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Wednesday, March 2, 2011

UNION BUDGET 2011 - 12 : HIGHLIGHTS

GROSS DOMESTIC PRODUCT ESTIMATES IN FY12 ARE  Rs. 71,57,000 LAKH CR AND AT 2004-05 PRICES 48,86,000 LAKH CR.
TOTAL SUBSIDES AT Rs. 1.43 LAKH CR.
FERTILIZER SUBSIDIES AT  Rs. 50,000 CR,
FOOD SUBSIDIES AT  Rs. 60,500 CR
OIL & PETROL SUBSIDIES AT  Rs. 23,600 CR.
FISCAL DEFICIT AT Rs. 4,12,817 CR.
MARKET LOANS = Rs. 3,43,000 CR
STATE PF = Rs. 10,000 CR.
EXTERNAL AID = Rs.14,500 CR.
LESS OTHERS = Rs. 13,866 CR.
THE CENTER'S EXPENDITURE 2011 - 12 IS PROJECTED AT Rs. 12,57,729 Cr.





IN FLOW (Rs. in Cr)
TAX RECEIPTS6,64,457
CORPORATE TAX3,59,990
INCOME TAX1,72,026
CUSTOMS DUTY1,51,700
EXCISE DUTY1,64,116
SERVICE TAX82,000
TAX OF UNION TERRITORY1,973

NON TAX RECEIPTSAMOUNT
INTEREST RECEIPTS19,578
DIVIDENDS & PROFITS42,624
EXTERNAL GRANTS2,173
OTHER NON TAX RECEIPTS59,891
RECEIPTS OF UNION TERRITORY1,169
           TOTAL1,25,435

NON DEBT CAPITAL RECEIPTS55,020
RECOVERY OF LOANS & ADVANCES15,020
MISC. CAPITAL RECEIPTS40,000


* Out of the Tax Receipts the Centre has to keep aside States share of Rs. 2,63,458 cr & for Calamity & Contingency Fund of Rs. 4,525 crs.

OUT FLOW (Rs. in Cr)
PLAN EXPENDITURE4,41,547
NON PLAN EXPENDITURE8,16,182
OR
REVENUE EXPENDITURE10,97,162
CAPITAL EXPENDITURE1,60,567
DEFENCE1,64,415
SUBSIDIES1,43,570
GRANTS TO STATES & UTs66,311
PENSIONS54,521
INTEREST PAYMENTS2,67,986
LOANS TO PSUs496
OTHER GENERAL SERVICES19,105
LESS OTHERS368
CENTRAL PLAN3,35,521
POSTAL DEFICIT5,018
EXPENSES of UTs with out Legislature3,592
NON PLAN CAPITAL OUTLAY13,212
ECONOMIC SERVICES25,391
GRANTS TO FOREIGN GOVT.2,301
CENTRAL PLAN AID TO STATES1,06,026
SOCIAL SERVICES20,862
POLICE SERVICE29,685

SOME MORE POINTS FROM BUDGET

à    PSU Banks to get Rs. 20157 cr in FY12.
à    Priority Home Loans up from Rs. 20 lakhs to Rs. 25 lakhs.
à    1 % Interest subvention on Home Loans of Rs. 15 lakhs.
à    FY12 disinvestment target Rs. 40,000 crs.
à    Equity Fund of Rs. 100 cr for Micro finance companies.
à    Farm GDP was 5.4 % in FY11 in GDP growth of 8.6 %.
à    To give 3 % Interest subsidy to farmers on early payment of loans.
à    To allow Foreign Direct Investments in Mutual Funds.
à    Cold Storage Chains will be given Infrastructure status.
à    Exemption of Rs. 20,000 on investment in Infra bonds continued for 1 more year.
à    Tax free bonds of Rs. 30,000 cr for Infrastructure sectors to be declared.
à    Rural infra bonds of Rs. 18,000 cr to be declared.
à    Social Schemes allocate Rs. 58,000 crs.
à    Education sector allocated Rs. 52,057 cr up by 24 % in FY12.
à    Corporate surcharge reduced from 7.5 % to 5 %.
à    Dividend from foreign subsidiary to Indian companies down from 30 % to 15 %.
à    Minimum Alternate Tax raised from 18 % to 18.5 % of Book profit.
à    Developer of SEZ & SEZ operators, LLPs brought under MAT.
à    Ship owners allowed duty free import on spare parts.
à    Custom duty on imports of Micro irrigation systems down from 7.4 % to 5 %.
à    10 % Excise duty on Branded garments
à    20 % Ad volerm export duty on Iron ore.
à    NO Excise duty on Ultra Mega Power Projects equipments.
à    Air Conditioner restaurants serving liquor, hotels charging Rs.1000/day will attract Service Tax.
à    Service Tax on Domestic Air tickets Rs. 50, & on international tickets Rs.250

