Here's wishing you all a very Happy and colourful Holi

One of the major festivals of India, Holi is celebrated with enthusiasm and gaiety on the full moon day in the month of Phalgun which is the month of March as per the Gregorian calendar. Holi festival may be celebrated with various names and people of different states might be following different traditions. But, what makes Holi so unique and special is the spirit of it which remains the same throughout the country and even across the globe, wherever it is celebrated.

The main day, Holi, also known as Dhulheti, Dhulandi or Dhulendi, is celebrated by people throwing colored powder and colored water at each other. Bonfires are lit the day before, also known as Holika Dahan (burning of Holika) or Chhoti Holi (little Holi).

The bonfires are lit in memory of the miraculous escape that young Prahlad accomplished when Demoness Holika, sister of Hiranyakashipu, carried him into the fire. Holika was burnt but Prahlad, a staunch devotee of god Vishnu, escaped without any injuries due to his unshakable devotion. Holika Dahan is referred to as Kama Dahanam in Andhra Pradesh.

- Team MPS

MAT (Revised rate at 18%) - Let's understand it in simple terms

The Finance Minister, in the Budget today, announced a bumper for individual tax payers. He has changed the tax slabs for men, women and senior citizens. The highest tax slab has now been raised from Rs 5 lakh to Rs 8 lakh, however the Minimum alternative tax (MAT) has been geared up form 15% to 18%.

It's not the first time that MAT has been increased, the last year it was revised up from 10% to 15%, and now a further revision up to 18%. The one Industry that is worried about such a hike is IT industry. Well, they are being regularly bullied these days, with US President making statements on issue related to outsourcing by the US companies and tax benefits to those who shun outsourcing. An upward revision of MAT might have come as another jolt to them, with their plea for extending the STPI scheme being completely ignored.

However one could notice The Finance Minister implicitly saying that he would not go down the path of MAT being asset base as opposed to profit base, as was earlier proposed in Direct Tax Code. The idea of MAT being asset base was actually absurd and it was quite obvious that it would not go that way.

Now, that so much is being discussed about MAT, it definitely calls for a brief description on the same.

(Source : web)

The concept of Minimum Alternate Tax (MAT) was introduced in the direct tax system to make sure that companies having large profits and declaring substantial dividends to shareholders but who were not contributing to the Govt by way of corporate tax, by taking advantage of the various incentives and exemptions provided in the Income-tax Act, pay a fixed percentage of "book profit" (book profit means net profit as shown in the profit and loss account prepared in accordance with the provisions of Part II and III of Schedule VI to the Companies Act, 1956, as increased or reduced by certain adjustments, as specified in that section) as minimum alternate tax. Software companies were brought under the ambit of MAT which were operating as Software Technology Park (STP) Units or Export-Oriented Units (EOUs).

Normally, a company is liable to pay tax on the income computed in accordance with the provisions of the income tax Act, but The Indian Income Tax Act contains large number of exemptions from total income. Besides exemptions, there are several deductions permitted from gross total income. Further, depreciation allowable under the Income Tax Act is not the same as required under the Companies Act. The result of such exemptions, deductions, and other incentives under the Income tax Act in the form of liberal rates of depreciation is the emergence of Zero tax companies which inspite of having high book profit are able to reduce their taxable income to nil.

So, conceptually where the tax payable by a company under the normal provisions is less than 18 per cent of its ‘book profits’, the tax payable shall be deemed to be 18 per cent of such ‘book profits’ as MAT. ‘Book profit’ has to be computed as per the formula prescribed under Section 115JB of the I-T Act, which calls for certain adjustments by way of additions and deletions to the net profit of the company as computed under the Companies Act.

- Ekansh Mittal, Lead Associate - HBJ Capital Services Pvt. Ltd
Email: Ekansh@hbjcapital.com

Financial Consultancy, Investment Banking and our "Business Insight" for Feb'10

During 2008-09 Financial Institutions and Investment Banking firms stock prices were battered across the world, because the leading US Investment Banking firms were at the helm of the financial turmoil.

The Indian Institutions too found themselves facing the wrath of the investors. The primary and secondary market both saw a dearth of Private placements, PE deals, fund raising and IPOs. However, the situation is a lot changed now. Consider for fact the figures stated below and the jump in fund raising activities by the Indian Corporates.

PE deals in India

• The total value of private equity transactions and qualified institutional placement (QIP) deals amounted to $1.24 billion in January 2010, against $309 million in the year ago period, registering an over four-fold jump.
• In January this year 29 PE and QIP transactions were posted, against 16 deals registered in same period in 2009.

Insurance

• India is the fifth largest life insurance market in the emerging insurance economies globally and the segment is growing at a healthy 32-34 per cent annually.
• According to a report by research firm RNCOS—'Booming Insurance Market in India (2008-2011)'—the total life insurance premium in India is projected to grow to US$ 259.72 billion by 2010-11.

Qualified Institutional Placements (QIPs)

• In 2009, Indian companies had raised close to US$ 7.18 billion by way of 45 QIP issuances.

Initial Public Offers (IPOs)

• In 2009, there were 21 IPOs that raised US$ 4.25 billion as compared to 36 IPOs in 2008 that raised US$ 3.68 billion

ADR/GDR's

• Funds raised by the Indian corporate sector via ADRs/ GDRs has jumped over 33 times from around US$ 101.72 million in 2008 to about US$ 3.50 billion in 2009

Mutual Funds

• The average assets under management of the mutual fund industry stood at US$ 173.16 billion for the month of December 2009, an increase of nearly 88 per cent from US$ 91.79 billion in December 2008, according to the data released by Association of Mutual Funds in India (AMFI).

The above figures clearly suggest the scope India provides for Financial Advisory, Investment Banking, Wealth Management and Brokerage Services and the situation is only going to improve further with India registering 7.5-8% GDP growth, Corporates going for further fund raising to fuel the growth.

The Business Insight for this month is quite obviously in Investment Banking and Financial Advisory services and registered more than 150% growth YOY from 2004-08. FY 2008-09 was an aberration and the company is back to registering phenomenal performance during FY 2009-10 with 36% CAGR QOQ.

The investors are most definitely oblivion to the performance of the company. I would not put forward the estimates regarding the appreciation one can expect, however I would like to mention here that a scale back to previous highs alone can make it a 17-18 bagger, and it is quite possible considering the way the company has been performing off-late.

Stock Market is a place well known for being extremely exuberant at times and extremely pessimistic at other times. Thus these over-reactions give both an opportunity to exit at unsustainable valuations while also provide exceptional buying opportunities, and a smart investor does just that.

- Ekansh Mittal, Lead Associate - HBJ Capital Services Pvt. Ltd
Email: Ekansh@hbjcapital.com

Ajanta Pharma - steady and stable, risk averse can have a look at it

The stock that I am going to discuss is one of the plain vanilla pharmaceutical company. In the pharma space we have many companies with almost the similar line of products. They are mostly into manufacturing Bulk drugs, APIs etc. Ajanta Pharma is also into the business of manufacturing and marketing innovative, unique pharmaceutical formulations with a focus on providing convenience and compliance to ailing patients. However, unlike many other companies they market their products, under their own brand name, in India and across other countries. Exports constitute a major portion i.e. 55% of their sales with 45% coming from domestic market.

