pid_14_mt37_210714

A Time Communications Publication 1

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T I M E S A TIME COMMUNICATIONS PUBLICATION

VOL. XXIII No. 37 Monday, 21 – 27 July 2014 Pages 19 Rs.15

Buying support needed at higher levels By Sanjay R. Bhatia

The markets have moved up on the back of positive economic cues. However rotational, the rally has not been broad based. The mid‐cap and small‐cap stocks witnessed a positive momentum rather than the frontline stocks. The FIIs remained net buyers in both the cash and derivatives segments. Domestic institutional investors, however, continued to press sales and remained net sellers during the week. The breadth of the market remained firm amidst lower volumes.

The global cues were largely negative with fresh political tensions between Russia and Ukraine after the shooting down of a Malaysian passenger plane over eastern Ukraine in which all 298 people onboard got killed and the Chinese economic data painted a cautious picture. On the domestic front, the RBI set tough rules for issuing new banking licences and inflation softened with the monsoon covering the entire country.

Technically, the prevailing positive technical conditions helped the markets witness buying support at lower levels. The RSI and KST are both placed above their respective averages on the daily and weekly charts. The Stochastic is placed above its average on the daily charts, while the MACD is placed above its average on the weekly charts. The Nifty is placed above its 50‐day SMA, 100‐day SMA and 200‐day SMA. Further the Nifty’s 50‐day and 100‐day SMA are placed above the Nifty’s 200‐day SMA, which is known as the ‘Golden Cross’ breakout. These positive technical conditions would lead to further buying support.

However, the prevailing negative technical conditions still hold good and will weigh on the market sentiment leading to selling pressure at higher levels. The MACD is placed below its average on the daily charts, the Stochastic is placed below its average on the weekly charts and is placed in the overbought zone on the daily charts while the RSI is placed the overbought zone on the weekly charts. These negative technical conditions would lead to profit booking and selling pressure at higher levels.

The +DI line is placed below the ADX line but is still above the –DI line on the weekly charts. Further the +DI line is placed above the 32 level on weekly charts, but has come off its recent highs indicating that buyers are booking profits at higher levels.

Now it is important that the Nifty finds follow‐up buying support at regular intervals for the markets to move higher. The Nifty needs to move up and sustain above the 7733 level for any sustainable rally to unfold. It is equally important that the Nifty does not slip below the 7400. If it does, then it is likely to fall further and test the 7229 support level. Stock specific action is likely to continue due to the earnings season. In the meanwhile, the markets would continue to take cues from the earnings


season, Rupee‐Dollar exchange rate, global markets and crude oil prices. Technically on the upside, the BSE Sensex faces resistance at the 26000, 26500, 27000 and 27600 and seeks support

at the 24875, 24163, 22792 and 20480 levels. The support levels for the Nifty are placed at 7490, 7441, 7402, 7229 and 7118 levels while it faces resistance at 7733, 7775 and 7850 levels.

Traders & speculators can buy Aditya Birla Nuvo above Rs.1437 with a stop loss of Rs.1408 and target price of Rs.1500.

Ray of hope By Fakhri H. Sabuwala In just a few weeks of Narendra Modi's arrival on the national scene, a ray of hope is visibly emerging at the macro and micro levels. The years of gloom, call it policy paralysis or whatever you wish, are giving way to a new dawn. Government offices and secretariats of various ministries are gearing up for accomplishments. In other words, the babus are on their toes, which is so very unusual of them, considering their soft pedaling of yesteryears. Not only the babus but the ministers are also busy executing the BJP manifesto while preparing the budget proposals. In short, the dark clouds of gloom stand dispelled in just 8 weeks of Modi's stewardship.

The monsoon, which played truant the whole of June, had made its advent and making up for the last time. The dark rain laden clouds are most welcome for they will ensure agricultural output and water security of the nation. The economic data announced last week clearly signals that good days are here again. Exports are up, inflation is cooling, factory production and services activity is gathering speed. Investors, both domestic and foreign, are celebrating Dalal Street. Monsoon worries, though not fully over, have now taken a backseat and looked upon as a challenge to the new government to devise ways and means to reduce our dependence on the monsoon by devising better irrigation facilities. If it succeeds, this government will be remembered for turning a crisis into opportunity to learn and get ahead. The $11.8 billion trade deficit in June 2014, though at an 11‐month high, is in line with the trend and seems manageable.

The worrisome concern, however, is the declining rate of savings to the total income and the falling investment ratio in securities to the total savings. Finance Minister, Arun Jaitley, hinted about it and also spoke of long‐term investments, which was music to the traditional investors. The large scale exit by small investors from the equity markets in the last 3 months should prompt the government to determine the reasons for this distain. The sharp fall in the number of retail shareholders in some blue chip companies with the number of folios extinguished clearly points to this. SBI (110889), Tata Steel (70901), Reliance Capital (55717), JSW Steel (54325), Power Grid (42889), RCom (37375), Coal India (32768), TechMahindra (31047), YES Bank (30073). It is the prolonged bear phase and long policy paralysis that could be the reason for such a shift. The Bull Run in the Realty segment and precious metals could also account for such a shift.

Today, the reins of the market are in the hands of the FIIs and DIIs and retail investors participate only through the mutual funds route. It is, therefore, time for the government to determine the malady afflicting investors and win them back to the path of wealth creation for in it lie the seeds of our economic growth. With the ray of economic growth, we must enlarge the body of investors and lay a strong foundation for the future. Wishful thinking it may appear but is certainly the need of the hour.

Sensex in band 2620024800 By Hitendra Vasudeo

An engulfing bear candlestick pattern had been formed for the week ended Friday, 11 July 2014. But last week we saw some recovery as a result of the fall in the previous week. The expectation was for a minor correction, which is still not ruled out irrespective of the rise last week. A strong weekly close above BSE Sensex 26200 can continue the overall higher top and higher bottom sequence. A piercing line (bullish) candlestick pattern was formed in response to the bearish candle. Yes, the place is not at perfect location but has created a band of 26180 and 24878. If we observe minutely, the movement for last 6 weeks is within the band of 26180 to 24878. Support for the week ended Friday, 11 July 2014 was at 24878 and last week’s follow‐up rise is a respect to the support point. Further breakout and weekly close above 26180 is essential to extend the rise on a sustained basis henceforth. Last week, the Sensex opened at 25093.16 and attained a low at 24892. Recovery was seen to a high of 25713.40 before it closed the week at 25641.56 and thereby showed a net rise of 617 points.

BAZAR.COM

TRADING ON TECHNICALS


For this week beginning Monday, 21 July 2014, the higher levels are likely to offer resistance and sustainability in the higher range can be an issue unless a sharp sustained rise above 26180 is witnessed. Overall, the medium‐to‐long‐term is bullish and would not like to debate on it apart from intra‐day or intra‐week volatility. Sensex 29480 will be achieved but it is difficult to predict when it will happen. Further correction can be witnessed on a fall and close below 24878. Resistance will be at 25179‐26190 based on the price charts. Resistance for the week will be at 25939‐26760. Support for the week will be at 25415‐25117‐24878. The band of movement is likely in the range of 26100‐24800 with an attempt to test and cross the upper side of the band. Failure to sustain at the higher level will contain the movement within the band and may put the pressure back on 26100. BSE Mid Cap Index Correction will be seen further on a fall and close below 8763. But the need is to cross 9600 on a sustained basis for the mid cap stocks to remain in the limelight. BSE Small Cap Index Near‐term to short‐term correction can happen on a fall and close below 9478. Till then, expect attempts to move higher. Further breakout and close above 10624 is essential. BSE Bankex Breakout and close above 16000 is essential for a sustained rally in the stocks from the BSE Bankex. Strategy for the week Trader’s long and holding stocks can keep the Sensex stop loss at 24700. Higher levels can be used to book profits. Buy on a breakout and close above 26200 with the low of the week as the stop loss or 25600, whichever is lower at the point of breakout.

WEEKLY UP TREND STOCKS Let the price move below Center Point or Level 2 and when it move back above Center Point or Level 2 then buy with

whatever low registered below Center Point or Level 2 as the stop loss. After buying if the price moves to Level 3 or above then look to book profits as the opportunity arises. If the close is below Weekly Reversal Value then the trend will change from

Up Trend to Down Trend. Check on Friday after 3.pm to confirm weekly reversal of the Up Trend.

