LARSEN & TOUBRO :GREAT BUSINESS

Scrip Code: 500510 / LT

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

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

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

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

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

  

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

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

Valuation -  

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

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

PUNJ LLOYD LTD : ONE MORE VALUE PICK

Scrip Code: 532693 / PUNJLLOYD

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

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

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

FAIR VALUE : Rs. 155.00

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

Whats the News?

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

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

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

Valuations and outlook - 

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

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

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

RESULTS ON 7th FEB 2011 - Expectation - good results

MUNDRA PORT & SEZ : A VALUE BUY

Scrip Code: 532921 / MUNDRAPORT

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

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

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

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

Valuation matrix 

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

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

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

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

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

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

Share holding Pattern of Click  REPOWER AG -

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

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

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

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

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

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

NOW WHAT YOU THING ABOUT THISSSS

Here are some details of REPOWER AG - CLICK HERE

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

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

GITANJALI GEMS LTD - Buy on every Dips

Scrip Code : 532715 / GITANJALI

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

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

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

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

Gitanjali Gems Ltd - Gitanjali Gems is one of the largest manufacturers and retailers of diamonds and jewellery in India. It sources rough diamonds from various primary or secondary sources then engages in the cutting and polishing the rough diamond for export to the international market as well as manufacture and sale of diamond and other jewellery through its retail operations in India and abroad. The company was started in 1966 as a partnership. It came with an IPO in the year 2006 with 1.70 cr shares at the price band of Rs.170 -195. The demand for diamond and jewellery products is largely dependents on higher employment and economic levels, which leave higher disposable income in the hands of the consumers. In downturn consumers can quite easily scale down their consumption of jewellery and diamonds.

Gitanjali Gems has got two-diamond manufacturing facilities located at Borivali in Mumbai and at the Special Economic Zone in Surat. It has also got a 100% export oriented unit in SEEPZ Mumbai, which produces gold and platinum studded jewellery. There are also jewellery-manufacturing facilities at MIDC, Andheri, which produces branded jewellery for the retail operations in India. The company has a workforce of over 2300 employees.

Company sells its jewellery under the brand - Asmi - Premium work wear collection & has 104 outlets, 2 exclusive stores; Sangini - Entire product range including bridal jewelry; Nakshatra - Entire product range including bridal jewelry available with 374 retailers and 1 franchisee. More franchisees are being added; Gili - Diamond jewelry at reasonable prices having 256 outlets of which 3 are exclusive stores; Vivvaha - Wedding jewelry; Maya - Gold jewelry for wedding and other similar events; D’Damas - International quality designs combined with Indian values sells through 380 retailers, 2 exclusive outlets, 3 shop-in-malls and 21 franchisees; Hoop - Fashion Silver Jewelry.

The Gitanjali Group has acquired Lucera for Rs 25 crores in 2008. In October 2009, the UK-based Brand Finance, valued the four leading brands of the company at Rs.514 crore (Nakshatra), Rs.468 crore (Gili), Rs.309 cr. (D'Damas) and Rs.210 cr. (Asmi), respectively. GGL is not only gearing towards improving sales but is also looking at multiplying the value of these brands by 1.5 to 2 times by 2011-2012.

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

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

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

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

MORE PROMOTERS DEAL - CLICK HERE 
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