Now, analyzing pharmaceutical companies is in itself a tough task because it sometimes becomes difficult to measure the impact of any new drug discovery. Also in India companies have not been able to make any path breaking drug discovery. But still, many are performing well with consistent growth. Ajanta is amongst those which has grown at a healthy pace over the last 7 years and has few plans and expansion processes in place to maintain the same level of growth.

Ajanta could clock in growth of 20% in profit after tax on the back of 11% growth in total income for the year 2008-09. This was rather reasonable considering the fact that year 2008-09 was one of the toughest for all the industries across the board. There was a conscious effort on the part of the management to control costs and increase margins. The net profit after tax could have been a lot better than Rs 21.3 crore, if we do not account for the Rs 6.2 crore increase in depreciation charge over the previous years. However one cannot just simply ignore such a figure, and this is also indicative of the fact that the company has recently concluded certain expansions. The details of which are as below.

The company's manufacturing facility at Paithan, Aurangabad got approval from USFDA. The capacity expansion at this plant has been completed successfully with tablet capacity getting enhanced to 1500 million from 900 million earlier. There's another small bulk drug facility that's been set up at Waluj, Aurangabad.

There's been another positive development as informed by the management in their Annual report 2008-09. Company's subsidiary in Mauritius has wiped out all accumulated losses and has attained positive net worth. Its recorded sales growth of 66% and profit growth of 51% for the FY2008-09. Also, Mauritius subsidiary entered Philippines by setting up its subsidiary to bring special focus on this large and growing market. Consequently, Philippine company has become a subsidiary of the company.

A look on their expenditure on R&D suggests that the company spent a total of Rs 22.39 crore on the same out of which Rs 6.86 crore was recurring while Rs 15.52 crore was on capital and ANDA development cost. The total represents 7% of the total turnover of the company for FY2008-09. Considering the fact that the company is into pharma space, the expenditure is on a reasonable side. No matter of expenditure on R&D is sufficient if it does not result into much innovation and monetary success. So, it is rather difficult to parametrize as to what amount the company should be spending.

As I mentioned earlier that the company has maintained a rather good pace of growth over the years, which if averaged over the last 7 years amounts to Compounded Annual Growth Rate (CAGR) of 40% in net profit and 24% in total income. In terms of figures the company has improved its revenues from Rs 178 crore to Rs 319 crore in the last 4 years, while the bottom line has improved from Rs 7 crore to Rs 21 crore over the same period. Now, at a P/E ratio of 6-6.5 and with the company already lined up with its blue print of further expansion, one can expect a appreciation with little downside risk.

Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific views by MPS team; one MUST do the due diligence before doing any investment based on our reco.

To contact the Lead associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com

Surat Textile Mills ltd. - Not a sick unit anymore and doing well. So, what should you do now ?

Our very own Board for Industrial and Financial Reconstruction (BIFR) has proved to be a boon for many sick industrial units. While analyzing various companies, I come across many which were earlier sick units with huge accumulated losses and negative net-worth, but have now turned into well run units with positive net-worth. It is always a great sight because it helps many small investors recover losses and even experience capital appreciation once the company starts functioning well.

In the metals, textiles sector, it is a common sight as both these sectors are cyclical and thus during rough times many smaller and sometimes even larger companies start becoming sick. However with the help of BIFR, many do come out of the clumsy situation. One such company that I am going to discuss today is from textiles sector and that is Surat Textiles Mills ltd.

Surat Textiles Mills was incorporated in 1945 and was known as Garden Cottons & Yarns. The company is engaged in the manufacture and sale of polyester filament yarn, polyester chips and spun yarns. It has three manufacturing facilities in Surat and one at Silvassa, about 140 km from Surat. The company got registered with BIFR in 2003 and the Industrial Development Bank of India (IDBI) was appointed as the operating agency (OA). The agency suggested a five-point Rs.4.45 billion rehabilitation scheme for the company.

Like most of the other rehabilitation schemes, it involved one-time settlement of the secured debts of the company amounting to Rs.77.41 crore by a payment of Rs.40.83 crore with secured creditors in turn waiving off the balance of principal, interest, and penal interest. The cost of the scheme was met with the promoters of the company contributing an aggregate amount of Rs.44.50 crores comprising of a soft loan of Rs.29 crores to the company and by subscribing fresh equity shares at par on a preferential basis for an amount aggregating to Rs.15.50 crores.

The effect of rehabilitation is clearly visible with the company registering good numbers for the FY 2008-09. As per the management, they could record higher chips sale as the company discontinued its conversion and processing activity on third party job work basis, and utilized its capacities for own production. The company achieved gross sales of Rs 175.22 crores in FY 2008-09 as compared to Rs.95.47 crores in the previous year, registering a growth of over 83%. The bottom-line stood at Rs 6.2 crore.

On the back of fresh infusion of equity and sufficient working capital, the company has continued its good performance into the first two quarters of FY 2009-10 as well, with the company having already recorded a bottom-line of Rs 3.5 crore. Having said all this and considering an annualized EPS of Rs 0.32 per share and with no further capacity expansion visible across the line, I find the current price of Rs 5 as a good selling point. This is because I do not see any trigger for the stock price to move much further and the valuations also look on the higher side for the company into textile manufacturing.

Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific views by MPS team; one MUST do the due diligence before doing any investment based on our reco.

To contact the Lead associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com

See for yourself the risk involved in investing in companies with sub 5-10% Promoter's holding

I have discussed this topic in the past, but since we get so many queries related to companies with sub 10% (sometimes even 5%) Promoter holding, it would be a Case in point to provide readers with some startling facts.

A few days back I came across an article on Economic times, which both shocked me and made me feel pity about naive and gullible individual investors. The article was on the number of companies that have been suspended by both BSE and NSE on grounds of listing norm violations. While researching companies for "Business Insight", "Value Pick" and "Instant Profit" recommendations, I come across a whole lot of stocks with some of them facing suspension. However I did not imagine that the number will be so large with more than 1000 companies facing suspension.

After reading the article, the one point that was further bolstered in my mind was that while choosing a company for investment, one cannot afford to ignore the shareholding pattern. We have been mentioning this time and again that please chose companies that have one characteristic as "Reasonably high promoter holding".

This is because as evident from the figures mentioned in the article almost 95% of the total market capitalization of the 876 suspended companies for which data is available, is public and belongs to individual investors. Promoters' holding in these firms is as low as 5%. Promoters of most of these companies sold their shares in the open market before de-listing and consequently their holdings came down below 5%, and in some cases, their stake went down to sub 1% levels. The value of promoters' holding was merely Rs 3,290 crore against the total m-cap of Rs 61,699 crore for those companies.

