customer. However, the current suspension of mining in Goa & Karnataka has resulted in nil production from these mines. Supreme court hearing is yet to start for Goa mining ban.

Outlook and Valuation:

SESA has acquired the remaining 49 % stake in WCL, Liberia at Rs. 184 Cr. Shipments are expected to start from 4QFY14, which will boost its earnings. SESA – STERLITE as a merged entity looks very attractive in valuations. Though uncertainties regarding the iron ore business persist, the impact on valuations is minor in view of the imminent merger with Sterlite Industries. The High Court of Mumbai, Goa bench is currently hearing shareholders' arguments against the merger. The company has already presented its case. The Chennai High Court has heard both sides and verdict is expected in this month of February 2013 .Though uncertainties regarding the iron ore business persist, the impact on valuations is minor in view of the imminent merger with Sterlite Industries and other group companies. Hearings have commenced in the High Courts of Mumbai and Chennai. All other approvals from shareholders and other courts in India and abroad have been received. The new entity “SESA-STERLITE” on Some of The Part valuations comes at Rs. 208 which transfers into the market capital of around Rs. 61,696 Cr. On merged entity basis, & at CMP of Rs. 170.65 the stock is trading at 4.35 x FY13E EPS of Rs. 39.20 and 5.06 x FY14E EPS of Rs. 33.70. Global peers including BHP Billiton, Rio Tinto, Teck Resources are trading at 8 x one year forward earnings & 4.2 x one year forward the EV/EBITDA. Considering the holding company structure and operational constraints SESA-STERLITE could fetch a lower valuation as compare to its global peers. One can buy SESAGOA Limited with a target price of Rs. 208.00 for Medium to Long term investment & for shorter term it should be Rs. 185.00.

SOTP Valuation :-

Business Subsidiary FY13E	Value Per Share (in Rs.)
SESAGOA Standalone	(-118.00)
HINDUSTAN ZINC	145.00
BALCO LTD	4.00
ZINC INTERNATIONAL	39.00
CAIRN INDIA	144.00
OTHER SEGMENTS	(-6.00)
TOTAL	208.00

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (Rs. Crs)	68,369.80	71,674.70	72,998.00	76,084.10
NET PROFIT(Rs. Crs)	10,279.30	11,627.10	9,983.20	9,827.60
EPS (Rs.)	34.70	39.20	33.70	33.10
PE (x)	5.10	4.50	5.30	5.40
P/BV (x)	0.80	0.70	0.70	0.60
EV/EBITDA (x)	5.40	5.50	5.10	4.80
ROE (%)	17.00	16.50	13.20	11.90
ROCE (%)	25.30	24.80	13.30	12.60

I would buy SESAGOA LTD with a price target of Rs. 208 for Medium to Long term and for Shorter Term the target is Rs. 185.00 . 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. 157.00 on every purchase.

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ULTRA TECH CEMENTS: CEMENTING STRONGLY AHEAD !!!

Scrip Code: 532538 / ULTRACEMCO

CMP:  Rs. 1837.75; Buy at every dips.
Medium to Long term Target: Rs. 2066; STOP LOSS – Rs. 1690.73; Market Cap: Rs. 50,369.81 Cr; 52 Week High/Low: Rs. 2154.20 / Rs. 1212.05

Total Shares: 27,40,84,137 shares; Promoters : 17,36,05,057 shares –63.34 %; Total Public holding : 10,04,79,080 shares – 36.66 %; Book Value: Rs. 469.06; Face Value: Rs. 10.00; EPS: Rs. 102.00; Div: 80.00 % ; P/E: 18.17 times; Ind. P/E: 19.84; EV/EBITDA: 10.02.

Total Debt: 3,808.13 Cr; Enterprise Value: Rs. 54,177.94 Cr.

