Stocks Pulse

Tata Motors
Cluster: Apple Green
Recommendation: Hold
Price target: Rs792
Current market price: Rs655

JLR deal negative in short term

Key points
*Tata Motors has entered into a definitive agreement with Ford Motor Company (Ford) to buy the latter's utility vehicle brands Jaguar and Land Rover (JLR) for $2.3 billion (Rs9,200 crore) in an all-cash deal.
*The agreement encompasses the two brands, three manufacturing plants and intellectual property rights. The transfer of ownership of the same to Tata Motors is expected to close by the end of the next quarter, subject to applicable regulatory approvals.
*Tata Motors will fund the purchase with a bridge loan arranged by banks and look to repay these loans by selling off some of its subsidiaries and associates and raising debt. Ford will contribute $600 million towards JLR pension plans.
*We feel there is no synergy between Tata Motors' brands and JLR. JLR has a huge research and development (R&D) expenditure and with recession expected in the USA, turning around these luxury brands could be difficult.
*This acquisition will have a negative impact on the balance sheet and earnings of Tata Motors in the short term. We would be in a position to revise our estimates only after getting the exact funding details and debt of JLR from the company. We maintain our Hold recommendation on the stock.


Bharti Airtel
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,100
Current market price: Rs825

Key beneficiary of ADC phase-out

Key points
*Telecom Regulatory Authority of India’s (TRAI) move to phase out access deficit charge (ADC) is likely to benefit Bharti Airtel in the range of of Rs180 to Rs200 crore in FY2009. However, The company is likely to pass on the benefits accruing from the ADC removal to the end consumers by way of reduced tariffs or similar benefits.
*Trai's move encompasses phasing out ADC from April 1, 2008. However, the component on the international incoming calls would be payable at a reduced rate of Rs0.50 (paise fifty only) for the period from April 1, 2008 to September 30, 2008. From October 1, 2008 this component of ADC would also stand phased out.
*Bharti Airtel remains our top pick within the telecom space in view of its strong execution strength and economies of scale. At the current market price the stock trades at 23.5x FY2008 and 19.4x FY2009 estimated earnings. We reiterate our Buy recommendation with a price target of Rs1,100.

MIC Electronics,

a player in Light Emitting Diode (LED) display systems has received an order and license from Delhi Metro Rail Corporation for installation and maintenance of 25 full colour day and night LED Video display boards at 8 metro stations of line-3.

The installation is worth Rs 45 crore and will be implemented over the next six months. These LED displays will be networked and controlled from a single location and are first of its kind for Indian Railways.

The company also announced that its wholly-owned subsidiary, Maave Electronics has received orders from different zonal divisions of Indian Railways along with the coach factories for the supply of approximately 20,000 coach emergency LED lamps worth over Rs 8 crore.

Also, MIC Electronics, US based wholly-owned subsidiary and LEDSTAR of Canada have entered into a strategic partnership to deploy Intelligent Transportation Systems (ITS) and LED single / full colour Variable Message Signs (VMS). The partnership enables MIC Electronics to address the rapidly growing ITs / VM3 market in India.

MIC Electronics received its first order from GMR Expressways, India for LED Variable Message Signs (VMS) for highway projects in Andhra Pradesh & Tamil Nadu. The order size is Rs 8 crore.

The company also announced that it has developed a global digital billboard exchange solution, GLOBIX, in collaboration with its subsidiary, InfoSTEP Inc. The GLOBIX solution facilitates clients to reach out to most optimal Out-of-home (OOH) advertisement locations to target brand advertising. The billboards owners will be able to optimize the utilisation of their advertisement space.

GLOBIX will be launched with an initial database of all MIC's digital billboard locations starting with Delhi Metro Rail stations at New Delhi. The total market potential of OOH advertising is projected to be more than Rs 17.5 billion over next 3 years. GLOBIX will allow MIC to play a key role in this market.

BHEL: Indiabulls in its recent study of the scrip recommends this capital goods major at the current price and expects it to earn at least 33% in a year from now. Upgrading BHEL to ‘Buy’ and a target of Rs.2850 within the next 12 months is mainly due to three factors mentioned herein.
Firstly, during Q3FY08, BHEL registered in strong order inflow growth of 91% YoY basis to Rs.10,900 cr. taking the order book to Rs.78,000 cr. as on December 2007 up by 67% on YoY basis. Moreover, during January & February 2008, it bagged an additional order worth Rs.9280 cr., which resulted in its order book touching Rs.87,280 cr., which is 5.1 times its FY07 turnover.
Secondly, the company has huge capacity in place to support the large order book. A 50% rise in manufacturing capacity from 10,000 MW in December 2007 to 15,000 MW by December 2009. Boiler plant at Trichy is also being upgraded and so is its ultra modern blade shop at Haridwar. A new fabrication plant and a central stamping unit are coming up at Jagdishpur. All these investments mean a speedy execution of orders thereby boosting its top as well as bottomline.
Last but not the least, the controlled material expenditure in its overall costs come out as a clear winner. Its raw material to sales ratio dropped sharply by 213 bps on YoY basis in Q308 while it dropped 92 bps YoY for the 9 months ending 31st December 2007.
The key risks that the company faces are increased competition from Chinese manufacturers, raw material price fluctuations, project execution delays and company’s failure of projects involving super critical technology. Despite them, the company is poised to maintain a CAGR of 39% in the bottomline during FY07 to FY09.


