Saag RR Infra Ltd (SRRI) is a Public Limited Company listed on the Bombay Stock Exchange (BSE Scrip Code : 531374). The paid up capital of the company is Rs.10.5 crores.
SRRI was established in 1995 with the primary objective of property development. It later evolved into a versatile infrastructure company. A few years ago it was taken over by Saag Consolidated (M) Bhd (Saag), a key player in the oil and gas sector in Malaysia and the Asia-Pacific , with a view to using the local company as their vehicle to tap the enormous potential India has to offer in the Oil & Gas - Exploration &Production (E&P) Services sector, specifically in pipe-laying and well services technology. Saag targetted SRRI as the latter was already executing various construction projects for the Oil PSU's in India , and hence was already engaged with & had a relationship with the target clients, though in a different capacity.
After a few years of effort, the company made it's first breakthrough in the Oil & Gas E&P Services sector in India with a prestigious order of Rs 288 Cr from ONGC for charter hire of two offshore modular workover rigs, for a tenure of three years
Some months later it was successful in getting a second order from ONGC, but this was subsequently cancelled as the proposed sub-contractor to SRRI did not meet the required parameters.
Salient points about SRRI :
· The Infrastructure division has the capability and expertise of executing projects in the construction , water & sewarage domains. Current order book is about 60 Cr for this division.
· The E&P Services division of SRRI has bagged a 288 Cr order from ONGC , and is bidding for further projects in the Oil & Gas E&P space.
· The company had earlier planned to raise capital for expansion/working capital via a preferential issue, but the same has been shelved due to market conditions, The company will raise debt instead.
· The ONGC order will be executed over 3 years timeframe spanning 4 financial years, starting from Feb/March 2009. Approximate execution would be along the lines of 20 Cr, 96 Cr, 96 Cr & 76 Cr over the 4 financial years starting FY0809.
· Assuming a 15-20% NPM on the ONGC order, and (a) not assuming profitability from the construction division and (b) not considering further E&P Services orders , the company could still achive the following EPS for the next few years on current equity of Rs 10.5 Cr :-
200809 - Rs 3 - Rs 5
200910 - Rs 14.5 - Rs 19
201011 - Rs 14.5 - Rs 19
201112 - Rs 11.5 - Rs 14.5
Recommendation :
Assuming the company can deliver on this prestigious break-through order it will open up huge avenues for further business in the E&P sector. Given that the E&P industry will likely recover in a couple of years as global economies come out of recession and oil prices firm up again, and with enough visibility of earnings in the interim, we can consider an investment in Saag RR Infra at CMP of Rs 20.95 (closing price as on 12th Nov, 2008) and all declines, for multi-bagger returns over a 3-5 years holding period.
Author : Bosco Menezes
Recommendation Date : 12.11.2008
Disclaimer/Disclosure : At the time of writing this article the author has a position in the stock covered by this report. The author or any of his dependent family members may make purchases or sales of the securities mentioned in the report while the report is in circulation. Readers/recipients of this report are strongly advised to do their strict due diligence, and should be aware that the value of investments can go down as well as up. The author shall not be liable for any direct or indirect losses arising from the use of the contents of this report, and readers are therefore cautioned to use the information contained herein at their own risk. In fact, readers would do well to seek the advice of a qualified independent advisor. The author certifies that all of the views expressed in this report accurately reflect his personal views about the subject company at the time of writing this report. Feedback / brickbats may be hurled at the author at boscom@gmail.com .
Wednesday, November 12, 2008
SAAG RR Infra - E&P Services bet
Monday, July 14, 2008
Camson Biotechnologies Ltd - One for Phillip A. Fisher
When Phillip A. Fisher , one of the pioneers of modern investment theory, wrote his masterpiece "Common Stocks, Uncommon Profits", the very 1st point he listed in his checklist of things to look for in a company before making a purchasing decision was :
" Does the company have products & services with a sufficient market potential to make possible a sizable increase in sales for at least several years ?"
Well, if there ever was a company that so perfectly fitted the above postulate, it is Camson Biotechnologies Ltd (BSE Code : 590076).
Since pictures speak more than a thousand words, I will save myself a few thousand by entreating the reader to watch the following presentation which will explain what Camson Biotechnologies & the sector it operates in is all about : http://www.youtube.com/watch?v=qDFxhrv5KJI
" Does the company have products & services with a sufficient market potential to make possible a sizable increase in sales for at least several years ?"
Well, if there ever was a company that so perfectly fitted the above postulate, it is Camson Biotechnologies Ltd (BSE Code : 590076).
Since pictures speak more than a thousand words, I will save myself a few thousand by entreating the reader to watch the following presentation which will explain what Camson Biotechnologies & the sector it operates in is all about : http://www.youtube.com/watch?v=qDFxhrv5KJI
To tie-up a few salient points :
- Camson is fully integrated agri-biotech company producing bio-pesticides, bio-fertilizers, hybrid seeds & zero-residue fruits. It currently has 22 Bio Pesticides, 7 Bio Fertilisers and 17 Hybrid Seeds in it's product range.
- With the world increasingly becoming sensitive to chemical-free food, and exports increasingly needing to be zero-residue, demand for bio-fertilizers & bio-pesticides is zooming yearly. The world over, countries are moving towards banning agro-chemicals due to the increasing realisation of the longer term costs on the health of their populations.
