Nifty Divident Yield - 10 Years

Duration - 1 Jan 1999 to 28 Oct 2008

Minimum Value - .59

Maximum Value - 3.18

Average Value - 1.54

Median Value - 1.43



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Nifty P/B Chart - Last 10 Years

Duration - 1 Jan 1999 to 28 Oct 2008

Minimum Value - 1.92

Maximum Value - 6.55

Average Value - 3.77

Median Value - 3.795




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Nifty PE Chart - Last 10 Years

Duration - 1 Jan 1999 to 28 Oct 2008

Minimum Value - 10.68

Maximum Value - 28.47

Average Value - 17.84

Median Value - 17.685



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Core Projects - The Unusual Victim

Shareholders of Core Projects, a Mumbai-based IT company in the education space, were in for a shock as the share price tumbled from the Rs 240-level to close at Rs 46 in just a week. Around December 2007, the share price was around Rs 464.60 and Core Project was seen as one of the fastest growing IT companies in Maharashtra.

 The Deloitte Technology Fast 50 India 2007 Program conducted by Deloitte Touche Tohmatsu, Asia Pacific, recognizes fast growing technology companies in terms of their revenue growth over three financial years.  In this, our third year, we recognize 50 growing technology companies across India.

In the second place, with a three-year revenue growth of 2,167 percent is Core Projects and Technologies Limited, value leader providing best-of-breed IT solutions which enhance the functionality of global customers.

 in fact, a leading business magazine featured the company as one of the few investor friendly companies. Early in the year, AV Birla Group's private equity firm, TGS Investments, took a strategic stake in the company by investing around Rs 13.73 crore. Nothing much has changed fundamentally in the company reckons analysts, as the company largely focuses on education and related businesses. Being a small company, it has been growing at around 100% levels.

 In the first quarter, the company recorded a turnover of Rs 64 crore, and net earnings of around Rs 13 crore, which were 27% higher as compared to the same period previous year. Company sources maintain that this sell-off has more to do with the market conditions and not anything drastic with the company. The reason for this huge slide, according to analysts and trade experts, lies in the small- and mid-cap stocks.

“In bear markets small- and mid-cap companies face such pressures which is not new at all,” says Hasit Pandya, director, HPMG Shares and Securities. The company was cornered by operators, especially after it came in limelight, after the AV Birla interest and its FCCB issuances in May 2007. The shares started tanking on Friday, when they fell to Rs 140, after opening at Rs 229.

Analysts also reckon that around 16.75 lakh shares were converted from the $80 million issue, in May 2007. The conversion price was Rs 165.25 and with the share price in the 200-plus zone it meant straight profits for the investors. For a large-cap compay, this sell-off would have been absorbed smoothly. And then rumours that the shares pledged by some investors were offloaded after margin calls were unmet, added to the selling pressure. Sooner, there was a high net worth individual-led sell-off as the prices tanked further on Monday when they fell to Rs 59.65, after opening at around Rs 129.Volumes started mounting on Friday and around 15 lakh shares changed hands. Generally around 70,000 to 80,000 volumes are reached on this company, reckon market experts. The selling continued to gain and volumes touched... 1.91 crore on Monday and 2.18 crore shares changed hands on Tuesday. The company has an equity capital of Rs 37.96 crore with an Rs 2 face value and such heavy volume sell-off amounts to around 10% of the outstanding shares. Hence, this at the moment looks like a classic case of a company facing the small- and mid-cap vagaries.

GPIL - Quick update

Firm to set up coal-based plant in Jharkhand or Chhattisgarh.

Godawari Power and Ispat (GPIL), an integrated steel manufacturer based in Chhattisgarh, is mulling foray into commercial power generation with projects in Chhattisgarh or Jharkhand with capacities ranging between 300 to 1,000 mw with coal and coal rejects as fuel.

A consortium led by GPIL has been allocated four coal blocks at Nakia and Madanpur in Chhattisgarh with 243 million tonnes of total reserves, of which, GPIL’s share is 63 million tonnes. Of this, 40-50 per cent will be wastage such as coal ash and gases during coal processing.

GPIL was planning to optimise its coal mines with coal rejects-fired power plants as part of its backward integration expansions, said sources familiar with the development. GPIL would start mining by 2009 and set up power generation facilities by then, added sources.

