Saturday, January 31, 2009

Larsen and Toubro CMP 690

L&T has announced excellent results and very easily it is one of the best performances in Q3 as far as India Inc is concerned. (Press Release Link)

· Sales growth of 35% to Rs 8700 Crore, PAT growth of 216% to Rs 1520 Crore (including one-time gain of Rs 916 Crore after sale of RMC business)

· For nine months ended 31 Dec 2008, Sales growth of 41% and PAT from normal operations grew by 30%.

Segment performance:-

In spite of Engineering activity being sluggish on account of industry slowdown, L&T's E&C division order flow was up 17% and revenues grew 54% YoY. Electronic and Electrical segment witnessed some deceleration as revenues there grew by 3%. MIP (Machine and Industrial Products) Segment revenues saw degrowth of 9%.

Overall order book for the nine months stands at Rs 39100 Crore growing by 30%.

Outlook:- World is grappling with recession and India is not separate from the world. But the impact so far has been limited up to falling revenues and profits for the industry. Even in such an environment, L&T has stood out and delivered so far. So it looks like a fine bet at current valuations and can earn handsome returns for the investors with a long-term view.

Fears about Satyam:- L&T had 4% stake in Satyam and now it is 12%. Going by news reports and various announcements, the investment in Satyam shares (8.11 Crore) by L&T comes to around Rs 630 Crore which is less than the one time gain of Rs 916 Crore they earned as other income. So what L&T has done is that they invested the one-time gain in Satyam, which makes a perfect business sense in my view. They have nothing to lose here as even if they write off this investment, only this one time gain is going to disappear. In current results also, if we ignore the RMC business gain of Rs 916 Crore, the Net Profit has till grown by 25%. So is there any worry on Satyam now? I don't think so!

Technical Evaluation:-

L&T has been range-bound for some time and has very strong support at 630-640 levels. The upside can be Rs 100-120 rupees more from here. 630 can be the SL for short-term investors.

Reliance Update -

As per last report on 22 Jan 2009 –(

Reliance has delivered more than the street expected, the stock is near support of 1080 and as long as it is above that we can easily see 1400 and above levels being tested. Our Turn Date given is 23 Jan 2009 (+/- 1 or 2 days error), with Reliance surprising positively, will we turn up from here?

Current Development:- In a major relief to Mukesh Ambani-led Reliance Industries Ltd (RIL), the Bombay High Court Friday allowed the sale of gas from the Krishna-Godavari basin at $4.20 per million British thermal unit (mBtu) and reserved final judgment on a case brought by Anil Ambani-run Reliance Natural Resources Ltd (RNRL)

Nifty made bottom on 23rd Jan itself and Reliance too is near our target of 1400. One can still hold it with 1240 SL and extend the target to 1520-1550.

Thursday, January 22, 2009

Reliance announces result Rs. 3501 crs profit for the 3rd quarter which is above market estimate with GRM (Gross refinery Margin) $10 highest in the industry.

· Cash & cash equivalent in hand Rs.28, 500crs ($5.9Billion), over 95% in bank.

· Jamnagar refinery 98% capacity utilization

Reliance continues to be amongst top 30 fastest climbers in the 2008 list of Global Fortune 500 companies, it is truly a rare feat in such recessionary times.

There were many rumors about hedging losses and Forex losses, but there is no such thing in the results going by the announcement. The company performance has been good and above market expectations.

Reliance Industries Ltd has informed BSE regarding a Media Release dated January 22, 2009 titled "Revenue and Earnings Growth in Challenging Times; RPL Refinery started on Schedule; KG D6 Oil Production Commenced in September 2008; KG D6 Gas Production Scheduled in This Quarter".

Link for Press Release

Today's Market View read:-

Reliance results will be out today and many reports talk about $1 bn loss on hedging of crude contracts. Given Reliance's track record, in any ten-year history they have grown by 20%. Acquisitions, stake sales have helped them grow in bad times too. Nobody knows what Reliance can deliver today; can there be some positive surprise? We will know only when results are out.

