SANGHVI MOVERS LTD: A Hidden Gem, Accumulate at every Dip !!!

Scrip Code: 530073 / SANGHVIMOV

CMP:  Rs. 104.70; Buy at current levels. Short term Target: Rs. 110, 6 month Target – Rs. 150; STOP LOSS – Rs. 90; Market Cap: Rs. 453.22 Cr; 52 Week High/Low: Rs. 135. / Rs. 83.50

Total Shares: 4,32,88,000 shares; Promoters : 1,96,74,951 shares –45.45 %; Total Public holding : 2,36,13,049 shares – 54.55 %; Book Value: Rs. 124.94; Face Value: Rs. 2.00; EPS: Rs. 23.51; Div: 150 % ; P/E: 4.45 times; Ind. P/E: 9.19; EV/EBITDA: 4.07.

Total Debt: Rs. 639.25 Cr; Enterprise Value: Rs. 1085.45 Cr.

SANGHVI MOVERS LTD: The Company was founded in 1985 and is based in Pune, India. Sanghvi Movers Limited operates as a crane services company, Equipment rental & leasing sector in India and other parts of Asia. It provides heavy lift, plant erection, and maintenance services for various large scale projects. The company also offers over dimensional, heavy, and bulk cargo transportation services. It operates a fleet of 398 medium to large size hydraulic truck mounted telescopic and lattice boom cranes, and crawler cranes with lifting capacity ranging from 20 MT to 800 MT; and 132 hydraulic multi axle modular trailers. In addition, the company also engages in the generation of power from windmills. It primarily serves power, cement, steel, refinery, metros, windmill, and metal sectors. The Company operates in two business segments: Operations of Cranes and Power Generation. It earns regular revenue from the business of power generation from windmills commissioned in Jaisalmer, Rajasthan and Chitradurga, Karnataka. The Company's clients include Suzlon, Aditya Birla Group, TOYO, BHEL, Reliance, Vedanta Group, Siemens, Tata Steel, and Enron power, Samsung, Gujarat Ambuja and TISCO.

Investment Rationale: Sanghvi Movers Ltd is the 3rd largest crane services company in India, and ranked 7^th largest in the world by Cranes International in June 2011 issue. Sanghvi Movers Ltd is undertaking an implementation of the turnkey projects, which includes providing of the well maintained equipment's,experts technical services and skilled manpower. The company carters to 75 % of the traditional Power sector crane requirement and 65 % of the Windmill sector’s crane requirement. The company has Crawler and truck mounted cranes and also has Hydraulic Multi Axle Modular Trailer. The company claims to have 98 % guaranteed machine availability with a timely deployment. The company has its owned state of the art Sanghvi Training Academy which provides high skills crane training programmes and produces highly skilled crane operators. Sanghvi Movers has 12 depots across the country to ensure timely deployment of cranes. The Indian logistics industry accounts for a mere 2 % ($100 billion) of the $5000 billion global logistics industry despite having the second largest network of roads at 3.83 million km, the fourth largest rail network of 63000 km, 128 airports, 12 major ports, 1 trans-shipment port and 187 non major ports. Indian Logistics sector grew by 8 to 10 percent annually over the last decade. There are several factors which have favorably impacted the growth of the logistics industry, like the country’s tax regime, growth across major industry segments such as automobile, pharmaceutical, fast moving consumer goods (FMCG) and the emergence of organized retail. Exim trade volume of India is growing consistently from last decade hence India is set to increase its share in global trade from less than 1 % now to about 1.6 % in 2012. India’s level of containerization is less than 25 % as against global average of 60 % - 70 %. An average time taken to clear import and export cargo at ports is about 19 days in India as against 3-4 days in Singapore. The trend towards containerization picked up in India in the last decade. Container traffic has seen a growth of 12 % CAGR in India from 2.5 million TEU in 2000-01 to 7.5 million TEU in 2010-11, seeing this and due to competitive advantage Sanghvi Movers is best fitted to tap in the growing trend of containerization. 

Outlook and Valuation:

Sanghvi Movers nearly has a monopolistic position in the high tonnage crane rental market in India. The Company is a great proxy to play the improving Indian infrastructure industry. The company is led by C.Sanghvi and his professional team, company has been able to maintain its competitive advantages in this sector. Company has its Economic Moat (A competitive advantage that one company has over the other companies in the same industry - by Warren Buffett). Especially in businesses, logistics is responsible for all the movement that takes place within the organization whether it is inbound logistics of incoming, raw materials or movement within the company or the physical distribution of finished goods and logistics encompasses all of these. A typical logistics framework mainly consists of physical supply, internal operations and physical distribution of goods and services. To put it more simple manner, the material supply logistics starts from the base level of “generation of the demand”, through the “process of purchase” and “supply of material from the vendor” right through to “final acceptance” and “payments to the supplier” and “issue to the indenter” and has to be considered as a “one whole activity” with each stage having an impact on price/cost of material supply. Logistics is, in itself, a system; it is a network of related activities with the purpose of managing the orderly flow of material and personnel within the logistics channel and as said before the Indian logistics industry accounts for a mere 2 % ($100 billion) of the $5000 billion global logistics industry and the trade volume of India is growing consistently from last decade & hence India is all set to increase its share in global trade from less than 1 % now to about 1.6 % in 2012, and Sanghvi Movers is well equipped for that. The company will also be benefited from the boost by the Prime minster of India on infrastructure development plans – Sanghvi Movers is a silent play to the infrastructure sector. During the quarter ended, the Net profit of the company increased to Rs.24.66 Crs and registering a growth of 13.53 %. Net Sales and PAT of the company are expected to grow at a CAGR of 16 % by 2014E. At the current market price of Rs.104.70, the stock is trading at PE of about 3.92 x FY13E and 3.54 x FY14E respectively. Company can post Earnings per share (EPS) of about Rs. 26.69 for FY13E and Rs. 29.54 for FY14E respectively. On the basis of EV/EBITDA, the stock trades at 1.17 x for FY13E and 1.05 x for FY14E respectively. It is expected that the company will keep its growth story intact in the coming quarters with the help of its competitive advantage. One can ‘BUY’ SANGHVI MOVERS at every given opportunity with a target of Rs.117.00 for Medium to Long term investment.