Sical Logistics: The Indian Railways has opened up private container transportation in 2005-06 by allowing private firms to operate freight trains to handle the growing volume of traffic ending a decade long monopoly of the state owned Container Corporation of India.
Filling up the vaccum are many players of which Sical Logistics through its subsidiary, Sical Multimodal and Rail transport, needs a special mention. This company offers total multimodal logistics solution to its clients in handling raw materials as well as finished products.
The number of trains run by private sector operators is expected to increase to 55 by end 2008 from 44 trains at present. The railways have set higher targets for private carriers to achieve and it supports this by higher investments in building infrastructure like dedicated freight corridors, additional rail lines, signaling works and flyovers. A total outlay of Rs.75,000 cr. in 7 years has been set aside by the Railway Minister that may eventually reduce the transaction costs and the time in moving goods from inland locations to the ports. It may also get a share of the iron ore and coal transportation by the railways.
Sical is on its way to invest heavily in rolling stocks, containers and in developing rail linked Inland Container Depots (ICDs), container freight stations (CFSs) and port side container terminals (PCTs), which will act as multi modal hubs together with efficient trucking and warehousing services for its customers.
Sical will also invest in high speed flat container wagons capable for carrying a 20 ft. container and running at 100 kmph thus reducing running and turnaround time. Ownership of rolling stock may give Sical an edge over others.


Tera Software Ltd. (Code: 590020) Rs.50.60
Founded in 1994, Tera Software Ltd. (TSL) is one of the leading e-governance solution providers. It undertakes data entry/scanning works for digitization of information maintained under Right to Information (RTI) Act. It focuses mainly on long term projects under BOOT/BOOR/BOMT for providing end-to-end solutions to different public interface departments for effective e-governance and good governance. It also undertakes short-term projects like issue of photo ID cards, ration cards and election commission cards. Currently, TSL caters to transport, land registration, revenue management for distribution and supply companies of electricity and water, sales tax, education and public distribution systems. It also helps in creating IT infrastructure, facility management (maintaining database) and logistics operations. Its customers include the most prominent State governments active in the e-governance space like the governments of Karnataka, Andhra Pradesh, Kerala, Goa, Maharashtra, West Bengal and Bihar. Besides, it also serves various public sector enterprises, Govt. of India (GOI) undertakings and many large organisations including Indian Railways, BHEL, BESCOM, NRSA, NIC, SARC, Zee Telefilms, Shantha Biotech to name a few.
Although its major revenue comes from e-governance, TSL also offers IT enabled services, software development and consultancy, system integration and networking which contributes nearly 20% of its revenue. For this, it has entered into a strategic partnership with companies like CISCO, EPSON, HP, Wipro, IBM, D-Link, EMC etc. It even operates an in-bound as well as out-bound BPO service on a small scale at Hyderabad. However in consortium with Electronics Corporation of India Ltd (ECIL), TSL has bagged huge e-governance order taking its total order book position to around Rs.250 cr. to be executed over the next five years. Its current projects include:
• Complete automation of department for Road Transport Authority, Kerala and AP
• Capturing beneficiary information and printing Biometric ration cards for Civil Supplies Dept, AP.
• Computerisation in schools and high schools - Directorate of Education, Goa
• Supply and installation of spot billing machines along with software – MSEB, Pune
• Computerisation of Sales Tax Department – Maharashtra
• Total revenue management solution for electric company – Karnataka, Maharashtra & WB
Importantly, TSL has bid for number of other projects like issue of ration card in the States of MP, Jharkhand & Orissa, computerisation of Transport Department in Karnataka, Punjab & Bihar, Sales Tax automation in Goa and West Bengal, land computerisation in Kerala, contract for Nagaland, revenue management for electricity boards in Orissa and Rajasthan. Moreover, the company has been empanelled vendor for rollout of IT services in the government sector through National Informatics Centre Services Inc (A Government of India Enterprise under NIC), Ministry of Communications & Information Technology for a period of one year which can be extended by another one year. This will boost its topline by another Rs.15~20 cr. per annum. In short, its future earning visibility is very strong and with the State governments increasing their budget allocation every year for computerisation and e-governance, TSL is bound to grow at a healthy CAGR of around 30% over the next few years.
TSL derives 100% of its revenues from the domestic markets and is, therefore, unaffected by the recent rupee appreciation against the US dollar. It recorded 70% growth in its topline to Rs.60 cr. and net profit was up 90% at Rs.11.70 cr. for FY07 registering an EPS of Rs.10. For the first nine months of FY08, its revenue increased by 45% to Rs.44 cr. whereas profit was higher by 35% at Rs.9 cr. Accordingly, for FY08 it may report total revenue of Rs.75 cr. with PAT of Rs.14 cr., which translates into an EPS of Rs.11 on its equity of Rs.12.50 cr. For FY09, it may register an EPS of Rs.14. TSL also has 20 acres of land with 1.60 lakh sq. ft. constructed area, which it plans to either sell or enter into JV with an infrastructure company. Once this long pending decision is taken, it will trigger the share price to a new high. Meanwhile, at a very modest discounting by 8 times against FY08 earnings, its share price can touch Rs.90 in 9-12 months.