Reliance: During the quarter ended December 2007, the company had reported a net profit of Rs 8,079 crore, which included Rs 4,733 crore of extraordinary profit on sale of stake in Reliance Petroleum.

Reliance has delivered more than the street expected, the stock is near support of 1080 and as long as it is above that we can easily see 1400 and above levels being tested. Our Turn Date given is 23 Jan 2009 (+/- 1 or 2 days error), with Reliance surprising positively, will we turn up from here?

Sunday, January 18, 2009

Reliance Petroleum CMP 79.60

About the company:-

RPL is a subsidiary of Reliance Industries Limited. RPL has set up a green-field petroleum refinery and polypropylene plant in a Special Economic Zone at Jamnagar in Gujarat, India. With an annual crude processing capacity of 580,000 barrels of oil per stream day (BPSD), RPL is the 6th largest refinery in the world.

RPL commenced its crude processing on 25th December 2008. The entire refinery complex is expected to attain full capacity shortly. The commissioning of the RPL refinery hurls Reliance into the league of the largest refiners globally, both in terms of complex refining capacity and earnings potential.

Competitive advantage:-

RPL refinery is one of the world's most complex refineries with a Nelson Complexity index of 14.0. This will enable the refinery to process heavy-crude varieties and produce superior quality products that meet stringent specifications, even beyond the forthcoming Euro IV norms. The high complexity will also present a significant competitive advantage in the current industry landscape of increasingly heavy and sour new crude discoveries. (Read more about Nelson Complexity Index

Location advantage:

RPL refinery is located adjacent to RIL's existing refinery and petrochemicals complex, which is amongst the largest and most efficient complex in the world. The RPL refinery is located on the west coast of India which is in close proximity to the Middle East, the largest crude oil producing region in the world. This is expected to result in lower ship turnaround time and reduced crude freight costs.

Promoter backing:

Reliance Industries ( holds 70% and Chevron ( holds 5% stake in the company (as on 31 Dec 2008). Chevron has its business in over 100 countries all over the world and is a leader in finding, producing and marketing oil and gas, as well as other energy products. Reliance Industries is India's largest private sector company on all financial parameters and ranks among top 150 in the world in terms of profits.

Export advantage:

RPL is structured as an export-oriented refinery. Its design capability to meet the tight product quality norms globally gives it a relative advantage in various sophisticated markets. Indian market is a regulated market and output has to be sold at a regulated price. Being export-oriented refinery could allow RPL to retain benefit of healthier spreads in medium-term. The RPL refinery also enjoys a tax holiday of 7 years enabling a higher net margin.

RPL project progress so far in pictures:-

Technically speaking:-

The stock is moving in a band of 69 to 95 and once it breaks out, it can quickly achieve 110-120 levels. Accumulate the stock for good gains in next 2-3 months.

Friday, January 09, 2009

Markets are one crazy animal and we should never assume it to be rational always. Kargil war gave way to new high for the Sensex but just a resignation of a company chairman in India made Sensex fall by 750 points. As Willliam Wordsworth said, "Poetry is the spontaneous overflow of powerful feelings" and so is with market. It runs on only 2 emotions - Greed and Fear. But fortunately for us, these emotions play in cycles as one follows the other after a period of time is elapsed. As investors, we have to take calculated chances when we see fear dancing in the eyes of others. This is a bear market and time is needed to settle down. If you want to make money in this kind of market, look at things from an investor's perspective. Invest in good stocks, Satyam is not the only face of Indian Corporate Governance, definitely there are better managed companies and these dips should be opportunities to buy them. Good MNCs like ABB, Siemens, PSU stocks like BHEL, BEL, BEML, NTPC, PowerGrid, SBI, ONGC, long-standing managements like Tatas, Ambanis, Birlas, Maruti, ACC, the list can be very long. Tough times never last long, tough people do. Are you tough enough? If you are, go ahead and invest!
What should investors learn from Satyam? Read on here