- Bio-pesticides & hybrid seeds make up around 80% of the current turnover of the company. The company sells it's products at lower than the equivalent prices for the chemical-based products, and with the "chemical-free, zero-residue" advantages. This makes it a win-win for the farmer / contract farmer. Company has all the necessary certifications of it's products.
- Extensive details regarding the company, it’s products, it's vision etc can be accessed on it’s website : http://www.camsonbiotechnologies.com/
- Was ranked 34th fastest growing technology company in India in 2007 in the 'Technology Fast50 India 2007' programme conducted by Delloitte Touche Tohmatsu, Asia Pacific : http://www.camsonbiotechnologies.com/awards_certificates.html
- Management belongs to a family of agricultural technologists with decades of experience in agriculture.
- Promoters, Associates & group companies holding (including warrants outstanding) is around 55-60% though in the classification only 19.9% is currently shown as promoter holding.
- Company has grown 450% plus in last 2 years, scaling up from around 8-9 Cr in FY06 to 41 Cr in FY08. The company is targeting a 100% growth in topline in FY09, and a similar jump in FY10 too, which would need some further capital infusion, as the sector is capital-intensive.
- The company has built the base to continue this scorching pace of growth for the next several years.
- Among it's clients are HLL, Rajshree Sugar, Russel Tea, various state co-operatives etc.
- As far as seasonality of the business is concerned, some fruits , vegetables & crops are seasonal, while others are not, so overall seasonality factor is not very large.
- No Government controls for it's products.
- It has an impressive list of non-promoter shareholders ; Vivek Mundra is the latest entrant, having picked up a 1% stake recently.
Risks :
- Any adverse weather conditions affecting farming will impact the company in that particular quarter.
- Equity dilution - the author is informed that the fully diluted equity stands at 16 Cr . The Industry is working-capital intensive so maintaining the current rate of growth (company is growing 100% yearly) will require further cash infusions resulting in equity dilution – however incremental earnings will be at a far faster pace than any incremental equity dilution hereon.
- HR & other challenges typical to smaller companies growing at scorching rates
Recommendation : The stock quotes at Rs 74.10 as on 11th July, 2008. The author recommends buying the stock around it's March 2008 low of Rs 55 or below, strictly for a 3-5 year hold.
Author : Bosco Menezes
Recommendation Date : 14.07.2008
Disclaimer/Disclosure : At the time of writing this article the author has a position in the stock covered by this report. The author or any of his dependent family members may make purchases or sales of the securities mentioned in the report while the report is in circulation. Readers/recipients of this report are strongly advised to do their strict due diligence, and should be aware that the value of investments can go down as well as up. The author shall not be liable for any direct or indirect losses arising from the use of the contents of this report, and readers are therefore cautioned to use the information contained herein at their own risk. In fact, readers would do well to seek the advice of a qualified independent advisor. The author certifies that all of the views expressed in this report accurately reflect his personal views about the subject company at the time of writing this report. Feedback / brickbats may be hurled at the author at boscom@gmail.com .
Thursday, April 3, 2008
Capital Preservation - Priority No. 1
My advice to investors is to approach the current year (FY09) with a bit of caution & keeping capital preservation in mind.
- Inflation is on the rise & the Govt/RBI may take several decisions which might impact corporate performance one way of the other. Both frind & foe (Left & BJP) are going on the offensive on this & a knee- jerk reaction from the Govt is not ruled out.
- The FM has conspicuously lowered his growth projection to 'around 8%' and made it clear that he is willing to sacrifice growth to keep inflation in control.
- Expected reduction in interest rates will certainly be on hold for longer than anticipated, and there is a chance that it might even be reversed, even as the lag effect of previous rate hikes might start reflecting in bottomlines.
- Impact of Pay Commission recommendations on Central & State Govt finances, and also on that of PSU's indirectly, needs to be looked at closely. So also, the write-off of loans announced in the last budget.
- The Global situation is still volatile, and could continue to impact our market in the short to medium term.
- Forex Derivative-swap losses are coming out of wraps & even corporates with good standing seem to be affected. It has now become mandatory to disclose such losses & provide for them immediately, else auditors have been asked to highlight the non-provision in the notes to accounts. As many company's will not be declaring unaudited Q4 results & directly declaring audited full-year & Q4 results by June 30th, suspicions on this account could linger till then .
- Monsoon is due in a couple of months, let's see if the trend of good monsoons for several years now is maintained.
- Post monsoon, if inflation is under control, elections will be on the horizon, at which point of time market players may keep positions light.
- Down the line the impact of FCCB's coming up for conversion or repayment, where the market price is at a steep discount, will also have to be seen.
Despite all the above, one also has to keep in mind that bear markets are basically manna from heaven for the long term investor. So continue to look out for & add stocks which you feel are going abegging at much below fair value, and which you expect will give excellent returns if held for 2-3 years or more, state of the markets notwithstanding.
I would also recommend that this period of lull can be utilised well by investors to read the investment classics & try to learn from them and rectify mistakes going forward (it is never too late), so that one can be a better and more disciplined investor going forward.
- ZeeNut
Wednesday, January 23, 2008
Zen Technologies - Risk-free Buy
If Rakesh Jhunjhunwalla were to tell you that he had done his due diligence on a company, was buying the stock & that you could enter at the same price as him, would you do so ?
Well, most investors would, I guess. I surely would, given his excellent success rate & his eye for spotting multi-baggers in their infancy.
Not many of us are fortunate to have such conversations with RJ, but we can do the next best thing – read the announcements & notices that appear on the stock exchanges. And every once in a while, we may find RJ telling us a thing or two via this medium.