Wednesday, February 23, 2011

Jain Irrigation Systems Ltd : Best AGRI Sector BUY.BUDGET STOCK

Scrip Code: 500219 / JISLJALEQS
CMP:  Rs. 207.75; Buy at Rs. 200 - 206 levels.
Short term Target: Rs. 230.00
Best buy : At Rs. 180 - Rs. 195 , LT - Rs. 350. Market Cap: Rs. 7,921.3 cr.
52 Week High/Low: Rs. 258.5 / Rs. 157
Total Shares: 38,11,86,460 shares; Promoters : 11,72,43,245 shs – 30.76 %; Total Public holding : 26,15,17,545 shs – 68.61 %;
Book Value: Rs. 35.18; Face Value: Rs. 2.00; EPS: Rs. 7.95; Div: 45 %.
P/E: 26.14 times; Ind P/E: 29.62; EV/EBITDA: 14.79
Total Debt: Rs. 8,942.25 cr; Enterprise Value: Rs. 48,656.54 cr

Jain Irrigation Ltd has multi product industrial profile & manufacturers Drip and Sprinkler Irrigation Systems and Components; PVC, Polyethylene (HDPE, MDPE) & Polypropylene Piping Systems; Plastic Sheets (PVC & PC sheets); Dehydrated Onions and Vegetables; Processed Fruits; Tissue Culture, Hybrid & Grafted Plants; Greenhouses, Poly and Shade Houses; Bio-fertilizers; Solar Water Heating Systems and Solar Photovoltaic Appliances (Solar lighting systems) and Bio- energy sources. Company renders consultancy for complete or partial project planning and implementation e.g. Watershed or Wasteland and / or Crop Selection and Rotation.

About Company - It is the market leader in micro irrigation systems (MIS) in India with over 50 % market share. Having been present in this segment for more than 15 years, there is very strong association of the company with MIS in rural India. Its dealer and sales network is also significantly larger than any of its competitors. As a result, Jain Irrigation is expected to retain its market leadership in the future. MIS alone contributes to more than 50% of its revenues and 70% of EBITDA. Due to its large subsidy business, management of working capital cycle has been a key concern for Jain Irrigation and is a risk to its growth. However, the company has now started factoring its receivables, which should help keep working capital cycle in check. JISL is the biggest player and controls over 1/3rd of the market in drip irrigation, second is Netafim from Israel, Finolex Plasson, Premier Irrigation Adritec.

Future scope of business -  So far only about 4.5 mn hectares (ha) has been brought under MIS compared to government target of 18 mn ha by FY12 and addressable area of 70 mn ha. The government subsidies a minimum of 50% of cost of installation and budget allocation to MIS has been in increasing trends. In FY11, central budget allocation was more than doubled to Rs.1000 cr and recently it was accorded “National Mission” status, which assures funding under the government’s 5-year plan. Government funding for MIS is only likely to go up - MIS is a relatively low hanging fruit for the government in its effort to improve farmland productivity. The MIS market in India is at Rs. 2700 - Rs. 3000 cr, 3/4th of which is for drip irrigation which helps to save water & fertilizer. Agriculture consumes 80 % of water in the country & it makes sense to use drip & sprinkler irrigation systems. In February 9th M&M entered into micro irrigation sector by acquiring 38 % stake in 30 year old Nashik based company EPC for around Rs. 43 crore, M&M will give an open offer of additional 20 % stake in EPC on April 6th. 

Valuations and outlook
JISL has plans to raise Rs. 700 cr through QIP to repay its debt, to provide capital to its new NBFC and to support its future growth. Company believes that fund raising would happen in the next 3-4 months, depending upon the financial market conditions. I have not considered any equity dilution in my estimates. Company declared 1 bonus DVR SHARES (JISLDVREQ DVR shares ) on every 20  Equity Shares held. DVR with 10 % voting rights (click here for DVRs). I therefore recommend Buy and accumulate Jain Irrigation at every dip. My views are positive on the business of JISL and their future prospects on the back of untapped potential of MIS, agricultural business model and strong domestic presence. At present with the drip irrigation market is growing 40 % annually, stock is trading at 22.3x at FY12E EPS as against its historical one - year forward trading band of 10 x 32x. I recommend BUY on the stock with the target of Rs. 350.00

KEY FINANCIALS20102011E2012E2013E
SALES (Rs. Cr's)3,439.74,425.65,164.26,028.1
NET PROFIT (Rs. crs)245.7277.4366.8489.3
EPS (Rs.)6.57.39.612.8
PE (x)33.229.522.316.7
PRICE/BOOK (x)6.65.54.53.6
EV/EBITDA (x)16.813.611.59.5


I recommend BUY on the stock with the target of Rs. 350.00 for the long term.
For short term if one wants to play Budget -  Buy at Current Market Price with the target of Rs. 230, But please do keep a STRICT STOP LOSS OF 8 %. 
For LONG term investors BEST buy is at Rs. 180 - 195.

Sunday, February 13, 2011

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 MARCHFY09FY10FY11EFY12EFY13E
SALES (Rs. crs)40,511.143,969.853,082.864,773.279471.6
NET PROFIT (Rs. crs)2,907.83,324.44,174.45081.96,399
EPS (Rs.)47.954.868.883.7105.4
PE (x)34.830.424.219.915.8
PRICE/BOOK6.74.64.03.42.9


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