BSE ID : 509715

NSE ID : JAYSREETEA

CMP: Rs.269.20
On an equity capital of Rs.11.17 crore, the company for FY10, is expected to have an EPS of around Rs. 75 and in FY11 an EPS of Rs.100 plus. The icing on the cake is the fact that the company is virtually debt free. Its total interest outgo till H1FY10 was a miniscule Rs. 4.59 crores, which is on account of the working capital needs.

Jayshree Tea and Industries

A BK Birla group company, Jay Shree Tea, the second largest bulk tea company was established way back in 1945. Over a period of time, acquiring a growing number of tea estates in both North and South India, it currently has 21 tea estates. 9,168 hectares is the area under cultivation and production is 21.80 million kgs. It produces around 10% of total Darjeeling tea produced in the country.

Besides tea, the company manufactures Single Super phosphate and Sulphuric Acid in its plants at Khardah and Gurgaon. The company is also engaged in Warehousing activities at Kolkatta and Kochi. It has also developed prestigious residential and commercial complexes at Calcutta and Bangalore. It is in the process of developing residential complexes in the heart of Kolkatta through its subsidiary Shiva’s Group Limited.

Tea is one crop, which is expected to show a shortage vis-à-vis the supply. The drought in Kenya, India and Sri Lanka has left a huge gap between the production and supply. The crop, as estimated in September 2009, was to have a deficit of around 110 million kgs but as per the latest estimate, this is now set to widen to 130 million kgs. And the shortage of crop is to percolate down to 2011 as well.

In India consumption is currently increasing at the rate of 3% per annum. At this rate, from being a net exporter of India presently, the likely trend emerging is that over the next 7-8 years, India could turn into a net importer.

Tea prices, which had soared to a high of $ 3.18 a kilogram in September 2009, compared to an average price of $ 2.38 per kilogram in 2008, are expected to go up even further. Price of Assam tea in India, which in 2008 was at around Rs 65 per kg, doubled up to Rs 130 per kg in 2009. Prices are expected to go up further and thus give a major boost to the earnings.

And all these very facts have been amply reflected in the financial performance of the company. For Q2FY10, as at 30th Sept 2009, it posted a net revenue of Rs 110 crore, which QoQ was up 58%. EBIDTA was up 116% at Rs 37.11 crore. Net profit was at Rs 33.16 crore, up 159%.

The most significant numbers, which reflect the higher realizations are the profit margins. OPM for Q2FY10 was at 33.76%, almost 3 times higher than the OPM of 12.39% of Q2FY09. The most significant has been the jump in NPM. It was at 30.14%, the highest in its history, compared to a mere 6.86% in Q2FY09.

For H1FY10, net revenue was at Rs 179.96 crore much lower than the Rs 417.76 crore for 12MFY09. But EBIDTA for H1FY10 was at Rs 72.4 crore vs Rs 34.80 crore for FY09. Net profit for the first half was at Rs 45.97 crore, as against Rs 13.88 crore for FY09. Clearly, Jay Shree will end FY10 on probably one of its highest ever numbers.

On an equity capital of Rs 11.17 crore, the company for FY10, is expected to have an EPS of around Rs 75 and in FY11 an EPS of Rs 100 plus.

The icing on the cake is the fact that the company is virtually debt free. Its total interest outgo till H1FY10 was a miniscule Rs 4.59 crores, which is on account of the working capital needs.

The stock touched a new 52-week high yesterday at Rs 398.70. It ended the day at Rs 389.75. And even at this rate, the stock has ample scope for future appreciation.

At the current rate of Rs 376.40, the stock is a prime pick to take advantage of the expected boom time for tea cultivators.

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Despite markets surging ahead, SRF continues to be available at low valuations. But with consistent performance, huge capex, high dividend yield, it is only about time that it will catch up with the valuations.

