RIL's WEIGHT A HEADHEACHE TO FUND MANAGERS

India Index Services and Products (IISL), the NSE subsidiary which manages benchmark indices such as NIFTY came to know about difficulties to manage RIL weightage in index by fund managers. RIL is the largest market capitalization and with the highest weightage in Sensex & Nifty at 17.7% & 13.3% respectively.

The stock has being biggest contributor to the recent rally accounting to 861 pnts of the 3859 point Sensex up move. Fund managers both local & foreign, are taking a big hit in their portfolios for being significantly underweight on the counter, most of them are forced underweight by 500 bps. As per the SEBI rules local fund managers cannot bet more than 10% of their portfolio on a single stock. Foreign fund managers are bounded by mandates from their investor to stick to similar limits. Thus an average fund manager has lost nearly 2% returns on the underweight on just this stock. RIL’s size has begun to create problems for fund managers and is bound to increase. NSE is making the Nifty a free-float index which will add to its weight and also with completion of RPL merger will add up to 2% weightage. And it is possible that this bluechip giant may end up with a weight of 20%-plus on indices if it uses up its surplus cash for acquisitions. And suppose it does, India will have KOREA like situation where SAMSUNG INDUSTRIES accounts for a fifth or 20%-plus of the market. The most impact is that fund manager’s performance is benchmarked with Nifty and they cannot give more than 9.9% weightage to any stock, they have the risk of underperformance, and also none of the fund managers can take sells call, even if they have negative view on the stock because they are already underweight. A free market call on Reliance Industries is not possible and thus gives RIL a premium valuation.

In the recent rally, the stock outperformed the Sensex by huge margin. While the Sensex rose 47% between March 09 and May 13, the bluechip rose to 68%. This in turn, has taken its weightage up substantially on Nifty from 11% to 13.3% & on Sensex from 15.5% to 17.7%. In such situation, it depends on which way the index moves. If index is going up, then there is disadvantage. But when it fall the fund managers outperform because of under weight.

The only option is either to change the rules of 10% or follow MSCI and apply the 10/40 rule. This 10/40 methodology was introduced by MSCI indices in 2002. Accordingly the maximum weight of securities of a single issuer cannot exceed 10% of market value of the index, and the sum of the weights of all issuers representing more than 5% of the market value of the index cannot collectively exceed 40%.

RELIANCE TREASURY STOCK SALES : BUZZZ....

RELIANCE INDUSTRIES

Scrip Name: RELIANCE INDUSTRIES

CMP: Rs.990;

Buy at Rs.950-1000 levels

Traget : Rs. 1130

Market Cap : Rs.318046 cr

52 Week High/Low : Rs.1129/Rs.910.30

Total Shares : 3270714336 shares; Promoters - 1463923343 shares - 44.74%

Book Value : Rs.392.41 ; Face Value - Rs.10; EPS - Rs.53.26;

P/E – 18.56; DIV (%)- 70%

Enterprise Value : Rs.1163.60 per share ; EV/EBITDA – 11.52;

There are the talks of Reliance selling its treasury shares worth Rs.3400 crs. About 4crs of treasury shares.Here are some of its past deals and the at present position of its treasury stocks..

DETAILS OF TRANSACTION

SEP 17 2009 – 1.50 cr shares @Rs.2125 = Rs.3188 cr in value a 0.91% of Stake.

(RIL bought at Rs.158 in year 2002)

JAN 04 2010 – 2.58 cr shares @Rs.1035 = Rs.2675 cr in value a 0.79% of Stake.

JAN 11 2010 – 3.30 cr shares @Rs.1050 = Rs.3465 cr in value a 1.00% of Stake.

A total of 7.38 cr shares @ Rs.9328 cr on an average of Rs.1263.95/share.

NAME OF SHAREHOLDER/SUBSIDIARY HOLDING RIL SHARES.

Reliance Universal Enterprise holding 5.69 cr shares (1.73%).

Reliance Polyelefins holding 6.12 cr shares (1.86%).

Reliance Chemicals holding 6.22 cr shares (1.89%).

Others holding 80 lakhs shares (.25%).

A total of 18.84 cr shares (5.73%). This also includes 12.05 cr shares or 3.67% held by Petroleum Trust.

At present RELIANCE has 30.89 cr shares (9.4%) of treasury stock including RIL shares held by its Subsidiary firms named above.NOW, at Current Market Price of Rs.1000 RIL’s Treasury stock are worth Rs.30,089 cr.

BHARTI AIRTEL LTD : DONT MISS THIS CALL !!!

Scrip Code: 532454 / BHARTIARTL

CMP:  Rs. 312.05; Buy at current levels.

Medium to Long Term Target: Rs. 345; STOP LOSS: Rs. 287.08; Market Cap: Rs. 1,18,501.19 Cr; 52 Week High/Low: Rs. 370.60 / Rs. 215.80.

