PVR LTD : EXHIBITING ITS STRONG FOOT HOLD !!!

Scrip Code: 532689 / PVR

CMP:  Rs. 286.75; Accumulate at every  levels.
Short term Target – Rs. 300; STOP LOSS – Rs. 263.80; Market Cap: Rs. 1,136.01 Cr; 52 Week High/Low: Rs. 340.90 / Rs. 141.00

Total Shares: 3,96,16,995 shares; Promoters : 2,23,09,467 shares –56.31 %; Total Public holding : 1,73,07,528 shares – 43.68 %; Book Value: Rs. 70.35; Face Value: Rs. 10.00; EPS: Rs. 5.45; Div: 60 % ; P/E: 52.61 times; Ind P/E: 30.79; EV/EBITDA: 6.80.

Total Debt: Rs. 225 Cr; Enterprise Value: Rs. 1,599.01 Cr.

PVR LIMITED: PVR Limited was incorporated in 1995 and is based in Gurgaon, India. PVR LTD was incorporated in April 1995 pursuant to a joint venture agreement between Priya Exhibitors Private Limited and Village Roadshow Limited, one of the largest exhibition companies in the world. PVR Limited is an India-based company that operates movie houses in India. The Company also generates revenue from in-cinema advertisements/product displays and in-cinema sale of food and beverages. It also produces and co-produces movies; and distributes movies, as well as operates 24 lane bowling centers. The company operates 213 screens in 46 cinemas in 27 cities. Company’s subsidiaries include CR Retail Malls (India) Limited (CRR), PVR Leisure Ltd, PVR Pictures Limited (PVR Pictures), Cine Hospitality Private Ltd and PVR bluO Entertainment Limited (PVR bluO). The Company has diverse cinema circuit in India consisting of 35 Cinemas with 154 screens spread over 20 different cities: Delhi, Faridabad, Gurgaon, Ludhiana, Ghaziabad, Mumbai, Bangalore, Hyderabad, Chennai, Lucknow, Indore, Aurangabad, Baroda, Allahabad, Ahmedabad, Udaipur, Chandigarh, Surat, Latur and Raipur. PVR Ltd announced the opening of a multiplex on August 15, 2012, at Empress Mall, in Nagpur in the state of Maharashtra. The multiplex consists of five screens. On January 8, 2013, PVR through its wholly owned subsidiary Cine Hospitality Private Ltd purchased a controlling stake of over 69% followed by the open offer for another 26% in the Cinemax India Limited for Rs. 395 Cr or Rs. 203.65 per share from the Rashesh Kanakia and family. PVR Ltd is locally compared with Fame India Limited, Cinemax Properties Ltd, Era E Zone (India) Ltd, Pyramid Saimira Theatre Limited and Inox Leisure Ltd and globally it is compared with Orange Sky Golden Har. Ente. Holdings Ltd of Hong Kong, Kinepolis Group NV of Belgium, Cinemax X AG of Germany, Digital Cinema Destination Corp of United States and Reading International Inc of United states.

Investment Rationale:

PVR pioneered the multiplex revolution in the country by establishing the first multiplex cinema in 1997 at Saket, New Delhi. The opening of the first multiplex heralded (started a good beginning)  a new era in the Indian cinema viewing experience and which also changed the industry forever. From then-on PVR initiated many path breaking innovations in the industry from launching its largest 11 screen multiplex in the country in 2004 in Bangalore and introducing Gold Class Cinema. PVR Ltd came with an IPO on 8^th December 2005 with an issue price of Rs. 225/share and raised about Rs. 173.25 Cr with an objective to utilize the proceeds to finance the then new cinema projects in various cities across the country, to expand the film distribution business, technological up gradation and renovation of cinemas. PVR entered into a JV with Major Cineplex Group in 2008, a leading Film exhibition and retail entertainment company based out of Thailand, to bring lifestyle entertainment concepts to Indian consumers. The JV enjoined setting up of bowling alleys, karaoke centers, ice skating rings and gaming zones across the country to enhance the out of home entertainment experience for Indian consumers. PVR Cinemas today contributes about 20%-25% of domestic box office collections of any leading Hollywood movie and 12%-13% of any leading Bollywood movie, highest across the Indian Film Exhibition space. On January 8, 2013, PVR through its wholly owned subsidiary Cine Hospitality Private Ltd purchased a controlling stake of over 69% in the Cinemax India Limited for Rs. 395 Cr or Rs. 203.65 per share from the Rashesh Kanakia and family followed by the open offer for another 26% of Rs. 148 Cr, with the success of open offer which ended on 23^rd February 2013, PVR will now look at de-listing of Cinemax which will comply with the norms of SEBI to maintain minimum public shareholding of 25%. With the successful open offer of Cinemax, PVR, which has already added 47 screens this year will have 351 screens in 85 properties across 36 cities in India with 87,493 seats on combined basis, this translates into entertaining a staggering 5.3 Cr customers every year. PVR expects to add 55 more screens by the end of FY14.