With the Sensex touching a 25-month high and the sentiment continuing to remain buoyant, it makes sense to hunt fundamentally strong counters available at good bargains. Our search led us to the Gurgaon based company SRF. Growing at a five-year CAGR of 22 per cent in profits, huge capex, 17-year dividend track record, high dividend yield, and EV/EBDITA of mere 4x makes SRF an attractive bet. The company operates in three segments viz, the technical textile business (TTB), chemicals and polymers business (CPB) and the packaging film business (PFB) each contributing 50 per cent, 34 per cent and 16 per cent respectively to total sales. Through these segments SRF caters to various industries such as automobiles, infrastructure, consumer durables, pharmaceuticals, agrochemicals etc. SRF is a consistent performer and has been growing at a five-year CAGR of 22 per cent in profits and 17 per cent in sales. To drive its future growth SRF had undertaken an aggressive capex of Rs 1,400 crore from FY08 through FY11 for expansion, backward integration and acquisitions. Some of SRF’s expansion plans include setting up of a 14,500 TPA polyester industrial yarn at a cost of Rs 184 crore, investing Rs 257 crore towards capacity enhancement and poly chip plant in the packaging film segment, Rs 40 crore for a dipping tyre cord plant, Rs 92 crore for wind power project and Rs 60 crore for laminates. Once this capex is completed it would push SRF revenues to another trajectory altogether. Secondly, SRF isn’t averse to growing inorganically and has acquired two companies in FY09 viz. Thai Baroda Industries (for USD 35-38million) which manufactures nylon tyre cord fabric (NTCF) and South Africa-based belting fabric manufacturer called Industex Belting (for USD 5 million). In fact SRF would continue to look for such opportunities, which augurs well. These acquisitions make SRF the world’s second-largest producer of NTCF as well as belting fabrics, strengthening its TTB segment. NTCF accounts for 80 per cent of its TTB revenues and 50 per cent of SRF’s total revenues. NTCF is used as reinforcement in tyres and SRF is a leader in India with a 50 per cent market share. Almost all tyre manufacturers are its clients. The revival of the auto sector, lack of new capacities coming up globally, buoyancy in the transport sector that will keep the replacement demand high and the anti-dumping duty imposed on NTCF imported from China will collectively provide good impetus for SRF to grow. But what’s more to the SRF story is the income it receives from the sale of Carbon Credits. It should be noted that SRF can generate maximum of 3.8 million certified emission reductions (CER) per annum and it is entitled to carbon credits till 2014. Though the company declined to comment further on this, considering the maximum units it can generate per annum and present rate per CER around Euro 12-15, SRF could end up making a cool Rs 271-338 crore, which is huge. Coming to the financials, SRF could post revenues and profits of Rs 2,019.61 crore and Rs 250-264 crore for FY10. At these estimates SRF generates PE of 4.8x, which is low when compared to Century Enka’s over 6x. Besides, SRF has declared two interim dividends each of Rs 7 per share in FY10 compared to Rs 5 for FY09. Assuming that these are final dividends for FY10, its dividend yield stands at a high of 7 per cent, which not only limits the downside, but indicates good upside potential. Hence one can buy the scrip with a target price of Rs 296.

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Praj Industries

Praj Industries with its years of experience in the field of setting up plants for manufacture of ethanol and also carrying out R&D for finding solution to use non-edible crops for the same has an edge over its competitors. Strong balance sheet, good management pedigree and robust business outlook makes Praj an interesting player in the long run.

Praj Industries

Praj Industries Ltd. (Praj) is a global Indian company that offers innovative solutions to significantly add value to bioethanol, bio-diesel and brewery plants and related wastewater treatment systems for its customers. Praj is a knowledge based company with expertise and experience in bioprocesses and engineering, commanding >75% market share in India. It delivers know how, license, engineering design, plant & equipment, project management, commissioning, customer care and turnkey projects.

Investment Rationale:-

Global presence with leadership position in Indian market:

Praj has established its presence in leading biofuel markets across the globe. Praj enjoys >75% market share in India (being the only listed player in this space and other 2-3 players in non-listed space). With sound R&D set up, Praj has been able to penetrate new geographies like EU, USA and South Central America and South East Asia, having huge potential for ethanol. Praj, now enjoys >50% market share in Latin America (excl. Brazil) and South East Asia. Praj is well established in EU and many other countries.

Demand for blended petrol to boost Praj’s top line:

The increase in demand from current 650 mn. litres in FY07 to 1029 mn. litres by FY12P – CAGR growth of 10% at 5% blending, is likely to drive orders for capital goods pertaining to ethanol manufacturing. Praj would be a key beneficiary here as it offers complete value chain from consulting to plant set up & commissioning.