Now, that is why I mentioned gullible investors, because they are the ones who are suffering the most. The suspension has blocked money to the tune of Rs 58,000 crore of individual retail investors.

Coming back to my point on Shareholding pattern, It is very important that promoters hold a reasonable share in the equity of the company. Another good indicator is an increase in promoter holding, because they are at the helm of affairs of the company, and if they intend to increase their share, then there's a definite chance of them envisaging better days for the company and a consequent improvement in valuations.

High promoter holding is significant on account of the fact, that the involvement of their own money makes them active towards the operations of the company and thus they also comply with all the listing norms in order to avoid the suspension. In effect minority investors are better off with companies having high promoter holding. We make it a point that the companies selected for "Business Insight" and "Value Pick" should have reasonable level of promoter holding, and it is always complementary if we find them increasing their stake.

I feel it is important that investors should be updated regularly w.r.t companies that are falling short of compliance's, or are on the verge of facing suspension. This is because many of them are caught unawares when they find that the company that they have invested in has been suspended. Also there should be some provision of exit route even after the suspension, either by making Promoters accountable or some other requisite action. These steps will go a long way in protecting Investors rights.

To contact the Lead Associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com

Sicagen India - A de-merged division of well known Sical Logistics Ltd

Sicagen's core business is trading of building materials such as steel tubes, MS/GI pipes, boiler tubes, seamless tubes, rectangular/square hollow sections, TMT steel rebars, PVC pipes, electrical cables, steel fittings and cement. Sicagen is the authorized distributor for Tata Steel, Jindal Pipes, SAIL, Finolex Cables, Supreme Industries, Maharashtra Seamless and ACC Cements.

Sicagen is also the leading dealer of commercial vehicles for Tata Motors in Tamil Nadu state. It operates showrooms and and workshops at Chennai and Trichy covering 11 districts in Tamil Nadu.

The above two mentioned businesses are the core businesses and contribute more than 90% to the company's revenue and that's why the company disposed off other businesses such as:

(a) Goodwill Governor Services
(b) Goodwill Engineering Works
(c) Speciality Chemicals

It also sold of 10 wind mills in Oct'08 as the operating and maintenance cost was high, on account of wind mills being decade old.

This was some boring stuff related to the company, as is mostly the case with companies involved into dealership and trading business. Let's come to the more interesting facts about the company :

1. I feel that the company can be a true value play with its current MCAP at 66 cr. The company has about 13 Cr in cash and about 318 Cr as Net current assets. Most of the net current assets are in the form of Advances.

2. I usually don't take into account the value of fixed assets while valuing the company as when the business is liquidated, the amount received for plant and machinery and other fixed assets (except land) is far below the book value. However, the company has valued freehold land at Rs 5.8 crore in its books. Now, if the land was acquired way back , then it can alone be much more worth.

3. For those who are still interested in knowing the book value of fixed assets, the figure for the same is 26 Cr, inclusive of the value of the land mentioned above. So already a 5-6 bagger in making comparing just the book value and the current MCAP.

But, the real issue with such kind of value investment, where the possibility of growth is limited, is, that the market may take many-many years before actually realizing the liquidation value of the business, or it may also happen that it may never value it on the same lines, thus making the investment boring and not a multibagger as is envisaged before making an investment.

Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific views by MPS team; one MUST do the due diligence before doing any investment based on our reco.

To contact the Lead Associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com

CALS REFINERY -: Not meant for the Conservative investor…

CALS REFINERIES, which is topping Volumes in Bombay Stock Exchange, is one of the most talked in penny stock segment. I have seen in many forums and even brokers are recommending their client as a Multibagger stock just based on the humongous plans made by the company. It’s from unlisted Spice Energy group, which has its presence in Exploration, Mining and Refining sectors. Promoters acquired listed NBFC and planned to set up crude refinery. Equity floated to 794 Cr through GDR issue. Before giving any opinion on this stock lets first dig up into details of plans made by the company.

Cals Refineries plans to Implement a 20000 Cr, 4.8MMTPA refinery project at Haldia (East coast, West Bengal) by June 2011 in Phase I for which it will be shipping existing plants from Germany/Canada/US to India and adding more secondary processing units. Cals will be implementing another 4.8 MMTPA (100,000 BPD) by July 2012 taking the total capacity to 9.6 MMTPA (200,000 BPD) by July 2012.Lower capital cost/bbl and faster implementation than Greenfield project is management’s reasoning for a second-hand refinery. Company has also planned for phase III as of now I wont go deep into it. The refinery project would involve moving basic crude distillation units (CDU) from a Petro Canada plant and a refinery in Kansas, USA, moving secondary processing units from Bayernoil Ingolstadt refinery (Germany) and adding new Propylene and Benzene units .The refinery being brought from Germany is under operations from late 60's and units from PetroCanada and Kansas (US) are under operations from 70’s, these refinery will be dismantle and than transported through ship and assembled at Haldia. The refinery will be relocated by Ventech Corp USA, which has done similar relocation projects, Looking at the Management of Cals having vast experience & expertise, Chairman of Cals Refineries, Mr. M.S. Ramachandran, was Chairman of Indian Oil Corporation (I.O.C.) having over 38 years of experience in the Oil and Gas industry. Ramesh Bhosale is Chief Financial Officer, Independent Non-Executive Director of Cals Refineries Ltd. He has over 25 years of experience in the field of Costing, Finance, Accounts, MIS, Merger & Acquisition and Project Finance. Cals has some more achivement on its name like Crude oil supply contract with BP (World’s Second petroleum Company) & Sign MOU for 1000 acres land, already allotted 400 acres.

Now let look at the other side of it, there are some important facts that should be stressed on before making any position in this stock.

1. Due to economic meltdown, company has not able to achieve financial closure (FC) till now. Hence for the project to be completed on time look doubtful to me.
2. Shareholding pattern of Cals: - Interestingly, data available with BSE shows that Spice is the only promoter of CALS, controlling 0.11 per cent stake through a group outfit called SRM Exploration. But from the last two years the promoters of Spice Mr Sanjiv Malhotra, Mr Ravi Chilukuri (CEO) and Mr Gagan Rastogi and their families are claming to actually controlled as much as 75 per cent of the paid-up equity capital in Cals through GDR, but interestingly to note the shareholding pattern for the quarter ending Dec 2009 where GDR holding is reduced to only 61.16% from 83.98% in June 2009 quarter, whereas the total public share holding also increase from 15.91% to 38.73%. Number of shareholders also increased from 71,247 to 123,496 from june 2009 till now. However seeing the positive side is that Fund houses has made an entry.
   India Max Investment Fund Ltd: 2.40%
   Merrill Lynch Capital Markets Espana S.A. S.V.(spain): 1.27%.
   GDR holdings are continuously reducing from the june 2009 qtr this creates a doubt.
3. Whereas looking at the work related activities at haldia only land filling is in progress and dismantling of refinery has not yet been started, Company is waiting for the Financial Closure and onces it is done than they will start the further process.
4. The thinning refining margin may pose further problems for the project, which suffers from an estimated cost disadvantage of $2 a barrel on crude oil transportation from the proposed port at Dhamra in Orissa to Haldia in West Bengal.
5. Cals is having a Market cap around 450 crore & fundamentals are nil as on date.
   Whereas the revised circuit of 10% in Cals makes it a trader paradise.