ULTRATECH CEMENT LIMITED: ULTRACEMCO was incorporated in 2000 and is based in Mumbai, India. It was formerly known as Ultra Tech Cemco Limited and changed its name to ULTRATECH CEMENT Ltd on October 2004. It’s a subsidiary of Grasim Industries Ltd from Aditya Birla Group. The Company is engaged in the business of cement and cement related products. It manufactures and markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzalana Cement. UltraTech Cement Limited, together with its subsidiaries, primarily engages in the manufacture and sale of cement in India and internationally. Its products include ready mix concrete; building products, including waterproofing solutions, polymer modified mortar, lightweight autoclaved aerated concrete blocks, thin layer jointing mortar, and ready mix plaster; and white cement. The Company also manufactures ready mix concrete (RMC). UltraTech Cement is an exporter of cement clinker. The Company has an annual capacity of 23.1 million tons. The Company has 11 integrated plants, one white cement plant, one clinkerisation plant in the United Arab Emirates, 15 grinding units - 11 in India, two in the United Arab Emirates, one in Bahrain and Bangladesh each and five terminals - four in India and one in Sri Lanka. In the 2011, its wholly owned subsidiary, UltraTech Cement Middle East Investments Limited (UCMEIL) acquired ETA Star Cement together with its operations in the United Arab Emirates, Bahrain and Bangladesh and acquired management control. On July 1, 2010, Samruddhi Cement Limited (Samruddhi) amalgamated with the Company.  The Company's subsidiaries include Dakshin Cement Limited, UltraTech Cement Lanka (Pvt.) Ltd. and UltraTech Cement Middle East Investments Limited. The company is compared to Ambuja Cements Ltd, ACC Limited and Rain Commodities Limited domestically.

Investment Rationale:

Ultratech Cement Limited is India's largest manufacturer of cement with an installed capacity of 52 Million Tonnes Per Annum. Ultratech’s massive 10 mtpa capacity addition program is nearing completion. The 1 mtpa Surat grinding unit is expected to be commissioned by 4QFY13. Ultratech board has sanctioned an additional capex of Rs. 1000 Cr towards modernization and setting up of Ready Mix Concrete (RMC) plants across the country. This brings the total capex under implementation to about Rs. 11400 Cr. The Company has entered into a Share Purchase Agreement with the shareholders of Gotan Limestone Khanij Udyog Pvt. Ltd (GKU) and has acquired GKU’s entire equity stake. Consequently, GKU has become a wholly owned subsidiary of the Company with effect from July 23^rd, 2012. Through this acquisition Ultratech is looking to enhance its white cement capacity. Ultratech’s revenues for Q3FY13 improved by 6 % YoY led by improvement in cement realizations. However, on a sequential basis, cement realizations witnessed a marginal decline. An average cement prices at the end of Q3FY13 witnessed a correction sequentially and stood at Rs. 284/bag. Correspondingly, company's realizations (including RMC) during Q3FY13 stood at Rs. 4690 per tonne as against Rs. 4760 per tonne during Q2FY13 adjusting with white cement, wall care putty and cement export revenues. The combined grey cement and clinker sales volume stood at 9.62 MT during Q3FY13 as against 9.7 MT during Q3FY12. Export cement and clinker volumes stood at 0.32 MT at approx. price of $55/tonne for cement and approximately $45/tonne for clinker. Company is in the process of setting up 4.8 MT plant at Raipur, Chattisgarh and 4.4 MT plant at Malkhed, Karnataka along with a captive power plant of 75 MW and waste heat recovery plant of 45 MW. These new capacities are likely to get operational by mid FY14. The company is expected to dispatch about 41 MT for FY13 translating into revenues of around Rs. 20,000 Cr for FY13 & for FY14 the estimates for volumes are expected to grow to 48.9 MT with expected revenues of Rs. 25,500 Cr for FY14. 