Outlook and Valuation:

PVR's IMAX Auditorium in Bengaluru

PVR buyout deal for Cinemax India will cost PVR a total of Rs. 543 Cr, which will be funded through the approval to rise about Rs. 260 Cr through preferential issue of 1,06,25,205 shares of PVR at Rs. 245 per share to PVR promoters viz. Ajay Bijli and Sanjeev Kumar who in total will infuse Rs. 25 Cr which will then will hold 32% in PVR after the fund raising, Multiples Alternate Asset Management Private Equity Fund Ltd will infuse about Rs. 153 Cr which will then own 15.80% in PVR, L Capital Eco Ltd will infuse about Rs. 82.3 Cr into PVR’s preferential issue which will then hold 15.80% in PVR. Thus a an equity dilution of about 36.7 % is slightly negative for the stock but the best side for the stock is that firstly, post deal PVR will become India’s largest Multiplex operator ahead from Inox + Fame who has 256 screens, Big Cinemas who has 254 screens, secondly, it will gain access to eight new markets and northern region, also PVR will be benefited from the stronger foot-hold of Cinemax in western region. PVR will be benefited in spite of the increase of service charge from Rs. 6 to Rs. 14 by the government as multiplex operators will now can retain the increment of Rs. 8 in ticket prices. On consolidated basis the Debt of PVR is around Rs. 600 Cr on the net worth of Rs. 650 Cr, and the debt equity Ratio of PVR is not expected to come down in next 12 -16 months due to its expansion plans. PVR has stated that it will continue to focus on distribution of Hollywood movies. PVR’s profitable subsidiary PVR Leisure has cash of around Rs. 45 Cr and in my view PVR can use this cash for making changes in Cinemax's screens, its food & beverage segment which could be expected to get turnaround in next 12 months period. With a healthy EBITDA of 34% with consolidated revenue of Rs.202.44 Cr, in my view PVR Ltd could report FY13E EPS of Rs. 7.50/sh and for FY 14E of Rs. 14.50/sh. The stock could be bought for the short target price of Rs. 300.00 and recommend Accumulate on the stock. 

Name of the Companies	Number of Screens
PVR Cinemax	351 Screens
INOX + Fame	256 Screens
BIG Cinemas	254 Screens
FUN Cinemas	73 Screens
Cinepolis	49 Screens
Sathyam Cinemas	27 Screens
TOTAL	1,010 Screens

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (Rs. Crs)	513.10	825.70	1,322.50	1,465.80
NET PROFIT (Rs. Crs)	25.40	30.20	58.20	74.80
EPS (Rs.)	9.80	7.50	14.50	18.60
PE (x)	26.90	35.10	18.20	14.20
P/BV (x)	2.40	1.70	1.50	1.40
EV/EBITDA (x)	15.30	8.80	5.10	4.20
ROE (%)	9.10	4.70	8.40	9.70
ROCE (%)	9.00	4.80	8.90	9.60

I would buy PVR LTD with a price target of Rs. 300.00 for the short 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. 263.80 on your purchase. (Why Strict stop loss of 8 % ?) - Click Here

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STOP LOSS : MORE YOU DELAY MORE IS YOUR PAIN !!!

Friends, as markets tanked on budget day, my inbox was full that evening, with many of my fellow reader’s pouring in their queries on stocks – saying "What should we do. The stocks are down by 15 % - 20 %". I casually - said "Sell if your stop loss is triggered" – “But it’s a loss of more than 10 % and I am losing a lot out of it”, I started answering to this question by giving them an explanation and the reason behind to keep a stop loss- just then a thought strike my mind that lets have a post on importance of stop loss mechanism. 