Scrips

Last Close

Level 1

Level 2

Center Point

Level 3

Level 4

Relative Strength

Weekly Reversal

Value

Up Trend Date

Stop Loss

Buy Price

Buy Price

Book Profit

Book Profit

HONEYWELL AUTO. 5080.00 4850.0 4888.3 5041.7 5233.3 5578.3 78.7 4960.5 28-02-14

LAKSHMI MACHIN. WO. 3913.00 3662.0 3723.3 3851.7 4041.3 4359.3 76.9 3818.3 09-05-14

EICHER MOTORS 8580.00 8191.0 8280.7 8490.3 8789.7 9298.7 76.8 8297.3 25-04-14

NATIONAL BLDG. CONS. 454.85 390.5 408.6 436.8 483.1 557.6 76.0 390.2 27-06-14

BHARAT FORGE 707.00 632.0 648.7 690.3 748.7 848.7 73.5 654.9 09-05-14

WEEKLY DOWN TREND STOCKS Let the price move above Center Point or Level 3 and when it move back below Center Point or Level 3 then sell with whatever high registered above Center Point or Level 3 as the stop loss. After selling if the prices moves to Level 2 or below then look to cover short positions as the opportunity arises. If the close is above Weekly Reversal Value then the trend will change from Down Trend to Up Trend. Check on Friday after 3.pm to confirm weekly reversal of the Down

Trend.

Scrips

Last Close

Level 1

Level 2

Center Point

Level 3

Level 4

RelativeStrength

Weekly Reversal

Value

Down Trend Date


EXIT LIST

Scrip Last Close

Sell Price

Sell Price

Sell Price

Stop Loss

Target 1

Target 2

BIOCON 492.85 502.47 512.25 522.03 553.70 419.6 336.7

IPCA LABORAT. 855.00 859.01 865.50 871.99 893.00 804.0 749.0

NIIT TECHONO. 384.50 417.40 430.50 443.60 486.00 306.4 195.4

BUY LIST

Scrip Last

Close Buy

Price Buy

Price Buy

Price Stop Loss

Target 1

Target 2

ADITYABIRLA NUV. 1425.00 1399.37 1382.50 1365.63 1311.00 1542.4 1685.4

APOLLO HOSPITAL 1087.00 1068.58 1053.00 1037.42 987.00 1200.6 1332.6

BAJAJ FINSE. 963.05 961.97 953.82 945.68 919.30 1031.0 1100.1

COLGATE-PALMOL. 1661.00 1616.39 1595.50 1574.61 1507.00 1793.4 1970.4

DEEPAK FERT.& CHE. 182.95 170.71 166.32 161.94 147.75 207.9 245.0

IL&FS TRANSPORT. 244.40 231.66 226.00 220.34 202.00 279.7 327.7

KOTAK MAHIND. BANK 935.00 909.42 897.50 885.58 847.00 1010.4 1111.4

MAHARASHTRA SEAM. 332.60 322.56 317.53 312.49 296.20 365.2 407.9

PETRONET LNG 186.55 181.63 179.45 177.27 170.20 200.1 218.6

PHOENIX MILLS 362.60 351.32 345.55 339.78 321.10 400.2 449.1

PIDILITE INDUST. 347.95 341.15 337.17 333.20 320.35 374.8 408.5

RAYMOND 461.40 436.94 427.52 418.11 387.65 516.7 596.4

PUNTER'S PICKS

Note: Positional trade and exit at stop loss or target whichever is earlier. Not an intra-day trade. A delivery based trade for a possible time frame of 1-7 trading days. Exit at first target or above.

Scrips BSE Code

Last Close Buy Price Buy On

Rise Stop Loss Target 1 Target 2 Risk Reward

NIKKI GLOBAL FINAN. 531272 154.35 148.00 154.35 143.00 161.4 172.7 0.62 PODDAR PIGMENTS 524570 98.55 92.00 99.50 86.50 107.5 120.5 0.75 HERCULES HOISTS 505720 143.55 142.05 147.00 129.10 158.1 176.0 1.00

The additional 15,000 kms of gas pipelines will benefit Maharashtra Seamless. The thrust on the power sector will also help in boosting demand. Investors must watch this stock for a decent upside. The company has a strong balance sheet.

TVS Srichakra has reduced debt and has a good return on equity (ROE) track record (3 Years ROE: 29.98%) with a healthy 22.38% dividend payout. It reported an EPS of Rs.28 in Q4FY14 and may end FY15 with an EPS of Rs.100 and the dividend may be raised to 300% going by its past track record. Stock is cheap compared to MRF/Balkrisna Industries and may get re‐rated soon.

KNR Construction is fund managers as the company will benefit from the revival in infrastructure growth. ADF Food stock is attracting many good investors. With a Q1FY15 EPS of Rs.12.3, RS Software is on course to post an EPS of Rs.55 in FY15. The share is poised to touch the Rs.450 mark.

Manaksia Ltd is expected to clock an EPS of Rs.38‐40 (FV Rs.2) in FY15. The share is going cheap.

Cover Short

Cover Short

Sell Price

Sell Price

Stop loss

ARVIND REMEDIES 33.25 27.0 31.6 34.6 36.2 37.5 29.75 37.20 11-07-14

NIIT TECHONO. 384.50 242.1 346.5 413.0 450.9 479.4 42.11 437.42 18-07-14

GLAXO SMITHKLIN. PH. 2488.00 2318.7 2438.7 2509.3 2558.7 2580.0 44.83 2503.75 18-07-14

GMR INFRASTRUCT. 26.30 22.3 25.1 26.8 28.0 28.5 48.45 29.50 13-06-14

MCLEOD RUSSEL (I) 282.25 256.2 274.6 285.3 292.9 296.0 48.46 304.59 11-07-14

TOWER TALK


Shares of Technocraft Industries are being purchased by funds and FIIs. With a likely EPS of Rs.40 in FY15, the share is expected to touch Rs.300 mark in the medium‐term.

Superhouse is expected to post an EPS of Rs.40 in FY15 as against Rs.33.4 in FY13. Its shares are being cornered by HNIs and a conservative P/E of just 5 will take its share price to Rs.200.

With an EPS of Rs.27 in FY14, Uflex is all set to achieve an EPS of Rs.35+ in FY15. The share is expected to touch the Rs.175 mark.

Circles close to the management of Century Enka strongly recommend the share of this B.K. Birla Group company, which is expected to clock an EPS of Rs.35+ in FY15.

Trident Ltd. (Code: 521064) Last Close: Rs.22.15 This scrip was first recommended by Mr. G. S. Roongta in ‘Panchratna’, our quarterly investment newsletter specializing in penny stocks, dark horses, multibaggers and turnaround scrips, on 1 April 2014 at Rs.18.80. Since then, the scrip has zoomed to touch a high of Rs.27.30 on 9 June 2014 giving 45% return in less than 3 months! Incorporated in 1985 by Chairman Rajinder Gupta, the Trident Group today is one of the biggest yarn spinners in India and the largest producer of terry towels in the world. It has eight yarn units at Sanghera (Punjab) and Budni (MP), while the integrated Dhaula complex (Punjab) has three home‐textile units, two paper units and chemicals and energy units. Its capacities are of global scale – yarn (100,800 TPA), terry towels (360 million pieces), paper (450 TPD) – thereby providing it a competitive edge in a commoditised sector. Its customer base is highly diversified with MNCs in 75 countries across the globe comprising 9 out of the top 10 retailers in USA, 6 leading retailers in Europe and 5 of the top 7 in Australia and New Zealand (ANZ).

Trident’s revenue base is diversified, both geographically and product‐wise. Cotton and blended yarn contributed Rs.15,960 million to revenue (FY14: 31% exports, 42% value addition). The home textiles division (FY14 revenue: Rs.14,386 million, 81% exports) caters to brands, department stores, home‐speciality chains, mass merchants and institutional customers. Paper (FY14 revenue: Rs.8,326 million, 8% exports, 49% value addition) accounts for 20% of revenues (with exports to 35 countries through a network of 60 distributors).