Outlook and Valuation:

Ultratech's revenues for Q3FY13 improved by 6 % YoY led by improvement in cement realizations. However, on a sequential basis, cement realizations witnessed a marginal decline. Company’s operating margin for Q3FY13 remained same on yearly basis despite the higher cost and improvement in cement prices. The Net profit performance was boosted by strong operating margins and higher other income. UltraTech’s average realizations were up 8 % YoY to Rs. 4,760 per ton. At 10.2 m tons, volumes for grey cement, clinker, white cement & wall putty dipped by 1.5 % YoY but up 7.1 % QoQ. Grey cement sales were up by 7.1 % QoQ which are in line with the industry growth rate. RMC recorded revenue of Rs. 500 Cr up by 47 % YoY and white cement and wall putty recorded Rs. 400 Cr up by 18 % YOY. Ultra Tech’s Average EBITDA/ton stood at Rs. 1,005/ton. The increase in the price of diesel and railway freight mainly led to an 18 % YoY rise in raw material cost and a 7 % YoY rise in freight. Benefit of softening coal prices was partly offset by the rupee depreciation against the dollar, leading only to a minor dip of 2 % YoY in power & fuel costs per ton. Company’s higher other income also boosted Profit after Tax growth of 9 % YoY. Company’s management expects cement demand to grow over 8 % in the long term even as the surplus scenario will continue in next three years. The two new units at Chattisgarh and Karnataka are likely to start by early FY14, taking total capacity to 59.5m tons. During 3QFY13, the Ministry of Coal, de-allocated the company’s coal block (allocated jointly with a JV partner) in Chattisgarh. The company has filed against the order and obtained a stay in this regards. The Competition Commission of India (CCI) has slapped 11 cement companies with a fine of Rs. 6,714.83 crore for price cartelisation, the highest penalty ever imposed by the fledgling, but increasingly assertive, anti-trust regulator. 11 firms were found guilty of price rigging. These 11 firms include ACC, Ultratech Cement, Grasim Cement (now a part of Ultratech), Jaypee Cements, Lafarge India, Jk Cements, India Cements, Madras Cement, Century Cements, Binani Cements and Ambuja Cements. The Industry body Cement Manufactures Association has also been fined. These 11 firms and the association are drawing up plans to question the legality of the case when it comes up for hearing before the Competition Appellate Tribunal (COMPAT the 3 member tribunal) on 29 January 2013. In any case any adverse decision would mean the blow of Rs.1175.40 Cr on Ultratech which is 6 % - 7 % of its total sales. Cement prices rose to all time high of Rs.330/bag in middle of 2012, & looking at the strong recovery going forward cement company will be have boost in their profitability. The clarity on the CCI investigation report should be a major trigger for the stock. At current price of Rs. 1837.75, the stock is trading at 19.2 x P/E on estimated EPS of Rs. 95.30 for FY13E and 16 X P/E on the estimated EPS of Rs. 114.80 for FY14E. Ultratech Cements is a good buy at the current market price & one can ACCUMULATE the stock and is advised to use declines in the stock to buy with a long term view with a target price of Rs. 2066.00 for Medium to Long term investment.

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (Rs. Crs)	18,158.30	20,705.50	24,384.50	29,484.40
NET PROFIT(Rs. Crs)	2,369.60	2,611.40	3,147.00	3,850.00
EPS (Rs.)	86.50	95.30	114.80	140.50
PE (x)	22.10	20.00	16.60	13.60
P/BV (x)	4.10	3.50	3.00	2.50
EV/EBITDA (x)	13.10	11.40	8.90	6.80
ROE (%)	20.10	18.60	19.00	19.60
ROCE (%)	17.60	18.00	19.50	21.20

I would buy UltraTech Cements LTD with a price target of Rs. 2066 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. 1690.73 on every purchase. 

*As the author of this blog I disclose that I do hold Ultra tech Cements LTD in my investment portfolio.

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ASHOKA BUILDCON :OUTSTANDING CONTRIBUTION TO ROADS AND HIGHWAYS !!!