Friends’, dealing in stock markets is dealing with volatility, uncertainty and market factors which are beyond one’s control. Many among us, or almost everyone at some point of time must have experienced that “whenever I buy, the stock is down the very next moment and the stock goes up whenever I sell”. This happens because we fail to understand the stock market behavior. Many investors among us are reluctant to book their losses. The problem is we always want to see our money growing. We never ever think of selling off the stock once it starts falling, on the contrary we start questioning ourselves "what if that this counter goes up after I sell it in the losses". This “What if” is a psychological nature of us which always challenges our emotions and costs dearest to our wealth. We hold on to that stock hoping it to bounce back and ultimately it makes you realize that you are too late to sell, making you an compulsory investor. The problem here is that we don't have a proper stoploss.

If you go through my blog posts where I always quote my views on any particular stock with a stoploss, and always without fail I mention that I respect the markets and will sell once the stoploss is triggered. Keeping a strict stoploss will not only protects the capital but it also allows to invest in any other better option. Suppose, if you buy a stock at Rs. 100 and it goes down by 10 % your loss is of Rs. 10 – as usual reluctantly people don’t like to sell at loss, so hoping for the stock to bounce back he will hold on to it, further the stock tanks another 10 % making losses to go up from 10 % to 20 %, now you are more reluctant to book losses and now you start saying that you are a long term investor knowing very well that it will take a very long time to break even.

Let’s take a simple mathematics drill which will make you understand the importance of keeping a stoploss.

Example: If you buy a stock at Rs. 100 and maintain a strict stoploss of 8 %, suppose if it falls to Rs. 92 hitting your stoploss and you don’t sell, then the same stock will need to jump 8.7 % to get back your break even point of Rs. 100. Similarly, in the table given below explains that the Longer you hold on to your losses, the Harder it is to get back your money.    

Percentage Loss	Percentage to Break Even
8.00 %	8.70 %
10.00 %	11.10 %
20.00 %	25.00 %
40.00 %	66.70 %
50.00 %	100.00 %
60.00 %	150.00 %
80.00 %	400.00 %

The table above will indeed help you in making the hard decision in easy way. This stoploss mechanism also pertains to the best fundamental stocks like Larsen & Tubro – suppose you buy Larsen for the long term say for 6 months at Rs. 1400 and if it goes down further to Rs. 1288 showing you losses of 8 %, you sell at Rs. 1288 as your stoploss of 8 % is triggered. Selling at stoploss will not only protect you with further down side but will also provide you with an opportunity to enter back in L&T when it tanks further at Rs. 1185. As L&T commands best fundamentals you decide to jump on to it at Rs. 1185 (off course this time too with strict stoploss of 8 % or Rs. 1090), it’s of more of the probability that it will bounce back once the sentiments of the markets improve hence giving back your money with profit of 18.14 % (buying at Rs. 1185 and selling it at Rs. 1400).

Choosing the correct stoploss here is a key; if you are a long term investor with moderate risk taking ability then you should go for 8 % as your stoploss trigger, but if you are a trader than Trialing Stoploss using Average True Range or ATR will serve you better. ATR was developed by J. Welles Wilder is an indicator that measures volatility. This number does not provide an indication of Price direction but it only provides an volatility and slightly modifying this number will make this number easy to understand; this is calculated by subtracting current High & Low of the stock and then multiplying it by 2, further dividing it by the days close. Suppose you are trading ACC today you would set your trialing stop loss as - 

Previous Days Close = 1221.35; Previous Days High = 1259.70; Previous Days Low = 1211.10; so subtracting days high & low i.e. 1259.70 - 1211.10 = 48.6

2*48.6/1221.35 = 7.95 %   

What are you doing here is you are simply attaching a risk tolerance level i.e. 2 based on the stock’s intraday moves averaged over a period of time. Here your stoploss for ACC should be 7.95 % from today's close. This is an indicative levels and just gives an rough idea about the volatility that stock may face in respect of prices the next trading day. And this should not be taken as a thumb rule.   

Some Key points before executing a trade:

• A stoploss should be considered & decided before a position is entered.
• A stoploss should be placed immediately at the time of entry.
• A stoploss should not allow more than 2 % loss of your account balance.
• Only risk 1 % of your total trading capital on any one trade - when you loose 2 % on that get out of that trade. 
• For the day trades a stoploss should not allow more than 1 % loss of your account balance.   

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COAL INDIA LTD: A NAVRATNA FOR EVERY PORTFOLIO !!!