For example, on Friday, 18th Jan 2008, Zen Technologies (Bse Code : 590032) announced that it was making a preferential issue of shares and warrants to Rakesh & Rekha Jhunjhunwalla @ Rs 135/-. Aha, get the gist ?
Well, most investors would, I guess. I surely would, given his excellent success rate & his eye for spotting multi-baggers in their infancy.
Not many of us are fortunate to have such conversations with RJ, but we can do the next best thing – read the announcements & notices that appear on the stock exchanges. And every once in a while, we may find RJ telling us a thing or two via this medium.
For example, on Friday, 18th Jan 2008, Zen Technologies (Bse Code : 590032) announced that it was making a preferential issue of shares and warrants to Rakesh & Rekha Jhunjhunwalla @ Rs 135/-. Aha, get the gist ?
Anyway, so what did RJ see in this company ? If one reads the following reports (a bit dated) one will get a very good idea about this company :
http://kanavcapital.com/reports/ZenTechnologies.pdf
http://kanavcapital.com/reports/ZenTechnologies.pdf
Company Performance
While the company has not grown as envisaged over the last 1-2 years, it appears that the company is finally on the move, and this author expects the company to do sales of 30 Cr this year, 50 Cr next year (FY09) & better still in FY10. So one is looking at an EPS of Rs 10-12 this year and Rs 18-20 in FY09. Therefore current rates appear reasonable with good potential for upside.
Investment Recommendation
At the current rate of Rs 135, the same price as RJ is paying (and with the understanding that he has done a due diligence on our behalf), the company appears to be a risk free buy, even more so on declines.
Author: Bosco Menezes
Recommendation Date : 23.01.2008
Disclaimer/Disclosure :
At the time of writing this article the author has a position in the stock covered by this report. The author or any of his dependent family members may make purchases or sales of the securities mentioned in the report while the report is in circulation.
Readers/recipients of this report are strongly advised to do their strict due diligence, and should be aware that the value of investments can go down as well as up. The author shall not be liable for any direct or indirect losses arising from the use of the contents of this report, and readers are therefore cautioned to use the information contained herein at their own risk. In fact, readers would do well to seek the advice of a qualified independent advisor.The author certifies that all of the views expressed in this report accurately reflect his personal views about the subject company.
Feedback / brickbats may be hurled at the author at boscom@gmail.com .
Investment Recommendation
At the current rate of Rs 135, the same price as RJ is paying (and with the understanding that he has done a due diligence on our behalf), the company appears to be a risk free buy, even more so on declines.
Author: Bosco Menezes
Recommendation Date : 23.01.2008
Disclaimer/Disclosure :
At the time of writing this article the author has a position in the stock covered by this report. The author or any of his dependent family members may make purchases or sales of the securities mentioned in the report while the report is in circulation.
Readers/recipients of this report are strongly advised to do their strict due diligence, and should be aware that the value of investments can go down as well as up. The author shall not be liable for any direct or indirect losses arising from the use of the contents of this report, and readers are therefore cautioned to use the information contained herein at their own risk. In fact, readers would do well to seek the advice of a qualified independent advisor.The author certifies that all of the views expressed in this report accurately reflect his personal views about the subject company.
Feedback / brickbats may be hurled at the author at boscom@gmail.com .
Wednesday, November 28, 2007
Almondz Global Securities Ltd - Striding Ahead
It is said that the best investment ideas are often the simple common sense ones. This report will introduce you to an investment idea whose beauty lies in it’s simplicity.
The answers to 2 simple questions will give you, the reader, a gist of where the author is coming from :
· Is India really in a midst of an unprecedented & huge secular growth story ?
· Can this growth story sustain without a corresponding growth in the financial services sector ?
If your answer to the first question is the affirmative, you would be in the company of most economists, analysts, institutions, government agencies, the World Bank ….. the list is endless. Most predictions of the growth of the Indian economy range from a minimum of 7 % per annum (the conservative estimates), to double digit growth per annum (the optimistic estimates).
This would lead us to the second question & the obvious answer :
No, this growth story would undoubtedly need the financial services sector to also grow at a frenetic pace, ensuring that capital can be raised efficiently by businesses, and investment opportunities & instruments were readily available for investors, both institutional & retail. Thus India’s growth story presents huge opportunities for players in the financial services sector capable of grabbing them.
For an investor, identifying the companies in this sector that are most geared up to & capable of grabbing these opportunities, while at the same time being comparatively under-researched, could lead to potential multi-bagger returns in a market where most of the “known” stories are already adequately discounted. The author believes he has found one such company :
Almondz Global Securities Ltd (BSE Code : 531400)
The answers to 2 simple questions will give you, the reader, a gist of where the author is coming from :
· Is India really in a midst of an unprecedented & huge secular growth story ?
· Can this growth story sustain without a corresponding growth in the financial services sector ?
If your answer to the first question is the affirmative, you would be in the company of most economists, analysts, institutions, government agencies, the World Bank ….. the list is endless. Most predictions of the growth of the Indian economy range from a minimum of 7 % per annum (the conservative estimates), to double digit growth per annum (the optimistic estimates).
This would lead us to the second question & the obvious answer :
No, this growth story would undoubtedly need the financial services sector to also grow at a frenetic pace, ensuring that capital can be raised efficiently by businesses, and investment opportunities & instruments were readily available for investors, both institutional & retail. Thus India’s growth story presents huge opportunities for players in the financial services sector capable of grabbing them.