KEY FINANCIALS	FY11	FY12	FY13E	FY14E
SALES (Rs. Crs)	361.25	450.47	509.03	565.03
NET PROFIT (Rs. Crs)	86.31	101.77	115.52	127.90
EPS (Rs.)	19.94	23.51	26.69	29.54
PE (x)	5.12	4.34	3.83	3.46
P/BV (x)	0.80	0.70	0.59	0.51
EV/EBITDA (x)	1.65	1.31	1.17	1.05
ROE (%)	15.53	16.22	15.55	14.69
ROCE (%)	30.20	34.53	34.84	34.55

I would buy Sanghvi Movies Ltd with a price target of Rs. 117 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. 90.00 on every purchases.

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MAHINDRA & MAHINDRA LTD : On the path of Rise !!!

 Scrip Code: 500520 / M&M

CMP:  Rs. 697.80; Buy at Rs.680-690 levels.
Medium to Long term Target – Rs. 763; STOP LOSS – Rs. 635.00; Market Cap: Rs. 42,843.16 Cr; 52 Week High/Low: Rs. 877.30 / Rs. 616.70

Total Shares: 61,39,74,839 shares; Promoters : 15,51,05,939 shares –25.26 %; Total Public holding : 45,88,68,900 shares – 74.74 %; Book Value: Rs. 167.46; Face Value: Rs. 5.00; EPS: Rs. 46.89; Div: 230 % ; P/E: 14.88 times; Ind. P/E: 15.81; EV/EBITDA: 11.26.

Total Debt: Rs. 2405.29 Cr; Enterprise Value: Rs. 47,699.09 Cr.

MAHINDRA & MAHINDRA LTD: The Company was formed in 1945 as Mahindra & Mahindra and renamed as Mahindra & Mahindra Ltd in 1948, and is based in India. Mahindra & Mahindra Limited operates in the Motor vehicles and car bodies sector. The Company operates in nine segments: Automotive segment comprising of sales of automobiles, spare parts and related services; Farm equipment segment comprising of sales of tractors, spare parts and related services; Information technology (IT) services comprising of services rendered for IT and telecom; Financial services comprising of services relating to financing, leasing and hire purchase of automobiles and tractors; Steel trading and processing comprising of trading and processing of steel; Infrastructure comprising of operating of commercial complexes, project management and development; Hospitality segment comprising of sale of timeshare and Systech segment comprising of automotive components and other related products and services, and its others segment comprise of logistics, after-market, two wheelers and investment. In November 2009, BAE Systems entered into a joint venture agreement with Mahindra & Mahindra Limited to create a land systems focused joint venture Defense Company, based in India. During the fiscal year ended March 31, 2011, the Company acquired a 70 % stake in Ssangyong Motor Company Limited - a manufacturer of sports utility vehicles in Korea. The company has a distribution network of over 130 dealers in Korea and exports to over 90 countries through 1,200 dealers. With the support of M&M, SMC is working on a revitalization plan with strong focus on cost reduction along with new product development and market expansion. Mahindra & Mahindra Ltd is compared with Maruti Suzuki India Ltd in India and globally with Beiqi Foton Motor Company Ltd and Guangzhou Automobile Group Company Limited.

Investment Rationale:

Mahindra & Mahindra announced a merger of MADPL (Mahindra Automobile Distributors Pvt Ltd) a 100 % subsidiary which manufactures Verito (erstwhile Mahindra-Renault Logan) recently with only the auto business is merged with the M&M while its Spare parts business continues to be a part of MADPL. Management expects passenger vehicle to grow by 10 % to 12 %,  it expects UVs to grow higher than the passenger vehicles. LCV’s is expected to grow by 10 % to 11 %, M&HCV at 5 % to 6 %, two wheelers at 12 % and expects flat growth in 3 wheelers segments. Due to state specific factors like continued rain deficit in Andhra Pradesh, Karnataka, Maharashtra leads to strong decline in demand but expectation of good monsoons in other parts of the country this season should help to recover volumes. Also, M&M’s exposure of tractors for non – farm purpose is considerably higher versus industry. Hence, weak demand in this segment, particularly in states like Haryana, Madhya Pradesh, Bihar and Uttar Pradesh impacted its volumes. Management estimates that industry volumes will increase by 5 % to 6 % in FY13. New tractor capacity plant is on track, which has initial capacity of 50,000 units (with scope for 100,000 units later). Also, M&M has resumed normal production post partial plant shutdown taken in Q4FY12. M&M is expected to introduce 6 to 7 models (new and refreshes) in the automotive segment (including sub 4 m Verito/compact SUV) and 1 new launch in the tractor segment (with 3 to 4 refreshes). Management says that its subsidiary Ssangyong was able to break even at EBIDTA level in Q4FY12. Management targets 1,60,000 volumes in 2013 and which will ramp up to 3,00,000 units by 2016. On Construction equipment segment, M&M has only 1 product – Backhoe loader and is currently maintaining a run rate of 100 units per month with an industry size of 25,000 units. M&M maintains its target of focusing on UVs only and has contract with Renault for technological support for Verito to ensure that there are adequate refreshes/variants. Outlook for tractor sales appears to be challenging given that the industry has witnessed just 3 % to 3.5 % growth in the past three months and management has guided for moderate growth of 5 % to 7 % in FY2013E. However, MM’s automotive volume growth continues to surprise positively, with 28.2 YoY growth witnessed in FY2012. 