Scrip Code: 533278 / COALINDIA

CMP:  Rs. 319.15; Buy at every dips.
Medium to Long term Target – Rs. 355; STOP LOSS – Rs. 293.00; Market Cap: Rs. 2,01,586.76 Cr; 52 Week High/Low: Rs. 386.25 / Rs. 289.40

Total Shares: 631,63,64,400 shares; Promoters : 568,47,27,960 shares –90.00 %; Total Public holding : 63,16,36,440 shares – 10.00 %; Book Value: Rs. 30.97; Face Value: Rs. 10.00; EPS: Rs. 13.77; Div: 100 % ; P/E: 23.13 times; Ind P/E: 15.73; EV/EBITDA: 22.57.

Total Debt: Rs. 1173.54 Cr; Enterprise Value: Rs. 1,37,760.30 Cr.

COAL INDIA LIMITED: CIL was incorporated in 1973 in Kolkata, India. It was formerly known as Coal Mines Authority Limited. CIL is a leading public sector undertaking engaged in coal mining & selling coal fines in India and is working on establishing its footprint globally through acquisitions. The company provides Washed and Beneficiated coal for use in manufacturing of hard coke for steel making and power generation. Company operates 471 mines in 21 coalfields across 8 states in India, which includes 163 open cast mines, 273 underground mines & 35 mixed mines – open & underground mines. CIL operates through its 9 wholly owned subsidiaries, of which 1 subsidiary is engaged in exploration and feasibility study analysis. Its subsidiaries include Eastern Coalfields Ltd, Bharat Coking Coal India Ltd, Central Coalfields Ltd, Northern Coalfields Ltd, Western Coalfields Ltd and South Eastern Coalfields Ltd. CIL has total reserves of 64.3 billion tons and proved reserves of 52.4 billion tons, of which extractable reserves stands at 21.7 billion tons. The company offers coking coal primarily for use in steel making & metallurgical industries, and for hard coke manufacturing, semi coking coal for use as blend able coal steel making, merchant coke manufacturing, it also provides middlings used by fuel plants, brick manufacturing units, cement plants, industrial plants, as well as for power generation. CIL coal fines/coke fines are used in industrial furnaces, as well as for domestic purposes. It serves primarily power, steel, cement, and fertilizer industries. Coal India is compared with Banpu Public Company Ltd of Thailand; Blackgold International Holdings Ltd of China; Agritrade Resources Ltd of Hongkong;  PT Sumber Energi Andalan Tbk of Indonesia, Siberian Mining Group Company Ltd & Mongolia Energy Corporation Ltd of Hong Kong.

Investment Rationale:

Coal India, a ‘Navratna’ company, is the largest coal producing company in the world, based on its raw coal production. The company is also the largest coal reserve holder in the world, based on its reserve base. CIL is well positioned to capitalize the widening gap of demand & supply as it controls 80 % of the coal supply in India and around 66% of India’s power generation is coal based. CIL reported Q3FY13 consolidated net sales at Rs. 17,325 Cr, up by 13% YoY & by 18.8% QoQ. This was led by volume off take of 120.45 million tons in Q3FY13, up by 9.23% YoY & by 15.37% QoQ. Average realizations remained flat at Rs. 1438 per tn, up by 0.09% QoQ and 3.05% YoY. Volume growth was driven by inventory liquidation of 3.08 mn tons in Q3FY13. CIL volume mix was largely directed towards Fuel Supply Agreement (FSA), which contributed 87.67% of total volumes in Q3FY13 (85% in Q2FY13). Realization in case of FSA stood at Rs. 1232 per tn, improving by 5.94% YoY & down 3.8% QoQ. E-auction volumes stood at 9% of the total mix with realization per ton at Rs. 2941, up by 3.12% YoY (19.6% QoQ). Volume contribution from washed coal was at 3.29% of total volumes with realization/tn at Rs. 2491, up by 19.25% YoY & 19.07% on QoQ basis. EBITDA margin contracted 4.92% YoY to 24.75%, led by high employee, power and fuel expense. EBITDA/tn stood at Rs. 365.3 in Q3FY13 vis-à-vis Rs. 414 in Q3FY12 & Rs. 282 in the sequential quarter. This was mainly due to high employee expenses which increased by 12.33% to Rs. 537.18/tn YoY. PAT margin expanded 908 bps YoY to 16.89% (14.83% QoQ) aided by a sharp decline in depreciation expense (down by 24.21% YoY. The Cabinet Committee on Economic Affairs (CCEA) has given in principle approval to the price pooling mechanism wherein the prices of domestic and imported coal will be averaged to get a uniform price for coal in the country. CCEA however has not given the actual terms of this mechanism and has asked the coal and power ministries to come out with the detailed terms and specifications of how the price must be determined. Currently, CIL has FSA's with power companies without price pooling basis and it supplies imported coal at a cost plus basis.