Hence I would like mention that Cals is not meant for long-term investment and is not meant for the conservative investors as of now, only it is trader paradise. One should wait till company announce financial closure before making an investment in it. Seeing all the aspect of the company as of now Cals is a very risky affair, as I believe most of them are trapped in this share at higher price and there will be pressure on the stock on every rise until an unless financial closure is done.

- Hitesh, Equity Research Analyst, HBJ Capital Services Pvt. Ltd [Hitesh@hbjcapital.com]

Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific views by MPS team; one MUST do the due diligence before doing any investment based on our reco.

Railway budget on February 24 - Time to lap up railway stocks

These days one can find everyone talking about the Budget and their expectations from the same. However no one really talks about railway budget, due for release on February 24. Well, obviously the railway budget is not as important but if one is to look at it from the perspective of short term gains, then the area is clearly defined. All one has to do is lap up some stock related to railways, and as has been the trend for the last few years, one can make decent gains in a month's time.

Some of the prominent railway stocks are Titagarh Wagons Ltd., Kalindi Rail Nirman Ltd. etc and as I was observing their weekly high and lows, the traders have already started lapping up such stocks. For Titagarh Wagons Ltd. the weekly H/L stands at 485/400.2, while the monthly H/L stands at 485/350.85. Similarly for Kalindi Rail Nirman the weekly H/L stands at 224.8/198.00 while the mothly H/L stands at 224.8/178.15. The current market price of such stocks are presently close to their highs.

It is not that fundamental changes occur overnight even if there are some positive announcements, but then it's been a trend for the last many years and one can always play the trend.

As per the recent news item in the leading Financial daily Economic times

DAY traders have apparently taken control of the Titagarh Wagons counter ahead of the Railway Budget on February 24. The trigger for the frenzied action in the stock, according to brokers, could be expectations about some measures that would have a positive impact on the companys prospects. Titagarh Wagons, one of the leading railway wagon manufacturers in the country, stands to benefit if the government announces introduction of new trains or any such proposal that would push up demand for the companys products. The stock climbed 17% in just two trading sessions, before ending at Rs 466.6 on Monday. The spurt in the share price took place amid a significant improvement in volumes as, on a daily average basis, 25 lakh shares changed hands on Monday and last Thursday, compared to about one lakh shares in the previous two sessions. The interest in the counter, however, was mostly speculative as reflected in low delivery-based volumes. The delivery ratio the percentage of shares actually delivered in the market stood 10.7% on Monday and 6.3% on Thursday.


Although the stocks are already up, but considering the fact that there are still more than 7 trading sessions left to Railway budget, one can expect a further ramp up in the prices of stocks.


Note: One should do his due diligence and take into account his risk appetite before acting on the same.

To contact the Lead Associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com

Usha Martin Education and Solutions Ltd. - A new entrant into buzzing education space

These are the days of boom in education space and everyone is eying that sector with an intention to foray and make a big impact. It is basically the IT companies which are making an entry especially after the slump in IT sales last year. It is rather easy for an IT company to change its line of business and especially the transition from Software to Education is easy, if one concentrates on the implementation of ICT across schools or develops software pertaining to education space.

Now, coming back to the company Usha Martin Infotech ltd., the subject matter of this post. Actually the new name of the company is Usha Martin Education and Solutions ltd. The management changed the name in order to reflect the new line of business of the company. If we look at from the where the company has emerged then one cannot doubt the credentials of the management. The Company was a part of the Usha Martin Group, which was formed in India in the early 1960s with the establishment of Usha Martin Industries Limited (UMIL), engaged in the manufacture of steel wires, wire ropes and other related products. The group was promoted by Mr. B. K. Jhawar, who is the Chairman of the Company.

Usha Martin's IT division, was demerged into a new company named as Usha Martin Infotech Limited (UMITL). In accordance with the Scheme, UMITL issued and allotted one equity share of Rs. 5/- each to all the shareholders of the company in the ratio of one equity share of Rs. 10/- each held by them in the Company.

The new initiative - Learning Business

During the year, the learning business division of the company completed its first full year of operation. As part of portfolio of educational offerings, the company has started conducting classes/trainings for formal degree courses (MBA, MCA, BBA and BCA), affiliated to Punjab Technical University.

As per the management, till Mar'09 the learning division was operational at three centres (two at Kolkata and one at Ranchi), however they had mentioned that another centre at Patna is scheduled for commencement in June'09 with similar course offerings for which necessary infrastructure arrangements have been done. So, by now the company should be having 4 learning divisions operational.

Per the recent developments, Usha Martin Education & Solutions has forayed into providing standardized end-to-end solutions and school management services to enable the creation of a national network of high quality English medium K-12 schools with a focus on non-metro towns and cities of India. The company has partnered with Pearson Education India for instructional support, including curriculum and content, assessment, teacher training and support, and enterprise and learning management systems.

During the year FY2008-09, the revenue of the company increased by 390% (to Rs. 282.83 lakhs) as compared to last year. If we break up the revenues, then out of 2.8 cr, 2.3 cr came from learning division, while the rest of it was from other divisions. The profitability of Learning Division is good with margins in the range of 10-11%. During the year, the Company incurred capital expenditure of Rs 143 lakhs and the entire amount was provided by internal generation.

For the half year ending Sep'09, the company has recorded revenues of Rs 3.3 cr, more than what it did in FY2008-09. The net profit for the mentioned period stands at Rs 33 lakhs, whereas it was just 16 lakhs for half year ending Sep'08. Thus the company has been showing significant growth in numbers. Its results for different quarters can be highly fluctuating. It might even show a loss in some quarter of the year. This is because of the company's revenue recognition policy. They record revenues in their income statement, only when the classes commence, while the expenditure is recognized as and when it is incurred.

Now, the developments so far have definitely been positive, especially the association with Pearson Education India. However, considering the size of operations, the revenue, the profitability and also the fact that the company is a new entrant into this space, the valuations are on a far higher side, and one should avoid taking long term stand at current market price.

Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific views by MPS team; one MUST do the due diligence before doing any investment based on our reco.

To contact the Lead Associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com

"Have Breakfast… or…Be Breakfast!" - By Y. L. R. MOORTHI

Who sells the largest number of cameras in India?

Your guess is likely to be Sony, Canon or Nikon. The answer is: None of the above. The winner is Nokia, whose main line of business in India is not cameras but cellphones.

The reason is that cameras bundled with cellphones are outselling standalone cameras. Now, what prevents the cellphone from replacing the camera outright? Nothing at all.

