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 –(http://tanmaygopal.blogspot.com/2009/01/reliance-announces-result-rs.html)

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) http://www.bloomberg.com/apps/news?pid=20601091&sid=a13q.Oi0MQ9Y&refer=india

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.

Reliance announces result Rs. 3501 crs profit for the 3^rd 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?

Reliance Petroleum CMP 79.60 http://www.reliancepetroleum.com/index.html

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 http://en.wikipedia.org/wiki/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 (http://www.ril.com/) holds 70% and Chevron (http://www.chevron.com/) 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:- http://www.reliancepetroleum.com/html/project_progress.html

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.

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