Order Book of Rs 800 crore:

Order Book stands at 0.9x FY11E sales. Praj’s order book as on Dec 31’ 2009 stands at Rs 800 crore executable over next 12-18 months. Of the total order book 60% is from domestic & balance 40% is from outside India.

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GSK Pharma launched five products (including one vaccine – Cervarix) in CY09. The vaccine portfolio has seen a positive surprise in terms of demand. Going ahead, the company is expected to launch 6–8 products per year. Some of these will be positioned in the niche segment. In addition to the in-house product range, the company will have access to the dermatology portfolio of Stiefel.

The management has guided for revenue growth of 12–13 per cent for CY10 and CY11, up from the 9–10 per cent run-rate posted in the past two years. New product launches are expected to underpin the growth shift. GSK Pharma’s EBITDA margin increased 10 basis points to 36 per cent in CY09. The company intends to increase its field force and raise promotional expenses to support its new product basket. However, these incremental costs will be offset by an improving product mix and stronger operating leverage. In addition, niche product opportunities will offer a margin upside. The brokerage has revised its earnings estimates for Glaxo by 2–3 per cent for CY10 and CY11 to reflect the upbeat growth prospects, and maintains buy on the stock, which is currently trading at a P/E of 23 times its estimated CY10 earnings.

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Our channel checks indicate that TDR prices have increased 5-8 per cent since December 2009 and currently trade at Rs 2,600-2,900 per sq feet. The rate of increase in TDR prices has slowed down. For instance, in Bandra-Khar area, TDR price had increased from Rs 2,450 per sq feet on October 2009 to Rs 2,750 in December. The same is currently hovering around Rs 2,800-2,900.

Volumes have been weak and no large transactions were reported in January 2010. TDR prices are closing in on the previous peak of Rs 3,000-3,200 per sq feet recorded in late 2007, as residential volumes in suburban Mumbai continue to be strong. The brokerage estimates HDIL’s NAV at Rs 436 per share. The NAV estimates assumes long-term TDR price of Rs 2,200 per sq feet, which is significantly lower than current rates. It maintains a buy on the stock with a 12-month price target of Rs 436.

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The company reported fiat performance in the quarter ending December 2009 as sales slipped 5 per cent to Rs 67 crore, while net profit was flat at Rs 3 crore. The performance for the nine months ending December 2009 was slightly better. Though net sales gained 9 per cent to Rs 189 crore, net profit was up 46 per cent to Rs 7 crore. Despite the tepid performance so far, the company still looks grossly undervalued with market cap to annualised nine monthly sales of 0.74 times, say analysts. Also, technically, the stock, which is up down 3 per cent in the last fortnight, holds good. The stock has already crossed the 200-week moving average with good volumes. The monthly moving average convergence! divergence (MACD) has inched up in the positive territory and is moving upwards, indicating positive momentum, according to a report from Anagram Stock Broking.

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Heidelberg Cement India Ltd(HCL)(earlier know as Mysore Cement) is now owned 68.55% by Heidelberg Cement AG, Germany. The parent Euro MNC Heidelberg Cement is one of the three biggest cement producers in the world along with Holcim (which owns ACC, Ambuja) and La Farge, which has an unlisted presence in the country. HCL has two units – one at Ammmsandara in Mysore and another at Damoh in Madhya Pradesh. With up gradation and balancing at Damoh, the total capacity of MCL increased to 23 lac tpa in 2004-05
In 2006, Heidelberg took over the co. from Birlas, infused a sum of Rs 360 crore by making a preferential allotment of 6.5 crore shares to itself at a price of Rs 54 per share and cleared the debts, making the co. debt free. Thus not only has HCL become debt free, it has come out of the purview of the BIFR as well., with long term institutional and bank debts paid off. The stake was taken at Rs 54 per share. In December 2006, Heidelberg made an offer to the shareholders of Mysore cement to acquire 22.15% stake at Rs 58 per share. Within a short period of 3 months the Heidelberg led team accomplished a clean turn around at Heidelberg Cement India Ltd.