Outlook and Valuation:

Coal India (CIL) production in 9MFY13 stood at 308.91 mn ton, up by 6.06% YoY, while off-take at 335.23 mn tn was up by 8.05% YoY. Transportation infrastructure has been improving for the company, as rake availability was 177 rakes a day in 9MFY13, up by 10.62% YoY. The share of railways (transports ~1.5 mn tons of coal everyday) in the transportation mix is ~ 52% and is expected to rise to 58% by FY17. Coal India plans to take a proposal for setting up a Rs. 9,000 Cr power plant in Odisha to its board for approval in next couple of months. Also Coal India is changing its appraisal system in order to attract the best of the talent. The company has roped in Manpower Group the world’s largest human resource management firm to implement a performance related pay system which will be effective from April 2013. On the back of increased coal production, higher FSA realisations, intact e-auction volumes, increased availability of rakes and FSA issue are about to resolve and it is expected that CIL's revenue & net profit can register a good growth over FY13 and FY14E. The current expansion in off-take reinforces company’s ability to achieve its guided off-take target of 487m (+6%) tonnes in FY14. Achievement of targets would ease the concerns on CIL’s ability to increase prices, going forward. However, it can be assumed that there can be marginal increase in realisations by 2% in FY14 given the election year. With a huge cash pile of around Rs. 65,000 the company looks for overseas acquitions and can mull about buyback of shares or for a special dividend. In my view CIL could report FY13E EPS of Rs. 26.10/sh and for FY 14E of Rs. 27.90/sh. Valuing the stock at 8.70x FY2014 EV/EBITDA, the stock could be bought for the target price of Rs. 355 and recommend Accumulate on the stock.

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (Rs. Crs)	62,415.40	67,415.10	67,378.60	72,766.90
NET PROFIT (Rs. Crs)	14,726.30	16,459.70	17,618.50	19,932.20
EPS (Rs.)	23.30	26.10	27.90	31.60
PE (x)	15.60	14.00	13.00	11.50
P/BV (x)	5.70	5.10	4.50	4.10
EV/EBITDA (x)	11.10	9.70	8.70	7.20
ROE (%)	39.90	38.30	36.70	37.10
ROCE (%)	36.20	34.90	33.40	33.90

I would buy COAL INDIA LTD with a price target of Rs. 355 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. 293.00 on your purchase.

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HERO MOTOCORP LTD : ON ROAD OF SUCCESS !!!

Scrip Code: 500182 / HEROMOTOCO

CMP:  Rs. 1646.95; Buy at current levels.
Medium to Long term Target: Rs. 1842; STOP LOSS – Rs. 1515.20; Market Cap: Rs. 32,887.53 Cr; 52 Week High/Low: Rs. 2249.00 / Rs. 1615.00

Total Shares: 19,96,87,500 shares; Promoters : 10,42,59,490 shares –52.21 %; Total Public holding : 9,54,28,010 shares – 47.79 %; Book Value: Rs. 148.58; Face Value: Rs. 2.00; EPS: Rs. 107.54; Div: 5250 % ; P/E: 15.31 times; Ind. P/E: 16.50; EV/EBITDA: 10.72.

Total Debt: 1,491.16 Cr; Enterprise Value: Rs. 34,378.70 Cr.

HERO MOTOCORP LIMITED:  HEROMOTOCORP Ltd was incorporated in 1984 and is based in New Delhi, India. The company changed its name to HeroMotoCorp from Hero Honda Motors Ltd in July 2011. HeroMotoCorp engages in the manufacturing and sales of motorcycles in India. It provides a range of two wheeler products, including motorcycles and scooters and spare parts. The company markets its product under various brands, including CD Dawn, CD Deluxe, Splendor Plus, Splendor NXC, Passion and Passion Pro, Passion Plus, Glamour, Super Splendor Pro, Achiever, Glamour FI, Hunk, CBZ X-treme, Karizma, Pleasure and Karizma ZMR. The company offers its product Achiever in 135 cubic centimeter segment. In the 150 cubic centimeters and above the company offers brands like Hunk, CBZ X-treme, Karizma and the Karizma ZMR. It also offers 100 cubic centimeter scooter Pleasure. It offers its products through a network of dealers, service and spare parts outlets and dealer-appointed outlets. The company’s bikes are manufactured across three manufacturing facilities. Two of these are based in Gurgoan and Dharuhera which are located in the state of Haryana in northern India. The third manufacturing plant is based at Haridwar, in the hill state of Uttrakhand. The company was a joint venture between India’s Hero Group and Japan’s Honda Motors Co whereby the promoter the Munjal’s bought the stake of Honda in July 2011. The company is compared to Bajaj Auto Ltd, TVS Motor Company Ltd, Atlas Cycles (Haryana) & Ashok Leyland Ltd locally and is compared with Shimano Inc of Japan globally.