Focus on portfolio enrichment and consolidation. Trident is in the midst of establishing 500 looms integrated sheeting capacity in MP by FY16E with Rs.17 billion capex. It will have 600,000 spindles post expansion, integrated end‐to‐end, fulfilling the requirements of its existing clientele. The management expects the existing post merger debt of Rs.26 billion to be curtailed within the range of Rs.30 billion as capex will be calibrated to cash flows in future. Yarn: Trident has an installed base of 365,904 spindles and 3,584 rotors to manufacture cotton and blended yarn capacity of 100,800 TPA. It also has 6,825 tonnes processing capabilities. The yarn capacity is now fully balanced with towel capacity post the commissioning of Trident Corporations expansion in FY14. The company has taken value addition to 42% volumes and diversified geographical customer base to drive earnings. So, over FY09‐14, yarn volumes registered 24% CAGR with 36% CAGR in revenue while EBIT recorded 59% CAGR to Rs.2.3 billion. Home textiles: Trident’s 688 looms produce 90,000 TPA of toweling material, translating into 360 million towels and 1.08 million bathrobes. Trident’s installed capacity of 688 looms consists of Jacquards (54), Air Jet Dobby (596) and Rapier Dobby (38). Its home textiles are branded as Home Essential, Classic, Kids & Mom, Floral, Colors, and Indulgence. Trident is associated with global retail brands across the globe including Ralph Lauren, Calvin Klein, JC Penney, IKEA, Target, Wal‐Mart, Macy's, Kohl's, Sears, Sam's Club, Burlington, etc. The towel capacity has doubled post merger of the associate Trident Corporation effective from 1 April 2014. The focus was on value addition to drive earnings and the new capacity will deliver capability to address the mass segment providing volumes. Trident is also contemplating sheeting capacity of 500 looms in MP to manufacture 3.6 million metres of sheeting by FY16E at a capex of Rs.17 billion. Sheeting is expected to complement the home textiles portfolio of its existing customers requiring customised/similar design sets from the

BEST BET

Financials: (Rs. in crore) Particulars Q4FY14 Q4FY13 FY14 FY13

Revenue 990.15 895.68 3,884.04 3,356.82 Other Income 0.30 0.15 1.09 0.88 Total Income 990.45 895.84 3,885.13 3,357.70 Expenditure ‐836.46 ‐715.91 ‐3,141.25 ‐2,779.89 Interest ‐47.93 ‐58.63 ‐210.32 ‐235.28 PBDT 106.06 121.30 533.56 342.53 Depreciation ‐64.01 ‐66.01 ‐268.41 ‐261.44 PBT 42.05 55.29 265.15 81.09 Tax ‐12.78 ‐22.59 ‐68.12 ‐31.77 Net Profit 29.27 32.70 197.03 49.32 Equity 311.09 310.84 311.09 310.84 EPS 0.94 1.05 6.33 1.60 CEPS 3.00 3.18 14.96 10.00 OPM % 15.55 20.09 19.15 17.21 NPM % 2.96 3.65 5.07 1.47


same vendor. Home textile volumes recorded 2% CAGR over FY09‐14, with 14% CAGR in revenue, while EBIT registered 2% CAGR to Rs.1.6 billion. Paper: Trident is the largest global wheat‐straw‐based paper producer with 450 tonnes paper and 265 tonnes pulp. It has increased the contribution of the copier segment positioning them as premium and eco‐friendly paper‐products. Volumes of paper registered a 24% CAGR over FY09‐14, with a 14% CAGR in revenue, while EBIT recorded a 58% CAGR to Rs.1.3 billion. The focus going ahead is to further improve value addition from existing 49% and expand national market share. At the CMP, the stock trades at 4x FY14 PE and 3.5x FY14 EV/EBITDA. With a global scale in home textiles, Trident has strong focus on value addition and portfolio enrichment. We believe it is poised to leverage its business model to drive earnings and consolidate its balance sheet.

(Courtesy: Anand Rathi)

Vardhman Textiles Ltd: A value buy By Devdas Mogili Vardhman Textiles Ltd (VTL), formerly known as Mahavir Spinning Mills, is a part of the Vardhman Group managed by Mr. Paul Oswal. It is a 39‐year old Ludhiana, Punjab based company established in 1973 and is a pioneer manufacturer of fibre yarn, sewing thread, fabric and steel. Since March 2011, it is also into manufacturing garment in collaboration with Nisshinbo of Japan. VTL and its subsidiaries have 20 manufacturing facilities across India at Ludhiana, Hoshiarpur, Malerkotla in Punjab, Baddi in Himachal Pradesh; Jhagadia in Gujarat; Budhni, Satlapur, Mandideep in Madhya Pradesh; Visakhapatnam in Andhra Pradesh and Perundrai in Tamil Nadu. The group’s manufacturing facilities include over 10,48,160 spindles, 450 metric tonnes per day (TPD) of yarn and fibre dyeing, 1300 shuttleless looms that produce 115 million metres p.a. of processed fabric, 34 TPD of sewing thread, 20000 TPA of acrylic fibre and 1,20,000 TPA of special and alloy steels.

The group’s initial spinning capacity of 14,000 spindles has risen multifold to over 10 lakh spindles today. In 1982, the Group entered the sewing thread business and is now the second largest producer in India. In 1990, it diversified into weaving with 20,000 metres per day of grey fabric unit at Baddi (HP), which now stands expanded to 1.5 lakh metres per day and it has already made a mark as a quality producer of Grey poplin, sheeting, shirting in the domestic and overseas markets. Thereafter, it ventured into fabric processing by setting up Auro Textiles at Baddi and Vardhman Fabrics at Budhni, Madhya Pradesh.

In 1999, the Group ventured into the manufacture of Acrylic fibres by setting up Vardhman Acrylics Ltd. at Bharuch in Gujarat, which is a joint venture with Marubeni and Exlan of Japan. Subsidiaries: VMT Spinning Company (VMT), Vardhman Threads and Vardhman Yarns & Threads and Vardhman Acrylics are the subsidiaries of VTL. Alliances: VTL’s global alliances include the garments tie‐up with Nisshinbo Textiles of Japan, Fabric dyeing & Finishing with Tokai Senko of Japan; Fibre & Yarn Dyeing with Nihon Sanmo Dyeing Co. Ltd. of Japan; Gassed mercerized with Kiyung Bang of South Korea; Cotton yarn with Toho Rayon of Japan; Sewing Thread with American & Efird Inc. of USA; and Acrylic Fibre with Marubeni Corp, and Japan Exlan of Japan. Clients: VTL’s clients include all brands of Arvind Ltd., Japan's Aeon, Van Heusen, Monte Carlo, GAP, Marks & Spencer, Zara, Mango, Tommy Hilfiger and Arrow. Exports: Vardhman exports 35% of its yarn and fabric production to over 25 countries and has a strong presence in the EU, USA, Canada, China, Japan, Korea, Mexico, Brazil, Mauritius and the Middle‐East and has a share of over 6% of the total yarn exports from India. Performance: For FY14, VTL posted very impressive results as it notched up a total income of Rs.5225.37 crore with net profit of Rs.651.88 crore recording an EPS of Rs.102.42 as against Rs.50.86 in FY13.

STOCK ANALYSIS

Financial Highlights: (Rs. in crore) Particulars Q4FY14 Q4FY13 FY14 FY13

Total Income 1292.20 1146.33 5225.37 4207.16 Total Expenses 1042.10 941.10 4204.68 3585.43 Finance Cost 44.28 42.87 151.83 174.35 Tax Expense 51.50 47.11 227.50 131.11 Net Profit 154.32 115.25 651.88 323.72


Latest Results: It also posted highly encouraging Q4FY14 results recording total income of Rs.1292.20 crore with a net profit of Rs.154.32 crore netting an EPS of Rs.63.65 as

against Rs.18.11 recorded in Q4FY13. Financials: VTL has an equity base of Rs.63.65 crore that is supported by reserves of Rs.2784.67 crore leading to a book value of Rs.447.50. It has a debt:equity ratio of 1.17 with ROCE of 13.26% and RoNW of 15.22%. Share Profile: The company’s share with a FV of Rs.10 is listed and traded on the NSE and the BSE under the B group. It has hit a 52 week high/low of Rs.529/271.85. At the CMP of Rs.473.25, it has a market capitalization of Rs.3010.93 crore as against total income of Rs.5225.37 crore, which is an attractive market cap:sales ratio. Dividends: The company has been paying dividends as follows: FY14 ‐ 110% (60%+50% Spl Div), FY13 ‐ 60%, FY12 ‐ 45%, FY11 ‐ 45%, FY10 ‐ 30%, FY09 ‐ 20%, FY08 ‐ 40%. Shareholding Pattern: VTL’s promoter holding is 61.85% while the balance 38.15% is held by non‐corporate promoters, institutions, mutual funds and the investing public. Mutual Funds like DFC, SBI, UTI, DSP BR, HSBC, Principal, and Goldman Sachs have added the company’s share to their various schemes. Prospects: The global economic outlook has been improving and is estimated to grow above 3% in 2013 and 4% in 2014 but is not uniform among the developed countries. For instance, the private demand in USA is growing strengthening its recovery there but similar indications are missing in EU. The USA is estimated to grow 3% in 2014 whereas EU may record only 1.1% growth.