From its recent high of Rs.370 in January 2008, the Bilpower Ltd. (Code: 531590) (Rs.170) share has crashed more than 50% in the last two months. It is a well-known manufacturer of transformers, electrical laminations, stampings and cores. Besides, it’s a leading trader of CRGO & CRNGO and produces the largest range of transformer cores in India. For future growth, it acquired Tarapur Transformers, which has an installed capacity of 1500 MVA for repair of power transformers up to 200 MVA, 220 KV Class for Rs.3.40 cr. Soon it is expected to start manufacturing power transformers on its own. Besides, it amalgamated Sun Transtamp Pvt. Ltd., a company involved into manufacturing of electrical lamination with itself. Importantly, Bilpower is foraying into the transmission & distribution (T&D) segment of the power sector as it has been qualified as a turnkey contractor for the EPC business by Maharashtra State Electricity Distribution Company Ltd. Further, it is in the midst of setting up manufacturing activities for motor stampings in Wada. As per market rumours, the company has is likely to enter into a joint venture with NTPC, which will change its fortune vastly. Recently, the company allotted 20 lakh warrants to be converted at Rs.350 to the promoters. For FY08, it is estimated to clock a turnover of Rs.300 cr. with PAT of Rs.21 cr. i.e. an EPS of Rs.23 on its current equity of Rs.9 cr. For FY09, it can report an EPS of Rs.28 on its fully diluted equity of Rs.12.50 cr. Keep accumulating at declines.


Belonging to the IFB Group, IFB Agro Industries Ltd. (Code: 507438) (Rs.58) is engaged in the production of Extra Neutral Alcohol (Rectified Spirit), Indian made foreign liquor (IMFL) and marine products. It has very successful brands like Volga Vodka, Gold Cup Brandy, Blue Lagoon Gin & IFB Select Whisky in this segment. The company is also a pioneer in 50* UP category with bestselling brands like Baluba Rum, 3 Cheers Whisky & Russki Vodka. In order to reduce its dependence on molasses and for providing better quality of potable spirit, the company has undertaken a project to produce spirit from grains. This project was recently completed and commenced its operation from September 2007. On the other hand, its marine division last year launched its first ready to fry product ‘Prawn Pops’ and has plans to introduce more such products in the ready to cook and ready-to-eat segments. In fact, its marine division is poised to become an integrated business and serve all the inputs from the farm to the final consumer. Although it posted poor results for the December 2007 quarter, sales for the first nine months increased by 15% to Rs.156 cr. and net profit stood at Rs.6.40 cr. Hence it may end FY08 with topline of Rs.200 cr. and a bottomline of Rs.10 cr. i.e. an EPS of Rs.13 on its equity of Rs.7.70 cr. Buy at sharp declines.


Sundaram Brake Linings Ltd. (Code: 590072) (Rs.229) is a part of the TVS group and is engaged in manufacturing automotive, non-automotive and industrial friction materials with specialization in asbestos-free brake linings and pads. Its products are extensively used in commercial vehicles, passenger cars, tractors and motorcycles. Apart from being a preferred supplier to some of the well-known axle manufacturers as original equipment, it also services the Indian aftermarket through more than 140 TVS owned wholesale outlets spread across major towns. Moreover, to service the US and Canadian markets instantly and establish brand recognition, it has a warehousing facility in North America along with a business representative in USA who works closely with the US/Canadian brake re-builders and distributors. In view of the changing trend, from drum brake linings to disc brakes for commercial vehicles, the company is focusing special focus on CV Pad business. In the process, it has created a wide range of 39 references and is aggressively marketing the same worldwide. With more and more countries banning use of asbestos based friction material products, the future prospects of the company, being a pioneer, looks promising. For FY08, it is estimated to report total sales of Rs.190 cr. with profit of Rs.14.50 cr. i.e. an EPS of Rs.54 on its very tiny equity of Rs.2.70 cr. A good opportunity to buy at such cheap valuations.