Total Shares: 379,75,30,096 shares; Promoters : 260,11,27,176 shares –68.49 %; Total Public holding : 119,64,02,920 shares – 31.51 %; Book Value: Rs. 130.16; Face Value: Rs. 5.00; EPS: Rs. 13.42; Dividend: 20.00 %; P/E: 23.25 times; Ind. P/E: 24.82; EV/EBITDA: 7.39.

Total Debt: 69,023.2 Cr; Enterprise Value: Rs. 1,88,263.89 Cr.

BHARTI AIRTEL LTD: The Company was founded on July 7, 1995 and is based in New Delhi, India. The company was formerly known as Bharti Tele-Ventures Limited and changed its name to Bharti Airtel Limited in April 2006. In January 28, 2002, Company came out with the IPO of 18.35 Cr equity shares of face value of Rs. 10 each at a floor price of Rs. 45.00 per share and raised Rs. 834 Cr. These shares were listed on 15th February 2002 on NSE-BSE at 11 % premium to its issue price of Rs. 45.00. Bharti Airtel Limited provides telecommunication systems and services in India, south Asia, and Africa and 20 other countries across rest of Asia and Africa. The company’s Mobile Services segment offers GSM mobile services; and post-paid, pre-paid, roaming, Internet, m-commerce, and other value added services. This segment also offers 2G services; 3G services such as mobile TV entertainment, video calls, live streaming of videos, high definition gaming, as well as Internet access; and 4G services comprising content, super fast access to high definition video streaming, multiple chatting, and instant uploading of photos. The company’s Telemedia Services segment provides voice and data communications through fixed network and broadband technology for small and medium size business customers. Its Digital TV Services segment offers digital broadcasting services under the Direct-to-home platform. The company’s Airtel Business segment provides end-to-end telecom solutions, such as data and voice, network integration, managed services, enterprise mobile applications, and digital media to large enterprise, government, small and medium businesses, and carrier customers. Its Passive Infrastructure Services segment engages in setting up, operating, and maintaining wireless communication towers. In addition, the company provides fixed line voice and data solutions, and high speed broadband Internet services through direct subscriber line, IPTV, and Direct-To-Home under the Airtel brand. As of June 30, 2012, it served approximately 257 million customers. In April 2013, company signed an Indefeasible Right to Use (IRU) Agreement with Reliance Jio Infocomm Limited (RJIL), a subsidiary of Reliance Industries Limited (RIL), under which Bharti will provide Reliance Jio with data capacity on its i2i submarine cable. The company is compared locally with Idea cellular Ltd, Reliance Communication, Tata Communication ltd and globally with Vodafone Group Plc. of London, AT&T Inc. of USA, Verizon Wireless of USA, America Movil of Mexico, MTN Group of South Africa, China Unicom of China, China Mobile of China, Telenor Group from Norway, Telefonica of Spain, Orange Telecom of France, T- Mobile of Germany, Telia Sonera of Sweden, MTS of Russia, VimpelCom of Russia, Sing Tel of Singapore, Axiata Group Berhad of Malaysia,  Saudi telecom company of Saudi Arabia, Etisalat of UAE.

Investment Rationale:

Bharti Airtel is amongst top four mobile service providers globally in terms of subscriber base. It has over 27.1 Cr customers across its operation at the end of March 2013. Recently on 4th May 2013, Bharti Airtel signed an agreement with Qatar Foundation Endowment under which Bharti will issue 19,98,70,006 new equity shares at a price of Rs. 340 per share to QFE representing a shareholding of 5% in the company post issuance. This investment deal will further strengthen the capital structure and will provide further flexibility for Bharti to deliver on its growth strategy. Goldman Sachs advised QFE on the deal. On 23rd April 2013, Reliance Jio Infocomm Limited (RJIL), a subsidiary of Reliance Industries Limited (RIL), the only pan India operator with Broadband Wireless Access (‘BWA’) spectrum across 22 circles capable of offering fourth generation (4G) wireless services signed a Indefeasible Right to Use (IRU) Agreement with Bharti Airtel Limited, under which Bharti will provide Reliance Jio with data capacity on its i2i submarine cable. This i2i connects India to Singapore. The state of the art cable consists of eight fiber pairs using DWDM, capable of supporting multiple terabits of capacity per fiber pair. Its landing points are at Chennai in India and Tuas in Singapore. This high speed link will enable Reliance Jio & Bharti to extend thier network and service reach to customers across Asia Pacific region. It will connect both the company’s directly to the world’s major business hubs and ISPs, thereby, helping the operator to meet the bandwidth demand and provide ultra-fast data experience to its customers. Bharti’s data business is picking up in India and Africa, So increased composition of data in the total business is expected to improve the Average Rate per User and the Average Rate per Minute. Data consumption continues to grow 20% every quarter and has reached 24 billion MBs during Q4FY13 and now contributes around 6.5% of the total mobile revenues as against 5.7% in Q3FY13. The company had 4.35 Cr data (mobile Internet) customers, of which 64 lakhs used 3G data services.

