A Time Communications Publication 1

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T I M E S A TIME COMMUNICATIONS PUBLICATION

VOL. XXIII No. 44 Monday, 8 – 14 September 2014 Pages 18 Rs.15

Markets overbought but positive By Sanjay R. Bhatia

The markets resumed the uptrend last week after the previous week’s lacklustre trend. Positive global market cues along with Prime Minister Modi’s histrionics in his Japan visit saw the markets touch new highs nearing our technical target of CNX Nifty 8200.

The FIIs remained net buyers in the cash and derivatives segments albeit they were occasional sellers in the derivatives segment. Domestic institutional investors (DIIs), however, turned net sellers again during the week and were seen booking profits at higher levels. The breadth of the market remained positive amidst higher volumes, which is a positive sign for the markets. The surprising move by ECB to cut interest rates caught global markets unaware and the US markets continued to consolidate after touching fresh historic highs.

Technically, the prevailing positive technical conditions helped the markets touch new historic highs inching closer to the Nifty 8200 mark. The MACD, RSI and KST all are placed above their respective averages on the daily charts. Further, the RSI, KST and Stochastic are also placed above their respective averages on the weekly charts. The Nifty is placed above its 50-day SMA, 100-day SMA and 200-day SMA. Further, the Nifty’s 50-day and 100-day SMA are placed above the Nifty’s 200-day SMA, which is known as the ‘Golden Cross’ breakout. These positive technical conditions would lead to regular buying support.

However, the prevailing negative technical conditions still hold good and are likely to weigh on the market sentiment at higher levels. The Stochastic is placed below its average on the daily charts. The MACD is placed below its average on the weekly charts. Further, the Stochastic and RSI are placed in the overbought zone on the daily and weekly charts. These negative technical conditions would lead to intermediate bouts of profit booking and selling pressure especially at higher levels.

The +DI line and the ADX line are placed above the -DI line on the daily charts and are placed above the 32 level indicating that buyers are gaining strength and have an upper hand. The markets would continue to witness stock specific activity amidst a volatile and choppy trend. Intermediate bouts of profit booking and selling pressure are likely at regular intervals due to the overbought conditions.

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Now it is important that follow up buying support materializes at regular intervals for a sustainable rally to unfold and for the Nifty to test and move above the 8200 level. It is equally important that the Nifty does no breach its 50-day SMA and continues to sustain above 7600 level. Otherwise, it could test the 7400 level. In case the Nifty slips below 7400, then it could fall further and test the 7229 support level. In the meanwhile, the markets would continue to take cues from the geo-political news, Rupee-Dollar exchange rate, global markets and crude oil prices.

Technically on the upside, the BSE Sensex faces resistance at the 27100 and 27600 levels and seeks support at the 26674, 26000, 24875, 24163, 22792 and 20480 levels. The support levels for the Nifty are placed at 7874, 7568, 7540, 7422 and 7118 while it faces resistance at 8142, 8175 and 8200 levels.

Traders and speculators could buy Asian Paints above Rs.650 with a stop loss of Rs.627 and price target of Rs.700.

NaMo’s easy century! By Fakhri H. Sabuwala

The BJP let NDA government completed 100 days in power and Dalal Street celebrated the century with CNX Nifty touching 8000 and the BSE Sensex surpassed 27K. These levels on the benchmarks may just be milestones to a much higher altitude in coming years. Sensex 26000 to 27000 may be the fourth fastest 1000-point rise in the last 6 years made possible by the changed sentiment and bold expectations of Narendra Modi. Last week's cheerful economic data, higher GDP growth and better-than-expected balance of payments (BoP) report helped the market scale this new high.

This then is the right occasion to peep into the historic data of scaling the 1000-point landmarks and learn a lesson or two from them. Let us view how the Nifty traversed this journey.

3000 to 4000: 30 January 2006 to 1 December 2006 (213 working days)

4000 to 5000: 1 December 2006 to 27 September 2007 (205 working days)

5000 to 6000: 27 September 2007 to 6 December 2007 (50 working days)

6000 to 7000: 6 December 2007 to 12 May 2014 (1593 working days) - a very painful time... consolidation time

7000 to 8000: 12 May 2014 to 1 September 2014 (78 working days) riding the NaMo wave

This underlines once again that nothing lasts forever and that the investor emerges the winner at the end. The market cap of companies and the market as a whole may be much higher in the last 8 years during which the Nifty has doubled.

The completion of 100 days of the NaMo government makes an interesting study when compared to its performance in the first 100 days of previous governments.

Under Atal Behari Vajpayee’s NDA-I government, the Sensex lost 14% from 3825 on 18 March 1998 to 3289 on 29 June 1998.

In UPA-1 under Manmohan Singh, the Sensex rose 4.6% from 4961 on 21 May 2004 to 5192 on 31 August 2004.

In UPA-2 under Manmohan Singh, the Sensex flared 14% from 13736 on 2 May 2009 to 15666 on 31 August 2009.

In NDA-2 under Narendra Modi, the Sensex scaled 9% from 24716 on 26 May 2014 to 2 September 2014.

Although the percentage rise under UPA-2 was the highest, it must be notes that the base level of the Sensex in 2009 was very low whereas the pre-Modi levels in May 2014 were already riding high in

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A Time Communications Publication 3

anticipation of his coming. In short, it would make more sense to view the rise in the Sensex at 18500 on 13 September 2013 when NaMo was announced as the BJP’s prime ministerial candidate to 2 September 2014 at 27000, which is a neat rise of 50% in less than a year and a phenomenal rise by any count.

This sharp change in sentiment is due to the euphoria set in by Modi’s emphasis on governance and doing away with the inertia leading to policy paralysis under UPA-2. Well the stage is set. Modi’s pep talk was music to the nation and investors in particular but now comes the time for walking the talk. This will be the acid test of the new government and its progressive thinking.

Each time we felt that it was different with a new government and the valuations were for real. But each time the market remained indifferent. Like all ebbs, even high tides subside and catch us unawares. Over the last few days, it is being heard and overheard that a balloon is developing at Dalal Street and that it shall burst sooner than later.