For an investor, identifying the companies in this sector that are most geared up to & capable of grabbing these opportunities, while at the same time being comparatively under-researched, could lead to potential multi-bagger returns in a market where most of the “known” stories are already adequately discounted. The author believes he has found one such company :
Almondz Global Securities Ltd (BSE Code : 531400)
CMP : 70.45 (closing price on the BSE on 27.11.2007) .
Note : This is an updated recommendation, the author has recommended the stock on various message boards a year ago at Rs 25/- levels & thereafter made a formal recommendation at Rs 62.60 on 21.2.2007. This formal report is being re-issued herewith with suitable updates .
Almondz Global Securities Ltd – Company Profile
Almondz Global Securities Ltd (AGSL), formerly called Allianz Securities Ltd, was incorporated in 1994, and is the flagship company of the Almondz group.
AGSL is a SEBI registered Merchant Banker with vast expertise in Corporate Finance, Debt Portfolio Management and Retail Distribution of Financial Products. Post the merger of it’s sister concern Almondz Capital Markets Pvt Ltd (ACML), an emerging player in the retail brokerage industry, AGSL is set to emerge as an integrated broking firm with a wide range of service offerings. The merger is currently underway.
The holding company of the group Almondz Capital & Management Services Ltd, is also a listed company.
Board Of Directors
The Board Of Directors of AGSL consists of eminent personalities having rich & varied experience in the Indian financial sector :
• Atul Kumar Shukla, Chairman
(former Chairman, Life Insurance Corporation of India).
• K.L. Khetrapaul, Director
(former Executive Director, Reserve Bank of India)
• C.K. Tikku, I.R.S., Director
(former Chairman, Central Board of Direct Taxes (CBDT)).
• M.K. Aggarwal, Director
(former Managing Director, State Bank of Hyderabad.)
• S. R. Bansal, Director
(Lawyer; Member of Institute of Internal Auditors, USA and Member of Association of Certified Fraud Examiners, USA.)
• G.P. Agrawal, Director
(formerly Advisor / Director in various companies advising on Corporate Affairs, Capital Market, Company Law and Legal matters.)
• Jagdeep Singh, Director
(associated with Allianz Group since inception.)
• Navjeet S. Sobti, Executive Vice-Chairman.
(Promoter-Director).
• Vinay Mehta, Managing Director & CEO
(formerly Group Head – Risk, with Centurion Bank of Punjab Ltd)
Products / Offerings
AGSL has a gamut of products that cover the entire investment spectrum, organized under verticals with a focused approach & attention to each :
(A) Investment Banking
· Management of IPOs, FPOs & Rights issues
· Private Placement Of Equity & Debt
· Delisting, Takeover, Substantial Acquisition & ESOPs
· Managing Debt Issues
· Syndication Of Term Loans
· Tie-up of Project Finance
(B) Debt Portfolio Management Services
· Secondary Market Debt Operations
· Debt Portfolio Advisory
(C) Infrastructure Advisory Services
· Appraisal of bids/proposals on behalf of government institutions in the Power, Roads, SEZs and Urban Infrastructure Sector
(D) Retail & Distribution (Financial Products)
1. Distribution of Equity & Debt IPO’s, including institutional placement
2. Mutual Funds
3. Tax Saving Instruments
4. Fixed Deposits
5. Life Insurance products
(E) Equity Brokerage – Retail & Institutional (including Online trading)
(F) Retail Commodity Brokerage &
(G) Launch of India-Specific Funds at a later date (in a tie-up with the Noble Group)
AGSL's client base in the Corporate Finance segment covers all leading Public Sector Undertakings, large Corporates and the vast and increasingly important segment of SMEs.
In the Debt markets, the company has relationships with over 3500 leading Provident Funds.
In Retail Distribution, it has built a large base of retail customers along with an associate / sub-broker network of 1500 across the country.
The Company has also set up a Private Clients business to advise and manage Strategic and Private clients.
The biggest growth driver going forward is likely to be the brokerage foray, which is covered in detail below.
Brokerage Foray (via ACML, being merged with AGSL)
Note : This is an updated recommendation, the author has recommended the stock on various message boards a year ago at Rs 25/- levels & thereafter made a formal recommendation at Rs 62.60 on 21.2.2007. This formal report is being re-issued herewith with suitable updates .
Almondz Global Securities Ltd – Company Profile
Almondz Global Securities Ltd (AGSL), formerly called Allianz Securities Ltd, was incorporated in 1994, and is the flagship company of the Almondz group.
AGSL is a SEBI registered Merchant Banker with vast expertise in Corporate Finance, Debt Portfolio Management and Retail Distribution of Financial Products. Post the merger of it’s sister concern Almondz Capital Markets Pvt Ltd (ACML), an emerging player in the retail brokerage industry, AGSL is set to emerge as an integrated broking firm with a wide range of service offerings. The merger is currently underway.
The holding company of the group Almondz Capital & Management Services Ltd, is also a listed company.
Board Of Directors
The Board Of Directors of AGSL consists of eminent personalities having rich & varied experience in the Indian financial sector :
• Atul Kumar Shukla, Chairman
(former Chairman, Life Insurance Corporation of India).
• K.L. Khetrapaul, Director
(former Executive Director, Reserve Bank of India)
• C.K. Tikku, I.R.S., Director
(former Chairman, Central Board of Direct Taxes (CBDT)).