The driver of their growth is the monetary easing, which needs to be substituted with more fundamental forces to make it sustainable. Success in avoiding the Euro zone breakup and the deferment of fiscal contraction helped the world economy to recover some ground.

But the emerging economies of Asia are likely to grow by 7% over the next couple of years, which is lower than the growth rate achieved in the past. This is mainly due to the slowdown in exports of leading economies like China and partially due to its efforts to rebalance the economy by veering more towards domestic consumption from exports and investments. Such a move would strengthen the growth of the emerging economies in coming years.

The GDP growth estimates of the Indian economy in 2014‐15 range between 5‐6% and it will take a couple of years before the Indian economy can regain the 8% GDP growth rate.

With lower cotton prices, yarn production rose about 14% in 2012‐13 on the back of a steady pick‐up in domestic demand. The depreciating Rupee helped boost the demand for cotton yarn from China and yarn manufacturers expect to maintain their margins in the coming quarters. Also, Foreign Direct Investment (FDI) in Retail is a big opportunity that would unleash demand in the long run and offset any slowdown in the spinning sector. Future Outlook: To cater to its ever rising customer base, the company is expanding the spinning capacities by installation of additional spindles at Budhni and Satlapur, which are expected to commence commercial production in the coming year. An additional 220 looms are also expected to be commissioned shortly. Apart from these capacity expansions, the company continues to modernize its production and go in for line balancing as and when required.

The company is also focused on process improvements, product diversifications, costs rationalization, improving efficiencies and building a strong customer base. Conclusion: The Vardhman group is a US $1 billion textile conglomerate with 25 manufacturing facilities spread across five States in India. The group’s business portfolio includes yarn, greige and processed fabric, sewing thread, acrylic fibre and alloy steel and VTL is the flagship company.

At its CMP of Rs.473.25, the VTL share price discounts less than 5 times its FY14 EPS of Rs.102.42. In view of its highly encouraging performance, good brand image, export presence, decent payouts, attractive market cap:sales ratio and bright prospects ahead, the VTL

Equity (FV:Rs.10) 63.65 63.65 63.65 63.65 Res Ex Re Reserves 2784.67 2212.92 EPS (Rs) 24.25 18.11 102.42 50.86

LEARN BEFORE U LOSE2 Days Workshop

on TECHNICAL ANALYSIS

& W.D. GANN IDEAS

by CA Ketan Asher

on 26th & 27th July 2014

@ STOCK-CARE

573, JSS Road, Mumbai – 2 ----------------------------------------

--- Contact: Mr. Vinod

93211 93293 / 98216 22991


share is a value buy for decent returns in the medium‐to‐long‐term.

Sensex rebounds on fresh buying By Devendra A. Singh The BSE Sensex (30‐share index) settled at 25,641.56 advancing 617.21 points while the CNX Nifty closed at 7,663.90 gaining 204.30 points for the week ended Friday, 18 July 2014.

Equity markets registered a consolidated momentum for the week on strong buying by FIIs regaining the Sensex 25,500 psychological mark, which had scaled an all‐time high of 26,190.44 on Tuesday, 8 July 2014. Key bourses surged in 4 out of the 5 trading sessions during the week.

On the inflation front, India’s consumer price index (CPI) or retail inflation dropped sharply to 29‐month low of 7.31% in June 2014 from 8.28% in May 2014. The corresponding inflation rates for the rural and urban areas stood at 7.72% and 6.82% respectively.

The combined inflation rate for fuel and light was 4.58% for June 2014 and for rural and urban areas it stood at 5.30% and 3.41% respectively.

Also, the combined inflation rate for food and beverages stood at 7.90% last month and the break‐up for rural and urban areas stood at 8.54% and 6.65% respectively.

The Union government has announced several steps in the Budget to promote Foreign Direct Investment (FDI) selectively in sectors. Finance Minister (FM), Arun Jaitley, raised the existing FDI limit of 26% to 49% in defence manufacturing with full Indian management and control through the FIPB route.

The composite cap in insurance is also raised to 49% from 26% as insurance is investment starved and several sectors of it need to expand.

For the development of Smart Cities, requirement of the built up area and capital conditions for FDI is being reduced from 50,000 sq. metres to 20,000 sq. metres and from US $ 10 million to US $ 5 million respectively with a three year post completion lock in.

Also Housing projects, which commit at least 30% of the total project cost for low cost affordable housing will be exempted from the minimum built‐up area and capitalization requirements with the condition of a 3‐year lock‐in.

The Economic Survey 2013‐14 tabled in the Lok Sabha early this month projects GDP to grow at 5.4‐5.9% in FY15. The FM said “The factors for a revival in industrial growth are the external economic situation characterized by a stable current account, benign outlook of oil prices, improved fiscal health and modest revival in the global economy can be expected to contribute to the GDP growth in FY14‐15.”

The country has been clocking a sub‐5% growth for the past two financial years, mainly on account of slowdown in investments.

The FM further said that, “slowdown in investment has happened due to a combination of factors such as weak business sentiment, global slowdown, lower export demand, infrastructure bottlenecks and rise in interest costs owing to elevated inflation.”

“The government is continuously monitoring macro‐indicators including sectoral investment pattern in the economy,” he added.

The FDI flows into India more than doubled to $3.60 billion in May 2014 ‐ the highest in the last eight months. In May 2013, the country had received FDI worth $1.63 billion. The monthly FDI figures for May 2014 are the highest since September 2013 when the country received FDI of $4.13 billion.

During April‐May 2014, foreign inflows jumped by 34% to $5.30 billion as compared to $3.95 billion in the same period last year, according to the data of Department of Industrial Policy and Promotion (DIPP).

In FY14, the FDI inflows were $24.29 billion against $22.42 billion in FY13. Amongst the top 10 sectors, telecommunications received the maximum FDI in May 2014 at $1.51 billion followed by

pharmaceuticals ($680 million), services ($574 million) and construction ($221 million). In June 2014, India received the maximum FDI from Mauritius at $2.28 billion followed by Singapore at $982 million,

UK at $545 million, Japan at $319 million and the US at $154 million. India requires around $1 trillion over the next 5 years to overhaul its infrastructure sector including ports, airports

and highways to boost growth.

MARKET REVIEW


The Asian Development Bank (ADB) lowered its growth forecast for Southeast Asia this year as the Thai coup, Indonesia’s ban on mineral exports and the riots in industrial parks in Vietnam took a toll.

In its ‘2014 Outlook’ supplement, the ADB said that the region is now expected to grow at 4.7% this year compared to its forecast of 5% in April 2014. Growth in 2015 in Southeast Asia is still expected to be around 5.4%.

Expectations of economic reform by PM Narendra Modi’s new government mean that ADB has raised its CY15 growth forecast for India to 6.3% from 6% while CY14 is still expected to be around 5.5% expansion. It has kept its growth forecast for China at 7.5% FY14 and 7.4% FY15.

For developing Asia as a whole, the 2014 and 2015 GDP expectations were maintained at 6.2% and 6.4% respectively. Inflation in the region in 2014 is now forecast to be a tad lower at 3.5%.

Key indices edged lower on Monday, 14 July 2014, on global cues. The Sensex fell 17.37 points (‐0.07%) to close near 25K at 25,006.98. The Nifty was down 5.45 points (‐0.07%) to close at 7,454.15.

Key indices jumped on Tuesday, 15 July 2014, on consolidated buying by foreign funds snapping the losing streak. The Sensex surged 221.67 points (+0.89%) to close at 25,228.65. The Nifty soared up 72.50 points (+0.97%) to close at 7,526.65.