Mahindra & Mahindra received strong response to its recently launched XUV500 which continued its momentum in the pick-up segment and the likely launch of the new Xylo should sustain automotive sales going ahead and somewhat offsets the weaker tractor demand. M & M’s new ventures in the CV space are firming up well. The new product launches such as GIO and Maxximo have received good response. Further, launch of new products in the M&HCV space has positioned the company in-line with other major domestic CV players such as Ashok Leyland and Tata Motors. This is expected to substantially augment the company’s overall volume growth, supported by its well-known brand equity and extensive sales network. Company has majority stakes in various listed companies in other sectors, including technology, property and finance, its Investments constitutes to 65 % of the balance sheet. The high growth potential of M & M's subsidiaries is expected to unlock the actual value of the stock over the years to come. Listing of its subsidiaries has been supporting the company’s valuation in the recent past and may continue to do so in the long term as well. So holding on to M & M for Value unlocking would be advisable for the long term players.

Outlook and Valuation:

M&M continued its subdued performance in Q4 FY12, underperforming SENSEX  by 10 % in H2 FY12, impacted by sluggish growth rate in tractor volumes and impending diesel price hikes and diesel engine tax rates. It is estimated that a strong demand outlook on automotive segment can be led by launch of XUV 5OO, new MPV, new Xylo. M&M has indicated that it will fully concentrate on UV segment and has no interest in cars beyond Verito. The company is also planning to launch a fresh version of Verito (Sub 4-meter). M& M targets sales volumes for FY13 by 4.1 % to 8,20,500 units, tractor sales for FY13 by 8.9 % to 2,46,000 units factoring weak rural demand, high interest rates and high base effect. FY13 EBITDA margin could be lower factoring in high raw material cost, higher promotional expenses for tractor segment and also due to merger of MADPL. Higher contribution from Chakan plant (Contribution from Chakan plant has gone up to 25 % from earlier 11 % - 12 %) would have a negative impact on standalone EBITDA margin. M&M will spend around Rs. 5,000 Cr on Capex over next three years. Moreover it plans to spend Rs. 2,500 Cr on investments. Recently, after raising the production capacity of its SUV (Sports Utility Vehicle) XUV 500 to 5,000 units per month by March, Mahindra & Mahindra Ltd will hit the brakes on the ramp up and will instead watch out for factors such as consumer-sentiments, market demand & macroeconomics environment. On SOTP (sum-of-the-parts) basis, the valuation of M & M on standalone business comes at Rs. 605 per share and rest of its subsidiary investment at Rs. 158/share for FY13E. Recent correction in M&M stock has factored in lower outlook for tractor sales. Key upsides to the estimations are more on normal monsoon, higher tractor sales in H1 FY13, lower interest rates and no price hikes in diesel and diesel engine vehicles. In my view M&M could report EPS in FY13E & FY14E of Rs. 39.70 / sh and Rs. 43.00 / sh, respectively. I would buy M & M LTD for the medium to long term period with a price target of Rs. 763.00

Business Subsidiary FY13E	Value Per Share (in Rs.)
M&M Standalone	605.00
M&M Financial Services	46.00
Mahindra Forgings	3.00
Mahindra Holidays & Resorts Ltd	23.00
Mahindra Lifespace Developers	8.00
Mahindra Ugine Steel Co	1.00
Tech Mahindra	52.00
Ssangyong Motor Company	24.00
Other Investment (at BV)	1.00
TOTAL	763.00

KEY FINANCIALS	FY11	FY12	FY13E	FY14E
SALES (Rs. Crs)	23,311.90	31,853.60	36,024.40	40,442.30
NET PROFIT (Rs. Crs)	2,509.90	2,712.90	2,437.80	2,638.90
EPS (Rs.)	40.90	44.20	39.70	43.00
PE (x)	16.00	14.80	16.50	15.20
P/BV (x)	3.90	3.30	2.90	2.60
EV/EBITDA (x)	9.90	8.50	8.60	7.50
ROE (%)	27.70	24.10	18.70	17.80
ROCE (%)	26.60	24.10	19.50	19.20

I would buy Mahindra & Mahindra Ltd with a price target of Rs. 763 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. 635.00 on every purchases.

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

NMDC LIMITED: Accumulate And Buy on Dips !!!