• M.K. Aggarwal, Director
(former Managing Director, State Bank of Hyderabad.)
• S. R. Bansal, Director
(Lawyer; Member of Institute of Internal Auditors, USA and Member of Association of Certified Fraud Examiners, USA.)
• G.P. Agrawal, Director
(formerly Advisor / Director in various companies advising on Corporate Affairs, Capital Market, Company Law and Legal matters.)
• Jagdeep Singh, Director
(associated with Allianz Group since inception.)
• Navjeet S. Sobti, Executive Vice-Chairman.
(Promoter-Director).
• Vinay Mehta, Managing Director & CEO
(formerly Group Head – Risk, with Centurion Bank of Punjab Ltd)
Products / Offerings
AGSL has a gamut of products that cover the entire investment spectrum, organized under verticals with a focused approach & attention to each :
(A) Investment Banking
· Management of IPOs, FPOs & Rights issues
· Private Placement Of Equity & Debt
· Delisting, Takeover, Substantial Acquisition & ESOPs
· Managing Debt Issues
· Syndication Of Term Loans
· Tie-up of Project Finance
(B) Debt Portfolio Management Services
· Secondary Market Debt Operations
· Debt Portfolio Advisory
(C) Infrastructure Advisory Services
· Appraisal of bids/proposals on behalf of government institutions in the Power, Roads, SEZs and Urban Infrastructure Sector
(D) Retail & Distribution (Financial Products)
1. Distribution of Equity & Debt IPO’s, including institutional placement
2. Mutual Funds
3. Tax Saving Instruments
4. Fixed Deposits
5. Life Insurance products
(E) Equity Brokerage – Retail & Institutional (including Online trading)
(F) Retail Commodity Brokerage &
(G) Launch of India-Specific Funds at a later date (in a tie-up with the Noble Group)
AGSL's client base in the Corporate Finance segment covers all leading Public Sector Undertakings, large Corporates and the vast and increasingly important segment of SMEs.
In the Debt markets, the company has relationships with over 3500 leading Provident Funds.
In Retail Distribution, it has built a large base of retail customers along with an associate / sub-broker network of 1500 across the country.
The Company has also set up a Private Clients business to advise and manage Strategic and Private clients.
The biggest growth driver going forward is likely to be the brokerage foray, which is covered in detail below.
Brokerage Foray (via ACML, being merged with AGSL)
· AGSL (via ACML) has memberships of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) and offers broking services across market segments (Cash and F&O).
· It is a Certified Clearing Member for both the Cash and F&O segments of the market
· The company is a Depository Participant with the Central Depository Services India Ltd. (CDSL)
· It has a 100% subsidiary “Almondz Commodities Pvt. Ltd.” which has memberships of the Multi Commodity Exchange of India Ltd. (MCX) and the National Commodity and Derivatives Exchange (NCDEX)
· AGSL has chalked out plans to become a significant player in Institutional and Retail Broking. The organization is built around these two business segments, each having its own revenue and cost centers and separate business drivers
· AGSL’s larger foray is intended in Retail. Large scale recruitment is currently underway for Retail. Over 250 employees recruited, including 100 in operations and support functions. Total sales force estimated at 1500 people by early FY09.
Retail foray to have the following attributes:
-> Capital Intensive in the first year
-> Technology savvy (fast, easy to use online trading platform)
-> Clearly defined Risk Management and Operation Systems
-> Quality Manpower
-> Pan India footprint within 12 months
Institutional Business Model
The Institutional Business aims to have at least 50 empanelments over the next 12 months. The Almondz group is leveraging it’s existing institutional relationships to get a strong foothold in this business.
Institutions prefer to empanel only those companies with strong research capabilities & extensive access to company managements. Here again the Almondz group is leveraging it’s extensive existing Corporate Relationships built up over the years.
AGSL has already tasted success in it’s efforts, and has been empanelled by various banks & institutions.
Retail Business Model
· AGSL aims to be one of the Top Five Retail Financial Services players in the country
· The company has put in place high sales performance standards and a strong incentive system which will encourage performance. The system is expected to create a Retail organization over a period of time comprising high performers
· The Sales Force will be empowered by giving them access to different financial products.
· The Online Platform will have both Browser as well as an EXE based interface for HNI clientele
· Centralized Operations have been created to manage the backend needs of the Retail Organization. The back-office has been segregated into specialized functions such as DP, Stocks, Trade Processing, Risk, Funds, Dispatch, Help Desk etc
· Large Sales Hubs will be created across important Financial Centre's to drive Business. These Hubs will have more than 100 Relationship Managers
· Franchisee model may also follow at a later stage
AGSL – Latest Developments
Tie-up With Noble Group
AGSL has entered into a Memorandum of Understanding (MoU) with Noble Group (website http://www.noblegp.com/) , an Independent Investment bank in UK, to jointly pursue cross-border business opportunities in the financial services domain.
The principal areas of co-operation include setting up a Foreign Institutional Investor (FII) desk in London and Mumbai, starting primary equity operations, and establishing a fund through which principal investments will be made by Almondz and Noble Group in India.
The two firms plan to establish a FII desk in London. The desk will develop the business of selling Indian listed equity products and equity linked and hybrid securities to UK and other International Institutional Investors, and UK equities to Indian Institutional Investors.
Besides setting up the FII desk, Almondz and Noble will be working together to develop a strategy for Indian Companies interested in listing or offering equity (including ADRs, GDRs and equivalents) and also establish an India specific Fund.