Outlook and Valuation:

BHARTI AIRTEL’s Data ARPU came in at Rs. 55.00 aided by average data download of 187 MB per user per month (an increase of 26 MB per user over previous quarter), and blended data realization rate being stable at 29.27 paisa per MB. Data ARPU of Rs 55 is very low compared to global standards. So it is expected to see data as the major growth driver in the quarters ahead. Operational metrics of India thus are set to improve further, while the Africa would also improve. Thus a margin improvement despite higher operating expenses could be seen. Regulatory uncertainties would continue to prevail, but it is believed that overall, the telecom Industry should be studied in isolation as the regulatory hindrances have become part of the telecom ecosystem. Nevertheless the short term pressure on profitability would remain considering the potential regulatory payments that needs to be made in the form of one time spectrum charges and the penalty due to 3G roaming arrangement that the company has entered into with other incumbents (if the TDSAT gives an adverse verdict on this front), especially at a time when the competitive intensity has again peaked due to which the operating costs may increase. The fair value of BHARTI AIRTEL comes at Rs. 345.69/share, with the valuation of its investments in subsidiaries coming at Rs. 183/share. At the current market price of Rs. 312.05 - the stock is trading at 30.59 x FY14E EPS of Rs 10.20/share and at 19.50 x FY15E EPS of Rs 16.00/share. Based on last quarterly result and some of the underlying trends, one should not expect significant changes to domestic operational forecasts but African margins perhaps need to be scaled back further. Below the EBITDA line, expect more downgrades due to tax and interest, but hopefully the stock is reaching the end of a long 3-year downgrade cycle, hence the stock could be a buy at current levels with a medium to long term target of Rs. 345.69.

SOTP valuation (FY2014E)

BUSINESS SUBSIDIARY	Value per Share(₹)
Domestic Business	289.65
Zain Africa operations (7 x FY14E EV/EBITDA)	2.00
Bharti Infratel Tower Business (20% disc to CMP)	54.35
Value of Other Subsidiaries	183.00
TOTAL VALUE	529.00
Less:  Debt	183.31
TOTAL VALUE PER SHARE	345.69

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	71,451.00	80,311.20	87,287.80	95,703.90
NET PROFIT (₹ Cr)	4,259.40	2,275.80	3,866.30	6,077.70
EPS (₹)	11.20	6.00	10.20	16.00
PE (x)	28.20	52.90	31.10	19.80
P/BV (x)	2.40	2.40	2.20	2.00
EV/EBITDA (x)	7.80	7.40	6.60	5.40
ROE (%)	8.40	4.50	7.10	10.10
ROCE (%)	8.40	7.30	8.20	10.20

I would buy BHARTI AIRTEL LTD with a price target of ₹ 345.69 for Medium to Long term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 287.08 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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

VIEW THE POWER POINT PRESENTATION ON

RETURN ON CAPITAL

CAIRN INDIA: STRIDING AHEAD !!!

 

Scrip Code: 532792 / CAIRN

CMP:  Rs. 339.15; Buy at current levels.
Short term Target: Rs. 370, 6 month Target – Rs. 415; STOP LOSS – Rs. 312.00; Market Cap: Rs. 64,539.18 cr; 52 Week High/Low: Rs. 401.10 / Rs. 249.30

Total Shares: 190,29,68,633 shares; Promoters : 112,27,13,999 shares –59.00 %; Total Public holding : 78,02,54,634 shares – 41.00 %; Book Value: Rs. 167.12; Face Value: Rs. 10.00; EPS: Rs. 0.11; Div: 30.00 % ; P/E: 00.00 times; Ind. P/E: 11.77; EV/EBITDA: 00.00.

Total Debt: 1,350.00 Cr; Enterprise Value: Rs. 67,730.45 Cr.