Try this. Who runs the biggest music business in India? You think it is HMV Sa-Re-Ga-Ma? The answer is Airtel. By selling caller tunes (that play for 30 seconds) Airtel earns more than music companies do by selling albums.

Airtel is not in the music business. It is the mobile service provider with the largest subscriber base in India. That sort of a competitor is difficult to detect and even more difficult to beat. By the time you have identified him, he has already gone past you. But if you imagine that Nokia and Bharti (Airtel's parent) are breathing easy, you couldn't be further from the truth.

Nokia has reportedly acknowledged that it missed the smart-phone bus. It admits that Apple's iPhone and Google's Android can make life difficult for it in the future. But you never thought Google was a mobile company, did you? If these illustrations mean anything, it is that there is a bigger game unfolding. It is not so much about mobile or music or camera or emails.

The "Mahabharat" (the great Indian epic battle) in this context is: "What is tomorrow's personal digital device?" And, a related question: "Who is my competitor?"

In 2008, who was the toughest competitor to British Airways for international flights in India? Singapore Airlines? Indian Airlines? Maybe, but there is a more interesting answer: The videoconferencing services of Hewlett-Packard and Cisco.

Senior information technology executives in India and abroad were compelled by their headquarters to use videoconferencing to keep travel costs in check. Of course, there could be a rebound in travel. But to think that the airlines will be back to their previous business post-recession is something I would not bet on. In the short term, yes. In the long term, it is a resounding no.

Remember, if there is one place where Newton's law of gravity is applicable besides physics it is in electronic hardware, where prices consistently fall. Between 1977 and 1991, prices of the now-dead VCR crashed to one third of their original levels in India. PC prices also dropped. If this trend repeats itself, then videoconferencing prices will also crash. Imagine the fate of airlines then.

India has two passions. Films and cricket. The two markets were distinctly different. So were the icons. The cricket gods were Sachin and Sehwag. The film gods were the Khans (Aamir Khan, Shah Rukh Khan etc). That was when cricket was fundamentally test cricket or at best 50-over cricket.

Then came the Indian Premier League and the two markets collapsed into one. IPL brought cricket down to 20 overs, reducing the game to the length of a three-hour movie. Cricket became a competitor to film. Desperate multiplex owners requisitioned the rights for screening IPL matches at movie halls to hang on to the audience. If the IPL were to become the mainstay of cricket, films would have to sequence their releases so as to not clash with IPL matches. As far as the audience is concerned, both are a three-hour "tamasha" (entertainment). Cricket season might push films out of the market.

Look at the products that vanished from India in the last 20 years. When did you last see a black and white movie? When did you last use a fountain pen? When did you last type on a typewriter? The answer for all the above is "I don't remember!"

One final illustration. Some 20 years ago, what were Indians using to wake them up in the morning? An alarm clock, that monster of mechanical springs. It had to be physically wound up every day. It made so much noise that it woke you -- and the rest of the colony. What do we use today? Cellphones. An entire category of clocks practically disappeared without warning.

The boss of an IT company once said something interesting about the animal called competition. He said "Have breakfast …or…. be breakfast"! That sums it up rather neatly.


—Dr. Y. L. R. Moorthi is a professor at the Indian Institute of Management Bangalore. He is an M.Tech from Indian Institute of Technology, Madras and a post graduate in management from IIM, Bangalore

Value Pick for Sep'09 - Target surpassed, more than 120% gain in a matter of just 5 months, against a stipulated time of 8-12 months

While the major indices have been correcting across the world, our "Business Insight" and "Value pick" recommendations have held their ground, and have rather performed well.

We are glad to announce today, that our Value pick for the month of September - Venkys India Ltd. (BSE Code - 523261), has surpassed our target (100% gain) with more than 120% gain and that too in a matter of 5 months, while the stipulated time was 8-12 months.

Remember, this is just one of the recommendations under "Penny Stock Package". There are 12 "Business Insight", 12 "Value Picks" and around 24 "Instant Profit" recommendations provided under "Penny Stock Package".

All the readers of this post can find the recommendation on "Venky's India Ltd." on the link provided (LINK)

To access the report on "Business Insight Nov'09 - Sumeet Industries Ltd.", that has been made public, please click Here

Venkys India Ltd. (BSE Code - 523261) was suggested as "Value Pick" for the month of September to all our paid subscribers of "Penny Stock package". Value pick recommendations are suggested from a medium term perspective (8-12 months) with an expected gain of 70-100%. These stocks generally have some triggers in place and are grossly undervalued, thus the downside is almost nil.

Venkys was suggested at a price of Rs 144. Today the stock touched a high of Rs 324 (a gain of more than 125%) and ended the day at Rs 316. Here I would like to mention that the company has been doing exceptionally well. This is because for the nine months ending Dec'09, the company has registered a net profit of Rs 33 cr, while it registered a net profit of Rs 20 cr for the entire Financial year 2008-09.


Although you can find the entire article on the link provided above, here are some excerpts from the same :

Venky's India

Venky's (India) Ltd (VIL) formerly known as Western Hatcheries (WHL) was incorporated in 1976 and is a part of Rs.1300 crore Venkateswara Hatcheries (VH) Group The company, engaged in poultry breeding, producing eggs and hatching layer and broiler chicks and is one of the most integrated poultry player in the country. It is also involved in rearing of pureline breeds, grandparent and parent stock, sale of commercial day old chicks (DOCs), processed chicken, as well as related requirements of the sector such as poultry feed, medicines and health products.

Inflation and other growth drivers

Although the figure for WPI (Wholesale Price index) is negative, but if one considers the CPI (Consumer price Index), then its very clear that the common man is still reeling under the pressure of increasing food prices. Everyone is aware that prices for vegetables and other food items have skyrocketed. Prices of all commodities - be it rice, wheat or vegetables are going up. I think this is going to lead to increased demand for poultry products, of course there are some very evident risk in their business that of the bird flu, which affect the sentiments for sometime, but such news remain largely shortlived.

The vast gap between our present per capita consumption (52 eggs and 3.1 kg of poultry meat) and National Institute of Nutrition (NIN) recommended level (180 eggs and 11 kg of poultry meat) offers a tremendous opportunity for the growth of poultry industry for several years to come.


For more details on the same, plz follow the above provided link.

To contact the Lead Associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com

Wishing you all a very happy Mahashivratri. God bless you all with lots and lots of happiness, your wishes will be accomplished.

Mahashivaratri Festival or the ‘The Night of Shiva’ is celebrated with devotion and religious fervor in honor of Lord Shiva, one of the deities of Hindu Trinity. Shivaratri falls on the moonless 14th night of the new moon in the Hindu month of Phalgun, which corresponds to the month of February - March in English Calendar. Celebrating the festival of Shivaratri devotees observe day and night fast and perform ritual worship of Shiva Lingam to appease Lord Shiva.