“Our board of directors is yet to consider or finalise any plan and, now, we are concentrating only on the existing expansion plans to increase our operating margins. We may enter into commercial power business in future since our businesses are closely associated with power generation,” said Dinesh Gandhi, director, finance.

GPIL is a mid-sized integrated steel player producing sponge iron, steel billets, steel wires, wire rods and ferro alloys and generates captive power from waste gases produced at its steel manufacturing facilities.

GPIL currently has 53 mw of captive power consumption, which includes a 25 mw captive power plant commissioned in the first half of 2007-08. Of this, 11 mw is produced using byproducts of sponge iron.

According to sources, B L Agarwal, managing director of GPIL, in his personal capacity has picked up 25 per cent stake in Maruti Clean Coal and Power, a company floated in Chhattisgarh to set up a 270 mw coal-fired power plant with an investment of Rs 1,000 crore. However, GPIL has not firmed up any fuel linkages for this project, sources said.

GPIL is setting up a coal washery unit and a 0.6 mega tonnes per annum (mtpa) pelletisation plant with an overall capital expenditure of Rs 230 crore. This expansion would reduce the raw material cost helping increase operating margins up to 40 per cent.

With captive iron ore and coal mines ready for raw material supply by 2009, the company could enter into areas such as power production in a big way, said sources.

GPIL - As Reliable as Steel

Strong growth in the domestic infrastructure sector has boosted many allied business segments, including companies which manufacture steel wires and rods. 

There are a number of small players in this segment, but only companies with large volumes and backward integration capabilities are expected to do well. Godawari Power and Ispat (GPIL) is one such player. GPIL has invested in a steel billet unit, sponge-iron production plant, iron ore and non-coking coal mines, with the aim of insulating itself from the vagaries of input prices and improving operating profit margins. At the current price level GPIL’s financials and future plans make it an ideal pick for investors with a 2-3 year horizon. 

BUSINESS: GPIL manufactures mild steel wires, which are used as binding wire and barbed wire. To manufacture this end product, it produces all the required raw materials. 

This gives it two advantages — firstly, it is independent of the variability in the supply in raw materials, and secondly, it generates a higher operating margin. It also utilises waste heat generated during sponge iron-making process to produce power. This makes it self-sufficient in power. GPIL also manufactures ferro-alloy, which provides better operating margins. 

GROWTH DRIVERS: GPIL has been allotted an iron ore mine with estimated reserves of 15 million tonnes (mt), the final approval for which is pending. Once the company obtains this approval, it will take around four months to start mining the ore. This means the company will have sufficient captive iron ore supply for the next 30 years. 

This will also increase its operating margin to 35-40% of its net sales from the current 18%. GPIL is setting up a pellet plant at a cost of Rs 235 crore, which will utilise the iron ore fines to make quality coke. 

This will improve its capacity utilisation. The company was granted a sales tax waiver of Rs 300 crore in early ’00, which can be utilised till ’11. This will directly add to its bottomline. 

FINANCIALS: The company’s net sales and net profit have witnessed a compound annual growth rate (CAGR) of 59.8% and 89.8%, respectively in the past three years. Its current market capitalisation, at Rs 685 crore, is 1.55 times its FY07 net sales, which is the same as the industry average. GPIL’s operating margin, at around 18%, is nearly double that of peers like Ramsarup Industries and Bansal Wire Industries. Similarly, GPIL’s return on capital employed (RoCE) and return on equity (RoE) are 20% and 30%, respectively — slightly higher than that of other players in this segment.

VALUATIONS: The effect of the new pellet plant, captive iron ore and coal mines will be reflected in the company’s financials in FY10 and will also help to improve its operating margin to around 35%. The estimated EPS for FY09 and FY10 are Rs 47 and Rs 107, respectively. This translates into forward P/E multiples of 5.6x and 2.5x, respectively, at the current price level, providing sufficient upside growth potential. The EV/EBITDA multiples for FY09 and FY10 are 4.0 and 2.0, respectively. 

Moreover, if GPIL increases its dividend payout ratio consistent with the past two years, it will result in a 10% dividend yield after three years at historical investment cost. Hence, investors are advised to buy this stock at current levels of Rs 265 with a horizon of 2-3 years.

Assam Company - Multibagger of the Next Decade.