CAIRN INDIA LTD: CAIRN INDIA LTD was incorporated in 2006 and is based in Gurgaon, India. The company was former subsidiary of Cairn UK Holdings Limited. Cairn India is an exploration and production company, a leading player in the oil and gas industry in India. Cairn India has been focusing on south Asia, especially India where it has interests in 15 blocks. The firm made more than 30 oil and gas discoveries in India and was listed in January 2007 through an IPO after it spun off from its parent Cairn Energy Plc. Vedanta Resources Plc along with its subsidiary SESAGOA acquired the controlling stake of 51 % at $8.6 billion in Cairn India at Rs.405/sh. SESAGOA brought in $3 billion for 20 % and the rest 31 % was by Vedanta. Cairn holds interest in 9 oil and gas block/fields located in the Baremer basin, the Mumbai offshore basin, the Kerala – Konkan basin, the Palar-Pennar basin, and the Cambay basin in India, as well as 1 block in the Mannar basin off the coast of northwestern Sri Lanka.The company also operates a pipeline and storage terminal. Cairn has working interest in 14 Exploration & Production blocks in Ravva and Cambay blocks which produces 51.4k boepd (Cairn WI 14k bpd). Cairn India sells its oil to refineries; and gas to public sector undertakings and private buyers. Cairn has commissioned three trains at MPT and pipeline section from MPT to Salaya, through which it is delivering crude to refiners. Government of India had granted Cairn India some oil & gas fields through Production Sharing Contract. The company had interest in oil & gas blocks/fields which include PR-OSN-2004/1, KG-ONN-2003/1, KG-OSNsn-2009/3 & MB-DWN-2009/1. CAIRN INDIA is compared with Oil India ltd and ONGC locally and with Japan Petroleum Exploration Company Ltd internationally. 

Investment Rationale:

In Jan'12, Cairn has commenced production from the Bhagyam oilfield in Rajasthan on approval granted by GOI. The benefit of the same will be reflected in Q4FY12. Further, Cairn expects to ramp-up the crude oil production from Bhagyam field to approved plateau rate of 40 Kbopd. According to the Company's management Mangala field, the biggest of the 18 discoveries in Rajasthan block, can produce 150 kbopd as against 125 Kbopd. Bhagyam, the second biggest field in the Rajasthan block, can produce 60 Kbopd as opposed to current approved peak output of 40 Kbopd (50 %), while Aishwariya oilfield can contribute 25 Kbopd as compared to earlier 10 Kbopd (150 %) and other fields can produce 65 Kbopd, subject to required approvals. As on 31st Dec'11, gross cumulative Rajasthan development capital expenditure was at US$ 3,323 Mn. Management has stated that further investments are planned to augment processing capacity and pipeline infrastructure. Recently, Mr. Jaipal Reddy (India's oil minister) has suggested that he will take actions to boost investment and raise oil & gas production. It is believed that this will speed up the process of approvals for production ramp up from Rajasthan fields, this should be significantly positive for Cairn India. Also, India has cut down its crude oil sourcing from Iran. This also demands for higher domestic oil production along with other diversified sources. Cairn's higher crude oil production at elevated international crude oil price along with weakening rupee will partly mitigate the negative impact of increased oil cess announced in the 2012-13 budgets. Cairn India has approached the petroleum minister, seeking support in making a case for a rollback of cess hike to the finance ministry, as per media reports. Any immediate rollback of cess looks unlikely. Also, the recent correction in the stock price discounts most of the negatives. In FY13, it is expected that refineries like RIL, Essar Oil and IOC will increase their crude oil off take from Cairn India (Rajasthan oil fields). With the commissioning of Essar Oil's expanded capacity the demand of Cairn's crude oil will increase. Further, Cairn has been pursuing with the Directorate- General of Foreign Trade (DGFT) for permission to sell crude oil to RIL's second 29-mt refinery at Jamnagar, which is a SEZ refinery. Cairn India’s dividend policy announcement will be a key trigger & will abate concerns regarding the utilization of cash. The Company's management has indicated to announce a sound dividend policy, they may announce special dividend in the coming result declaration. It is also believed that there is a possibility of upward revision in the company's Rajasthan crude oil reserves potential which the market has not discounted yet. Further, any significant reserves declaration from Sri Lankan block can add major value to the Company. Currently, the block is in E&D phase so the same is yet not been priced in. However, experts are bullish on the growth prospects of Sri Lankan block.

Outlook and Valuation:

The recent correction in stock price of Cairn India is mainly due to hike in cess rate by GOI and this will impact earnings. However, Cairn's higher crude oil production from Rajasthan block at elevated international crude oil price along with weakening rupee will partly mitigate the negative impact of increased oil cess. The Company has approached the petroleum minister, seeking support in making a case for a rollback of cess hike & any immediate rollback of cess looks unlikely. In the Union Budget 2012-13, GOI increased the cess on crude oil production to Rs. 4,500/mt from Rs. 2,500/mt earlier. The earlier revision in cess happened during the Budget 2006-07. This increase in cess is attributed to indexation by the government. Although, cess is cost recoverable while calculating the profit petroleum for the upstream companies, the absolute impact in earnings would be still substantial. CAIRN INDIA has announced its production figures for the JAN - MAR quarter, the average daily gross operated production was of 1,80,293 Barrels of Oil Equivalent (BOE) for the quater, with working interest production at 1,07,292 Barrels of Oil Equivalent Per Day (BOEPD). Cairn India announced an oil discovery in the Nagyalanka - SE-1 well, which is is the second discovery in the onshore KG-ONN-2003/1 block in the Krishna - Godavari basin. Testing is underway and the discovery will be appraised further for establishing commerciality. At the current market price of Rs. 339.15, the stock is fairly valued at 5.3 x EV/EBIDTA and trading at a PE of 6.00 x FY13E. The company can post Earnings per share (EPS) of Rs. 44.40 in FY12E and Rs. 56.70 in FY13E. One can buy CAIRN INDIA Ltd with a target price of Rs. 370.00 for Medium to Long term investment. CAIRN INDIA to declare its results on April 20th 2012.