Investment Rationale:

HEROMOTOCORP (HEROMOTOCO) management has indicated to launch seven to eight new variants every year. The company is targeting 1 million two wheelers to be annually exported by FY17E. The management also stated that it has neither offered discounts or freebies nor it plans to do so in the future. It has hiked dealer commissions by Rs.100 since October 2012, which is a regular revision followed by the company. HeroMotoCorp’s Q3 FY13 result was lower than street estimates; HeroMotoCorp’s volume in Q3 FY13 was down 1% YoY but up 18% Q-o-Q to 15,73,135 units due to festival season in Q3 in this FY. Contribution from 75-125 cc segments has increased by 97 bps YoY but down 207 bps Q-o-Q. Major contribution in 75-125 cc segments have been 125 cc segments namely Ignitor, Super Splendor and Glamour which has led to growth in realization. Management expects industry and HeroMotoCorp to grow at 5% - 6%. HeroMotoCorp’s Revenue was marginally lower at Rs. 6,151 Cr largely led by higher realization of Rs. 39,102/unit. EBITDA were lower than street estimates at Rs. 779 Cr. and EBIDTA margin were around 12.6%. Other expenditure was higher at Rs. 625 Cr. despite volumes which were down by 1% YoY due to increase in dealer margin by 50% on incremental sales and higher Ad spending in wake of intense competition. PAT for the HeroMotoCorp was at Rs. 488 Cr. Other expenses were high at 10.2% due to brand building and product launches. The management expects these expenses to continue in Q4FY13. It expects ad-spend to remain at 2% of sales. The Tax rate is expected to increase to 23% in FY14 from 16.3% currently as the Haridwar plant will no longer be eligible for tax breaks. The management expects better y-o-y volume growth in Q4FY13 than in Q3FY13. Management is expecting some relief in raw material cost due to depreciating YEN. Hero Moto Corp shipped its first lot of motorcycles to Latin America, it intends to increase its exports to 10% of its total sales. This was one of the key reasons that Hero parted with Honda, to be able to pursue its interests in the International market. The company hopes to sell in around 30 countries around the globe. It is expected that the company will launch 'Hero' as a brand in the south America markets in the next few weeks. It also intends to set up an assembly units in these markets once the relevant volumes are achieved.    

Outlook and Valuation:

Hero MotoCorp’s efforts for brand building post the Honda split and its investment phase and intensifying competition in two-wheelers will exert pressure on its profitability in the short term. However, its fundamentals are intact given its leadership position, robust rural reach and strong brand recall. HeroMotoCorp’s market share in two-wheelers rose by 2.93% quarter on quarter to 38.6%. It also gained market share from Honda in its core domestic motorcycle segment – its market share rose by 1.93% Q-o-Q to 51.9%. 

Hero MotoCorp's manufacturing plant at Haridwar

HeroMotoCorp has started the construction of its fourth manufacturing plant which will have an capacity of 7.50 lakh units per annum and started a new global parts center in Neemrana, Rajasthan at a capex of around Rs. 550 Cr. This plant  is spread over an area of 47 acres and will provide employment to over 1,000 people These are expected to be operational by the end of FY14. Company is also in the process of acquiring land for the Gujarat plant, this plant is expected to be operational by FY15. The Rajasthan and Gujarat projects will take up the total installed capacity to 85 lakh units. Despite festive season, inventory pile-up continues at the dealer’s level on poor demands. Since the rural region accounts for nearly 46% of sales, weak monsoons at the outset have impacted sales volume. Honda’s new launches in the sub-125 cc segment and commissioning of capacities well ahead of HeroMotoCorp’s new capacities is the biggest concern for HeroMotoCorp from its market share erosion point of view. The benefit on account of reduction in royalty Q1 FY15 onward would compensate the incremental cost pressure for HeroMotoCorp. At current price of Rs. 1646.95, the stock is trading at P/E of 15.23 x on FY13 estimates & 13.77 x on FY14 estimates. In my view HeroMotocorp could post EPS of Rs.108.10 for FY13E & Rs.119.60 for FY14E and one can ACCUMULATE the stock and would advise investors to use declines in the stock to buy with a long term view with a target price of Rs. 1842.00 for Medium to Long term investment.