Some Quick Facts - 

• Tea Business is out of slump and tea prices are a lot higher than last year.
• By early 2010, the oil production will be atleast 5000 b\day. Assam companies share will be around 2000 b\day. At just $60 and $ at Rs45, the yearly revenue will be 197 Crores.
• Royalties and other expenses for oil will be a max of $25. Profit from the above revenue will be around 115 Crores. 
• By 2015, Oil output will be around 20,000 b\day. That is around 460 Cr profit per year. This is an EPS of around 15. a PE of just 10 will take the stock price to 150. At CMP of Rs 12, this is a upside of 1250%
• Gas production, Tea plantation and SEZ is not even considered in the above calculations.
  
• All the above assumtions are most conservative. Actual oil output and price realizations might be much higher.

Assam Company (ACL) is a tea plantation company which operates mainly in North-East India. It had an annual turnover of around Rs 150 crore in FY07 with a current market capitalisation (m-cap) of Rs 1,350 crore. The company has invested in a few oil & gas blocks in the North-East. Its fortunes are set to undergo a sea change as new oil discoveries generate substantial revenues and profits this year onwards. 

The company holds stakes in two highly prospective oil blocks in Assam operated by Canada-based Canoro Resources. According to estimates by independent experts, these fields together hold proven and probable (2P) reserves of around 460 million barrels of oil and around 1.3 trillion cubic feet (tcf) of natural gas. Canoro has drawn up plans to monetise these reserves in a phased manner starting ’08. 

Growth Drivers : As the support infrastructure gets ready, the production of nearly 4,190 barrels of oil equivalent per day (boepd) will commence from one field within next the three months. With this additional production, the total output will cross 4,500 boepd; ACL’s 40% share stands at 1,800 boepd. 

It is expected that over one-third of the total production will be crude oil, while the rest will be natural gas. Even at an average realisation of $80 per barrel of crude oil and $2.3 per mmbtu of natural gas, this single field will generate revenues of nearly Rs 100 crore annually for the company. 

Apart from the blocks shared with Canoro, ACL independently holds three small proven oil fields on a contract basis from ONGC for development, with estimated oil reserves of 30 million barrels. According to the contract, ACL will hold 35% and 70% participating interest in oil and gas, respectively. 

These proven fields are on a high-speed development path with new wells being drilled at more locations. At the same time, several existing producing wells are being refurbished. This provides potential for a further upside in petroleum production for ACL. To expand its geographical reach, ACL has formed a joint venture (JV) company with Texas-based DMG Exploration. This JV, named Austin Exploration, currently holds stakes in eight exploration blocks in Australia and the US, and is eyeing four exploration blocks in Mongolia. 

The company has floated a special economic zone (SEZ) with Gujarat State Petroleum (GSPC), which has received in-principle approval from the central government. This SEZ aims to provide various engineering products and services to hydrocarbon and energy industries. 

Out of the required 450 hectares (approx 1,110 acres), the company has already received possession of 317 hectares. It plans to invest around Rs 2,000 crore in this project over the next two years. 

Financials : The company currently depends on the tea plantation business for 95% of its revenues. It reported just 5% growth in net sales during the nine-month period ended September ’07. The net profit during the period declined by 25% on a year-on-year basis to Rs 4.8 crore. However, in future, ACL’s revenue growth will be driven by the success in its petroleum exploration and production (E&P) business. 

Valuations : Considering its growth plans, ACL is expected to post a PAT of around Rs 75 crore on turnover of Rs 230 crore during CY08. On a fully diluted equity capital of Rs 36 crore, its forward EPS works out to Rs 2.1. Based on this, the scrip, which is currently trading at Rs 44.30, is commanding a forward P/E of 21.3. Considering the potential in the E&P business, we believe there is substantial upside for investors with a 12-month horizon. 

One of the accepted ways of valuing a petroleum E&P company is based on its proven reserves. On a conservative basis, if we value every barrel of proven oil reserve at $4, the value of ACL’s share of proven reserves comes to around Rs 2,900 crore. The valuation of the E&P business is substantially higher than its current m-cap. 

Risk Factors : Petroleum E&P is a long-term and capital-intensive business. Any delay in execution of the proposed development plans, or any substantial and sustained fall in international crude oil prices, will have a substantial impact on the company’s financial performance.