Before we pay heed to such talks, we must understand the nature of the present rally. This rally is a paradigm shift for the Indian economy and change in the perception is evident among industrialists and economists at home. This is very evident by the capex plans and the new confidence among businessmen and entrepreneurs. This has a positive impact on the investors’ psyche, which is reflected in the Sensex and Nifty scaling new peaks.

But somewhere in their zeal to reach new heights, the benchmarks may enter the excessive zone with stretched valuations. Markets are never rational and it is this irrationality, which is responsible for stretched multiples on the upside and deflated values on the downside. When an euphoric disconnect happens, the chicken-hearted calls it the bursting of the balloon while the strong hearted call it ‘coming to one’s senses’.

For Indian markets, the 100-day scorecard may shift the focus from the ‘talk to the walk’. Ministers will have to come to terms with reality and along with them the markets. A 50% Sensex gain in less than 12 months with over 1500 stocks scaling new highs by 100% to 250% in this period does call for a warning .... ‘Enough for now!’

The long-term may be very rosy but only for those who can withstand the downs too along with the ups. In case a decent correction from hereon gives you sleepless nights or shakes your confidence in the growth of the markets, then possibly you have still to make your bones as an investor and creator of wealth.

Let Narendra Modi be at the striking end and you just support him from the non-striking end. It’s the first 100 days… and the game has just begun!

Uptrend with intra-week volatility By Hitendra Vasudeo

Last week, the BSE Sensex opened at 26733.17, attained a low at 26732.39 and rose to a high of 27225.84 before it to finally closed the week at 27026.69 and thereby showed a net gain of 388 points on a week-to-week basis.

Resistance is at a higher range for the time being from the extreme near term perspective at 27260. A further rally can continue on a breakout and close above 27260. If that happens, then expect a rise to 28400.

Support cluster is at 26732-26638.

Deeper correction on the weekly chart will be seen on a fall and close below 26600.

Weekly trend is up and moving in the rising channel with the objective to move and test the upper channel. Momentary pause on the daily chart for a minor intra-week correction is in progress but will soon take off to move towards 28400 for the next round of upmove.

BSE Mid Cap Index

BSE Mid Cap index breakout brings a sign of relief and helps up to look at the monthly peak of 10245. Resistance will be at 9789-10245. Further correction or sideways movement will restore it below 9200.

BSE Small Cap Index

BSE Small Cap index follows in the footsteps of the BSE Mid Cap index. A rally to 11366 can be tested. Correction/sideways movement will restore it below10200.

TRADING ON TECHNICALS

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BSE Bankex

BSE Bankex to move towards 18900. Sideways and correction on weekly chart will restore it below 17700.

Strategy for the week

Traders long and holding stocks can keep the Sensex stop loss at 26300.

WEEKLY UP TREND STOCKS Let the price move below Center Point or Level 2 and when it move back above Center Point or Level 2 then buy with whatever

low registered below Center Point or Level 2 as the stop loss. After buying if the price moves to Level 3 or above then look to

book profits as the opportunity arises. If the close is below Weekly Reversal Value then the trend will change from Up Trend to

Down Trend. Check on Friday after 3.pm to confirm weekly reversal of the Up Trend.

Scrips

Last Close

Level 1

Level 2

Center Point

Level 3

Level 4

Relative Strength

Weekly Reversal

Value

Up Trend Date

Stop Loss Buy Price Buy Price Book Profit

Book Profit

J.K. LAKSHMI CEM. 314.65 305.0 306.2 313.5 322.0 337.8 79.8 297.9 01-08-14

BHARAT FORGE 858.00 788.0 805.3 840.7 893.3 981.3 78.6 798.3 09-05-14

LUPIN 1328.00 1280.0 1294.7 1313.3 1346.7 1398.7 78.1 1262.3 06-06-14

BRITANNIA INDS. 1265.00 1237.0 1238.0 1264.0 1291.0 1344.0 78.1 1238.5 23-05-14

CENTURY PLYBOARD 96.75 89.9 91.5 95.1 100.4 109.2 75.4 88.9 22-08-14

EXIT LIST

Scrip Last

Close Sell

Price Sell

Price Sell

Price Stop Loss

Target 1

Target 2

- - - - - - - -

BUY LIST

Scrip Last

Close Buy Price

Buy Price

Buy Price

Stop Loss

Target 1

Target 2

ADANI ENTERPRISES 508.30 507.13 501.95 496.77 480.00 551.0 594.9

APOLLO TYRES 193.55 186.96 183.02 179.09 166.35 220.3 253.7

ASIAN PAINTS 646.95 638.71 635.42 632.14 621.50 666.6 694.4

FORBES & COMPANY 866.00 842.15 821.50 800.85 734.00 1017.2 1192.2

G.E.SHIPPING 395.95 388.22 381.88 375.53 355.00 442.0 495.7

INDUSIND BANK 613.35 607.79 603.25 598.71 584.00 646.3 684.8

KIRLOSKAR INDS. 608.10 539.27 511.35 483.43 393.05 775.9 1012.5

TATA CHEMICALS 413.00 402.46 397.60 392.74 377.00 443.7 484.9

TITAN INDUSTRIES 387.35 382.55 379.20 375.85 365.00 411.0 439.4

AXIS BANK 415.75 411.10 408.60 406.10 398.00 432.3 453.5

WEEKLY DOWN TREND STOCKS Let the price move above Center Point or Level 3 and when it move back below Center Point or Level 3 then sell with

whatever high registered above Center Point or Level 3 as the stop loss. After selling if the prices moves to Level 2 or below

then look to cover short positions as the opportunity arises. If the close is above Weekly Reversal Value then the trend will

change from Down Trend to Up Trend. Check on Friday after 3.pm to confirm weekly reversal of the Down Trend.