Key indices logged gains on Wednesday, 16 July 2014, on extended buying. The Sensex gained 321.07 points (+1.27%) to close at 25,549.72. The Nifty ended up 97.75 points (+1.30%) to close at 7,624.40.

Key indices settled flat ending higher on Thursday, 17 July 2014, on local cues. The Sensex edged higher 11.44 points (+0.04%) to close at 25,561.16. The Nifty was up 16.05 points (+0.21%) to close at 7,640.45.

Market performance settled on an upbeat note on the last trading session Friday, 18 July 2014, on buying of equities. The Sensex ended higher 80.40 points (+0.31%) to close at 25,641.56. The Nifty was up 23.45 points (+0.31%) to close at 7,663.90.

The Sensex climbed 617.21 points to close at 25,641.56 last week.

Indian companies will reveal their Q1FY15 corporate earnings ahead and investors will closely watch the management results, which could cause revision in their future earnings forecast of the company in the current year.

The Reserve Bank of India (RBI) is scheduled to reveal its next monetary policy review on Tuesday, 5 August 2014.

Investors will closely watch the country’s monsoon rains for the July‐September 2014, which is another crucial factor that will dictate the country’s economic and markets scenario ahead.

Also, the investors will be focused on the Federal Open Market Committee (FOMC) monetary policy meet, which is kept for two days this month‐end on 29 & 30 July 2014.

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GURU SPEAK - By G. S. Roongta Market to remain bullish History repeats itself but public memory is short as they fail to recognize it in the excitement of greed or stressful conditions of fear. This is what exactly happened when the Railway Budget and the Union Budget was presented almost two weeks ago. The overbought market tumbled heavily when the Railway Budget was presented on Tuesday, 8 July 2014 and the Union Budget on Thursday, 10 July 2014.

Although there was nothing wrong or serious negatives in both the budgets, yet the market tanked by 1298 points in five successive trading sessions till Monday, 14 July 2014, from a high of BSE Sensex 26190.44 to a low of 24978.33 breaching the 25K mark on Friday, 11 July to fall to a low of 24892 in intra‐day trades on Monday, 14 July.

This was the strategy of the bulls to book profits at a major event like the Union Budget and confuse common investors. Among the several proposals presented, the bulls took advantage of a few negative proposals and hammered the market with their muscle power.

The General Anti Avoidance Rule (GAAR) proposal and mutual fund related norms were two such proposals, which the bulls targeted to book profits on. FIIs, who have been major buyers in the Indian market, were also confused when the Finance Bill indicated of no further extension of GAAR provision beyond 2014‐15. Having built high hopes on its extension, the FIIs got a rude shock and sold heavily both in the cash and F&O segments.

Mutual funds, too, were unhappy on the extension of capital gains from 2 years to 3 years as this would result in higher subscriber redemptions.

In view of the fears created, the bulls grabbed the opportunity to book profits in the overheated market since May 2014.

The extra flab and heavy overbought positions were liquidated making the market more healthy and attractive. This is when I realized that there is no further risk or chance for the market to fall any further even though the technical experts started forecasting targets below Nifty 7400 or Sensex 25K after the euphoria ended and they got a rude shock from a market friendly the Union Budget!

In my last article, I had clearly stated that there was nothing wrong in the Budget proposals, which could turn the market sentiment from bullish to bearish. Reading the sentiment correctly, I headlined my article ‘Correction to end soon’ whereas everybody was thinking of exiting.

It is true that it was no big bang budget, which can merit being a landmark unlike Manmohan Singh’s budget under P. V. Narasimha Rao’s premiership or P. Chidambaram’s dream budget thereafter. This is because the new NDA Government has had no time to look into such dream proposals in such a short time in the face of inflationary pressure and an unhappy state of economy left by the UPA‐II government.

The current government has to first put the economy back on track and move thereafter. Only then will they plan for reforms, growth and investments in new projects.

The recent correction of over 1200 points was an excellent opportunity to buy fundamentally sound stocks but fear and as usual confused the investors as they continued to buy at high levels in greed and sell on fear at lower levels.

On Monday, 14 July 2014, the Sensex opened higher at 25093, made a low of 24892 when it attracted fresh value buying ahead of the economic data and provided a trigger in a bearish atmosphere. The bulls who were comfortable after shedding the extra flab and liquidating their overbought positions rushed to buy again because of which the market recovered 114 points from 24892 to 25006.98 and closed with a minor loss of just 17 points.

The inflation data released on the evening of 14 July 2014 after market hours fueled fresh hopes and the market snapped a 5‐day losing streak to gain nearly 1% amid heavy buying of banking stocks. The Consumer Price Index (CPI) fell to 7.31% in June 2014 from 8.28% in May 2014 and from 9.18% in June 2013. The Wholesale Price Index (WPI) hit a 4‐month low at 5.43% from 6.01% in May 2014.

This sharp decline in inflation beyond expectations ignited the bull sentiment once again on Tuesday, 15 July 2014, and sent the Sensex soaring by 222 points to close above 25K at 25228.65. Correspondingly, the Nifty jumped 73 points at 7527 indicating the sharp turnaround in market sentiment led by banking stocks.

The stock market continued to rise on Wednesday, 16 July 2014, on the encouraging 10% growth in exports despite higher import of gold, oil, other essential commodities. The Sensex soared 321 points to settle at 25550 while the Nifty notched 97.75 points at 7624.40 boosting the market sentiment further.

G. S. Roongta


The markets took a breather on Thursday, 17 July 2014, as it settled flat 11.44 points higher at 25561.16 but the Nifty was up 16.05 points to close at 7640.45.

While the market began on a dull note on Friday, 18 July 2014, it changed mood in late trades to end higher by 80.40 points at 25641.56 while the Nifty rose 23.45 points to close at 7663.90.

As mentioned several times earlier, I am very bullish on textiles, steel, cement, sugar, capital goods and mostly recommend stocks from these sectors nowadays. Over the past few weeks, I have recommended Sangam India several times between Rs.40‐50. But when the Sensex lost 1200 points, the Sangam India stock stood rock solid between Rs.58‐60 and shot up to a high of Rs.78.75 on Friday, 18 July 2014, gaining nearly 20% from its opening of Rs.61 on Thursday, 17 July 2014. My target was Rs.80 in a year or so but it has achieved it in just one month!

Similarly, I had recommended a few textile stocks in ‘Panchratna’, our new investment quarterly newsletter featuring penny stocks, dark horses, multi‐baggers and turnaround scrips, and they have all gained good grounds and continue to do so till date.

In a bullish market, stocks rise and correct to rise higher again while in a bearish market stocks fall and recover partially only to fall lower again. In view of this, my sincere advice to readers is that they should either book profit at higher levels and if they fail to do so then instead of selling at a loss they should either average out their purchase and get out in the next rally if they cannot hold stocks for long.

The market will continue to rally and I am hopeful that the Sensex will touch 27K and the Nifty will kiss 8000 in a month or so. The worst is over and one should enjoy the momentum in the market by investing gradually rather than jump in around 30K+ and burn themselves in the bargain.

By Amit Kumar Gupta

Hinduja Global Solutions Ltd. (Code: 532859) (CMP: Rs.638.85; TGT: Rs.750) Hinduja Global Solutions Ltd (HGSL) is a global business process and customer relationship management company engaged in information technology (IT) and information technology enabled services (ITeS). The company and its subsidiaries offer voice and non‐voice based services such as contact centre solutions and back office transaction processing across North America, Europe and Asia. The company has approximately 60 delivery centers in India, USA, UK, Canada, Mauritius, France, Germany, Italy, Jamaica, the Netherlands and Philippines. Its subsidiaries include Business Process Management, HGS International Services Pvt. Ltd., HGS Business Services Pvt. Ltd., Hinduja Global Solutions Inc, and HGS Canada Inc. In November 2013, its subsidiary, HGS Business Services Pvt Ltd, merged into another subsidiary HGS International Services Pvt Ltd.

HGSL is a large‐scale BPO with revenues of US $414 million with a focus on customer management/healthcare verticals and above the average industry growth of 21% in a 3‐year CAGR. Emphasis on the domestic business profitability and higher utilisation has been driving up its EBITDA margins (+157bps in FY14) and it expects to maintain the lead in the BPO market.