Scrip Code: 533271 / ASHOKA

CMP:  Rs. 199.00; Buy at Rs. 195 - 200 levels.
Medium to Long term Target: Rs. 215; STOP LOSS – Rs. 183.00; Market Cap: Rs. 1,047.75 Cr; 52 Week High/Low: Rs. 283.00 / Rs. 181.08

Total Shares: 5,26,50,860 shares; Promoters : 3,54,81,587 shares –67.39 %; Total Public holding : 1,71,69,273 shares – 32.61 %; Book Value: Rs. 147.97; Face Value: Rs. 10.00; EPS: Rs. 21.49; Div: 00.00 % ; P/E: 9.26 times; Ind. P/E: 21.45; EV/EBITDA: 5.70.

Total Debt: Rs. 282.42 Cr; Enterprise Value: Rs. 1,330.17 Cr.

ASHOKA BUILDCON LTD: The Company was incorporated in 1976 and is based in Nashik, Maharashtra - India. Ashoka Buildcon Limited operates as an infrastructure development company in India. It focuses on developing and building infrastructure facilities on design, build, finance, operate, and transfer (DBFOT) basis in highways; and engineering, procurement, and construction (EPC) basis in highways and the power sector. The company is also involved in the sale and installation of software solutions. The company operates in four divisions: Build, Operate, and Transfer (BOT); EPC; RMC and Bitumen; and Toll Collection Contract. The BOT division builds and operates roads and bridges on Built Operate and Transfer basis. It has interest in 21 BOT road projects including road projects in Maharashtra, Madhya Pradesh, Chhattisgarh, Karnataka, and Orissa. The EPC division is involved in the engineering, design, procurement, and construction of roads, bridges, distribution transformers, electricity substations, commercial buildings, industrial buildings, and institutional buildings for third parties. This division also constructs, maintains, and repairs roads and bridges for BOT division. The RMC and Bitumen division manufactures and sells ready-mix concrete, bitumen, and pre-cast concrete poles. The Toll Collection Contract division collects tolls on roads and bridges owned and constructed by third parties. Ashoka Buildcon ltd is compared with Praj Industries Ltd, Infotech Enterprises Ltd, Marg Ltd.

Investment Rationale:

Ashoka Buildcon ltd came with an IPO on September 2010 with an issue price of Rs. 324/share and rise about Rs. 225 Cr with an objective to meet working capital requirements, investment in capital equipment, prepayment & repayment of project loans of the company, to fund certain subsidiaries for prepayment and repayment of their loans. Ashoka Buildcon and GVR Infra Projects, a consortium (50:50) emerged as the lowest bidder for the road project in Chennai. The project was by Tamil Nadu Road Development Company Ltd (TNRDC) for their project namely Development of Chennai Outer ring Road Phase II from Nemilicheri in NH 205 to Minjur in Thiruvottiyur – Ponneri – Panchetti (TPP) Road for Design, Build, Finance, Operate & Transfer (DBFOT) basis at Chennai, in the state of Tamil Nadu. The project is on annuity basis with a Concession period of 20 years & TNRDC’s cost of the project is around Rs. 985.44 Cr. The Public works department, PWD (Maharashtra) has withdrawn the toll collection rights from Ashoka Buildcon Ltd for Ahmednagar Karmala road project which was under BOT Scheme (with toll rights) prematurely, which were to expire on November 04, 2015. Ahmednagar Karmala project was envisaged in 1991 with reference interest rate linked to RBI published rate. Based on an index of lending rates (published by leading banks) which have been in downward trend, PWD has recalculated the concession termination date as Nov 4, 2012. Toll collection which was in effect on 17^th November 2012 has already been discontinued. The notification states that the lending interest rates have been changed by the RBI and consequently as per contract provisions, the concession period in view of new lending rates reworked, has ended before Nov 14, 2012. This termination will negatively impacted on near term profitability of the Project which contributes around 4.5 % or Rs.16/share in the overall fair value of Rs 350/share. The project has an expected toll collection of Rs. 2.75 Cr in FY13E which is 8.6 % of the overall toll collection for Ashoka Buildcon & Adjusted PAT from this project for FY14E stood at Rs 2.00 Cr which is 13 % of FY14E consolidated APAT. Considering it was a debt free mature project in its portfolio the profit contribution to the overall consolidated PAT is much higher. Ashoka Buildcon ltd’s 2 other projects also faces the risk of early termination. The PWD (Maharashtra) is in the process of expanding the existing 2 lane state highways network at 10 or 11 stretches to 4 lanes. PWD (Mah) has already awarded a part of Ahmednagar Karmala Tembhurni stretch to Supreme infrastructure in Dec-10 for expanding the stretch to 4 lanes. Management indicated that there are two more projects in its portfolio which are based on similar concession agreement i.e. Pune Shirur and Sherinallah put together commands another Rs 10/share or 3 % of value in Some Of The Part valuation. Total Value at risk owing to such a decision is 7.5 % of overall SoTP owing to such a move. One can buy based on cheap valuation with a target price of Rs 215.