Scrips

Last Close

Level 1

Level 2

Center Point

Level 3

Level 4

Relative Strength

Weekly Reversal

Value

Down Trend Date

Cover Short

Cover Short

Sell Price

Sell Price

Stop loss

JAIPRAKASH HYDRO. 13.55 10.0 12.5 13.9 14.9 15.3 37.04 14.95 11-07-14

RIL COMMUNICAT. 110.85 91.0 105.1 113.4 119.2 121.7 38.00 117.53 08-8-14

UNITED SPIRITS 2279.00 1968.0 2188.0 2317.0 2408.0 2446.0 38.43 2363.25 05-09-14

JINDAL STEEL & PO. 233.55 190.3 220.1 236.5 250.0 252.9 39.22 261.68 28-08-14

PIPAVAV DEFENCE 44.45 38.7 42.8 45.2 46.9 47.6 41.45 46.91 11-07-14

A Time Communications Publication 5

PUNTER'S PICKS

Note: Positional trade and exit at stop loss or target whichever is earlier. Not an intra-day trade. A delivery

based trade for a possible time frame of 1-7 trading days. Exit at first target or above.

Scrips BSE Code

Last Close

Buy Price Buy On

Rise Stop Loss Target 1 Target 2

Risk Reward

ABM KNOWLEDGE. 531161 119.15 110.75 119.15 107.45 126.4 138.1 0.62

AMD METPLAST 532828 27.20 24.90 27.55 23.75 29.9 33.7 0.78

BANNARI AMMA.SPIN. 532674 139.00 135.00 140.00 129.15 146.7 157.6 0.78

CYIENT LIMITED 532175 462.15 440.65 464.95 435.00 483.5 513.4 0.78

INDIAN TONERS 523586 64.25 60.60 65.20 56.30 70.7 79.6 0.81

ORIENT REFACTOR. 534076 96.40 92.30 98.35 84.50 106.9 120.8 0.88

NAVNEET EDUCAT. 508989 100.15 98.05 101.25 94.00 105.7 113.0 0.91

AHLUWALIA CONTR. 532811 155.75 147.20 160.00 141.00 171.7 190.7 1.08

INDO BORAX & CHEM. 524342 220.55 202.00 228.00 194.20 248.9 282.7 1.08

LINCOLN PHARMA. 531633 50.20 47.10 51.90 45.70 55.7 61.9 1.23

RPG LIFESCIENCES 532983 107.65 101.00 111.00 99.00 118.4 130.4 1.24

ARIES AGRO 532935 93.95 90.75 98.55 88.05 105.0 115.5 1.88

Fact, they say, is stranger than fiction. Otherwise, explain the huge rise in P/E ratios without the corresponding expansion in the bottomlines of corporates. It’s a balloon in market jargon!

With the agro thrust by the Centre and improved liquidity among farmers, M&M’s tractor sales will touch an all-time high. With utility vehicles and 2-wheelers also looking up, a leading foreign broking house sees the stock at Rs.1650 by December 2014.

Tatas have capex plans of $35 billion in the next 3 years, which will qualify the TATA Group among the first 25 corporates of this world.

Godrej Group, too, eyes a 10-fold revenue growth to Rs.80,000 crore by 2020. With such plans of leading Indian groups why do we waste time pondering over what stock to buy when the goldmine is at hand.

With a likely EPS of Rs.5-5.5 on its Re.1 FV, the share of Om Metal Infra is the cheapest in the construction segment and is poised to double.

An Oil & Gas analyst projects an EPS of Rs.130+ for Aban Offshore. The share could touch Rs.1200.

Shares of Wonderla Resorts are being acquired by HNIs and some funds. The share is likely to touch the Rs.500 mark.

Noticeable buying is reported in Deepak Fertilizers. Sources expect an EPS of Rs.30+ in FY15 with a share price of Rs.200 in the near future.

An MNC analyst strongly advises to buy Morganite Crucibles as it is a strong delisting candidate with 75% holding by the U.K. parent.

Heavy investment buying is reported in Gujarat Foils. One brokerage house came out with a buy report with a price target of Rs.100.

Force Motors is another Eicher Motors in the making as its expansion will be completed in the next one year. With a tiny equity of Rs.13.2 crore and a strong share book value of Rs.929, it is a zero debt company.

The share of Bhatinda Chemicals, which produces liquor, is going cheap and is poised to double after the accumulation gets over.

An Ahmedabad based analyst recommends Sahyadri Industries, Indsil Hydro and Visaka Industries as hot buys for the week.

Cox & Kings Ltd. Code: 533144 Last Close: Rs.295.60

Incorporated in 1939, Cox & Kings Ltd. (CKL) is one of the oldest and most popular brands in the travel & tourism industry in India. It has operations in 26 countries around the globe with presence in the leisure holidays and education

TOWER TALK

BEST BET

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tourism segment through multiple brands. Prior to FY12, CKL was predominantly in the leisure travel business with close to 50% of its consolidated revenues coming from India and the balance from destinations such as Australia, Japan, the USA, New Zealand and the UK. It has been scouting for strategic acquisitions to improve its growth prospects and acquired Holidaybreak (HBR) in mid-FY12 to de-risk its business model and venture into niche segments such as education tourism in global markets. HBR includes iconic brands like PGL, NST, Eurocamp and Keycamp, which cater to segments such as education, camping, adventure and leisure travel. Further, Meininger, CKL’s European hotel chain, which caters to value-seeking travellers such as students, youth travellers and the others, is an exciting business with a high growth trajectory.

Investment arguments: The NDA government sees a lot of potential in the domestic travel and hospitality sector and expects it to be one of the key foreign exchange earnings in the coming years. The BJP’s manifesto had stated that Tourism needs a clear growth strategy and that the government is committed to initiating a mission mode project to create 50 tourist circuits that are affordable and built around themes like: (a) archaeological and heritage; (b) cultural and spiritual; (c) Himalayan; (d) desert; (e) coastal and (f) medical (ayurveda and modern medicine) among others. The government’s thrust on improving its growth prospects would lead to better infrastructure, hygiene and safety measures in key tourist destinations, which will encourage foreign tourists to explore more tourist destinations in India.