From Rs 10 cr, loss in calendar year 2006, the company posted a 29% YoY rise in net profit to Rs 125.55 cr, in the year ended Dec. 2008. Sales rose 35.36% to Rs 804.49 cr. The company posted a EPS of about Rs 7.94 on a equity of 158 cr. for CY2008. For the half year ended June 2009, the company posted a net profit of Rs 93.47 cr. (up 53%) on net sales of Rs 531.52 cr.(up 53%). The half yearly EPS on a expanded equity of 226.62 cr. stands at Rs 4.13. The 2 mn tpa cement producer Heidelberg cements sells for Rs 950 cr. in market cap(Equity Rs 226 cr, CMP Rs 42), and cash in deposit accounts of Rs 170 cr.-Heidelberg Cements sells for a net value of Rs 780 cr – one of the cheapest cement stocks in India.

The stock looks a good investment pick at current levels considering its fundamentals, CY09E earnings (Rs and future prospects. With Heidelberg at the helm of operations, the performance is bound to improve in coming years. Going forward, more measures for efficiency increase and cost reduction will be implemented, and focus will be on further, gradual expansion in capacities. All in all it’s a cement MNC stock available at the P/E of 5.25. The financials, debt free status of the company, its parentage and plans to raise capacity to over 6 mn tpa makes it the most interesting cement stock around. Investors can start accumulating the stock at current levels and add more on declines for decent returns of 40%-50% over the next 6-8 months.

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From FY06 to FY09, Total Income has increased by a CAGR of 23.22%, but PAT has decreased at a marginal rate of 4.04% respectively. This decrease in PAT as well as the issue of bonus shares makes the ROE appear unimpressive. For FY09, SFL posted net profit of Rs 167.88 cr. on total income of Rs 1,742 cr. on consolidated basis. On a equity of 55.55 cr.(after 1:1 bonus issue in Aug’08) (Promoters’ stake- 41.15%), the EPS stood at Rs 30.24 and the dividend declared was 65%. SFL posted net profit of Rs 150.73 cr. on total income of Rs 1,082 cr on standalone basis. SBNP Paribas Home Finance has a lion’s share in consolidated sales as well as consolidated PAT. Going forward, SFL has ventured into the financing of cars and multi-utility vehicles, which is a growing market. An increase in freight movement would revive both new and used commercial vehicles sales, triggering the need of their financing. Foreseeing the slump in commercial vehicles sales in FY09, SFL reduced its exposure on commercial vehicles which highlights the foresight of the management. For the Q1 ended June 2009, SFL has posted net profit of Rs 61.23 cr. on total income of Rs 271.1 cr. on standalone basis. The net profit for Q1 is higher due to exceptional item which represents sale of 10,17,998 Equity shares of face value Rs 5/- each in WABCO – TVS India Ltd.

SFL has got one of cleanest and high quality asset books as Gross and net NPAs are only 1.64% and 0.75% of the total assets. Its philosophy of building sustainable, long-term relationships ensures that growth is not achieved at the cost of quality. As high as 89% of the total assets are net current assets, indicating a strong balance sheet. Only 6.89% of the total assets are held up as investments. Further, only 50.62% of these investments are into equities indicating neglibible exposure to market risk. At the current price of Rs 302, the stock trades at about 10 times FY09 earnings and about 1.4 times Book Value (Rs 207.5). Accumulate on declines for good gains over the medium-long term.

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The company, as expected remains in the red and in Q2FY10, the net loss has only increased. For Q2FY01, the company reported a net loss of Rs.31.47 crore v/s Rs.28.12 crore in Q1FY10 and loss of Rs.26.31 crore in Q2FY09. The only good part about the loss is that it does not have to pay income tax!Despite the loss, the stock price has moved up sharply and this was mainly on account of the rise in revenue at Rs.2.55 crore as against Rs.1.73 crore in Q1FY10. This rise in revenue is very much in line what was expected since the first quarter. Right now, all that is happening in the company is development and no product is yet being sold commercially, so there arises no question of any major surge in income as such.

The company is focused on four therapeutic areas – cancer, diabetes, inflammation and infectious diseases. It currently has a pipeline of fourteen compounds. In cancer, it has three products that are in three Phase-II trials. In inflammation, three products are in Phase-II. In diabetes, the drugs are all in Phase-I and in infection, it has three Phase-II drugs.

Medical R&D is stated to be the ‘next big thing’ for India, given the lower costs on drug development. Compared to the USA or any other developed country, the R&D cost in India is just one-tenth. Hence, in the long run, it would be very good business for R&D units.

PLSL is expected to commercially launch its drug in fiscal 2011-12 and till then, it will continue to remain in losses. But once the drug is out and proves to be successful, it will become a goldmine.

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