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (Rs. Crs)	23,878.90	24,076.80	26,451.70	29,663.70
NET PROFIT(Rs. Crs)	2,378.80	2,157.90	2,357.90	2,999.70
EPS (Rs.)	119.10	108.10	119.60	150.20
PE (x)	15.00	16.50	14.90	11.90
P/BV (x)	8.30	6.50	5.20	4.20
EV/EBITDA (x)	8.90	9.30	8.20	6.90
ROE (%)	65.70	44.10	38.70	39.10
ROCE (%)	69.50	46.00	43.60	46.60

I would buy HERO MOTOCORP LTD with a price target of Rs. 1842 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. 1515.20 on every purchase.

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UNION BUDGET 2013 - 14 : HIGHLIGHTS !!!

GROSS DOMESTIC PRODUCT ESTIMATED TO GROW AT 5.5 %, +/- 0.5 % IN FY13 - 14. 

AT CURRENT PRICES THE ADVANCE GDP ESTIMATE OF 2012 - 13 IS Rs. 93,88,876 LAKHS CR AND AT 2004-05 PRICES ITS AT Rs. 54,82,111 LAKHS CR.

FY14 TOTAL SUBSIDES AT Rs. 2,31,000 CR.

FY14 FERTILIZER SUBSIDIES AT  Rs. 66,000 CR.

FY14 FOOD SUBSIDIES AT  Rs. 90,000 CR.

FY14 OIL & PETROL SUBSIDIES AT  Rs. 65,000 CR.

FY14 FISCAL DEFICIT AT Rs. 5,42,000 CR.

FY14 GROSS MARKET LOANS ARE Rs. 6,29,000 CR.

STATE PF ARE Rs. 10,000 CR.

EXTERNAL AID ARE Rs.10,560 CR.

OTHERS ARE Rs. 12,297 CR.

THE CENTER'S EXPENDITURE 2013 - 14 IS PROJECTED AT Rs. 14,90,925 Cr.

IN FLOW (Rs. in Cr)
CORPORATE TAX	4,19,520
INCOME TAX	2,47,639
CUSTOMS DUTY	1,87,308
EXCISE DUTY	1,97,554
SERVICE TAX	1,80,141
TAX OF UNION TERRITORY	2,758
TAX RECEIPTS FOR CENTRAL	8,84,078
STATE's SHARE IN TAX RECEIPTS	3,50,842
TOTAL TAX RECEIPTS	12,34,920

NON TAX RECEIPTS	AMOUNT
INTEREST RECEIPTS	17,764
DIVIDENDS & PROFITS	73,866
EXTERNAL GRANTS	1,456
OTHER NON TAX RECEIPTS	78,000
RECEIPTS OF UNION TERRITORY	1,166
TOTAL	1,72,252

NON DEBT CAPITAL RECEIPTS	66,468
RECOVERY OF LOANS & ADVANCES	10,654
MISC. CAPITAL RECEIPTS	55,814

* Out of the Tax Receipts the Center has to keep aside for Calamity & Contingency Fund of Rs. 4,800 Crs.

FISCAL DEFICIT (In Rs.)	AMOUNT
MARKET LOAN	4,84,000
EXTERNAL AID	10,560
STATE PF	10,000
OTHERS	12,297
TOTAL	5,42,499

OUT FLOW (Rs. in Cr)
PLAN EXPENDITURE	5,55,322
NON PLAN EXPENDITURE	11,09,975
OR
REVENUE EXPENDITURE	14,36,169
CAPITAL EXPENDITURE	2,29,129
DEFENSE	2,03,672
CENTRAL PLAN OUT LAY	99,030
GRANTS TO STATES & UTs	76,981
PENSIONS	70,726
INTEREST PAYMENTS	3,70,684
LOANS TO PSUs	417
OTHER GENERAL SERVICES	22,903
LESS OTHERS	302
CENTRAL PLAN	3,20,038
POSTAL DEFICIT	6,717
EXPENSES of UTs with out Legislature	4,395
NON PLAN CAPITAL OUTLAY	30,131
ECONOMIC SERVICES	24,334
GRANTS TO FOREIGN GOVT.	4,114
CENTRAL PLAN AID TO STATES	1,23,222
SOCIAL SERVICES	23,114
POLICE SERVICE	40,895