AGSL - Growth Drivers
• With rising household incomes & investible surplus’s, and with hardly 5% retail participation in equity/debt markets, there is a humungous opportunity waiting to be tapped. AGSL is well poised to make the most of this opportunity.
• Strong macro economic factors, rising industry confidence, increasing capex & infrastructure spend make for an ideal environment for AGSL’s corporate finance segment to grow significantly in the coming years.
• Distribution of Life Insurance products opens up another lucrative line of business with great potential .
• AGSL is enhancing it’s focus & services in the Infrastructure Advisory line, which again offers a huge business opportunity. AGSL would be adding Debt Portfolio Management and Debt Advisory Services in the coming year, where it senses a lot of institutional & HNI interest
• Merger with ACML opens up an exciting opportunity in the brokerage industry, one that will pay-off from 2008 onwards.
• Tie-up with the Noble Group promises to open up another exciting opportunity for AGSL. Results of this association would be seen from FY09 onwards.
Risks / Mitigation
• The aggressive growth plans of AGSL would require timely availability of finance. However the holding company has committed itself to providing adequate & timely finance. The company has already been successful in issuing a preferential placement to the promoter group & the Bennett & Coleman group @ Rs 80/- , and is likely to bring in further capital by way of preferential issues in future too.
• Execution capabilities would be very important to make the most of the huge opportunities available . However AGSL has proved itself over the last few years & with the new team in place ably led by Mr. Vinay Mehta, and with strategic advice from an illustrious board of directors, this may not be a high risk area going forward.
• Any slowdown in the Indian economy would affect the prospects of the financial services sector. However the vast majority of opinion is in favour of the line of continued growth over the next few years.
• The brokerage division would gradually become a major contributor to the top & bottom line of AGSL. Since the major revenue would come from brokerage earnings, with the average brokerage earned per client as an important consideration, any long term lethargy in the stock markets would sap investor interest & reduce this figure. While this is something that cannot be predicted with any great accuracy, it is the opinion of the author that the country is in the midst of a multi-year boom in economic growth, and the stock market will have to follow suit, albeit with breathers from time to time.
• AGSL would need to ramp up it’s sales force & coverage rapidly to compete with the established players like IndiaBulls, Sharekhan, India Infoline, Geojit, Religare, Reliance Money etc. It would also face stiff competition from these brokerage houses in terms of client additions, brokerage rates, superior trading systems, recruitment & retention of appropriate human resources. Recruiting the right human resources at competitive packages & retaining them would provide quite a challenge.
The author’s anticipation of AGSL’s projected numbers for FY09 (post equity dilution) :
Estimated fully diluted Equity (post merger with ACML & estimated 2 further tranches of equity placement by FY09) : Rs 24 Cr
Estimated EPS for FY09 : Rs 12/-
Estimated Market Price (at PE of b/w 15-20) by July 2009 : Rs 180/- to Rs 240/- *
* Brokerage firms like India Infoline, IndiaBulls, MOST, Religare etc are currently enjoying P/E ratios of 30+ on FY07 earnings
Recommendation
Almondz Global Securities Ltd appears to be well placed to make the most of the humungous opportunity that India’s secular growth story offers the financial services sector. With the merger of the unlisted ACML with AGSL, the value in the Almondz group is all set to get unlocked through the group’s listed entities.
With respect to ACML, it is to be noted that Retail business is capital intensive in the initial year of operation with massive one time investments in establishment of Branches and Technology. Also, significant manpower recruitment in ACML will happen over the course of the first 2 years, the full impact of which will be realized in the following years. Given these two facts, the author feels that there will be huge improvement in both top line and bottom line numbers of AGSL from FY09 onwards, as the contribution from ACML rises exponentially.
The author expects AGSL’s discounting to steadily catch up with that of it’s peers, like IndiaBulls & India Infoline. The author feels that AGSL could well turn out to be a multi-bagger and suggests investment at current levels & on all declines taking a two year investment view on the company.
Author : Bosco Menezes
Recommendation Date : 28.11.2007
Disclaimer/Disclosure
At the time of writing this article the author has a position in the stock covered by this report. The author or any of his dependent family members may make purchases or sales of the securities mentioned in the report while the report is in circulation.
Readers/recipients of this report are strongly advised to do their strict due diligence, and should be aware that the value of investments can go down as well as up. The author shall not be liable for any direct or indirect losses arising from the use of the contents of this report, and readers are therefore cautioned to use the information contained herein at their own risk. In fact, readers would do well to seek the advice of a qualified independent advisor.
The author certifies that all of the views expressed in this report accurately reflect his personal views about the subject company.
Feedback / brickbats may be hurled at the author at boscom@gmail.com .
The author certifies that all of the views expressed in this report accurately reflect his personal views about the subject company.
Feedback / brickbats may be hurled at the author at boscom@gmail.com .
Tuesday, October 16, 2007
UT Ltd - Turnaround Candidate
UT Ltd (Bse Code : 526879) is India’s leading manufacturer of Hydraulic Cylinders, and is poised to be a total hydraulics solution provider in the mobile earth moving machinery & truck hydraulics industry.
Sales breakup of UTL is :
· 35-40% Truck hydraulic systems [ Main Clients : Ashok Leyland, Telco, Eicher ]
· 30-35% Earthmoving machinery hydraulic systems [ Main Clients : BEML, Caterpillar, Telco ]
· 10-15% Other Hydraulic Cylinders
· 10-15% Hydraulic Elevators (up to 6 floors)
Above %’s include maintenance/servicing contracts which is approx 6% of the total sales. They have service centre’s all over the country.