Scrip Code: 526371 / NMDC

CMP:  Rs. 166.25; Buy at Rs. 160 -164 levels.
Medium to Long term Target: Rs. 187; STOP LOSS – Rs. 153.00; Market Cap: Rs. 65,913.40 cr; 52 Week High/Low: Rs. 280.00 / Rs. 135.60

Total Shares: 396,47,16,000 shares; Promoters : 356,84,18,180 shares –90 %; Total Public holding : 39,62,97,820 shares – 10 %; Book Value: Rs. 66.79; Face Value: Rs. 1.00; EPS: Rs. 18.33; Div: 330 % ; P/E: 9.6 times; Ind. P/E: 16.36; EV/EBITDA: 6.70.

Total Debt: NIL; Enterprise Value: Rs. 65,992.69 Cr.

National Mineral Development Corporation LTD:  The Company was founded in 1958 and is based in Hyderabad, India. It was formerly known as National Mineral Development Corporation ltd and changed its name to NMDC in January 2008 is an iron ore producer & exporter, operating in Chhattisgarh & Karnataka. NMDC ltd engages in the exploration and production of various minerals in India and internationally. It explores for iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite & beach sand. The company also focuses on coal and gold properties, as well as platinum group of elements and bauxite. It has iron ore deposits in Bailadila Chhattisgarh, Iron ore mines at Donimalai Karnataka; diamond mines at Panna Madhya Pradesh; magnesite mines at Jammu; & Arki lime stone project in Himachal Pradesh. In addition, the company involves in investing in the development of renewable energy resources, which include wind mill projects of approximately 10.5 MW capacities at Karnataka. NMDC supplied 2.3752 Cr tons of iron ore to domestic industries & had exported 25.63 lakh tons of iron ore. On December 10, 2010, NMDC announced a joint venture (JV) with OJSC Severstal (a vertically integrated steel maker from Russia) to build an integrated 2mn tonne steel plant in Karnataka. This JV will have captive coking coal mine in Russia, while it will have an iron ore mining subsidiary in India. On September 2011, NMDC purchased a 50 % stake in Australian-based Legacy Iron Ore (Legacy) as a cornerstone investor for Rs. 92 Cr. On December 12, 2011 the company incorporated NMDC POWER LTD as is wholly owned subsidiary. NMDC is compared with SESAGOA LTD in India, Cliffs Natural Resources Incorporation and Ferexpo Plc globally.

Investment Rationale:

NMDC management targets its production to reach 40mn tonnes by FY2014E–15E through increased exploration of its existing mines and development of new mines, i.e., Deposit 11B and Deposit 13 in Bailadila and Kumaraswany, respectively, in Karnataka. It is expected that NMDC’s sales volumes to post a CAGR of 10.2 % during FY2011-13. With a strong balance sheet along with net cash of about Rs. 20,000 Cr, acquisition of more mining assets overseas cannot be rule out by the company, in September 2011, NMDC purchased a 50 % stake in Australia-based Legacy Iron Ore (Legacy) as a cornerstone investor for Rs. 92 Cr. Also, the company is currently prospecting various mining assets, including an iron ore mine and a phosphate mine in Australia, an iron ore mine in Brazil and a coking coal asset in Russia. However, given that NMDC is a government-owned company, it is not expected to foresee a big-ticket acquisition. Seeking to diversify into steel making, NMDC management intends to diversify its operations by moving downstream through establishing steel plants and pellet plants. Accordingly, on December 10, 2010, the company signed a joint venture (JV) with OJSC Severstal (a vertically integrated steel maker from Russia) to build an integrated 3mn tonne steel plant in Karnataka. This JV will have captive coking coal mine in Russia, while it will have an iron ore mining subsidiary in India. Over 90 % of land acquisition is complete, which gives comfort as land acquisition has been a major bottleneck to Greenfield projects in recent times here in India. NMDC is setting up a 3 MTPA steel plant in Chhattisgarh, and hopes to start its production from 2014, coinciding with the commissioning of facility for the alloy. In a recent presentation to the steel ministry, NMDC has said that it is taking "all necessary steps" to start production from the Shahpur West block in Madhya Pradesh in 2014. Coal Ministry has already given approval to the mine closure plan for the block. The coal ministry had allotted two blocks - Shahpur East and Shahpur West in Shahdol district of Madhya Prdesh to NMDC in 2009. Following this, a Memorandum of Understanding (MoU) was signed between NMDC and Mineral Exploration Corporation (MECL) to carry out exploration in both the blocks. NMDC applied for environment and forest clearance and as per the approved mine plan, coal production is expected to start from 2014.

Outlook and Valuation:

NMDC has advantage in setting up its steel plant as it has a captive source of coal for its steel plant which would help NMDC to hedge itself against price fluctuations, which is almost a certainty event in 2014 as the raw material is getting scarcer and costlier day by day. Domestic steel manufacturers, including Steel Authority of India, is continuously facing the heat of scorching coal prices in international market as its captive source can meet only a small part of the total requirement. NMDC is setting up a 3 Million Tonnes Per Annum steel plant at Nagarnar in Chhattisgarh with an outlay of Rs. 15,525 Cr. It has placed all major orders including sinter plant, blast furnace, and raw material handling systems, steel melting shop and oxygen plant among others. Being a major iron ore producer itself, adequate supply to feed the steel plant is not a matter of concern for NMDC. The company aims to produce over 30 million tonnes iron ore in current fiscal, almost 20 per cent more than in 2011-12 by enhancing production from the existing mines. It has plans to produce 40 million tonnes iron ore by 2014-15. On performance side - NMDC's revenue fell 31 % Y-o-Y to Rs. 2,594.5 Cr in Q4FY12. The fall was on the back of lower sales volume due to damage to Essar's slurry pipeline and volume stood at 6.4 MT compared to 8.4 MT in corresponding quarter of previous year. The company reduced the iron ore prices by 20 % for fines and 3 % for lumps during the quarter which impacted the blended realization which stood at Rs. 4,054/ton ($80/ton) in Q4FY12 compared to Rs. 4,488/ton in Q4FY11. EBITDA of the company plunged by 28 % Y-o-Y to Rs. 1,977.3 Cr in Q4FY12 compared to Rs. 2,739.1 Cr in Q4FY11. EBITDA/ton declined by 5 % Y-o-Y to Rs. 3,090/ton in Q4FY12 compared to Rs. 3,261/ton in Q4FY11. Other Income grew by 23.9 % Y-o-Y to Rs. 546.7 Cr in Q4FY12 compared to Rs. 441 Cr in Q4FY11. PAT too fell by 21 % Y-o-Y to Rs. 1,642.2 Cr in Q4FY12 compared to Rs. 2,098.6 Cr in Q4FY11. On annual basis - in FY12, NMDC’s top line impacted by 1 % Y-o-Y to Rs. 11,261.8 Cr as compared to Rs. 11,368.9 Cr in FY11 on the back of the marginal 4 % growth in sales of iron ore to 27.30 MT. EBITDA and PAT improved by 1.7 % and 11.7 % Y-o-Y during the year respectively. However, total expenditure as a percentage of sales declined 200 basis points to Rs. 2,466.1 Cr in FY12E as compared to Rs. 2,722.4 Cr in FY11. This led EBITDA whopping to 1.73 % to Rs. 8,795.7 Cr in FY12 compared to Rs. 8,646.4 Cr in FY11. This was supported by the e-auction sales of iron ore which is priced higher than market prices and the company being the only miner in Karnataka faced the iron ore ban issued on 26th August 2011 in the locality. EBITDA adjusted Other Income grew drastically by 9.75 % Y-o-Y to Rs. 10,812.2 Cr in FY12 compared to Rs. 9,852.1 Cr in FY11. PBT and PAT too grew by 10.6 % Y-o-Y and 11.7 % Y-o-Y to Rs. 10,759.4 Cr and Rs. 7,265.3 Cr respectively during FY12. The company planned capex stood at Rs. 4,655 Cr for FY13 for the capacity addition. NMDC, maintained its EPS at Rs. 18.3 per share in FY12 as compared to Rs. 16.4 per share in FY11. Over the past five years, NMDC has traded at an average EV/EBITDA of 13.7 x, compared to its current valuation of 3.8x FY2014E EV/EBITDA. Valuing the stock at 4.5 x FY2013E EV/EBITDA, a fair value of NMDC comes at Rs. 187 and recommend to Accumulate on dips. In my view NMDC could report EPS in FY13E & FY14E of Rs. 19.10 / sh and Rs. 20.90 / sh, respectively. One could buy NMDC for a medium to long term target of 187.  

KEY FINANCIALS	FY11	FY12	FY13E	FY14E
SALES (Rs. Crs)	11,369.00	11,261.00	11,959.00	13,062.00
NET PROFIT (Rs. Crs)	6,499.00	7,266.00	7,553.00	8,287.00
EPS (Rs.)	16.40.70	18.30	19.10	20.90
PE (x)	10.20	9.20	8.80	8.00
P/BV (x)	3.50	2.70	2.20	1.80
EV/EBITDA (x)	5.70	5.00	4.40	3.80
ROE (%)	38.80	32.90	27.10	24.40
ROCE (%)	50.60	39.60	32.90	29.70

I would buy NMDC LTD with a price target of Rs. 187 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. 153.00 on every purchase.

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

TATA MOTORS DVR LTD: A BEST DIVIDEND YIELD STOCK , A MUST BUY !!!

Scrip Code: 570001 / TATAMTRDVR

CMP:  Rs. 135.10; Buy at Rs.125-130 levels.
Short term Target: Rs. 151, 6 month Target – Rs. 177; STOP LOSS – Rs. 120.00; Market Cap: Rs. 6,510.91 Cr; 52 Week High/Low: Rs. 189.90 / Rs. 79.40

Total Shares: 48,19,33,115 shares(17.90% of Sh Capital); Promoters : 1,86,00,448 shares –3.86 %; Total Public holding : 46,33,32,667 shares – 96.14 %; Book Value: Rs. 62.74*; Face Value: Rs. 2.00; EPS: Rs. 3.89*; Div: 205 %* ; P/E: 57.71* times; Ind. P/E: 38.45*; EV/EBITDA: 18.27*.

Total Debt: 2,845.87 Cr; Enterprise Value: Rs. 9,356.77 Cr.

*Being DVR a class of equity capital, Tata Motors financials are used.