SOTP valuation (FY2013E)

BUSINESS SUBSIDIARY (FY13E)	Value per Share (Rs.)
MBA (DCF)	286.00
Ravva and Cambay basin (EV/BOE 11x)	9.00
Barmer Hills (EV/BOE 8x - 50% disc. to MBA)	11.00
Other exploratory (EV/BOE 4x-75% disc. to MBA)	36.00
TOTAL EV	342.00
NET DEBT	(25.00)
EQUITY VALUE (Rs.)	367.00

KEY FINANCIALS	FY11	FY12E	FY13E	FY14E
SALES (Rs. Crs)	10,277.90	13,013.50	16,429.90	16,399.90
NET PROFIT (Rs. Crs)	6,334.40	8,693.50	11,095.20	9,415.70
EPS (Rs.)	32.40	44.40	56.70	48.10
PE (x)	10.90	7.90	6.20	7.30
P/BV (x)	1.70	1.50	1.20	1.20
EV/EBITDA (x)	8.00	5.50	3.80	3.90
ROE (%)	17.10	19.80	21.20	16.50
ROCE (%)	16.30	19.10	20.50	16.20

I would buy CAIRN INDIA Ltd with a price target of Rs. 370 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. 312.00 on every purchase.
READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

Sensex from 1k to 21k : A HISTORY

1000, July 25, 1990

On July 25, 1990, the Sensex touched the magical four-digit figure for the first time and closed at 1,001 in the wake of a good monsoon and excellent corporate results.

2000, January 15, 1992

On January 15, 1992, the Sensex crossed the 2,000-mark and closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then finance minister and current Prime Minister Dr Manmohan Singh.

3000, February 29, 1992

On February 29, 1992, the Sensex surged past the 3000 mark in the wake of the market-friendly Budget announced by the then Finance Minister, Dr Manmohan Singh.

4000, March 30, 1992

On March 30, 1992, the Sensex crossed the 4,000-mark and closed at 4,091 on the expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling.

5000, October 8, 1999

On October 8, 1999, the Sensex crossed the 5,000-mark as the BJP-led coalition won the majority in the 13th Lok Sabha election.

6000, February 11, 2000

On February 11, 2000, the infotech boom helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006.

7000, June 20, 2005

On June 20, 2005, the news of the settlement between the Ambani brothers boosted investor sentiments and the scrips of RIL, Reliance Energy, Reliance Capitaland IPCL made huge gains. This helped the Sensex crossed 7,000 points for the first time.

8000, September 8, 2005

On September 8, 2005, the Bombay Stock Exchange's benchmark 30-share index -- the Sensex -- crossed the 8000 level following brisk buying by foreign and domestic funds in early trading.

9000, November 28, 2005

The Sensex on November 28, 2005 crossed the magical figure of 9000 to touch 9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors.

10,000, February 6, 2006

The Sensex on February 6, 2006 touched 10,003 points during mid-session. The Sensex finally closed above the 10K-mark on February 7, 2006.

11,000, March 21, 2006

The Sensex on March 21, 2006 crossed the magical figure of 11,000 and touched a life-time peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points.

12,000, April 20, 2006

The Sensex on April 20, 2006 crossed the 12,000-mark and closed at a peak of 12,040 points for the first time.

13,000, October 30, 2006

The Sensex on October 30, 2006 crossed the magical figure of 13,000 and closed at 13,024.26 points, up 117.45 points or 0.9%. It took 135 days for the Sensex to move from 12,000 to 13,000 and 123 days to move from 12,500 to 13,000.

14,000, December 5, 2006

The Sensex on December 5, 2006 crossed the 14,000-mark to touch 14,028 points. It took 36 days for the Sensex to move from 13,000 to the 14,000 mark.

15,000, July 6, 2007

The Sensex on July 6, 2007 crossed the magical figure of 15,000 to touch 15,005 points in afternoon trade. It took seven months for the Sensex to move from 14,000 to 15,000 points.

16,000, September 19, 2007

The Sensex scaled yet another milestone during early morning trade on September 19, 2007. Within minutes after trading began, the Sensex crossed 16,000, rising by 450 points from the previous close. The 30-share Bombay Stock Exchange's sensitive index took 53 days to reach 16,000 from 15,000. Nifty also touched a new high at 4659, up 113 points.The Sensex finally ended with its biggest-ever single day gain of 654 points at 16,323. The NSE Nifty gained 186 points to close at 4,732.

