Reliance Industries : A great wealth being created.

Scrip Code: 500325 / RELIANCE

CMP:  Rs. 992.05; Buy at Rs. 930 - Rs.950 for LT.
Short term Target: Rs. 1030.00, LT – Rs. 1350
Market Cap: Rs. 3,24,659.03 cr.
52 Week High/Low: Rs. 1149.70 / Rs. 885.10

Total Shares: 327,26,07,533 shares; Promoters : 146,39,23,343 shares – 44.73 %; Total Public holding : 58,60,93,502 shares – 17.91 %; Book Value: Rs. 392.21; Face Value: Rs. 10.00; EPS: Rs. 59.95; Div: 70 % ; P/E: 16.54 times; Ind P/E: 17.80; EV/EBITDA: 11.72 .

Total Debt: Rs. 62536.25 cr; Enterprise Value: Rs. 3,87,195.28 cr

Reliance Industries out put is of 1.8 bn cubic feet of gas a day which is equal to 1,25,000 barrels of oil production per day a nearly 40 % of India’s total gas production, all comes from D6. RIL owns 2,7o,000 Sq Kilometers of exploration circles or 28 blocks.

British Petroleum (BP) global oil major has announced an historic deal with India’s largest private sector oil major Reliance Industries to buy RIL’s 30% stake in 23 oil and gas blocks on 21^st February 2011. As per the partnership deal, BP will buy 30% stake in 23 oil & gas production sharing contracts that RIL operates in India, including the producing KG-D6 blocks at $7.2 billion (Rs.44.99/$) Rs. 32400 cr, and will also form 50:50 JV for sourcing and marketing gas in India. This JV is also an attempt to accelerate the creation of infrastructure for receiving, transporting and marketing natural gas in India. RIL will get $7.2bn in 3 trenches - $2 bn as upfront payment, further $2.3 bn on completion of deal & the final payment of $3 bn in October 2011. BP could invest US $20bn in RIL which would go to Reliance Gas Transportation Infrastructure Ltd. This deal is positive for RIL as the combined expertise of both the parties would result into optimisation of producing blocks and enhancing the resources in exploratory blocks. The transaction amount gives a value of Rs. 363/share to the east coast blocks, as BP is expected to incrementally incur its share of capital expenditure into the commercialisation and development of blocks, which have already been factored in for valuation.

Outlook and Valuation

The deal is an earnings & value accretive in the long term, considering the technical expertise BP brings on table. Once the deal goes through, dip in valuation on account of shedding 30% share in east coast blocks will be offset by cash consideration and re-rating of blocks on account of synergy arising out technical expertise of both the proficient parties. This deal will put RIL in a position to be “DEBT FREE”. My view on the stock is of BUY with a price target of Rs. 1,160 when the share price is at Rs. 957.00

Y/E March (Rs. Cr)	2009	2010	2011E	2012E
SALES (Rs. crs)	1,51,224	2,03,740	2,43,815	2,83,665
NET PROFIT (Rs. crs)	14,969	15,897	19,835	22,305
EPS (Rs.)	50.3	53.4	66.6	74.9
PE (x)	19.0	17.9	14.4	12.8
PRICE/BOOK (x)	2.3	2.0	1.8	1.6
EV/EBITDA (x)	15.6	11.8	9.3	8.1

Evaluation of RIL’s east coast blocks

Prospective Basins	Estimated 2P Reserves (mmboe)
KG - Basin	2,413
MA - Oil	150
NEC - 25	793
D3	884
D9	512
Total	4,751
Value given by British Petro.
Deal Value (Rs. Cr @ Rs. 45/$)	1,08,000
EV/Share (Rs.)	363

Union Budget 2011-12 -

In this budget finance minister proposed the Minimum Alternate Tax (MAT) on Special Economic Zones (SEZ) & Limited Liability Partnership (LLP) from 1^st April 2012. LLPs will have to pay MAT at 18.5 % but will be exempted from Dividend Distribution Tax of 17 % on the dividend declared. In LLPs MAT will be known as Alternate Minimum Tax (AMT). AMT will be applicable to LLPs @ 18.5 % AMT will apply to the adjusted income & not on adjusted book profit. AMT credit is available to an LLP for 10 years. The LLPs was used by some promoters of cooperates to save tax on dividends declared by their companies. RIL promoters created 29 LLPs in August 2010 which will own 32.75 % of Reliance Industries. These 29 LLPs collectively earned Rs.750.77 cr as dividend last year saving both MAT & DDT.  But when the new AMT norm becomes affective these LLPs will have to pay tax of Rs.139 cr if the RIL maintains the same dividend rates.

CLICK HERE FOR RIL SHARE HOLDING PATTERN

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 RECEIPTS	6,64,457
CORPORATE TAX	3,59,990
INCOME TAX	1,72,026
CUSTOMS DUTY	1,51,700
EXCISE DUTY	1,64,116
SERVICE TAX	82,000
TAX OF UNION TERRITORY	1,973

NON TAX RECEIPTS	AMOUNT
INTEREST RECEIPTS	19,578
DIVIDENDS & PROFITS	42,624
EXTERNAL GRANTS	2,173
OTHER NON TAX RECEIPTS	59,891
RECEIPTS OF UNION TERRITORY	1,169
TOTAL	1,25,435

NON DEBT CAPITAL RECEIPTS	55,020
RECOVERY OF LOANS & ADVANCES	15,020
MISC. CAPITAL RECEIPTS	40,000

* 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 EXPENDITURE	4,41,547
NON PLAN EXPENDITURE	8,16,182
OR
REVENUE EXPENDITURE	10,97,162
CAPITAL EXPENDITURE	1,60,567
DEFENCE	1,64,415
SUBSIDIES	1,43,570
GRANTS TO STATES & UTs	66,311
PENSIONS	54,521
INTEREST PAYMENTS	2,67,986
LOANS TO PSUs	496
OTHER GENERAL SERVICES	19,105
LESS OTHERS	368
CENTRAL PLAN	3,35,521
POSTAL DEFICIT	5,018
EXPENSES of UTs with out Legislature	3,592
NON PLAN CAPITAL OUTLAY	13,212
ECONOMIC SERVICES	25,391
GRANTS TO FOREIGN GOVT.	2,301
CENTRAL PLAN AID TO STATES	1,06,026
SOCIAL SERVICES	20,862
POLICE SERVICE	29,685

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

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 FINANCIALS	2010	2011E	2012E	2013E
SALES (Rs. Cr's)	3,439.7	4,425.6	5,164.2	6,028.1
NET PROFIT (Rs. crs)	245.7	277.4	366.8	489.3
EPS (Rs.)	6.5	7.3	9.6	12.8
PE (x)	33.2	29.5	22.3	16.7
PRICE/BOOK (x)	6.6	5.5	4.5	3.6
EV/EBITDA (x)	16.8	13.6	11.5	9.5

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.

LARSEN & TOUBRO :GREAT BUSINESS

Scrip Code: 500510 / LT

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

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

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

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

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

  

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

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

Valuation -  

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

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

PUNJ LLOYD LTD : ONE MORE VALUE PICK

Scrip Code: 532693 / PUNJLLOYD

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

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

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

FAIR VALUE : Rs. 155.00

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

Whats the News?

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

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

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

Valuations and outlook - 

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

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

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

RESULTS ON 7th FEB 2011 - Expectation - good results