TATA MOTORS LIMITED: Tata Motors was founded in 1945 and was formerly known as Tata Engineering and Locomotive Company Limited (TELCO) and changed its name to Tata Motors Limited in 2003. The company is leading manufacturer of commercial & passenger vehicles in India and is among the top 3 passenger car manufacturers in India and the world's fourth largest truck manufacturer & world's Second largest bus manufacturer. Through its subsidiaries, the company is engaged in engineering and automotive solutions, construction equipment manufacturing, automotive vehicle components manufacturing and supply chain activities, machine tools & factory automation solutions. The company's Automotive operations include all activities relating to development, design; manufacture, assembly and sale of vehicles including all financing thereof, as well as sale of related parts and accessories. Tata Motors has operations in UK, South Korea, Thailand & Spain. The company has many subsidiaries but the most prominent among these is Jaguar-Land Rover (JLR) (a British car manufacturing company) which it acquired in 2008 at $230 Cr and turned it from a loss making company to a profit making company. JLR contributes 54 % to the company’s revenues. The company’s product portfolio ranges from the ultra low cost car Nano to the luxurious cars from JLR, from its ground breaking invention of the light commercial vehicle (LCV) the Ace to the international Prima Truck range. TATA MOTORS is compared to Mazda Motor Corporation, Suzuki Motor Corporation and Mitsubishi Corporation.

Investment Rationale:

Tata Motors is India's largest automobile company, last quarter JLR reported all-time high monthly volumes with both Land Rover and Jaguar rising 54 % and 9 %, respectively. This was been due to geographical demand fuelled by emerging markets like China, Brazil along with the developed markets of the US. In this fourth quarter, Tata Motors posted 16.7 % YoY growth in revenue in the automotive segment, whereas JLR reported a top-line growth of 65.7 % YoY. This led to an overall 44.3 % YoY growth in the company’s consolidated top-line to Rs. 50,900 Cr, EBITDA margin at JLR were at 14.6 %, the consolidated EBITDA margin improved by 30 basis points YoY to 14.1 %. EBITDA grew at Rs. 7,170 Cr. TATA MOTOR was accounted for a tax credit of Rs. 1,820 Cr on account of credit for carry forward of losses from JLR account. Profit After Tax grew by 86.1 % YoY to Rs. 4590 Cr. On Standalone basis, Tata Motors posted 14.4 % YoY growth in its top-line at Rs. 16,390 Cr. Its overall volumes grew by 18.4 % YoY, whereas average realization/vehicle declined by 3.3 % YoY on account inferior product mix skewed towards passenger cars. EBITDA margins on standalone basis improved by 0.60 % YoY to 9.6 % on account of tight control over other expenditure. As a result, EBITDA grew to Rs. 1560 Cr YoY. Profit After Tax on standalone basis grew by 22.8 % YoY at Rs. 780 Cr. The higher than expected standalone profit partially compensated for the disappointment at JLR. JLR reported 51.5 % YoY growth in revenue at ₤414.4 Cr, mainly led by a 48.2 % YoY improvement in volumes. Average realisation/vehicle declined by 2.3 % QoQ on account of inferior product mix skewed towards ‘Evoque’. Other expenses increased by ₤9 Cr on account of investment in new capacities. As an result, EBITDA margins declined by 2.40 % QoQ at 14.6 %. JLR PAT stood at ₤42.2 Cr as against ₤44 Cr in Q3FY12. This, in experts view, a big disappointment given that the volumes for the quarter were up by 11 % QoQ and currency impact was minimal. Management expects JLR volumes to be driven by launch of new Evoque in new markets, demand for newly launch Jaguar’s Model Year (MY) 2012 XF and ramp up operations in China. In Q2 FY12, Evoque was only launch in UK, Europe and US. Evoque has received buoyant response and has an order book of around 20,000 units after catering 8,000 units in Q2 FY12. It is in midst of launching Evoque in China and other developing markets, thus resulting in incremental Evoque volumes in H2 FY12. The company has started to ramp up the distribution network in China to 100 dealers by FY12E and is in advance talks with local partner for production in China. The company has largely resolved issues related to engine constraints with Ford. JLR is setting up a new engine manufacturing facility in UK, which entails an investment of £35.5 Cr. Net Automotive debt to equity stands at 0.3:1. JLR is likely to come up with two new launches i.e. Jaguar XF station wagon in Q3FY13E and new Range Rover platform in Q4FY13E. The company increased its guidance for a capex and R&D spends at JLR to ₤200 Cr as against the earlier guidance of ₤150 Cr. JLR completed an unsecured Revolving Facility totaling ₤71 Cr for 3-5 years thereby strengthening its liquidity position. Management sounded cautiously optimistic regarding volume growth at JLR in Europe and UK.

Outlook and Valuation:

The long term investors can buy the TATAMTRDVR in view of attractive valuation. The long term holders of ordinary shares of Tata Motor can switch to TATAMTRDVR. The Tata Motors DVR shares carry 1/10th of voting rights and shareholders are entitled to a 5 % higher dividend than ordinary shares in lieu of surrendering voting rights. Tata Motors DVR trades at a discount of 45.2 %. The average discount for the DVR to Tata Motors ordinary share was 36.7 % since inception. The average discount for the DVR share over the last two years has been 40.5 %. At the Current Market Price of Rs. 135.10, the DVR is trading at a 40 % discount to Tata Motors’ ordinary share which is at Rs. 224.55. At the current levels, the probability of the discount narrowing is higher. On Some Of The Parts basis the value of standalone business comes at 9x FY13 adjusted EPS of Rs. 5 to arrive at Rs. 45 and for JLR it comes at 5x EV/EBITDA to arrive at Rs. 183 and the valued of the investment book of the company comes at 0.2x BV for unquoted investments and market value of quoted investments to reach Rs. 9/share and arrived at our target price of Rs. 275. One can BUY TATA MOTOR DVR at all lower levels for better returns. It has outperformed the broader market by 6 % on an annual basis. Globally DVRs trends to trade between 10 % - 15 % discounts to its Equity shares, TTM DVR currently trades at 40 % discount to its Equity shares. One should buy TTM DVR at 40 % - 45 % discount to its EQ SH & Sell when DVR arrives at 10 % - 15 % discount to its EQ SH. TTM DVR can be a good ‘BUY’ with a target price of Rs.151 for the short term. Expect discount to the Equity shares reduce to at least 30 % over next one year given the attractive valuations and increasing free float. For the shorter term it can be a good BUY, with a price target of Rs. 151.