Legends of Mahashivratri

There are various interesting legends related to the festival of Maha Shivaratri. According to one of the most popular legends, Shivaratri marks the wedding day of Lord Shiva and Parvati. Some believe that it was on the auspicious night of Shivaratri that Lord Shiva performed the ‘Tandava’, the dance of the primal creation, preservation and destruction. Another popular Shivratri legend stated in Linga Purana states that it was on Shivaratri that Lord Shiva manifested himself in the form of a Linga. Hence the day is considered to be extremely auspicious by Shiva devotees and they celebrate it as Mahashivaratri - the grand night of Shiva.

- Team MPS

Artson and Tata - How are they related ?

Artson Engineering Ltd (AEL) is basically engaged in business of manufacturing tanks and terminals for refineries and petroleum companies. The company is a provider of Engineering, Procurement and Construction (EPC) contracts, involving end-to-end solutions, ranging from design and engineering, project management and construction, to quality assurance and guarantees.

The Company undertakes projects relating to construction of tank farms, petroleum and Oil and Gas depots and terminals, Power Plants, fuel handling systems, as well as mechanical equipment erection, civil structural works for industrial plants and composite contracts involving oil refinery turnaround/shut down. The Company's core competence lies in Oil and Gas Sector and Power Plants and it has successfully executed a number of projects for major domestic oil companies like Reliance and Essar.

Considering the profile of the company and the number of EPC projects being executed these days, one would expect Artson to be a company with a decent performance. However, to everyone's surprise it's a sick company registered with BIFR. Now, one can just not write it off on account of it being a sick entity. The company did turn sick some years ago after it failed to recover dues from Essar, however it has now staged a turnaround and that too with the help of none other than closely held Tata group company, Tata Projects Ltd (TPL).

Tata Projects Ltd. as mentioned earlier is a closely held company with annual revenue in excess of Rs 2000 crore. In terms of sanctioned scheme by BIFR, Tata Projects Limited (TPL), was admitted as the Strategic Investor and Co-promoter of the Company. TPL formally took an over 75 per cent stake in Artson Engineering Ltd for around Rs 33 crore in Jan 2008, and is now the sole promoter of the company.

When Tata Projects took over Artson, the sick company’s turnover was about Rs 15 crore. Today, the company has close to Rs 250-crore orders and has witnessed a quantum leap in its profitability and turnover for 9 months ending Dec'09. The turnover for 9 months ending Dec'09 has touched Rs 87 crore while the bottom line stands at Rs 3.45 crore, while for the corresponding period last year the turnover stood at just Rs 26 crore and a loss of Rs 2.67 crore. During FY 2008-09 the company received many orders aggregating to Rs 248 crores for construction of crude-oil storage tanks, intermediate and product storage tanks and associated facilities, and those are basically into execution phase.

The order book for Artson is expected to remain strong because its holding company has an order book in excess of Rs 5000 crore and since Artson acts as a sub-contractor to Tata projects ltd for many of its contracts. However, the company still cannot bag the contracts from PSUs. This is because Artson is still under BIFR, so bar on granting of contracts by PSUs is still in force.

Everything seems good for the company especially with Tata Projects Ltd taking over the control and also on account of huge investments being made in India in the Oil and gas sector, but my only concern is its valuations. The company is currently available at a market capitalization of Rs 177 crore and even while it has good order book both in terms of its own contracts and on the sub-contractor basis, but the market is looking too far forward while valuing it the current price. Waiting for an appropriate buying opportunity might be a prudent idea.

Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific views by MPS team; one MUST do the due diligence before doing any investment based on our reco.

To contact the Lead Associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com

Gillanders Arbuthnot (BSE Code: 532716) : For those who can take risk.

Company profile...

• Gillanders Arbuthnot & Co (GACL) was incorporated on Feb. 1, 1935 as a private limited company and became a public limited company Feb. 28, 1947. At present, GACL is a part of G.D. Kothari Group of companies.
• The company has business activities in various fields including plantation, manufacture & sale of tea under the group company Tengpani Tea Company, construction under the division MICCO, Textile i.e manufacture of yarn for export & domestic purpose under the group company GIS Cotton Mill, trading in paints and allied products under the marketing division, letting out real estate under the property division, and manufacture of lead oxides and stabilizers for PVC industry under the group company Waldies.
• The head office of the company is situated at Kolkata and it has its sub-branches at Chennai, New Delhi and Mumbai.

Positive triggers....

• The company has earned widespread reputation not only in India, but also in overseas countries like Sweden, Norway, Lithuania, Switzerland, Portugal, Spain, Tunisia, Romania, Cyprus, South Korea, Bangladesh and Chile.
• The company recently got its equity shares listed and admitted to dealings on National Stock Exchange of India Ltd. with effect from December 14, 2009. The listing of the company on National Stock exchange helps in better visibility of the company amongst Institutional investors and is thus always a positive outbreak.
• The company two division Tea & Engineering (turn key projects) are the major contributor to its income & going forward they are expected perform better.
• Dividend paying company, consistently giving dividends since longer period of time
  20-Aug-2009 5.00
  08-Sep-2008 4.00
  23-Mar-2007 2.50
  27-Dec-2006 2.25
• Gillanders Arbuthnot & Co (GACL) has issued first bonus in 1978 of 4,22,804 equity shares in prop. 1:2. & again in 1985 bonus issue of 3,17,103 equity shares issued in prop. 1:4.
• Promoters hold 68.51% of total equity capital.
• Net profit of Company rose 85.49% to Rs 19.81 crore in the quarter ended December 2009 as against Rs 10.68 crore during the previous quarter ended December 2008. Sales rose 43.21% to Rs 185.70 crore in the quarter ended December 2009 as against Rs 129.67 crore during the previous quarter ended December 2008.

Negative triggers...

• The other divisions such as trading, property and Chemicals do not lend a major impact on the income statements of the company.
• Due to amalgamations like GIS Cotton Mill Ltd. (GCML) & Tengpani Tea, Company is able to perform well during last few years

Our views on the stock....

• It is expected that Tea division, Textile and Engineering division will perform well going forward. The company has reported EPS of Rs 27.06 for the nine month cumulative; company has reported EPS of Rs 13.92 as against Rs7.59 for the quarter ended December 2009. The company has been commanding reasonable valuations as it has already recorded EPS of Rs 27 for three quarters, hence the company is available at P.E multiple of 4.5 or 5 x its earning. If someone is risk averse, and looking for higher dividend paying stock its better to go with a Gillanders Arbuthnot.

- Hitesh, Equity Research Analyst, HBJ Capital Services Pvt. Ltd [Hitesh@hbjcapital.com]

Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific viewsa by MPS team; one MUST do the due diligence before doing any investment based on our reco.

Must Read - "Tulsyan NEC Ltd (Code 513629)" : Our Value Pick (80-100% in 8-12 months) stock reco for Jan 2010

As you all may be aware that apart from 12 "Business Insights - 15-20 times in 3-4 years" issue, our "Penny stock package" subscribers also get 12 issues of "Value pick - 80-100% in 8-12 months". Recently we disclosed "Business Insight - Nov" issue and now that "Tulsyan NEC Ltd. - Value pick for the month of January'10" is already up more than 45% in just a matter of 15 trading days, we would like to make public the same.