17,000, September 26, 2007

The Sensex scaled yet another height during early morning trade on September 26, 2007. Within minutes after trading began, the Sensex crossed the 17,000-mark . Some profit taking towards the end, saw the index slip into red to 16,887 - down 187 points from the day's high. The Sensex ended with a gain of 22 points at 16,921.

18,000, October 09, 2007

The BSE Sensex crossed the 18,000-mark on October 09, 2007. It took just 8 days to cross 18,000 points from the 17,000 mark. The index zoomed to a new all-time intra-day high of 18,327. It finally gained 789 points to close at an all-time high of 18,280. The market set several new records including the biggest single day gain of 789 points at close, as well as the largest intra-day gains of 993 points in absolute term backed by frenzied buying after the news of the UPA and Left meeting on October 22 put an end to the worries of an impending election.

19,000, October 15, 2007

The Sensex crossed the 19,000-mark backed by revival of funds-based buying in blue chip stocks in metal, capital goods and refinery sectors. The index gained the last 1,000 points in just four trading days. The index touched a fresh all-time intra-day high of 19,096, and finally ended with a smart gain of 640 points at 19,059.The Nifty gained 242 points to close at 5,670.

20,000, October 29, 2007

The Sensex crossed the 20,000 mark in just 14 days all because of huge FII's money inflows into large cap stocks making almost all of the to touch their highs. Index touched intraday high of 20,024 on the basis of DII's & Mutual Funds buying.

Huge buying in midcaps, small caps stocks like RNRL, RPL, ISPAT IND, IFCI etc

21,000, January 9, 2008

Sensex was in the range of 19,200 to 20,000 for 2 months and on 9th January 2008 the index touched to 21,000. This was on an excitment of Reliance Power IPO at Rs.440/sh.

Large caps such as Reliance Ind went to Rs.3050.50, Rel.Cap to Rs.2,695.50, Rel.Infra to Rs.2,654.35, Grasim Ind to Rs.3,400, Aditya Birla Nuvo to Rs.2,456.90.

The very next day Sensex touch to its all time high of 21,206.

On October 27, 2008 Sensex touched its lows of 7697.39 down 1003.68 points & Nifty at 2252.75 in intraday giving a closing of 8,509.56 down nearly 64% from its high due to global recession and selling pressures & 

MAY 18,2009 A two thousand point rally on the Sensex within sixty seconds was the day on which the world saw the largest intra day rise on any index anywhere in the world. The first time was after the Sensex hit the upper circuit, the second time it hit the upper circuit after two hours the roof almost came off!

SEBI had no choice but to suspend trading for the day. Investors were jubilant all day around the BSE.

COSMO FILMS LTD : FULL PACKAGE !!!

Scrip Code: 508814 / COSMOFILMS

CMP:  Rs. 382.70; Market Cap: Rs. 743.97 Cr; 52 Week High/Low: Rs. 411.40 / Rs. 176.85

Total Shares: 1,94.40,076 shares; Promoters : 84,58,439 shares – 43.51 %; Total Public holding : 1,07,05,241 shares – 55.07 %; Book Value: Rs. 234.01; Face Value: Rs. 10.00; EPS: Rs. 49.61; Dividend: 100.00 % ; P/E: 7.71 times; Ind. P/E: 6.95; EV/EBITDA: 11.67 times. Total Debt: Rs. 422.39 Cr; Enterprise Value: Rs. 1,141.57 Cr.

   

COSMO FILMS LTD: The Company was incorporated on October 7, 1976 and based in New Delhi. Cosmo Films Limited is a manufacturer of semi-finished products of plastics. The Company is engaged in the manufacturing of bi-axially oriented polypropylene films (BOPP) and thermal films. The company came with an IPO in 1980 with an offer of 4,41,000 equity shares of Rs. 10 each at par. The company gave bonus in March 2003 in ratio of 1:1, and has not given any Split in face value of its shares. COSMO FILMS operates through two segments: Packaging Films and Others (Equipments and Parts). Their geographic segments include India and outside India. Its product portfolio consists of packaging films, including print and pouching films, barrier films and overwrap films; lamination films, including dry (thermal) lamination films and wet (print) lamination films; label films, including pressure sensitive label stock films, direct thermal printable films and wrap around label films, and industrial films, including synthetic paper, and tape and textile films. The Company has manufacturing facilities spread across India, the United States and Korea. It has a manufacturing capacity of over 136,000 metric ton per annum of BOPP films, approximately 40,000 metric ton per annum of thermal lamination films. COSMO FILMS Ltd is locally compared with Xpro India Ltd, Uflex Ltd, Fenoplast Ltd, Caprihans India Ltd, Glory Films Ltd, Essel Propack Ltd, Huhtamaki PPL Ltd, Jhaveri Flexo Industries. Globally compared with Avery Dennison Corporation of USA, Ball Corporation of USA, Berry Plastics Group Inc of USA, Crown Holdings Inc of USA, Packaging Corporation of America of USA, Seal Air Corporation of USA, British Polythene Industries PLC of UK, Huhtamaki Oyji of Finland, Smurfit Kappa Group Plc of Ireland, Vetropack Holding AG of Switzerland, Polyplex (Thailand) Public Company Ltd of Thailand, The Pack Corporation of Japan, Lock & Lock Co., Ltd of South Korea, Greatview Aseptic Packaging Company Ltd of China, CPMC Holding Ltd of Hong Kong, Mpact Ltd of South Africa, Nampak Ltd of South Africa.