CKL has strong brand equity and is acclaimed for its premium products and services for both the outbound and the inbound segment in the Indian market. However, the outbound business is its focus area. The company’s success in branding products has helped it to differentiate its products and services from those offered by its competitors. The emergence of an aspirational workforce and its propensity to enjoy holidays abroad, the rising trend of business/educational tours abroad, a shift from the unorganised to an organised travel and tourism market and the availability of value-for-money products have aided CKL to achieve a strong operating performance with revenues and operating profit growing at a CAGR of about 25% each over FY10-14.

FY14 was weak for the domestic leisure business due to weak consumer sentiment in the backdrop of inflationary pressure, which affected outbound travel and domestic corporate travel. But this can be considered a one-off year as the future for the Indian Travel & Tourism looks bright. Given a better macro environment, growing middle-class segment and a structural shift from regional tour operators to large brand tour operators will boost CKL’s domestic travel business in the long run.

CKL’s network of over 150 franchisees reaches over 100 cities including Tier-1 cities where the upgradation of the middle-class is happening fast and there is pent-up demand for quality holiday experience in India and abroad at competitive prices. The franchisee operation accounts for 50% of CKL’s retail business and it plans to add 10-15 franchisees every year and improve its reach. It also has an in-house call centre network with knowledgeable and trained staff to assist customers in their enquiries and convert them into sales. Overseas, it has direct sales into schools through the PGL and NST brands and student tour operators through the Meininger business.

The online platform is a key growth driver for travel service providers and is catching up fast with players like makemytrip.com and yatra.com. CKL’s web-enabled dynamic packaging system offers a complete customised travel solution to users for purchasing any item right from an airline ticket, visa and hotel accommodation to a complete tour the tour package.

The international leisure operations of CKL include travel & tourism services in the UK, which account for over than 40% of its overseas revenues followed by the USA, Australia, Dubai and Japan. With an improving macro environment in the UK and the USA, the company expects to improve its business in these geographies. The international leisure travel business has an OPM of less than 35%.

With leisure tourism and education to be the key focus areas, we expect CKL to post a double-digit revenue and profitability growth in the coming years. The education tourism (including Meininger, which contributes around 45% to the consolidated revenues) is expected to grow at a CAGR of 15% over FY14-17 on the back of its leadership positioning in the UK market and because the business is quite resilient to the current economic environment. Besides, new capacity

Financials: Standalone (Rs. in crore)

Particulars Q1FY15 Q1FY14 FY14 FY13

Revenue 165.68 145.45 418.60 372.28

Other Income 17.16 10.71 53.98 23.49

Total Income 182.84 156.16 472.57 395.77

Expenditure -66.03 -40.42 -211.94 -191.84

Interest -16.58 -11.93 -46.10 -86.37

PBDT 100.23 103.81 214.53 117.56

Depreciation -8.32 -4.93 -21.58 -18.16

PBT 91.91 98.88 192.95 99.40

Tax -32.42 -33.55 -80.27 -46.01

Net Profit 59.49 65.34 112.68 53.39

Equity 68.26 68.26 68.26 68.26

EPS 4.36 4.79 8.25 3.91

CEPS 4.97 5.15 9.83 5.24

OPM % 70.50 79.57 62.26 54.78

NPM % 35.91 44.92 26.92 14.34

Dividend % - - 20 20

A Time Communications Publication 7

addition along with growing footprints in the other international geographies will help the company to achieve a sustainable doubled-digit growth in the medium to long term.

On the other hand, retail leisure travel (especially outbound tourism) is gaining good traction in the Indian market. In view of this we expect CKL’s overall revenues to grow at a CAGR of over 15% over FY14- 17. With the Indian leisure and education travel (which together contribute above 50% of CKL’s revenues) growing well, the OPM at the consolidated level is expected to remain close to 40% in the coming years. Thus, we expect the company to maintain the strong operating performance in the coming years.

CKL has net debt of close to Rs.4,000 crore on its consolidated books. It plans to repay about Rs.1500 crore over the next two years given its improving cash flows and raising about Rs.900 crore by hiving off the camping business. This will not only bring down the debt:equity ratio to 1.2x in FY17 from the current level of about 2x but also substantially reduce the interest cost over the next two years. With improved profitability, CKL’s return ratios are expected to improve over 15% over the next two years.

CKL operates in a highly competitive market and its business model is susceptible to economic vagaries, fluctuation in currencies and to events such as terrorist attacks and the outbreak of serious epidemics such as swine flu or ebola. While such events might have an adverse impact on its business prospects and revenues, its geographical spread would help in countering and minimizing the impact of such risks on the earnings in coming years.

Outlook & valuation: Its exit from the low-margin camping business and focus on strengthening the balance sheet bodes well for CKL from the long-term perspective as it aims to emerge as one of the largest leisure travel players globally and is also keen to expand its education tourism business to other geographies. This would result in a stable double-digit earnings growth and generate better cash flows in the near to medium-term, which makes CKL one of the stronger players in the tourism space. Hence, we recommend a Buy on the stock with a price target of Rs395 (valuing the stock at 9x FY16E enterprise value [EV]/ earnings before interest, depreciation, tax and amortization [EBIDTA]). At the current market price the stock is trading at 11x FY16E earnings per share (EPS) of Rs10.7 and 7.9x FY16E EV/EBIDTA. The valuations are at a discount to some of the nearest domestic as well as international peers.

(Reference: Sharekhan)

Ganesha Ecosphere Ltd: Set to take-off By Devdas Mogili

Ganesha Ecosphere Ltd (GEL), formerly known as Ganesh Polytex, was established in 1987. The company is engaged in processing PET waste into recycled polyester staple fibre and yarn. Mr. Shyam Sunder Sharma is the Chairman & Managing Director of the company.

GEL is engaged in the production of recycled polyester staple fibre (RPSF) located at Kanpur in UP and Rudrapur in Uttarakhand with a cumulative production capacity of 57,600 TPA. The dyed yarn manufacturing unit is located in Kanpur with a production capacity of 3,000 TPA.

The company has also set up a 7,200 TPA spun yarn manufacturing capacity at Bilaspur in Chattisgarh. Not only is this recycling of one kind of waste profitable but also the margins are better than those earned by PSF manufacturers who use PTA and MEG as raw materials. The company has a strong network of 25 raw material collection centres across India.