Murudeshwar Ceramics Ltd. (Code: 515037) (Rs.60) is one of the leading manufacturers of vitrified tiles, ceramic tiles and granites with its popular brand ‘Naveen’. Importantly, the company derives nearly 80% of its revenue from the sales of vitrified tiles, which enjoy higher margins than the other two. On the back of constant expansion, its present capacity stands at 6.3 million sq. mtrs. of vitrified tiles, 2.7 million sq. mtrs. of ceramic tiles and only 72,000 sq. mtrs. of granites. Institutional clients constitute 60% of total sales, which retail clients constitute the balance 40%. This is backed by a strong marketing network with 6 distributors, 74 show rooms, 45 depots and about 400 dealers spread across India. With the ongoing construction boom, the mall culture and the strong demand for hi-tech commercial complexes, the future prospects of the company are quite promising. For FY08, it is expected to report a topline of Rs.240 cr. with a bottomline of Rs.26 cr. on a conservative basis for FY08. This works out to an EPS of Rs.15 on its equity of Rs.17.50 cr. Notably, its cash EPS stands at whopping Rs.30. As the current fiscal is the Silver Jubilee year for the company, it may declare a liberal bonus or a special dividend for its shareholders. At CMP, the scrip is trading at a P/E ratio of less than 4 and is available at an EV of Rs.300 cr., which is well below its gross block value of Rs.470 cr. However, the icing on the cake is the 20 acres surplus land owned by the company near the Electronic City where it intends to develop an IT park. A screaming buy.


Finolex industries (Rs.66.10) is an integrated manufacturer of PVC pipes with its own PVC manufacturing capacity. It is setting up a captive power plant facilitating further integration and reducing operating costs. It contributes to some of the core sectors of the Indian economy viz. Agriculture, Water Distribution, Construction and Telecom with each one playing a vital role in the health of the economy.
It is the largest manufacturer of PVC pipes, the consumption of which is set to increase on the back of strong growth in construction and irrigation activities.
Of 142.6 million hectares of cultivated land, 57 million hectares (40%) is irrigated. The remainder 85.6 million hectares (60%) is rain fed. In the coming 25 years, there will still be about 65 million hectares to irrigate calling for extensive piping systems.
Finolex has a capacity to manufacture 2,60,000 MT of PVC and 69,600 MT of PVC pipes per year. It is in the process of expanding the capacity of PVC pipes to 1,00,000 MTA, which is expected be commissioned by March 2008. The global demand for PVC-based products continues to be robust and the domestic demand is in excess of the production capacity.
It has 80 acres of land at Pune, which has the potential for residential and commercial development and the company could realise Rs.550 – 600 cr. by the sale of this land.
The company has been performing consistently well over the last few years and has paid regular dividend of 30%. If the result of the first three quarters is any indication, the company is likely to report an EPS of around Rs.6/6.5 against Rs.4.3 last year. Its share has a book value of Rs.43 and at the current market price, the dividend yield, too, is good. Besides, the stock is available at less than half its 52-week high of Rs.126.
Investors can safely accumulate this stock for strong long-term growth over one year and also for good dividend yield.
Risk Factor is the higher crude oil prices as its raw material is crude based.


Anuh Pharma
BSE Code: 506260
Last Close: Rs.208.45
Anuh Pharma is S. K. Group’s bulk drug manufacturer company. S. K. Group is serving the pharma industry since 1932 and has a proven track record and expertise in manufacturing, importing, exporting & distribution of Bulk Drugs, Fine Chemicals and Pharma Formulations. It also exports surgical, hospital requisites, medical equipments, pharma machineries, packing materials, electrical items and building materials to several countries.
Anuh Pharma has an equity of just Rs.1.39 cr. Its promoters hold 71.86% stake in the company and it paid 140% dividend last year.
For the December 2007 quarter, its net sales zoomed by more than 55.34% and it recorded an EPS of Rs.8.97. For the first nine months of this fiscal, the company’s sales zoomed by 35.88% to Rs.78.89 cr. with an EPS of Rs.21.74.
For FY08, the company may post a turnover of Rs.110 cr. with net profit of Rs.9 leading to an EPS of Rs.30. The stock is traded now at a P/E ratio of just 7.
It is safe and strong investment stock for medium-to-long-term investors in the current market. Buy with strict stop loss of Rs.191. On the upper side, its share price can go up to Rs.237 in the medium-term and if we apply a P/E ratio of just 10, the stock can easily touch Rs.300 level.
MONEY