Investment Rationale:

Cosmo Films Ltd, established in 1981, today is one of the global leaders and manufacturers of Biaxially Oriented Polypropylene (BOPP) films used for packaging, labels and lamination applications. The company is the largest exporter of BOPP films from India and is also the largest producer of thermal lamination films in the world with plant cum distribution centres in India, Japan, Korea & the U.S along with global channel partners in more than fifty countries. Cosmo Films, being a professionally managed Public Limited Company has a strong presence in flexible packaging films. In speciality films segment beside thermal films, wet lamination, synthetic paper, high barrier films, coated films are key products. Cosmo is the largest producer of thermal lamination films in the world. In commodity, Cosmo manufactures tape and textile films as well as packaging films. Within the packaging segment, company manufactures films such as heat sealable, plain, metallized, opaque films as well as speciality films such as stable slip film, low SIT films, high hot tack films, low COF films and extrusion coat able metallized films. In labels Cosmo has almost a complete range of films for wrap-around, in-mould and self-adhesive applications in transparent, metallized and opaque which can work with almost all kinds of printing inks. Company’s products are popular in domestic and overseas markets. Cosmo is the only company acting as a one-stop shop for laminating solutions i.e. the films and the laminating equipments. In India with economic growth and rising personal disposable income which are the growth drivers for the consumer goods sector, in turn improves the demand for packaging. The Packaging industry is expected to grow around 10-12 % CAGR in the medium term. With Growing rural demand, retail push, planned investments by large MNCs in the FMCG business and with the strong fundamentals of the Indian economy, will boost the growth in FMCG and this will consequently boost the growth for packaging. As per Indian Brand Equity Federation (IBEF), FMCG industry in India is expected to grow at a CAGR of 14.7 % between 2012 and 2020, which will also help the growth of the packaging industry. With the increasing penetration in the rural and semi-urban areas along with the Government initiatives to boost the rural infrastructure is likely to improve the demand for FMCG products, thus in turn would indirectly will benefit the specialized flexible packaging players like Cosmo Films, who offers value addition in the form of both product specific like high speeds on product filling lines, insulation from heat & moisture, high strength for supporting long distance transportation, holographic images etc. & custom designed packaging solutions like brand image protection, protection from counterfeit and cost effectiveness. The management has indicated that certain trends like - use of plastic tubes instead of metal tubes and PET bottles instead of glass bottles would drive its addressable markets. Recent trend of using pouches instead of rigid packs for hair/edible oils would expand its market size further. There is expected to be a strong growth in packaged food industry, change in pack format from rigid packaging to flexible packaging, balanced demand-supply scenario will keep pricing power stable over the medium term. Cosmo’s capacity expansion and product mix strategy will yield better operating performance and superior earnings growth in the industry over the next few years. Cosmo Films is one of the lowest cost BOPP manufacturer and is the fifth largest player in the world. The company manufactures packaging films, lamination films, label films and industrial films for various packaging applications. Cosmo Films has a business model based on business to business (B2B) with strong presence in global and domestic market. The company caters to clients in more than 100 countries with a major presence in USA, Europe, Japan and India. With a diversified client base and complete solution to packaging sector, Cosmo has positioned uniquely to tap increased opportunities in the BOPP films industry. The company sources polypropylene (a key raw material) from domestic oil & gas companies like RIL, IOC, HPCL and imports from Middle East (10 per cent). Raw material cost is 64 % of operating revenues and the company doesn’t get benefit of lower input cost in the P&L due to cost plus operating model. Sustainable improvement in EBITDA margin is largely dependent upon product mix strategy, better capacity utilization and efficiency in operation (like savings in power cost and automation reducing man hours etc.). Cosmo Films enjoys significant entry barriers in specialty films segment. The company has built unique small size production lines for specialty films to offer customized and innovative product for premium consumer products. Notably, specialized films are selling 2.5x premium to traditional BOPP films, a key profitability driver over the long term. The company is one of the lowest cost manufacturer of BOPP films in the world. The difference between manufacturing BOPP films in India and China is very minimal. Moreover, import duty of 7.5 % along with freight cost attached to imported films makes import an unattractive option for domestic BOPP end-user industries. Hence, BOPP films imported from China will not adversely impact pricing power and supply scenario in domestic market. COSMO FILMS being one of the leader in the industry has very strong footing and has strong cash flow which thrusts the growth for the company, and strong financials with sustained cashflow makes it attractive for long term investment.