BPO remains a large opportunity and the offshore component is expected to grow at 10‐15% to ~US $75‐80 billion over 2013‐17. HGSL has a strong presence in the healthcare space with revenues of US $115 million. However, its high exposure to the technology vertical in Japan is a concern. The company has attained a good scale to grow from hereon and expand its capability via acquisitions rather than scale.

We expect EBITDA margin to expand from 12.9% in FY14 to 13.9% by FY16 through cost efficiencies, growth and focus on India business profitability. This will drive strong EBITDA/EPS growth of 15%/14%. Also, there is room to raise the dividend payout from the current Rs.20/share given its healthy balance sheet with near net cash and debt:equity ratio of 0.4 x.

We recommend a Buy on the HGSL stock with a FY15 price target of Rs.750 and value it at 8x FY16 earnings. Technical Outlook: The HGSL stock is very strong on the daily chart and has been making higher highs and higher lows. It is also trading above all important moving averages like 200‐DMA & 100‐DMA and has broken out of a saucer bottom in the longer time frame.

Start accumulating at this level of Rs.639 and on dips to Rs.590 for medium‐to‐long‐term with a price target of Rs.750 in the next 12 months.

********

Crompton Greaves Ltd. (Code: 500093) (CMP: Rs.211; TGT: Rs.250)

STOCK WATCH


Crompton Greaves Ltd. is engaged in providing turnkey solutions to its customers in four segments: Power Systems, Consumer Products, Industrial Systems and Others. Power Systems include transformer, switchgear, turnkey projects and power Supervisory control and data acquisition (SCADA) systems. The Consumer Products business relates to fans, lighting equipment (light sources and luminaires), pumps, and range of electrical household appliances. It also provides solutions for integrated security systems, home automation and street lighting. The Industrial Systems include electric motors, alternators, drives, traction electronics and SCADA. Its subsidiaries include CG Energy Management Ltd., CG‐PPI Adhesive Products Ltd., CG‐ZIV Power Automation Solutions Ltd. and CG Power Solutions.

Proforma net loss in its overseas subsidiaries contracted to €34 million in FY14 from €69 million in FY13. Net losses in its Belgian subsidiary shrunk to €8 million from €50 million and C$13 million from C$ 17 million in its Canadian subsidiary. Further, based on the reported subsidiary numbers, we estimate that the key subsidiary in Belgium would have attained break even in FY14, while the entity in Hungary is likely to have turned profitable at the operating level in FY14.

Free cash flows (FCF) for FY14 contracted to Rs.80 crore from Rs.150 crore in FY13 despite lower capex (‐13% YoY to Rs.296 crore) and higher profitability. The company’s consolidated net working capital expanded by Rs.230 crore by FY14‐end, hit by an increase in the sundry debtors position of Rs.430 crore and expansion in loans and advances outflow of Rs.140 crore.

According to the numbers reported in FY14, we assess that ZIV (acquired in July 2012) profitability continues to underperform vis‐à‐vis expectations at the time of acquisition. Valuation: We expect the domestic/international business to grow at CAGR of 12%/12% over FY14‐ FY17E and recommend to buy the stock for a price target of Rs.210. Technical Outlook: The Crompton Greaves stock is very strong on the daily chart and has been making higher highs and higher lows and is very strong in all time frames. The stock is also trading above all important moving averages of 200‐DMA & 100‐DMA and has broken out of a saucer bottom formation in the longer time frame.

Start accumulating at CMP and on dips for medium‐to‐long‐term investment and a target of Rs.250 in the next 6 months.

By Vihari

Deepak Fertilisers & Petrochemicals: Strong upsurge soon Deepak Fertilizers & Petrochemicals Ltd. (DFPCL) (Code: 500645) (Rs.183) has posted excellent results led by higher capacity utilization, cost control and softening of raw material prices, all of which helped enhance its margins. Its share can be bought for decent appreciation with a price target of Rs.200 in the medium‐term.

Incorporated in 1983, DFPCL started commercial production of Ammonia in technical collaboration with Fish International Engineers (USA) using natural gas as the feedstock. It undertook major expansion and diversification in 1989 to achieve forward integration in the manufacture of ammonia and diversification into Methanol. In July 1992, it commenced the production of Low Density Ammonium Nitrate (LDAN), Nitro Phosphate (NP), Dilute Nitric Acid (DNA), and Concentrated Nitric Acid (CNA). This resulted in a multi‐product portfolio consisting of chemicals, petrochemicals, fertilisers and other agri‐inputs.

DFPCL’s plant is located at Taloja in Navi Mumbai and a company‐owned pipeline is used to transport of gas from Uran to its plant. Besides manufacturing, DFPCL also trades in chemicals (like Methanol and IPA) and bulk fertilisers such as Muriate of Potash (MOP), di‐ammonium phosphate (DAP), Ammonium Sulphate, Single Super Phosphate (SSP), water soluble fertilisers and bio‐fertilisers and micronutrients. Some of these bulk fertilisers are low margin products but help the company offer a broad basket of products to its customers. It has a network of 4,500 dealers and sub‐dealers to ensure penetration across the seven states of Maharashtra, Karnataka, Gujarat, Madhya Pradesh, Punjab & Haryana and has successfully expanded its business into Goa.

The manufacturing capacities of various

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chemicals are: ammonia (1,29,000 TPA) ammonium nitro‐phosphate (ANP) fertilizer (2,30,000 TPA) and integrated into the manufacture of concentrated nitric acid (1,38,600 TPA) and dilute nitric acid (8,41,000 TPA), technical ammonium nitrate (TAN) (4,69,000 TPA), CO2 (38,000 TPA), Bentonite Sulphur (25,000 TPA) and methanol (1,00,000 TPA). DFPCL is India’s only producer of TAN and Isopropyl Alcohol (IPA) with an installed capacity 70,000 TPA.

In FY14, DFPCL acquired 100% of SCM Soilfert Ltd, which became its wholly‐owned subsidiary. Consequently, DFPCL now has six subsidiaries‐ Smartchem Technologies Ltd, Deepak Nitrochem Pty. Ltd, Yerrowda Investments Ltd, Deepak Mining Services Private Ltd, RungePincockMinarco India Private Ltd and SCM Soilfert Ltd.

In June 2013, DFPCL acquired 24.46% stake in the Vijay Mallya's UB group owned, Mangalore Chemicals & Fertilisers Ltd. (MCFL) for about Rs.180 crore. The company produces nitro phosphate fertilisers and has presence in the agri business, mining chemicals, industrial chemicals and value added real estate. MCFL has the capacity to produce 380,000 TPA of urea that can be scaled up further. Also, a vacant tract of 60 acres of land at the existing facility made MCFL a lucrative buy.

MCFL manufactures chemical fertilisers such as urea, di‐ammonium phosphate (DAP), and other complex fertilizers at its manufacturing facility at Panambur in Mangalore in Karnataka. Its expansion plans included conversion to a natural gas supplier by FY14 and later venture into speciality chemicals business as a natural extension.

DFPCL’s capacity augmentation projects at Taloja will more than double the capacity at the integrated fertiliser complex, enhance the capacity of NPK grades of complex fertilisers from 2,29,000 TPA to 6,00,000 TPA by December 2015 and will set the stage for the launch of a variety of complex fertilisers and fortification with micro nutrients like boron, zinc and copper. Going forward, this project will also provide a bigger platform for its flagship product MAHAPOWER.

It will gain additional flexibility to produce all NP/NPK grades with fortification of micro‐nutrients. Its new greenfield Bentonite Sulphur plant and a new BenSulf plant at Panipat in Haryana will produce 32,000 TPA of BenSulf. Both projects are expected to be completed in 30‐months from commencement. The above projects envisage a capex about Rs.400‐500 crore.

Led by softening raw material prices on the back of higher capacity utilization coupled with operational efficiency, DFPCL posted a solid performance in Q4FY14/FY14. Net profit in Q4FY14 rose 214% to Rs.92 crore on 61% higher sales of Rs.1061 crore and the quarerly EPS stood at Rs.10.4. For FY14, net profit jumped 89% to Rs.243.9 crore from Rs.129.3 crore in FY13 on 46% higher sales of Rs.3863 crore in FY14 against Rs.2672 crore in FY13 and the FY14 EPS stood at Rs.27.7.

During FY14, the fertiliser business smartly crossed Rs.1,400 crore riding on a 42% jump over FY13. The TAN business also grew by 42% despite a tough mining sector scenario and the introduction of the stringent new AN rules. The TAN business recorded a topline of over Rs.800 crore. The Industrial Chemicals business grew 53% with sales value crossing Rs.1,590 crore. Other operating income of Rs.73 crore was almost flat at the FY13 level.