R&D: The company has an in-house R&D team to improve upon the product quality and develop customized products to the client requirements. The team’s rich experience enables it to manufacture dope dyed polyester fibres in a wide colour range.

Coca Cola Tie-up: Coca Cola is the largest bottler in India and Hindustan Coca-Cola Beverages (HCCB) in collaboration with Ganesha Ecosphere Ltd. (GESL) is the largest PET recycler in India that established the nation’s first bottles-to-fibre recycling operation.

The recycler converts PET scrap to fibre to produce shirts and other recycled polyester products. Used PET bottles are collected baled, washed, extruded, and converted into regenerated staple fibre, which textile mills use as a stock for polyester material. In May 2013, a pilot program was launched at HCCB’s Dasna facility. Today, HCCB is recycling PET scrap from all its 15 PET producing catering to 25 bottling locations.

About 20,000 shirts will be made in 2014 through this program. Major hotel chains in New Delhi are starting to join this sustainable movement and several large companies have indicated interest in recycling consumed PET packs.

STOCK ANALYSIS

A Time Communications Publication 8

Performance: The company registered Total Income of Rs.499.48 crore, with a net profit of Rs.24.54 crore recording an EPS of Rs.15.74 for 2013-14.

Latest Results: GEL posted sales of Rs.157 crore with net profit of Rs.6.26 crore registering an EPS of Rs.4.05 for Q1FY15 as against Rs.1.92 in Q1FY14.

Financials: The company has an equity base of Rs.15.19 crore with a share book value of Rs.81.14. It has a debt equity ratio of 1.45 with RoCE of 15.93% and RoNW of 26.53%.

Share Profile: The company’s share a face value of Rs.10 is listed on the BSE under the B group and hit a 52-week high/low of Rs.125.85/Rs.30.90. At its CMP of Rs.140, it has a market capitalization of Rs.168 crore against sales revenue of Rs.212.68 crore, which is

highly attractive.

Dividends: The company has been paying dividends as follows: FY14 - 12%, FY13 - 12%, FY12 - 12%, FY11 - 12%, FY10 - 5%.

Prospects: India generates significant amount of PET waste every year. Interestingly, PET demand in India is estimated to be around 13,09,300 MT by 2016 while the recycling capacity is around 4,00,000 TPA, creating an attractive business opportunity. Besides, even as the global per capita PET consumption is 2.3 kg, the corresponding figure in India is only 0.3 kg, indicating a rising demand not only for PET consumption but for also recycling. Globally, PET has emerged as the preferred packaging medium as large consumer product companies have shifted from conventional packaging forms to PET and recycling PET.

There is another case for the growing potential of this business. PET bottles take many years to decompose, which rules out land filling as this could pose a serious threat to the environment. So, even as we have the prospect of rising PET consumption on the one hand, we have greater consensus that PET recycling is indeed the sustainable road ahead.

India is attractively placed with around 75% of waste PET bottles getting collected, second only to China’s 90% collection rate. This scenario ensures steady raw material supply strengthening GEL’s sectoral viability.

Since there is a buoyant demand for textiles and the Planning Commission has projected 8% growth for the sector during 12th Five Year Plan, the demand for recycled fibres will remain robust with significant addition to the top-line and bottom-line of the company.

According to a recent study, the global consumption of PET packaging is expected to touch 19.1 million tonnes value at US $57 billion by 2017 driven mainly by the rising demand in emerging and transitional economies. The market is expected to grow by 5.2% p.a. with a focus on Asia Pacific, South & Central America, Central & Eastern Europe, the Middle East and Africa. Barrier PET bottles and jars for juices, fizzy drinks, milk, teas, beer, wine and food, are forecast to register strong growth over the period 2012-17.

A significant portion of the PET demand is expected to come from the Asia-Pacific region, which accounted for 40.6% of global PET demand during 2010 and is expected to rise to 47.8% by 2020 with China rapidly reinforcing its position as a global petrochemical products manufacturing hub. The PET production levels in Asia saw an improvement with utilization rates reaching mid-80%. This utilization rate can be attributed to the increased regional and export demand in the region.

On the domestic front, India is a leading contributor to the Asia PET resin market on account of capacity addition and the increasing consumption of packaged food and beverages. According to a research report, Indian PET resin demand is forecast at 13,09,300 TPA by 2016 growing at a CAGR of 18.9% from 2011-2016. The demand for PET resin is the highest in the packaged foods segment accounting for 35% of the total demand.

According to the Economic Survey, India’s per capita income rose from Rs.61,564 in 2011-12 to

Financial Highlights: (Rs. in lakh)

Particulars Q1FY15 Q1FY14 FY14

Total Income 15727.68 9507.90 49947.69 Total Expenses 14580.74 8776.27 42729.15 Other Income 52.08 36.59 155.27 Finance Costs 514.49 227.13 1586.04 Tax Expense (68.91) 0.00 (177.26) Extraordinary Items 0.00 (248.59) (156.16) Net Profit 625.62 292.50 2454.35 Equity (FV:Rs.10) 1518.60 1518.60 1518.60 Reserves - - 10803.19 EPS bef. Extraordinary Items (Rs) 4.05 3.55 17.44 EPS aft. Extraordinary item (Rs) 4.05 1.92 15.74

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A Time Communications Publication 9

Rs.68,747 in 2012-13, generating a higher consumption and consequently a higher demand for PET. A report of the World Bank indicates that Indians spend 53% of their income on food and food products, which will be a major growth driver for GEL.

Growing Youth: According to the Census of India 2011, 58.1% of the Indian population falls in the age group of 10-44 years. Rising disposable income in the hands of the youth coupled with a desire for superior lifestyle will catalyze the demand for PET packaging.

Food & Beverage Offtake: According to the India Food Service Report-2013, the Indian foods industry is estimated at US $41.39 billion and expected to grow at 11% to US $68.16 billion by 2018. This will catalyze the growth of the PET industry as food and beverages account for 35% of India’s PET resin demand.