Outlook and Valuation:

Ashoka Buildcon’s subsidiary Ashoka Concessions Ltd received the first tranche of the $150 million investment being made by two private equity funds – Macquarie SBI infrastructure Fund and SBI Macquarie Infrastructure Trust. The company will use these funds as equity in various projects under construction. The PWD (Mah) has awarded 6 projects so far to ABL from these 2 projects have already achieved termination i.e. Dhule bypass & Anwali Kasegaon on a natural course. Company’s management highlights that 2 projects out of the remaining 3 i.e. Pune Shirur and Sherinallah are based on similar concession agreement & both of these projects might face early termination risk after the termination of Nagar Karmala project. Both put together commands 3 % of SoTP or Rs 10/share. In terms of overall revenue contribution to the toll collection Sherinallah and Pune shirur commands 10 % and 6 % in terms of profitability based on FY14E. Sudden removal of tolling rights for Ahmednagar Karmala came in as a surprise. The project comprises 5 % of the company’s fair value based on FY14E target price. Such an event can at max be replicated on two other projects as guided by the management. Overall Ashoka Buildcon Ltd even after the termination of Nagar Karmala is still collecting toll at 3 other projects from PWD (Mah). At the current market price of Rs. 199.00, the stock is trading at a PE of 8.96 x FY13E and 7.96 x FY14E respectively. The company can post Earnings per share (EPS) of Rs. 22.20 in FY13E and Rs. 25.00 in FY14E. One can buy Ashoka Buildcon with a target price of Rs. 215.00 for Medium to Long term investment.

KEY FINANCIALS	FY11	FY12	FY13E	FY14E
SALES (Rs. Crs)	1,302.00	1,500.00	1,903.30	2,307.60
NET PROFIT (Rs. Crs)	100.80	124.80	116.80	131.60
EPS (Rs.)	19.10	23.70	22.20	25.00
PE (x)	10.70	8.60	9.20	8.20
P/BV (x)	1.20	1.00	0.90	0.80
EV/EBITDA (x)	9.10	8.20	9.50	9.60
ROE (%)	14.90	13.00	10.70	10.80
ROCE (%)	11.00	7.80	3.70	3.00

I would buy ASHOKA BUILDCON with a price target of Rs. 215.00 for the medium to long term 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. 183.00 on your every purchase.

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ADANI PORT & SEZ : GRAB GREAT BUSINESS AT GREAT PRICE !!!

Scrip Code: 532921 / ADANIPORTS

CMP:  Rs. 131.70; Buy at current levels.

Medium term Target: Rs.145 ; Long term Target: Rs. 165; STOP LOSS – Rs. 121.16; Market Cap: Rs. 26,384.70 Cr; 52 Week High/Low: Rs. 157.75 / Rs. 105.65

Total Shares: 200,33,94,100 shares; Promoters : 155,25,38,715 shares –77.50 %; Total Public holding : 45,08,55,385 shares – 22.50 %; Book Value: Rs. 26.05; Face Value: Rs. 2.00; EPS: Rs. 7.47; Div: 50.00 % ; P/E: 17.63 times; Ind. P/E: 20.97; EV/EBITDA: 16.93.