DFPCL’s equity capital is Rs.88.2 crore. With reserves of Rs.1324.2 crore, the book value of its share works out to Rs.160. The value of gross block is Rs.2541 crore whereas with debts of Rs.963 crore, the DER works out to 0.68:1 against 0.88:1 in FY13. The cash/current investments and loans given as at FY14 stood at Rs.242.7 crore. The value of investments is Rs.210 crore including the shares of Mangalore Chemicals valued at Rs.180 crore. The promoters hold 45.5% in its equity capital with foreign holding of 15.7%, DIs holding 4.5% and PCBs holding 8.5% leaves 25.9% with the investing public.

Coming to its future prospects, the TAN business of DFPCL is vital to the Indian economy. TAN is the blasting agent of choice globally and is among the most critical input into the mining of coal, iron ore, limestone, etc. and also used in creation of infrastructure including construction and cement. The long‐term business outlook of TAN is strong with both demand drivers and capacities in place and the potential to cater to 70% of the market share of total consumption in the country.

The Government of India plans to invest of US $1 trillion (Rs.60 lakh crore) in the Twelfth Five Year Plan (2012‐17) and the roll‐out of the projects will provide demand impetus for coal, steel, cement etc., which in turn will lead to a more sustained demand for TAN.

DFPCL is strongly poised to exploit the emerging opportunities in the Indian and global mining and construction industries as a major producer of TAN. The outlook for the global mining and construction industry continues to be promising with South East Asia, Africa and Australia, all natural markets for India, continuing to report growth in the mining and construction sectors. Besides meeting the growing domestic demand, export is also a key focus area. India’s mining industry, despite low to negative growth in 2012‐13, still promises a medium‐to‐long‐term growth of 7‐8%, which in turn creates opportunities for similar growth rates for TAN.


DFPCL’s industrial chemicals products also have a direct impact on the Indian consumers’ lives. While Iso Propyl Alchohol (IPA) is among the most critical ingredients in pharmaceutical formulations, cosmetics, dyes and printing inks, Carbon Dioxide is a key component of soft drinks and dry ice. Nitric Acid is crucial to the nitro‐aromatics sector, used in the manufacture of drugs like Paracetamol and Vitamin B6.

Nitric Acid also finds application in the textile industry to produce coloured fabrics and CAN is used mainly for production of TDI (Toluene Di Isocynate) which is used to produce polyurethane used in shoes and other footwear as well as automobile and aircraft interiors and insulating foam in refrigerators. With the growing demand of IPA from the strongly growing Indian pharma sector, growth estimates for the product continue to be robust and the market growth is expected to remain at 6% in 2013‐14.

Led by the growth in real estate, proliferation of lifestyle homes, high disposable incomes with young professionals and the growing brand culture, DFPCL has developed a first‐of‐its‐kind destination for home and interiors called ‘Ishanya’ in Pune. It is spread across 600,000 sq. ft. and houses prominent Indian and international brands. The mall focuses on creating “joy of the homemaking experience”.

To further its commitment and foresight in this segment, DFPCL has launched “Houslife”, yet another pioneering concept. Spread across 28,000 sq. ft., Houslife is a unique multi‐branded retail store focusing exclusively on home furnishings, decor, furniture and kitchens. The store houses over 30 Indian and international brands that cater to multiple budget categories and help in enhancing the home lifestyle of its customers.

Straddling synergies from the nutrient/input business right across the output space, the agri‐business remains an attractive focus area for future growth of DFCPL. At one level, it is augmenting fertiliser capacity with work‐in‐progress for a new 6,00,000 TPA NPK Plant at Taloja and a new 30,000 TPA of Bentonite Sulphur plant in North India. At another level, it is climbing the value chain of outputs with quality fruits and vegetables. Supporting both ends would be a stronger brand and distribution network.

The scalability of DFPCL’s operations, improving efficiencies, volume growth, with overall business competitiveness is the base for its highly encouraging prospects in all products lines and expansion initiatives give strong revenue & earning visibility going forward. For FY15, DFPCL is all set to post an EPS of Rs.32, which could further rise to Rs.38 in FY16 post expansion. At the current market price of Rs.183, the DFPCL share trades at a forward P/E of 5.7 on FY15E and 4.8 on FY16E earnings. A conservative P/E of just 7 will take its share price to Rs.224 in the medium‐term and Rs.266 thereafter. The 52‐week high/low of the share has been Rs.185/81.

*******

Prakash Industries: In a new light Established in 1980, Prakash Industries Ltd. (PIL) (Code: 506022) (Rs.110.50), runs an integrated steel plant at Champa in Chhattisgarh. The company was allotted three coal blocks at Chotia, Madanpur and Fatehpur in Chhattisgarh of which the Chotia coal mines are already operational. The company also has iron ore mines in Chhattisgarh and Odisha and a 100‐MW captive power plant. Its current power capacity is 215 MW of which 40 MW is through waste heat recovery (WHR) while the rest is from the coal based thermal energy.

PIL has incurred capex of about Rs.800 crore in the last 2‐3 years, which includes a sponge iron kiln and Rs.200 crore in the second phase of the 100 MW power plant and the balance on the 50% expansion of its Ferro alloys capacity from 48000 TPA to 72000 TPA.

During Q4FY14, net profit soared 60% to Rs.62.4 crore on 19% higher sales of Rs.717 crore and the Q4FY14 EPS stood at Rs.4.5. For FY14, net profit rose 5% to Rs.173.2 crore on 3% higher sales of Rs.2597 crore. The FY14 EPS stood at Rs.12.9 and a dividend of 10% was paid.

PIL’s equity capital is Rs.139.5 crore and with reserves of Rs.2050 crore, the book value of its share works out to Rs.157. The promoters hold 46.5% in the equity capital, DIs hold 2.8%, foreign holding is 2.3% and with PCBs holding 26.2% leaves 21.3% with the investing public.

Despite the general economic slowdown worldwide, PIL’s financial performance in FY14 has been reasonably satisfactory and stable. It would have been better but for the restrictions imposed by the government and temporary closure of many mines when it had to source iron ore at higher prices. However since the beginning of the current year, the situation has improved gradually and is expected to be normal soon. Both in the Steel and Power segments, PIL has achieved overall volume growth and the additions in the sponge iron and power capacities will result in significant cost savings.

The company is further expanding its Sponge Iron capacity by setting up an additional module, which is expected to be commissioned by the end of FY15.


Efforts are on to completely integrate the additional capacities in Steel making and Power generation with Ferro Alloys, which will meet the requirements of its finished Steel segment comprising Wire Rod, TMT Bars and other Structurals resulting in the optimum utilisation of capacities for these products.

With its mines becoming operational, its self reliance shall reach an optimal level making PIL’s operations fully integrated. The expanded operations and improved supply of Iron Ore and Coal, both in terms of availability and pricing should result in better performance this year.

Although the World Steel Association has forecasted the steel consumption in India to grow by 5%, it expects a spurt in demand in the medium‐term if the government implements its $1 trillion infrastructure investment plan in a timely manner. The demand for steel will also be fuelled by the monetary easing in coming years, which will boost investments.

India has acquired a strong position on the world steel map with its giant steel mills, acquisition of global scale capacities by players, continuous modernisation and upgradation of old plants, improving energy efficiency, and backward integration into global raw material sources. India is expected to become the second largest producer of crude steel in the world by 2015‐16. It is already the world's largest producer of sponge iron with a host of coal based units located in the mineral‐rich states of eastern India. On the whole, the prospects for the Indian Steel Industry looks promising in the years to come.

The per capita steel consumption of steel in India in the last decade is still looming at 59 kgs against the global average of 215 kgs indicating the huge demand potential for growth. The situation is more alarming in rural India, where the per capita steel consumption is below 10 kgs. As over 70% of the Indian population resides in the rural areas, there is a tremendous scope for increasing steel consumption in the rural areas. 1kg per capita steel consumption in rural India will result in boosting steel consumption by 1 million TPA in India, which augurs well for Prakash Industries.

For FY15, PIL is all set to post an EPS of Rs.20 for FY15. At the current market price of Rs.110, the share trades at a forward P/E of 5.5 on FY15 expected earnings. The share can touch Rs.140 in the medium‐term. The 52‐week high/low of the share has been Rs.120/24.