Conclusion: Ganesha Ecosphere manufactures polyester from waste plastic bottles and scrap. The Union Budget 2014-15 has proposed to exempt excise duty on Polyester manufactured from plastic bottles and scrap. GEL is thus all set to post robust growth as the economy gains momentum. With economies of scale likely to accrue from the robust demand scenario and with better realizations, GEL should post a strong top and bottom-line over the next two years.

At its current market price of Rs.140, the GEL share discounts less than 9 times its FY14 EPS of Rs.15.74 against the industry average P/E multiple of over 16. In view of its robust performance, unique product, niche market segment, low valuation, attractive market cap:sales ratio, the Coca Cola tie-up and bright future prospects makes Ganesha Ecosphere a value buy for significant appreciation in the medium to long term. The share is likely to be re-rated once its business model and operations are widely known in market circles.

Sensex bullish at 27000 By Devendra A. Singh

The BSE Sensex (30-share index) settled at 27,026.70 surging 388.59 points while the CNX Nifty closed at 8,086.85 gaining 132.50 points for the week ended Friday, 5 September 2014.

Equity markets geared up last week on the positive outcome of Prime Minister Narendra Modi’s visit to Japan, which result in consolidated buying by FIIs and helped the Sensex rise above the psychological 27,000 mark and the Nifty above 8,000 levels. Japanese investment into India in advanced manufacturing and high technology areas and export of value-added products from India to Japan will help in reducing trade imbalance between the two countries.

Sensex hit a new all-time high of 27,225.85 on Wednesday, 3 September 2014. Key bourses rallied in 3 out of the 5 trading sessions during the week.

On the macro-economic front, Indian services activity expanded at its weakest rate in three months in August 2014.

The HSBC Services Purchasing Managers’ Index (PMI) compiled by Markit dipped to 50.6 in August 2014 from 52.2 last month. The new business sub-index also fell to 51.9 from 52.6 which is a 3-month low.

Moody’s Analytics reportd “The Indian economy is likely to accelerate in the Q2 of 2014. We expect GDP growth at 5.1% in the Q1 (April-June) of 2014. Most parts of the economy are improving. Capital expenditure could surprise on the upside. Even without the government aid, the economy would grow by around 5% in 2014 and close to 6% in 2015.

Outlining the signs of an economic upturn, Moody’s Analytics said, “Exports and imports have also rebounded and business investment could surprise on the upside.”

Moody’s Investors Service said “India’s fiscal deficit and inflation outlook could prevent any upgrades in the country’s sovereign rating even as the economy is headed for recovery.”

Moody’s expects the government to meet the fiscal deficit target of 4.1% for the fiscal year ending in March 2015.

India’s ratings were constrained by inflation. The credit agency rates India at Baa3, the lowest investment-grade rating, with a stable outlook.

It further said, “We forecast India’s fiscal, inflation and infrastructure metrics to remain weaker than the median for similarly rated peers.”

“While stronger growth in this large and diverse economy will help to counterbalance these credit challenges, they limit further upward momentum in the sovereign rating,” the agency noted.

Among the largest emerging markets China posted the fastest growth since March 2013. Output in Russia and India rose at weak rates while Brazil signaled a marginal contraction for the fifth month running.

MARKET REVIEW

A Time Communications Publication 10

Input price inflation reached a three-month low in August 2014 reflecting a weaker rise in manufacturing input prices. Meanwhile, prices charged for final goods and services in emerging markets continued to rise at a marginal pace.

Key indices gained on Monday, 1 September 2014, on strong buying by foreign funds. The Sensex soared 229.44 points (+0.86%) to close at 26,867.55. The Nifty rose 73.35 points (+0.92%) to close all-time high above 8,000 psychological mark at 8,027.70.

Key indices jumped on Tuesday, 2 September 2014, to hit new milestones. The Sensex moved higher 151.84 points (+0.57%) to close above 27K for the first time at 27,019.39 after touching all-time high at 27,082.85. The Nifty ended above 55.35 points (+0.69%) to close at 8,083.05 after touching record high at 8,101.95.

Key indices ended up on Wednesday, 3 September 2014, on extended buying of equities by foreign funds. The Sensex rallied 120.55 points (+0.45%) to close record high at 27,139.94. The Nifty was up 31.55 points (+0.39%) to close all-time high at 8,114.60.

Key indices edged lower on Thursday, 4 September 2014, on marginal profit taking. The Sensex fell 54.01 points (-0.20%) to close at 27,085.93. The Nifty was down 18.65 points (-0.23%) to close at 8,095.95.

Market performance settled on a lower note on the last trading session on Friday, 5 September 2014, on profit booking. The Sensex fell 59.23 points (-0.22%) to close at 27,026.70. The Nifty was down 9.10 points (-0.11%) to close at 8,086.85.

The Sensex advanced 388.59 points to close at 27,026.70 last week.

On the macro-economic front, the government will reveal inflation figures regarding combined consumer price index (CPI) for urban and rural India and wholesale price index (WPI) data for August 2014, which is scheduled to be out by mid-September 2014.

Investors will keep focusing on the crude oil price chart that will dictate the country’s economic trend in short-term.

Investors will closely watch-out for India’s monsoon rain for the September 2014. The monsoon rains which make up around 70% of India’s annual rainfall are crucial to the nation’s agriculture sector and broader economy. More than 60% of the country’s farmland is rain fed. The agriculture sector accounts for 14% the country’s economy and more than half of its arable land needs the summer rains to grow crops like rice, corn, soybean, cane and cotton. The official expects good rains in September month.

China’s growth stability is another crucial factor that will decide the global market movements in future.

Indian bourses outperform world markets By G. S. Roongta

The Indian stock markets continued their smart rally as stock prices hit new record highs last week and continued to outperform world markets as discussed in earlier issues.

While the BSE Sensex recorded its 9th consecutive rise without looking back to end at 27139.94 on Wednesday, 3 September 2014, it gave a clear indication that the Indian stock market has entered in to a higher orbit wherein correction is a routine affair as it attempts to make a new high and the previous tops become the new support levels in technical jargon. It has thus established that the bull market continues ever since it crossed the 20,000 mark in October 2013.