SOTP valuation (FY2013E)

BUSINESS SUBSIDIARY	Value per Share(Rs.)
Core Business (9x FY13E Stand.EPS)	45
JLR (5.0x FY13E EV/EBITDA)	183.00
Tata Daewoo	2.00
Tata Motor Finance	3.00
Tata Technologies	4.00
TML Drivelines	4.00
Value of Other Subsidiaries	14.00
Value Post Discount (20 % Holding discount)	11.00
Value of Investments (0.2 x BV of Investments)	9.00
TOTAL VALUE PER SHARE	275.00

KEY FINANCIALS	FY11	FY12E	FY13E	FY14E
SALES (Rs. Crs)	1,22,127.90	1,65,654.50	1,89,786.00	2,07,532.00
NET PROFIT (Rs. Crs)	9,042.50	12,522.40	13,811.70	14,699.00
EPS (Rs.)	28.40	37.50	41.10	44.10
PE (x)	9.70	7.30	6.70	6.30
P/BV (x)	4.60	2.80	2.80	2.70
EV/EBITDA (x)	6.20	4.30	4.20	3.70
ROE (%)	66.10	47.90	41.80	43.80
ROCE (%)	22.10	23.50	21.40	22.50

I would buy TATA MOTOR LTD DVR with a price target of Rs. 151 for Medium to Long term and Rs. 177 for the Short term players. 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. 120.00 on every purchase.
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PIPAVAV DEFENCE & OFFSHORE ENGINEERING LTD : BUY ON DIPS !!!

Scrip Code: 533107 / PIPAVAVDOC

CMP:  Rs. 81.00; Buy at current levels & On DIPS.

Medium to Long Term Target – Rs. 100; STOP LOSS – Rs. 74.50; Market Cap: Rs. 5,598.70 Cr; 52 Week High/Low: Rs. 92.70 / Rs. 50.10

Total Shares: 69,11,98,388 shares; Promoters : 29,95,76,180 shares –45.00 %; Total Public holding : 39,16,22,208 shares – 43.44 %; Book Value: Rs. 24.90; Face Value: Rs. 10.00; EPS: Rs. 1.16; Div:-- % ; P/E: 69.82 times; Ind. P/E: 24.60; EV/EBITDA: 35.48.

Total Debt: 2,020.75 Cr; Enterprise Value: Rs. 7,952.92 Cr.

Pipavav Defence and Offshore Engineering Company Ltd: Pipavav Defence and offshore engineering Company is promoted by SKIL Infrastructure was formerly known as Pipavav Ship Dismantling and Engineering Limited and changed its name to Pipavav Shipyard Limited in April 2005 which again changed to its current name on 29^th September,2011. Pipavav Defence and Offshore Limited were incorporated in 1997 and are based in Mumbai, India. The company engages in the defence ship-building, and construction of offshore oil and gas assets, as well as provision of commercial ship-building and repairs, and heavy engineering services in India. Pipavav is the only private shipyard in India to have license to produce frontline warships from the Govt. of India giving it significant opportunities in the defence space. The company also offers very large crude carriers, suezmax tankers, aframax tankers, capesize bulk carriers, panamax bulk carriers and tankers, handymax and handysize bulk carriers and tankers, and product and chemical tankers; and specialized vessels, such as LNG carriers, LPG carriers, reefers, containerships, offshore support vessels, ferries, and dredgers. It also provides offshore platforms, which include rigs, jackets, and single buoy mooring systems; naval vessels; and ship repair services, such as refit/dry docking, a-float repair, and conversions. Pipavav Defence & Offshore Engineering Limited is the largest shipyard in India and the 5th largest in the world in terms of its size (400000 dwt). Pipavav’s dry dock capacity is larger than top 5 yards in India put together. The Company has two units, one Special Economic Zone (SEZ) unit spread over around 95 hectares of Land and another Export Oriented Unit (EOU) Unit spread over around 103.92 hectares of Land. The Company is engaged in the Pipavav Shipyard project. Pipavav Shipyard is a shipbuilding, ship repair and offshore fabrication complex being constructed by the Company at Pipavav in the State of Gujarat, India. The complex is spread over an aggregate area of 198.92 hectares (approximately 491.53 acres), comprising a SEZ unit spread over 95 hectares (approximately 234.75 acres) and an EOU spread over 103.92 hectares (approximately 256.79 acres). The Pipavav Shipyard is situated on the west coast of India on the Dubai-Singapore sea route. The company is compared with ABG Shipyard Limited locally and globally with Boustead Heavy Industries Corporation Berhad and Coastal Contracts Bhd.