SOME MORE POINTS FROM BUDGET:-

• No change in Income tax rates and slabs.
• Imposed Surcharge of 10% on person whose taxable income exceeds Rs.1 Cr/yr. This will apply to Individuals, HUF's, Firms & entities with similar tax status.
• The additional surcharge will be force for only one year i.e. FY 2013-14.
• Increased surcharge from 5% to 10% on domestic companies whose taxable income exceeds Rs.10 Cr/yr, in case of foreign companies who pay the higher rate of Corp tax the surcharge will increase from 2% to 5%.
• Effective Tax rate @33.99% for domestic co. having income more than Rs.10 Cr.
• Effective MAT rate for Domestic co @21%.
• DDT surcharge increased from 5% to 10%.
• Tax credit of Rs. 2000 for income upto Rs.5 lakhs.
• To impose TDS @1% on the value of the transfer of Immovable property wherein consideration exceeds Rs. 50 lakhs, Agriculture land will be exempted.
• STT on Equity futures reduced from 0.017 to 0.01 %.
• STT on MF/ETF redemptions at fund counter reduced from 0.25 to 0.001%.
• STT on MF/ETF purchase/sale on exchange reduced from 0.1 to 0.001% only on seller.
• To levy CTT on non-agriculture commodities futures contracts at 0.01% of the price of the trade. CTT will be allowed as deduction if the income from such transaction forms part of business income.
• Import duty on Set Top Boxes raised from 5% to 10%.
• Import duty on Luxury Cars & vehicles & Yachts raised from 75% to 100%.
• Duty free Gold limit increased to Rs.50,000 in case of Male passenger & Rs.1,00,000 in case of female passenger subject to conditions.
• Excise duty on SUV's increased from 27% to 30%, not applicable to SUV registered as Taxis.
• Effective custom duty on SUV's increased from 138% to 178%.
• Vehicle Parking now comes under Service Tax.
• PSU Banks to get Rs. 14,000 Cr for Recap & Capital infusion of Rs. 12517 Cr by FY13.
• Home Loans upto Rs. 25 lakhs to be allowed additional deduction of interest of Rs.1 lakh.
• To set up India's first Women's Bank as a PSB with Rs. 1000 Cr as initial capital. It will obtain the necessary approval & banking licence by October 2013.
• FY14 disinvestment target Rs. 40,000 Crs.
• Farm GDP was 3.6 % in 11th Plan in GDP growth of 5.6 %.
• GOV. will need $75 billion to finance Current Account Deficit over next 2 years.
• Investor holding stake of 10% or less in a company will be treated as FII.
• Investor holding stake of more than 10% in a company will be treated as FDI.
• FII will be permitted to use their investment in corporate bonds & Gov. securities as collateral to meet their margin requirements.
• Small & medium enterprise incl. Start Ups will be permitted to list on SME Exchange without being required to make an Initial Public Offer,but the issue will be restricted to informed investor.
• FII will be permitted to trade in Exchange Traded Currency Derivative to the extent of their Indian Rupee Exposure in India.
• Stock Exchanges to be allowed to introduce Dedicated Debt Exchange.
• JNNURM will be given Rs. 14873 Cr,this will help in purchase of 10,000 buses by hilly stations.
• More institutions be allowed to raise Tax Free Bonds upto a total sum of Rs.50,000 Cr.
• Rajiv Gandhi Equity Saving Scheme to be liberalised -1st time investors can invest   into Mutual Funds &Listed shares for 3 successive years. The income limit will be raised from Rs. 10,00,000 to Rs. 12,00,000.
• Investment allowance @15% to manufacturing company that invests more than Rs. 100 Cr in plant & machinery during 1.4.2013 to 31.3.2015.
• To introduce Inflation Indexed Bonds or Inflation Index National Security Certificates.
• To provide Low Cost finance to viable renewable energy projects and Generation based incentives for Wind Energy projects.
• Govt. proposes to expand FM Radio services to 294 more cities &about 839 new FM radio channels will be auctioned in 2013-14, All cities having a population of more than 1 lkh will be covered by private FM radio   services.
• Defence sector allocated Rs. 2.03 lakh Cr.
• Corporate surcharge reduced from 7.5 % to 5 %.
• Dividend from foreign subsidiary to Indian companies down from 30 % to 15 %

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