Wednesday, January 07, 2009

Thermax CMP 203

Div Yield 3.94% Book Value Rs 62 (FV Rs 2) EPS Rs 23.56

Thermax Limited, the Rs. 3246 crore leader in energy and environment solutions; is one of the few companies in the world that offer integrated, innovative solutions in the areas of heating, cooling, power, water and waste management, air pollution control and chemicals. The sustainable solutions that Thermax develops for client companies; are environment-friendly and enable efficient deployment of energy and water sources. Thermax products and systems are in use in over 40 countries over the world, supported through a network of subsidiaries, manufacturing facilites and Sales and Service offices in 14 countries.

Thermax has shown consistent improvement in its fundamentals over the years. Its Sales and Profits have risen by 24.5% CAGR in the last 9 years. Order backlog as on September 30, 2008 was substantially higher than last year at Rs. 4071 crore (Rs. 2927 crore). The group order backlog was Rs. 4253 crore (Rs. 3234 crore).

New manufacturing facility at Baroda is well on track. Management indicates that it will break even by FY10 and will contribute to almost half of company's revenues by FY11.

The stock looks undervalued at current levels with market cap of around Rs 2400 Cr when FY08 total sales have been Rs 3157 Cr. A more comfortable thing is that it is a debt-free company.

Thermax financials at a glance

Technical Evaluation:-

Thermax is trading above its short-term moving averages and looks ready for moving up. Buy Rs 195-200 SL 185 Target 235-240 in a month’s time.

Friday, January 02, 2009

IDFC CMP 68.45

Fundamental Perspective:-

  • IDFC was established in 1997 as a private sector enterprise by a consortium of public and private investors to provide infrastructure financing. It already accounts for a quarter of the total bank lending to private projects in areas like roads, ports, power and airports. Active association with government in policy formulation has made IDFC a forerunner on the policy advisory space in infrastructure and the preferred investor, lender and advisor. In addition to lending, other focus areas for the company include asset management, private equity, debt finance and syndication opportunities. In FY09, it acquired Standard Chartered Mutual Fund. IDFC has 80% stake in IDFC-SSKI for investment banking and institutional broking.
  • IDFC has concluded the first half of the fiscal on a robust note with a pipeline of Rs 38 bn of un-disbursed but sanctioned loans. The institution has sufficient capital adequacy (22.2% in 1HFY09) and 14% growth in incremental sanctions. IDFC continued to maintain zero net NPA levels.
  • Non-fund based income was stable at 47% in recent results. The institution disburses loans against shares but it does maintain a loan to value ratio of 2 times. That's the reason why recent volatility in stock markets hasn't impacted IDFC's asset book so much.
  • Asset management fees have doubled with incremental revenues from Stanchart's asset management business (IDFC AMC). Investment banking and broking income have fallen by 20% YoY, expectedly so after weak equity markets in 2008.
  • The stock has lost quite a bit of ground from all time high at 235 to recent low at 45. This was mostly on the back of weak broader markets and global financial meltdown. In a recent move, Government has announced a stimulus package of Rs 50,000 Cr to shrug off the slowdown. It is to be a peculiar fund committed to provide loans to infrastructure projects like roads, power plants, ports, airports etc. IDFC can be one of the big beneficiaries of this package. Government is to announce one more such package in the near future, whether infrastructure sector will get a place in it remains to be seen.
  • According to government estimates, over $550 billion will be required for financing the infrastructure projects in India by 2012. Infrastructure is the backbone for any country, and in an emerging super-power like India, it is like a basic necessity for economic growth. IDFC has a private equity arm too, which raises and manages funds that invest in infrastructure companies - this is especially attractive when overall stock and debt markets are in jeopardy. At current valuations IDFC is quite undervalued and promises a nice margin of safety for investors.

Technical Evaluation:-

IDFC is in an ascending triangle and will break-out above 75. Buy at CMP and keep accumulating in dips for target of 89-92 in 2-3 months.