Investment Rationale:

India is set to spend Rs. 60,000 Cr over the next five years on improving its military infrastructure. Due to the 'Buy Indian, Make Indian' policy put in place by the Ministry Of Defence, a large part of this sum will go to domestic companies. Even in case of imports, there is an offset clause that benefits domestic companies. For any defense contract for capital purchases of over $60 million (Rs.324 Cr), the foreign vendor is required to allocate 30 % of the contract value to Indian players, primarily in the defense, internal security and civil aerospace sectors. According to the Ministry of Defense (MOD), there could be an offset opportunity of $15 billion over the next five years this also envisages a greater role for the private sector, which should benefit established players like PIPAVAV & it enjoys first mover advantage and best-in-class infrastructure in the ship-building segment. It operates the second largest ship-building capacity in the world. PIPAVAV uses modular construction technology, with two 600MT Goliath cranes, which enables it to reduce the construction and delivery time of vessels. Further, it enjoys strong strategic partnerships with several international players, which should aid robust warship order booking in the near future. MOD's growing stress on indigenization and its Mazgaon JV should boost order intake. PIPAVAV's current capacity stands at $1.7 billion (in terms of revenue potential) are likely, to shoot up to $2.5 billion once the second dry dock becomes operational by 2014. The private sector defence business is at a nascent stage in India & with the various government initiatives encouraging indigenization and private sector participation, it is believed that the defense orders offers immense opportunity to private sector players. PIPAVAV is well placed ahead of the curve to exploit this opportunity in the next few years with its global-sized assets and best-in-class tie-ups. Also, PIPAVAV offers the only credible large-size exposure for investors to India's defence business.

Outlook and Valuation:

India imports 70 % - 75 % of its defence requirement from the foreign nations. The government aims to reduce its dependence on imports by encouraging indigenization, with the introduction of the ‘Buy Indian, Make Indian’ category in its defence procurement policy. The increasing stress on indigenization is also the result of several bitter experiences that India has had in sourcing defence equipment from overseas. For instance, India had once placed an order for a Scorpion submarine with France. The order was executed with a delay of four years and the eventual cost was four times its original cost. Similarly, the Indian Navy’s order for a Gorshkov Class Aircraft Carrier witnessed a price escalation of 3x. Such experiences led Defence Ministry to initiate the policy of ‘Buy Indian, Make Indian’. The government has also suitably modified its policies to allow greater participation by domestic private sector companies. The Ministry Of Defence (MOD) has directed public sector companies to enter into partnerships with private players that have the requisite capabilities and foreign collaborations. For instance, the MOD has decided to liquidate the piling orders of government shipyards to private players like PIPAVAV and L&T. PIPAVAV operates the second largest shipbuilding capacity in the world, capable of constructing vessels up to 400,000DWT. Hyundai Heavy, the largest shipbuilder has a total capacity of 10,00,000 DWT. PIPAVAV intends to become the world's largest shipbuilding company after completing the conversion of its second wet dock facility to a dry dock. It has a shipbuilding, ship repair and offshore fabrication complex spread over 750 acres with 720 meters of sea front and 685 meters of outfit quay, including two Goliath cranes of 600 tons each, which service the dry dock and the adjoining pre-erection berth, enabling PIPAVAV to handle up to 1,200 tons of pre-outfitted ship blocks. A host of other technologically advanced infrastructure makes PIPAVAV one of the most modern shipyards in the world. Any new private player wishing to enter this sector would need at least 8 to 10 years to set up such a kind of facility as compared to PIPAVAV. The Land acquisition, required environment clearances, construction, license procurement and technology tie-ups can take an average of 10 years to the new player who wishes to enter this sector. This gives an established player like PIPAVAV an added advantage. PIPAVAV uses modular construction technology, which enables it to reduce the construction and delivery time of vessels, as it is able to simultaneously work on different orders. It has a separate shipbuilding facility, which breaks down a complete ship into separate blocks for construction, which include cutting, forming, blasting, painting, steel stacking, treatment and welding. The dock is used to only assemble mega blocks with the help of two installed Goliath cranes. PIPAVAV is well placed/ahead of the curve to exploit the massive opportunity that India's defence sector offers in the next few years. It has globalsized assets and best-in-class tie-ups. Also, PIPAVAV offers the only credible large-size exposure for investors to invest into Indian defence sector. Hence, the Fair value for PIPAVAV DEFENCE, based on replacement cost method comes at Rs. 6,700 Cr which translates in to Rs.100/share. The company can post an EPS of Rs.0.8 for FY12 and Rs.1.2 for FY13E. The Board meeting will be held on 30th May 2012 to consider and approve the audited financial results of PIPAVAV DEFENCE & OFFSHORE ENGINEERING LTD for the year ended 31st March 2012.

KEY FINANCIALS	FY10	FY11	FY12E	FY13E
SALES (Rs. Crs)	629.40	860.00	1,820.00	2,460.00
NET PROFIT (Rs. Crs)	-48.20	40.00	50.00	80.00
EPS (Rs.)	0.00	0.60	0.80	1.20
PE (x)	0.00	127.90	95.50	62.70
P/BV (x)	3.20	2.90	2.60	2.30
EV/EBITDA (x)	00.00	43.70	18.20	12.80
ROE (%)	00.00	2.30	2.90	3.90
ROCE (%)	0.00	4.90	7.70	9.10

I would buy PIPAVAV DEFENCE & OFFSHORE ENGINEERING LTD with a price target of Rs. 100 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. 74.50 on every purchase.

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