With our successive bullish forecast coming true right since April 2014, all eyes are now focused on the last article headlined ‘Bulls target Sensex 30000!’. This is actually not a new forecast as ahead indicated that the Sensex would touch 30K by this Diwali about two and half months back, which was a landmark forecast ahead of any other analyst in the print media or TV channels. Now, of

course, leading personalities of the stock market seem to concur but see 30K between March-June 2015. Earlier, they had projected 27K by this Diwali or December 2014 whereas I had forecast it much earlier by August end or beginning of September 2014, which has again come true.

This should not surprise readers who have been following my analyses of the stock market and my stock recommendations since 1986 as they know how accurate we have been on both counts. Readers may recall that we had forecast that the CNX Nifty would touch 8000 level by end August 2014 and our forecast was bang on target except that Friday, 29 August 2014, was a market holiday and the Nifty hit 8000 in the opening session on Monday, 1 September

GURU SPEAK

G. S. Roongta

A Time Communications Publication 11

2014. It is this uncanny ability to read the markets and alert investors about the current outlook and future forecast that has won Money Times laurels, which are yet to be matched by any other print or TV media over the last 25 years.

Again, it was Money Times that had forecast a rally in mid-cap and small-cap stocks a year back, which was a boon to small and medium class investors as they reaped multiple gains this year. Almost 300 mid-cap and small-cap stocks grew 100% to 300% from 1st January 2014 and have strongly outperformed the Sensex and Nifty stocks.

After 9 days of consecutive rise, the corrections on account of profit booking on Thursday & Friday, 4 & 5 September 2014, was only to be expected and in fact is welcome as it helps to consolidate every rise in the benchmarks, which closed at Sensex 27026.70 and Nifty 8086.85 for the week ended Friday, 5 September 2014. While metal stocks faced short selling, automobile stocks encountered profit booking. In a bull market, both profit booking and short selling leads to consolidation as stocks move into stronger hands.

Market operators, however, are smart and do not give a clue to their actual position as they switch from buying to selling and confuse investors and traders at each successive higher level especially at psychological levels of 20K, 24K or 26K when the market headed for a deep consolidation. Having hit a new trajectory, it is necessary to encounter selling at higher levels or consolidate through a combination of factors like a roll-over in a few stocks, booking partial profits in some stocks and short selling at higher levels in yet another set of stocks. This is what the seasoned bulls resorted to on 4 & 5 September 2014 despite good economic fundamentals at both the macro and micro levels as follows:

1. FIIs continue to pump more and more fresh funds each day. For example, their net buying on 1 September was Rs.556 crore, which rose to Rs.873 crore on 2 September and further flared to Rs.1209 crore on 3 September 2014.

2. The GDP growth, which fell to 4.5% in 2013-14, now stands revised to 5.7% in the 1st quarter of 2014-15.

3. Fiscal deficit target of 4.1 % in 2014-15 is likely to be met given the PSU divestments.

4. Surge in the sale of passenger cars and a heavy vehicle continues.

5. Cement, steel and infrastructure growth relay the same story. Cement production in July 2014 rose 16.5% YoY basis, which is the strongest rise in the past 32 months. Steel manufactures have also raised prices by Rs.500-1000 per MT.

Performance Review of Stock Watch

from November 2013 to March 2014

No. Date Company Recom. Price (`)

Target (`)

(`) High Achieved

Gain %

1 23-12-13 Granules India 194.00 220 752 272

2 11-11-13 Sintex Industries 32.00 50 107 234

3 27-01-14 Aarti Drugs Ltd 216.00 240 787 218

4 09-12-13 Essel Propack 48.00 60 118 146

5 31-03-14 Liberty Shoes 149.00 190 351 136

6 2-12-13 Selan Exploration Technology 307.00 360 677 120

7 10-02-14 Voltas Ltd 118.00 140 245 107

8 20-01-14 Gateways Distriparks Ltd 134.00 175 270 101

9 24-02-14 Bharat Heavy Electricals Ltd 151.00 180 292 93

10 10-03-14 Vesuvius India 447.00 530 849 90

11 10-03-14 Tree House Education 218.00 290 410 88

12 30-12-13 AIA Engineering 480.00 535 893 86

13 16-12-13 Raymond Ltd 258.00 325 470 82

14 20-01-14 CESC Ltd 441.00 500 786 78

15 18-11-13 Maruti Suzuki India 1608.00 1675 2825 77

16 27-01-14 TV Today Network 102.00 145 221 117

17 24-02-14 Aurobindo Pharma 489.00 550 830 70

18 17-03-14 Triveni Turbine 62.00 80 103 66

19 25-11-13 Cadila Healthcare 748.00 875 1260 68

20 17-3-14 Eros International 164.00 195 270 65

21 16-12-13 Yes Bank 366.00 420 599 64

22 17-02-14 Bharti Infratel 172.00 190 277 61

23 06-01-14 Talwarkar Better Value Fitness 156.00 200 241 55

24 24-03-14 Gujrat Mineral Develop. Corp. 125.00 160 181 45

25 24-03-14 Bajaj Electricals 265.00 300 383 45

26 17-02-14 Firstsource Solutions 29.00 40 42 45

27 31-03-14 Alembic Pharmaceuticals 281.00 340 409 46

28 03-02-14 Persistent Systems 965.00 1100 1399 45

29 18-11-13 Lupin Ltd. 867.00 970 1300 50

30 02-12-13 IPCA Laboratories 659.00 750 907 38

31 09-12-13 ICICI Bank 1143.00 1190 1590 39

32 23-12-13 Divi's Laboratories 1184.00 1250 1549 31

33 13-01-14 Aditya Birla Nuvo 1142.00 1350 1544 35

34 10-02-14 Zensar Technologies 363.00 425 474 31

35 03-03-14 Apollo Hospitals Enterprise 921.00 1025 1205 31

36 25-11-13 Jyothy Labs 177.00 250 231 31

37 11-11-13 Tata Consultancy Service 2093.00 2500 2613 25

38 03-03-14 Godrej Consumer Products 789.00 835 986 24

39 03-02-14 Zee Entertainment 265.00 310 310 17

40 13-01-14 Mphasis Ltd 429.00 500 477 11

41 30-12-13 Wipro Limited 555.00 580 610 10

A Time Communications Publication 12

6. 7% rise in gross capital formations YoY as against negative growth under UPA-2 and which the highest since April-June2011.