Total Debt: Rs. 5,137.69 Cr; Enterprise Value: Rs. 31,522.39 Cr.

Adani Port and Special Economic Zone LTD: The Company was incorporated in 1998 and is based in Ahmedabad, Gujarat- India. It was earlier known as Gujarat Adani Port Limited and later named as Mundra Port and Special Economic Zone Ltd. In January 2012 the company was renamed as Adani Port and Special Economic Zone Ltd. Adani Port and Special Economic Zone Ltd is a subsidiary of Adani Enterprises Limited from September 2010. The company engages in the development, operations and maintenance of multi product special economic zone and related infrastructure in India. The company through its Mundra port located in Gulf of Kutch, India provides cargo handling & other value-added port related services. It operates port infrastructure facilities of bulk cargo at Dahej, Gujarat, handles bulk, liquid and containerized cargo, single point mooring, storage, and transportation of cargo by road, rail and pipeline. APSEZL is near completion of setting up coal cargo terminals at Murmugao Port, Goa. The company is also developing a non- LNG multi-user, multi-cargo port facilities at Hazira under the sub-concession route The company also operates container trains on specific railways routes; and provides multi-model cargo storage and logistics services through the development of inland container depots at various locations. It operates a fleet of approximately 2517 vessels. In addition, APSEZL provides non scheduled (passenger) services through its aircrafts. Adani Port and SEZ ltd is compared with Essar Port & Gujarat Pipavav Port locally & Globally with Meiko Trans Co. Ltd  & Azuma Shipping co. ltd of Japan; Rizhao Port Co. ltd; Shenzhen Chiwan Wharf Holdings Ltd.

Investment Rationale:

Adani Port is the largest private Port in Indian with No.2 position in container cargo. Adani Port’s market share in all India cargo i.e. Mundra + Pipavav + Major Ports has moved up from 14.4 % in H1FY12 to 17 % in H1FY13. Due to weak macro’s it faced a slowdown in container cargo growth to 16 % YoY v/s 25 % in the last quarter. Adani ports during the quarter commenced the trial runs at Hazira Port & CT-III (ahead of its schedule in Q2FY13) taking the overall operational portfolio across 4 ports. Abbot point recorded cargo volumes of 3.67MT, Dahej recorded cargo volumes of 1.2 mn tons & Hazira (trial runs) recorded cargo volumes at 0.11 MT in Q2FY13. Adani Ports has handled 47.88 MT at all the ports under their management during H1FY13 recording a growth of 24 % year on year. Dahej port has handled 3MT in H1FY13 with a positive APAT generation in H1FY13. CT-3 has also commenced operations in Aug-12 which has raised the container handling capacity of CT-3 from 2.5mteu to 4.3mteu. Hazira port has also commenced trial runs during the quarter, commercialization is expected from FY14E. APSEZ delivered solid Q2 performance by reporting standalone EBITDA at Rs. 485 Cr up at robust 28% year on year, led by high volumes in cargos. It’s EBIDTA margins stood at 69.5 % marginally up by 5.10 % year on year. The company posted revenues at Rs. 698 Cr up by 18.7 % year on year led by volume beat, as cargo volumes at 20.4MMT grew at a healthy rate of 15 % year on year. The Dry bulk segment (9.9 mt) grew at robust 41 % year on year, while the container cargo (6.2 mt) grew by 16 % year on year. APSEZ posted blended realization of Rs. 342/tone. Its’ APAT came at Rs 370 Cr up by 35.9 % year on year with significantly higher other income at Rs. 97.3 Cr which includes Rs 50 Cr of SEZ income. On Consolidate basis - Its revenue came at Rs. 1020 Cr up by 19 % year on year led by outperformance by Mundra port. Adani ports in Q2FY13 handled overall cargo of 25.7mn which included 3.67mt at Abbot Point and 1.5mt at Dahej port. EBITDA came in at Rs. 64o Cr up by 24.5 % year on year with a sharp decline in EBITDA margins at 62.6 %. APAT came in at Rs. 275 Cr down by 4 % year on year led by higher other income of Rs. 75.1 Cr. Overall implied EBITDA of other subsidiaries stood at Rs. 120 Cr down by 27 % quarter on quarter. ADSEZ reported a strong increase in standalone net debt by Rs. 1850 Cr from Mar 31, 2012 levels to Rs. 6450 Cr at H1FY13, Simultaneously the money deployed in short-term Loans & Advances has raised sharply by Rs. 1050 Cr to Rs. 1220 Cr raising questions on wasteful deployment of resources. We await clarifications on the nature of advances.