[Click on the image to download the complete research report]

Tulsyan Nec Ltd (Code 513629)

Tulsyan NEC Ltd. was selected as "Value Pick" for the month of Jan'10 and was sent to paid subscribers on 21st Jan'10, while it was recently discussed on CNBC- TV18 on 5th Feb'10 by one of the analysts. As always we remain ahead of others in discovering multibaggers. As mentioned earlier, that the stock has already appreciated by more than 45% in a very short span of time (while the market has tumbled during the same period), therefore we would like everyone else as well to benefit from the same.


To Know more about "Penny Stock Package", Please Call 09886736791 (Sandeep Jain, IIMA, Senior Associate) or E-mail to Info@hbjcapital.com

- Team MPS

FIBERWEB INDIA (PVD PLAST BSE CODE: 507910)......AVOID

Query: Fiberweb India- this quarter there was a turnaround results & the co. is gradually turning into green, is there a chance of big breakout???

Our response...
FIBERWEB, incorporated in 1985, it was an ailing Partnership firm managed by the Kanakias and it was acquired by Pravin Seth. Fiberweb is engaged in manufacturing and marketing high quality spun bond nonwoven roll goods, Formerly known as PVD Plast Mould Industries, it got its present name on 12 May 2004.

The ISO 9001:2000 certified company (Fiberweb) main business is Polymer Processing and all other activities of the company revolve around this main business like manufacturing mono-layer and multi-layer packaging, lamination, and masking films; plastic films; garbage bags; carrier bags; and polypropylene spun bond nonwoven fabrics. These products are used in the hygiene industry, agriculture crop cover, medical and industrial clothing and other innovative uses. Manufacturing facilities are located in the Union Territory of Daman, of which, two are 100% export oriented units. Reeifenhauser Gmbh of Troisdorf, Germany has supplied plastic extrusion machinery. The manufactured products are exported to more than 15 countries across the globe.

In December 1992 the company has allotted bonus in the ratio of two fully paid equity shares for every five shares held. Immediately after one year the Company has allotted 35,00,000 No. of equity shares of Rs.10 each at a premium of Rs.15 per share aggregating to Rs.8.75 crores as Rights shares & during that period production was affected by the shift of the plant from Vapi to the new site in Daman. In 1994 the Company has privately placed 40 Lakhs No. of Equity Shares of Rs. 10/- at a premium of Rs. 20/- per share aggregating to Rs. 12 Crores to institutions, and other bodies Corporate & in the same year the Company had established 100% E.O.U. for packaging products like Garbage and Carrier Bags. The profitability in the operations was adversely affected during the year because of increase in the cost of raw materials, especially, the polymers which are being used in bulk quantities, severe liquidity crunch in the financial market and paucity of demand for certain products of the Company.

One of the units of the Company manufacturing blow moulded, roto moulded and injection-moulded products was closed down in 1997 due to extreme liquidity problem. Pursuant to an Order dated 18 jan 2007 of the Honble Bench of BIFR, the Company was declared as a sick industry and IDBI was appointed as the operating agency, a rehabilitation Scheme has been prepared and submitted. Under the Scheme One Time Settlement of Dues with financial institutions and bankers were envisaged. The Company has settled and paid the dues of IDBI, Corporation Bank and BOI Mutual Fund. The BHF Bank has agreed to accept the One Time Settlement amount offered by the Company. Efforts are being made by the company to get the approval of other financial institutions and bankers to accept the OTS offer.

In the period of deep economic recession in all the countries especially in the developed countries where the company products are widely exported. Company recorded a turnover of Rs. 40.15 crores in march 2009 compared to Rs.33.55 crores during the previous year, during this period it has reported a loss of Rs. 4.08 crores & company is continuously making loss from 2006, Book value is negative. However Fiberweb India reported net profit of Rs 0.35 crore in this quarter ended December 2009 as against net loss of Rs 3.41 crore during the previous quarter ended December 2008. Company Sales rose 20.86% to Rs 8.17 crore in the quarter ended December 2009 as against Rs 6.76 crore during the previous quarter ended December 2008. As I have already mentioned in my previous post that it takes time to remove the dust completely, similarly the company share price to appreciate or to give big breakout it requires more positive news from the company side, like approval of other financial institutions and bankers to accept the OTS offer, one positive quarter won’t be enough, company should post qoq growth in, keep a watch on the company going forward but at present seeing all the aspect it should be avoided because there are many stocks in this sector which has potential to grow going forward & are available at cheaper valuation.

- Hitesh, Equity Research Analyst, HBJ Capital Services Pvt. Ltd [Hitesh@hbjcapital.com]

Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific viewsa by MPS team; one MUST do the due diligence before doing any investment based on our reco.

Sumeet Industries Ltd. - Our Business Insights (Wealth creating penny stock) stock reco for Nov 2009

When we came out with our "Business Insight - A Wealth Creating Penny Stock (Sumeet Industries Ltd) for Nov'09" recommendation, it was our view at MPS that look for the sector which is being ignored. Some companies are always performing exceptionally well, and this gives an opportunity to get hold of them at extremely low valuations. To make a point out of it, we suggested Sumeet Industries Ltd at Rs 12-13 in Nov'09, and had very aggressively set a target of Rs 110-120 in another 18 months. It's been only two months and the current market price stands at Rs 20.45.

The target of 10-12 times was not set arbitrarily, there was some sound reasoning behind the same. It is not always easy to predict a Rs 800-850 crore turnover, when the current annual sales stand at just Rs 150 crore. However, our assumptions seem to be coming true especially with the management coming out in public and mentioning the same. As I said that the CMP stands at just Rs 20 , while our target is still away at Rs 110-120, and since the report has now been made public, one can download the same and invest to see their capital appreciate by 5-6 times (Go about your investment in a phase wise manner, since the current market correction may see the stock price correct to 17-18 odd levels).

To access the report on Sumeet Industries Ltd., that has been made public, please click Here

-----------

A verbatim transcript of an interview with Shankar Lal Somani (Promoter, Sumeet Industries Ltd) on CNBC-TV18

You have recently got a big order of about Rs 20 crore from Egypt. When is that expected to be executed for polyester chips? When will we see a trickle in terms of your topline?

We were in the expansion project of Rs 150 crore polyester filament yarn. First part we had already completed before six months. Now we are near about completion all our expansion plans and we had already got export order of Rs 20 crore from Egypt, our new product chips.

When will this sum of Rs 20 crore reflect in your books fully?

We had already exported some quantity and will be exported within two months

Currently what is your capacity? What capacity utilization would you be functioning at? Can we expect this topline on a quarterly basis to now clock in an average basis of about Rs 100 crore was that an aberration last quarter?