Outlook and Valuation:

Cosmo Flims is a leading manufacturer of BOPP films and specialty films with 20 % market share. The company offers cost-effective innovative packaging solutions to leading FMCG and global brands. Over the years, the company expanded product portfolio to improve profitability and growth. Its products include newer products like thermal, coating and metalizing films besides the traditional BOPP films. The company has three manufacturing facilities in India and one each in Korea and USA. It caters to clients in more than 100 countries with major presence in USA, Europe, Japan and India. The company derives 50 % sales from export market and balance 50 % from domestic market. Out of export sales, 70 % is value-added high margin specialty films. The Global BOPP demand is estimated to be 72 lakh MT growing at 5-6 % annually with balanced demand-supply situation. Domestic BOPP Films industry has grown 12 % CAGR aided by strong growth in flexible packaging industry over the last five years. During FY12-13, the industry saw sharp decline in profitability due to intense pricing pressure and significant over-capacity leading to lower utilization. Cosmo Films and other players in the industry also witnessed steep decline in gross profit margin and EBITDA margin during the same period. Now, pricing, profitability and demand-supply trends have reversed in FY15-FY16. At present India’s BOPP production is estimated at approx. 5 lakh MT per annum. Domestic BOPP consumption is approx. 3.5 lakh MT per annum and export from India is about 1.1 lakh MT per annum. The Indian BOPP Industry has been growing at almost double of India’s GDP growth rate. Current demand-supply scenario coupled with capacity utilization shows reasonable stable trend on pricing power front. In order to benefit from attractive industry outlook, Jindal Poly and Cosmo Films are expanding BOPP capacity over the next two years by 30000 MT and 60000 MT respectively. There is a strong growth in packaged food industry, change in pack format from rigid packaging to flexible packaging, balanced demand-supply scenario will keep pricing power stable over the medium term. Cosmo’s capacity expansion and product mix strategy will yield better operating performance and superior earnings growth in the industry. Cosmo Films is also working towards operational efficiency by cost-containment measures. The company will save power cost around Rs. 15 crore and Rs. 25 crore in FY16 and FY17 respectively due to change in power procurement from State grid to long-term power purchase agreement (PPA) from private players and lower power consumption. Upgradation of manufacturing facilities will increase automation in plant operation and reduce power consumption per unit of production. We believe that power cost-saving / automation measures along with efficient raw material procurement make Cosmo Films the lowest cost BOPP film manufacture in the world. Moreover, refinancing of existing loans at lower rates will reduce interest cost in coming years. The company has net debt of Rs. 390 crs, of which Rs. 220 crore are foreign currency loans with natural hedge in the form of exports revenues and financial hedge. Its major competitors are Jindal Poly (210000 MT), Max Films (54000 MT), Nahar Poly (30000 MT), Taghleef UAE (410000 MT) and Terofan (132000 MT). We believe full-fledged BOPP films product portfolio, lowest cost of production and diversified client base are key strengths to sustain profitability and improve market share. Cosmo Films has a lean working capital across business cycles, reflecting underlying superior business operation. The company has improved core working capital as percentage of net sales from 14 % in FY14 to 11 % in FY15, aiding to operating cash flows. The company has announced a capacity expansion of 60,000 MT costing Rs.200 crore funded by internal accrual and debt. The company has already obtained financial closure on the project. Post the expansion, installed capacity is expected to increase to 1,96,000 MT by January 2017. It is expected that the free cash flows to increase driven by core operational performance. The company has healthy balance sheet with reasonable leverage like decline in net debt to equity from 1.4x in FY14 to 1.2x in FY15. The lean working capital cycle, reasonable balance sheet leverage and healthy free cash flows are a rare combination in a slow industrial growth environment and makes one of the reason of better investment candidate. At the current market price of Rs. 382.70, the stock is trading at a PE of 6.98 x FY17E and 6.10 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 54.82 in FY17E and Rs. 62.73 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.  

KEY FINANCIALS	FY15	FY16	FY17E	FY18E
SALES (₹ Crs)	1,646.78	1,620.62	1,766.47	1,943.12
NET PROFIT (₹ Cr)	27.66	96.24	106.57	121.94
EPS (₹)	14.23	49.51	54.82	62.73
PE (x)	22.76	6.54	5.91	5.16
P/BV (x)	1.65	1.38	1.12	0.93
EV/EBITDA (x)	9.30	4.78	4.22	3.74
ROE (%)	7.27	21.09	18.93	18.01
ROCE (%)	18.15	29.06	28.72	28.31

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*As the author of this blog I disclose that I do not hold  COSMO FILMS LTD in my of the portfolios.

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