Outlook and Valuation:

ADANI PORT is among the largest beneficiaries of an increasing demand-supply mismatch in India’s port capacity. APSEZ’s competitive advantages and attractive location plus connectivity provides a strong visibility of traffic for APSEZ. It should be noted that 90 % of APSEZ’s estimated traffic comprises of coal, crude oil, and container. Of this, coal and crude oil are not likely to see any impact from global macro concerns, while container traffic should continue to benefit from the shortage of capacity on India’s west coast. Based on the SOTP valuation method the value APSEZ comes at Rs. 165 per share, implying an upside of 25.28 % from current levels. The value of Mundra Port (core operating asset of APSEZ) comes at Rs. 119 per share, constituting 72 % of total value of APSEZ. Mundra Port, given its strategic positioning & diversified mix of cargo & is expected to deliver strong volume growth. The company having delivered a strong track record of maintaining superior realization & margin has emerged as the preferred port due to superior infrastructure which facilitates faster transit of cargo, thereby reducing the overall cost of handling for logistic companies and end users. Amongst other projects, Dahej and Abbot Point (Australia) are already operational and gaining further traction. Despite been in a capital intensive business, the debt situation for ADSEZ is at very comfortable level. The stable cash flows from assured cargo and minimum working capital investment would be very important for the company to make more capex in the future for growth. At the current market price of Rs. 131.70, the stock is trading at a PE of 29.26 x FY13E and 18.41 x FY14E respectively. The company can post Earnings per share (EPS) of Rs. 4.50 in FY13E and Rs. 7.30 in FY14E. The SOTP (sum‐of‐the‐parts) valuation of Adani Port & Sez comes at Rs. 165. One can buy APSEZ with medium term target of Rs.145 & a Long term target price of Rs. 165.00.

SOTP Valuation :-

Business Subsidiary	Value Per Share (in Rs.)
Mundra Port	119.00
Value of SEZ	16.00
Adani Petronet Dahej Pvt Ltd	5.80
Mormugao Port	2.00
Abbot Point Coal Terminal	12.00
Hazira Port	4.00
Vizag Port	2.00
Adani Logistics Ltd	5.00
TOTAL	165.80

KEY FINANCIALS	FY11	FY12	FY13E	FY14E
SALES (Rs. Crs)	2,000.01	3,270.80	4,026.80	5,231.30
NET PROFIT (Rs. Crs)	943.50	1,094.80	913.20	1,464.50
EPS (Rs.)	4.70	5.40	4.50	7.30
PE (x)	26.10	22.50	27.00	16.80
P/BV (x)	5.90	5.10	4.50	3.70
EV/EBITDA (x)	21.10	20.00	16.60	12.90
ROE (%)	24.70	24.30	17.60	24.10
ROCE (%)	14.70	10.60	7.90	9.20

I would buy ADANI PORTS & SEZ with a price target of Rs. 145 for medium term & Rs. 165 for 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. 121.16 on your every purchase. 

*As the author of this blog I disclose that I do hold ADANI PORT AND SEZ LTD in my investment portfolio.

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