By Nayan Patel

Poddar Pigments Ltd. BSE Code: 524570

Last Close: Rs.98.55 Poddar Pigments Ltd. manufactures and sells colour and additive masterbatches for dope dyeing of man‐made fibers and various plastic applications; and engineering plastic compounds in India and abroad. The company offers polyester masterbatches for applications in home furnishing, automotive, upholstery, luggage, lamination fabrics, etc.; tailor‐made masterbatches for fabrics, textiles, outdoor applications, and fluorescent effect; black masterbatches for fabrics, home furnishing, and apparels; white masterbatches for yarns, apparel, and fabrics; and additive masterbatches for yarns and plastics applications. It also provides polypropylene masterbatches for applications in carpets, home furnishings, upholstery, hosiery‐wear, PP strapping, and non‐woven and spun bonded fabrics; and polyamides masterbatches for apparels, carpets, home furnishings, upholstery, hosiery, automobiles, nonwovens, etc.

TECHNO FUNDA

Last 5 years performance: (Rs. in crore) Year Net Sales Net Profit EPS (Rs.)

2009‐10 153.09 14.19 12.10 2010‐11 186.48 9.55 9 2011‐12 221.93 9.84 9.28 2012‐13 275.55 12.79 12.06 2013‐14 313.23 13.47 12.69 2014‐15 (E) 350 16.50 15.55 2015‐16 (E) 395 20 18.85

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In addition, the company offers white, black, and custom colour masterbatches for film and packaging; masterbatches for broad pipe extrusion applications; cable masterbatches for jelly filled telecom and optical fiber cables; color masterbatches for PET bottle and pre‐form coverings; white, color, and antiblock masterbatches for BOPET film applications; and color and additives masterbatches for injection, blow, and roto moulding applications, as well as metallic, pearlscent, and fluorescent masterbatches. Further, it offers engineering plastic compounds that consist of unfilled colors, unfilled FR, glass filled FR, UV stabilized, mineral filled, and unfilled colors used in various applications, such as day to day consumer products, electrical switches and other electrical components, home appliances, automotives, telecommunication, railways, national defense, etc. The company offers its products under the Mastercol, Masteradd, and Masterplus names. Poddar Pigments was incorporated in 1991 and is headquartered in Mumbai.

It has an equity base of just Rs.10.61 crore that is supported by reserves of around Rs.71.23 crore, which is 6.71 times its equity. It has a share book value of Rs.79.77 and price:book value ratio is just 1.15, which is highly impressive. The promoters hold 60.20% while the investing public holds 39.45% stake in the company.

Poddar Pigments has reported strong Q1FY15 numbers wherein PAT rose 34.12% to Rs.3.97 crore from Rs.2.96 crore in Q1FY14 whereas total turnover was up by 21.28% at Rs.85.24 crore as against Rs.70.28 crore in Q1FY14. For FY14, net profit rose to Rs.13.47 crore from Rs.12.79 crore in Q1FY14 on a higher turnover of Rs.313.23 crore as against Rs.275.55 crore in FY13. It reported a quarterly EPS of Rs.3.74 for Q1FY15 while the annual EPS was Rs.12.69 for FY14.

This is a regular dividend paying company. It paid 20% dividend for FY13 and has declared 22.5% dividend for FY14. The company may declare Rs.350 crore turnover and Rs.16.5 crore profit in FY15 and may declare Rs.395 crore

turnover and Rs.20 crore profit in FY16. At its current market price, the share price discounts less than 6 times its FY15(E) EPS of Rs.15.55 and less than 5 times its FY16(E) EPS of Rs.18.85, which is much cheaper than its peers. The stock appears undervalued and is likely to attract value buying at this level.

Investors can buy this stock with a stop loss of Rs.82 on a closing basis. On the upper side, it will zoom to Rs.125 level in the medium‐term and Rs.160+ in the next 9‐12 months.

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IDFC Ltd. BSE Code: 532659 NSE Symbol: IDFC Last Close: Rs.163.95 IDFC Ltd. provides financial, advisory and management services for the infrastructure sector in India. It provides corporate investment banking services, which include project finance such as senior debt financing, mezzanine products, equity investments and non‐fund based products; fixed income and treasury services including the management of liquidity and investment & trading in debt instruments as well as advising clients on raising debt funds and helping them mobilize debt capital from the market; investment banking services in the areas of equity and debt capital markets, private equity syndication, and mergers and acquisitions; and equities brokerage and research services for institutional investors. The company also provides alternative asset management services that comprise private equity fund focusing on the infrastructure related development; investing structured equity in a portfolio of infrastructure assets; and medium‐to‐long‐term investments in the office and residential segments. In addition, it manages various mutual fund products for institutional and retail investors.

IDFC serves energy, telecommunication, transportation, hospital, education, tourism, and hotel industries. Founded in 1997, this Mumbai‐based company was formerly known as Infrastructure Development Finance Company Ltd. and changed its name to IDFC Ltd. in July 2012.

It has an equity base of just Rs.1516.29 crore that is supported by reserves of around Rs.13524 crore, which is 8.90 times higher than equity. The FIIs hold 51.81%, DIIs hold 29.62% while the investing public holds 18.57% stake in the company.

For Q4FY14, it posted lower net sales of Rs.2204.94 crore with net profit of Rs.257.94 crore against net sales of Rs.2217.51 crore with net profit of Rs.525.70 crore in Q4FY13. For FY14, it recorded higher net sales of Rs.8772.04 crore with lower net profit of Rs.1802.68 crore against net sales of Rs.8138.59 crore with net profit of Rs.1836.20 crore in FY13. The Q4FY14 EPS stood at Rs.1.70 while the FY14 EPS stood at Rs.11.89. The company has declared 26% final dividend for FY14.

Last 5 years performance: (Rs. in crore) Year Net Sales Net Profit EPS (Rs.)

2009‐10 4033.40 1062.29 8.20 2010‐11 4916.74 1281.65 8.77 2011‐12 6336.45 1554.01 10.24 2012‐13 8138.59 1836.20 12.13 2013‐14 8772.04 1824.19 11.89 2014‐15 (E) 9950 2350 15.49 2015‐16 (E) 11200 2800 18.46


IDFC may declare Rs.9950 crore turnover and Rs.2350 crore profit in FY15, which will further go upto Rs.11200 crore turnover and Rs.2800 crore profit in FY16. At its current market price, the share price discounts less than 10.5 times its FY15(E) EPS of Rs.15.49 and the share price discounts less than 9 times its FY16(E) EPS of Rs.18.46, which is highly attractive against its peers.

The stock appears undervalued and is likely to attract value buying at this level. Investors can buy this stock with a stop loss of Rs.140 on a closing basis. On the upper side, it will zoom to Rs.185 level in the medium‐term and Rs.225+ in the next 9‐12 months.

Editorial & Business Office: Goa Mansion (Gr. Floor), 58 Dr. S.B. Path (Goa St.), Near GPO, Fort, Mumbai – 400 001. Phone: 022-2265 4805, Telefax: 022-2261 6970. Editor & Publisher: R.N. GUPTA CHENNAI: T.A.S. Venkatasubba Rao (Phone: 044-24917241, Mobile: 9444024664) JAIPUR: Satram Das (Phone: 0141-2636341) BANGALORE: V. Raghurama Reddy (Mobile: 9591763126 / 9379559166) DELHI: P. K. Vasudevan (Mobile: 9810513247) All rights reserved. No portion of this publication may be copied or reproduced without the written permission of the publisher. Any infringement of this condition will be liable to prosecution. Printed & Published by R.N. Gupta for the proprietors Time Communications (India) Ltd. and printed by him at The Urdu Press 79-A, Jairaj Bhai Lane, Mumbai – 400 008. Registration No.: 63312/91, REGD. NO. MH/MR/South - 72/ 2006-08

Disclaimer: Investment recommendations made in Money Times are for information purposes only and derived from sources that are deemed to be reliable but their accuracy and completeness are not guaranteed. Money Times or the analyst/writer does not accept any liability for the use of this column for the buying or selling of securities. Readers of this column who buy or sell securities based on the information in this column are solely responsible for their actions. The author, his company or his acquaintances may/may not have positions in the above mentioned scrip.


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