Company’s main activity is manufacturing of hydraulic cylinders, though the company had got in to trading (import & selling of hydraulic machines) a couple of years ago. The company has 3 manufacturing facilities : Budge Budge, Kolkata, West Bengal; Hosur, Tamil Nadu; Sahibabad, Uttar Pradesh.
The company’s main raw material is steel tubes (ISMT) which it uses to build it’s products. Steel tubes prices have been fairly stable in the last 2 years. These prices in turn depend on steel prices.
The company’s main competitors are Wipro Infrastructure Engineering (formerly Wipro Fluid Power) & Hyva (India) Pvt. Ltd., a fully owned subsidiary of M/s Hyva Holding b.v. of The Netherlands.
Current Performance :
The company has been making losses in recent times because of it’s low margin front-end hydraulic systems (front end tipper) business - the company imports these systems & sells the same in India - and being on the wrong side of currency fluctuations. But it is exiting from it’s low-margin products, and should complete it's exit from these products by Oct 2007. So while Q1 of FY08 showed a loss & Q2 should also follow suit, the company is expected to turn around from Q3 onwards.
To quote from the Directors Report for the year ended 31st March, 2007:
"
Your Directors are pleased to inform that your Company has maintained its market share and posted Gross Turnover of Rs. 10057.49 lacs as against the previous years turnover of Rs. 10145.71 lacs. This is explained by the fact that the Company, during the course of last year, consciously decided to withdraw from the low profit margin product range. Though there has been a small drop in the overall sales compared to last year, we have achieved a 10.75% growth in the sales of the core product range.
The Net Profit for the year under review is Rs. 66.27 lacs as against the previous years net profit of Rs. 267.23 lacs. Net Profit is lowered due to a) the impact of Euro fluctuation and b) higher interest cost on account of the additional inventory of the low-margin products from which your company has since withdrawn.
"
Outlook Going forward :
The company in looking to achieve faster growth in both top & bottom-line going forward.
In quest of this it is focusing on various front’s :
· The company is enhancing it’s productive capacity by introducing new & upgraded technology, and state of the art machinery.
· Cost Control – It is looking to import more from Chinese suppliers who are the lowest cost producers of steel tubes
· It is trying to build better volumes from existing clients by offering better prices, which are possible because of a combination of their exit from loss-making businesses/products & economies of scale.
· The company is targeting to benchmark itself as the lowest cost producer of hydraulic equipment in the world.
· It is trying to leverage & extend it’s existing relationships to become “Strategic Partners” of some of it’s domestic & global clients, which can lead to big scaling up in volumes.
Quoting again from the Directors Report for the recently concluded fiscal :
"
Your Company has identified new markets, both Indian and global where due to value added products, realizations will improve substantially in the financial year 2007-08 and your Company is confident of achieving good topline as well as bottomline growth, on year-to-year basis.
"
Industry Outlook :
Globally the construction equipment industry has grown to 114 billion USD, with an 11% growth in the last fiscal. The Indian construction equipment industry grew by 34% from 5064 Cr to 6800 Cr in the last year, far ahead of India’s GDP growth of 9.4%, pushing up demand for hydraulic systems.
This trend is likely to continue in the next few years too, and UT Ltd is looking to exploit these opportunities & become a one-stop shop for global & domestic players to source their hydraulic systems.
Negatives (Industry/Company) :
· Steel prices are gradually rising & hence the prices of steel tubes would follow suit.
· Chinese manufacturers have also entered the Indian market, targeting price-sensitive Indian customers
· Management has failed to deliver on analyst/investor expectations in the past. An immediate point of concern is that the company's CEO has left the company in Sept 2007, as per a company announcement. It is important that a new CEO should be appointed as a top priority, so that the company's transition from a promoter-managed company to a totally professionally-managed company proceeds smoothly.
Sales breakup of UTL is :
· 35-40% Truck hydraulic systems [ Main Clients : Ashok Leyland, Telco, Eicher ]
· 30-35% Earthmoving machinery hydraulic systems [ Main Clients : BEML, Caterpillar, Telco ]
· 10-15% Other Hydraulic Cylinders
· 10-15% Hydraulic Elevators (up to 6 floors)
Above %’s include maintenance/servicing contracts which is approx 6% of the total sales. They have service centre’s all over the country.
Company’s main activity is manufacturing of hydraulic cylinders, though the company had got in to trading (import & selling of hydraulic machines) a couple of years ago. The company has 3 manufacturing facilities : Budge Budge, Kolkata, West Bengal; Hosur, Tamil Nadu; Sahibabad, Uttar Pradesh.
The company’s main raw material is steel tubes (ISMT) which it uses to build it’s products. Steel tubes prices have been fairly stable in the last 2 years. These prices in turn depend on steel prices.
The company’s main competitors are Wipro Infrastructure Engineering (formerly Wipro Fluid Power) & Hyva (India) Pvt. Ltd., a fully owned subsidiary of M/s Hyva Holding b.v. of The Netherlands.
Current Performance :
The company has been making losses in recent times because of it’s low margin front-end hydraulic systems (front end tipper) business - the company imports these systems & sells the same in India - and being on the wrong side of currency fluctuations. But it is exiting from it’s low-margin products, and should complete it's exit from these products by Oct 2007. So while Q1 of FY08 showed a loss & Q2 should also follow suit, the company is expected to turn around from Q3 onwards.