We are already running at 100% capacity but some expanded capacity will be started by in this month currently. At the end of current month our capacity will be 100%

There has been a huge jump in your revenue figures and your profitability as well this quarter. What do you hope to close the year-end in terms of your revenue?

In turnover base, earlier it was Rs 125 crore. By completing this expansion, our turnover will be Rs 700-800 crore. So the turnover will be five-seven times. Turnover and profit will increase correspondingly.


- Ekansh Mittal, Lead Associate - HBJ Capital Services Pvt. Ltd
Email: Ekansh@hbjcapital.com

Oil Country Tubular Ltd. - Should benefit from increase in oil & gas exploration activities

The commodity cycle has gained traction and started looking upwards. Crude oil price in international market has been hovering around $70-80, a rise of 60% in the last eight-nine months. This is likely to trigger an increase in oil & gas exploration activities around the globe. In addition, there are a large number oil and gas pipelines which are relatively old. For instance, more than half of the pipelines in the US are above 30 years and need to be replaced. As per reports, investment in oil & gas pipelines only in US is estimated to increase by 40% in 2009-10. Indian pipe makers who have a strong presence in overseas market are set to benefit from this, and Oil Country Tubular is one of those.

Oil Country Tubular (OCTL) is a producer of pipes and tubes required in the oil drilling and exploration industry. OCTLs single plant has an installed capacity of 10,000 tonne per annum (TPA) of drill pipes, 50,000 TPA of casing pipes and 15,000 TPA of production tubing. It also provides services such as tool hardening, internal plastic coating for pipes and inspection, maintenance and reconditioning of drill pipes besides manufacturing accessories and spare parts.

During the economic slowdown, many companies had started working on their plans of capacity expansion. They could foresee economic revival and the subsequent increase in demand for their products and thus embarked upon increase in capacity. On the similar lines, Oil Country Tubular plans to treble its casing manufacturing capacity to 150,000 tonne per annum by March 2010. It also has plans to double capacity of drill pipes to 20,000 tonne. As mentioned earlier that oil and gas exploration activities have gained traction and therefore it should not be a problem for OCT to market its products.

The company has done exceptionally well over the last five years with its net profit having grown CAGR of 145% to Rs 65 crore in FY09. Net sales grew at 33% in the same period. The company is almost debt free with all outstanding term loans being repaid during 2008-09. This is also evident from its interest obligation for FY2007-08 and FY 2008-09. During FY 2007-08 company had to pay an interest amount of Rs 37.5 crore while during FY 2008-09 it had to pay just Rs 2.1 crore.

The performance for the 6 months ending Sep'09 had been good on both the grounds of turnover and profit, but there's still non-clarity as to what's the reason behind a steep fall in the sales for Dec'09 quarter. The sales dropped to just Rs 30 crore while it was Rs 120 crore for Dec'08. Telangana issue could be one of the reason, OCT being a Hyderabad based company. However, that adds an element of risk, especially since the management has not come out with the details on the same. Rest apart, the valuations for the company are in line with the peer companies, and good numbers for the Q4 shall re-instate the confidence of the shareholders. I would like to add here that all those holding the stock should continue holding while the ones sitting on the sideline should wait for further update from the management or even the Q4 results.

Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific views by MPS team; one MUST do the due diligence before doing any investment based on our reco.

To contact the Lead Associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com

Intergrated Digital Info Services Ltd [BSE Code: 523770] …..AVOID

Query: Is Intergrated digital info services ltd going to become multibagger in future. Wipro Finance, Karnataka Financial Services & L&T Finance are holding stake in this company?

Our response....
Chennai based Intergrated digital services was incorporated in 1990 as a private limited company in the name of Integrated Computer Services Private Limited, it was working towards development of indigenous E-Mail implementation. Initially the company used to provide e-mail services to corporates with its over 1500 employees. The Company was converted into a public limited in 1992, the name of the Company was changed to ICNET Ltd. The Company met its requirements of funds by making a public issue of 22,10,000 Equity Shares of Rs. 10/- each for cash at part aggregating Rs. 221 lacs in February 1993. But, in 1997 the company had shut down its operation after the telecom department withdrew its connectivity. Trading in the company's scrip was suspended in 1998, after the company went into liquidation because of mounting debts. It went into liquidation in 1998 after one of the creditors, Gujarat Lease Financing Ltd, filed a winding up petition in the Madras High Court.

In 2005 IDS (ICNET) which had gone bankrupt in 1998, later on transformed itself into a healthcare product company using a Rs 50-lakh revival package sourced from three of its unsecured creditors. The total claim of the unsecured creditors was Rs 18.73 crore. Some of the unsecured creditors include Wipro Finance, Karnataka Financial Services, L&T Finance, Garden Finance, Sowbhagya Advertising and Travel Corporation (I) Ltd. Soon after come-back, the company launched electronic medical records (EMR) service, a subscription-based healthcare product in India. This service offered by IDS provides value additions like assistance in emergency anywhere, in-patient procedure, pre-natal and post-natal guidance, infancy management, and general healthcare. One of the activities of the company is Manufacturing and Marketing Hardware Products.

It had commenced marketing MASSMAN GENIE a Mobile Assets Management System in 2006. The company is also operating a Call center that would service the users of MASSMAN GENIE. This would generate recurring revenue in the form of annual subscription. To come out of bankruptcy, IDS has converted some of its unsecured debt to equity, and also promised to repay a portion of secured debt over a seven-year period. The company had converted Rs 14.97 crore of unsecured debt into equity valued at Rs 10 per share and a premium of Rs 20 on the directive of the Madras High Court. The unsecured creditors include Wipro Finance and L&T Finance. One of the secured creditors, Tamil Nadu Industrial Investment Corporation Ltd (TIIC), has waived an outstanding of Rs 27 crore to it from IDS (Icnet). However, this is subject to IDS (Icnet) repaying Rs 3.3crore in the next seven years - starting July, 2005. Post the revival package, the promoter’s stake is reduced from 43.87 to 39.34 per cent and the public’s stake from 49 per cent to 31 per cent, while the rest is held by the unsecured creditors. To make the company debt free promoters has approached TIIC. The proposal with them is under active consideration. TIIC have signified that the amount to be paid by the company under One Time Settlement (OTS) is Rs.2.00 crore. However, the Company has contended that the amount of principal outstanding is only Rs. 1.00 crore.

As the company at present is like dusting the machines and cranking them up with lubricants to make them fit for their journey, and we know that the dusting of rusty components and cranking them up is a slow process. It also means removing impediments such as dust and rust so that the machinery, when ready, will run smoothly and produce results as it is intended. So my advice is to wait for the time when all this rust is removed and proper lubrication is done in simple words let first wait for the company to become debt free or wait for some good announcement by company on healthcare product services.

But at present seeing all aspects of the company, it should be AVOIDED.

- Hitesh, Equity Research Analyst, HBJ Capital Services Pvt. Ltd [Hitesh@hbjcapital.com]

Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific views by MPS team; one MUST do the due diligence before doing any investment based on our reco.