To quote from the Directors Report for the year ended 31st March, 2007:
"
Your Directors are pleased to inform that your Company has maintained its market share and posted Gross Turnover of Rs. 10057.49 lacs as against the previous years turnover of Rs. 10145.71 lacs. This is explained by the fact that the Company, during the course of last year, consciously decided to withdraw from the low profit margin product range. Though there has been a small drop in the overall sales compared to last year, we have achieved a 10.75% growth in the sales of the core product range.
The Net Profit for the year under review is Rs. 66.27 lacs as against the previous years net profit of Rs. 267.23 lacs. Net Profit is lowered due to a) the impact of Euro fluctuation and b) higher interest cost on account of the additional inventory of the low-margin products from which your company has since withdrawn.
"
Outlook Going forward :
The company in looking to achieve faster growth in both top & bottom-line going forward.
In quest of this it is focusing on various front’s :
· The company is enhancing it’s productive capacity by introducing new & upgraded technology, and state of the art machinery.
· Cost Control – It is looking to import more from Chinese suppliers who are the lowest cost producers of steel tubes
· It is trying to build better volumes from existing clients by offering better prices, which are possible because of a combination of their exit from loss-making businesses/products & economies of scale.
· The company is targeting to benchmark itself as the lowest cost producer of hydraulic equipment in the world.
· It is trying to leverage & extend it’s existing relationships to become “Strategic Partners” of some of it’s domestic & global clients, which can lead to big scaling up in volumes.
Quoting again from the Directors Report for the recently concluded fiscal :
"
Your Company has identified new markets, both Indian and global where due to value added products, realizations will improve substantially in the financial year 2007-08 and your Company is confident of achieving good topline as well as bottomline growth, on year-to-year basis.
"
Industry Outlook :
Globally the construction equipment industry has grown to 114 billion USD, with an 11% growth in the last fiscal. The Indian construction equipment industry grew by 34% from 5064 Cr to 6800 Cr in the last year, far ahead of India’s GDP growth of 9.4%, pushing up demand for hydraulic systems.
This trend is likely to continue in the next few years too, and UT Ltd is looking to exploit these opportunities & become a one-stop shop for global & domestic players to source their hydraulic systems.
Negatives (Industry/Company) :
· Steel prices are gradually rising & hence the prices of steel tubes would follow suit.
· Chinese manufacturers have also entered the Indian market, targeting price-sensitive Indian customers
· Management has failed to deliver on analyst/investor expectations in the past. An immediate point of concern is that the company's CEO has left the company in Sept 2007, as per a company announcement. It is important that a new CEO should be appointed as a top priority, so that the company's transition from a promoter-managed company to a totally professionally-managed company proceeds smoothly.
Author’s Projections & Recommendation :
The author expects the company to do a top line of Rs 110-115 Cr in the current year, and a bottom-line of Rs 3-5 Cr.
For FY09 the company’s initiatives are expected to bear fruit & the author expects the company to do a top-line of Rs 130-140 Cr & bottom-line of Rs 15-16 Cr.
The company would need much larger working capital to realize it’s plans & the company is looking at various options including debt/preferential issue etc to address this need. In fact, a preferential issue for 10% equity dilution was announced at Rs 52 , but later shelved as the promoters wanted to re-consider the options.
Taking into account an equity dilution of 25% & based on the above bottom-line estimates made by the author, the author has made the following projections of share price 21-months forward (by July 2009) :
Equity : 7.61 Cr (after expected dilution of 25%)
Projected Net Profit for FY09 : 15 Cr
Projected EPS for FY09 : Rs 19.71
Projected Price by July 2009 (based on author’s expectation of EPS of 19.71 for FY09 & a P/E Ratio of 10) : Rs 197
Current Market price is Rs 43.05. The author recommends a buy on the stock in the range of Rs 35 - Rs 50, for a 21-month target of Rs 197.
Author : Bosco Menezes
Recommendation Date : 16.10.2007
About the author :
The author is an avid investor, currently taking a break from his professional career as an IT professional.
Prior Performance of the author’s recommendations :
The author has released one prior "formal" research report, and the same is summed up as follows :
Company : Almondz Global Securities Ltd
Reco Dt : 21.2.2007
Reco Price : 62.60
Recommended Holding Period : 24 months
Target Price / Reco : “Potential Multi-bagger”
CMP (16.10.2007) : 77.35
% Gain / Loss as on 16.10.2007 : + 23.56%
The author has also made several other informal recommendations on message boards & investor forums. Prominent winners have been Peerless Abasan, Electrotherm, Jaybharat Textiles & Real Estate, Phoenix Mills & Marg Constructions (all gave multi-bagger returns). There has also been one prominent loser - Kallam Spinning (down approx 20% since the recommendation made at the start of 2007). Some more picks have gone nowhere, such as Interlink Petroleum, Frontier Springs etc.
Disclaimer/Disclosure
At the time of writing this article the author has a position in the stock covered by this report. The author or any of his dependent family members may make purchases or sales of the securities mentioned in the report while the report is in circulation.
Readers/recipients of this report are strongly advised to do their strict due diligence, and should be aware that the value of investments can go down as well as up. The author shall not be liable for any direct or indirect losses arising from the use of the contents of this report, and readers are therefore cautioned to use the information contained herein at their own risk. In fact, readers would do well to seek the advice of a qualified independent advisor.
The author certifies that all of the views expressed in this report accurately reflect his personal views about the subject company.
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