7. Crude oil prices are at a record low of USD 100/101 per barrel, which helped the government reduce fuel prices and will also reduce it subsidy bill.

8. The Indian Rupee, which had weakened a few weeks back to Rs.62 has regained its strength at Rs.60.40 and will help reduce the import bill.

9. The monsoon is reported to have revived once again since the last week of August 2014 and fears of a drought have now diminished.

Given the above, the worst in the economy seems to be over and this evident by strong turnaround in several sector such cement, steel, capital goods, FMCG, automobiles, housing and mining despite the coal allocations and the 2G scams.

Higher economic growth is likely on reduction of interest rates, which is likely at the next RBI review. Since inflation data is encouraging, there is every hope that the RBI will accede to the demand of business & industry. The government too favors a rate reduction going by the statements of the FM.

There are thus positive signs all over that the Indian growth story will strengthen in 2014-15. It may sound outlandish, but GDP growth may revert to 9 % in successive years when India would be the top performing economy. Given this scenario, will it surprise market observers if the Sensex hits between 28K and 30k and the Nifty at 8200 over the next one and a half months since markets tend to discount events and expectations in advance?

Stock specific actions are on and will continue based on the fundamentals and prospects of each growth oriented company whether in cyclical or old economy stocks or technology, entertainment or finance. My recommended stocks from the old economy like Graphite India, GSFC, Trident, Elecon Engg., Katare Spinning, SAIL, Tata Steel, SCI and RCF have retreated by 30% to 40% from their 52-week highs but are likely to regain their strength shortly.

OCL Iron & Steel, Southern Steel, Modern Steel & Mukand Ltd is good peeks from the small & medium sized companies for handsome gains.

I am now working on the third issue of ‘Panchratna’, which will be released on 1 October 2014 and hopefully it will be as rewarding as the first two issues as the recommended stocks flared 100% in just 2-3 months.

By Amit Kumar Gupta

Tata Chemicals (Code: 500770) (CMP: Rs.413, TGT: Rs.450+) Tata Chemicals Ltd (TCL) is a global company with interests in businesses that focus on Living, Industry and Farm Essentials. The company operates in three segments: Inorganic chemicals, Fertilizers and Other agri inputs. Inorganic chemicals consist of soda ash, marine chemicals, caustic soda, cement, bulk chemicals and salt. Fertilizers include urea and phosphoric. Agri inputs consist of other agricultural inputs. Its products categories include Living essentials, Industry essentials and Farm essentials. Living essentials include basi

c products of daily life such as salt, sodium bicarbonate or baking soda and water-related products. Industry essentials comprise products that are essential inputs for diverse industries across glass, detergents, mining and chemical processing sectors. Farm essentials include farm inputs needed to improve crop health and productivity, such as fertilizers, pesticides, speciality nutrients and agri-services.

TCL’s Q1FY15 consolidated revenue rose 16% to Rs.3850 crore and EBIDTA margins improved by 70 bps to 13.1% in line with our estimates. Both the segments witnessed margin expansion with the Chemical segment reporting 150 bps improvement in EBIT margins to 14.5% while the Fertilizer segment margins improved by 300 bps to 8.5%. Supported by lower interest cost and depreciation, company’s PAT after minority interest jumped by 44% to Rs.180 crore.

With a view to ensure long-term viability of the business, the company restructured its UK operations in FY14. A significant part of the restructuring cost at its UK and Kenya plants has been booked in FY14 with Rs.1300 crore write-offs and their operations are likely to turn profitable in FY15. Its US plant operations are encouraging and profit margins were stable as global soda ash prices remained buoyant. Higher energy cost has been absorbed and TCL expects stable margins going forward.

TCL management shared its optimism on the global and domestic soda ash business and expects margins in this segment to remain stable. Higher energy cost in overseas subsidiaries has affected margins but the same has stabilized. Fertiliser business faces challenges due to pressure on DAP margins and delays in subsidy payment. The company

STOCK WATCH

A Time Communications Publication 13

continues to focus on the non-fertiliser business in agri (currently 1/3rd) and expects it to increase to 50% over the next two years.

Valuation: With its restructuring efforts coming to an end, TCL is now focused on debt repayment. Free cash flow generation is likely to strengthen its balance sheet and the balance sheet clean-up will help improve the return ratios. We recommended to buy this stock valuing it 12x FY16E EPS with a price target of Rs.440.

Technical Outlook: Tata Chemicals is very strong on the daily chart and has been making higher highs and higher lows and is very strong in all time frames. The stock is also trading above all important moving averages like 200-DMA & 100-DMA.

Start accumulating at CMP and on dips to Rs.385 for medium-to-long-term investment and price target of Rs.450+ in the next 6 months.

********

Blue Star Ltd. (Code: 500067) (CMP: Rs.357; TGT: Rs.400+) Blue Star Ltd is an air-conditioning and commercial refrigeration company. It operates in two segments: electro mechanical projects (EMP) and packaged air-conditioning systems (PAC), cooling products, and professional electronics and industrial systems (PEIS). Electro mechanical projects and packaged air-conditioning systems covers the design, manufacture, installation, commissioning and maintenance of central air-conditioning plants, packaged/ducted systems and variable refrigerant flow (VRF) systems as well as contracting services in electrification, plumbing and fire-fighting. The company offers a variety of modern stylish room air conditioners for both residential and commercial applications. The company is also into specialized industrial projects and its other businesses include marketing and maintenance of imported professional electronic and industrial systems, and execution of industrial projects.

Blue Star delivered revenue growth of 9.7% in line with estimates. Revenues from the Engineering, Mechanical & Packaged Air Conditioners (EMP&PAC) division declined 4% YoY to Rs.350 crore as project execution had slowed down. The consumer products (CP) segment, however, delivered strong growth of 22% YoY as against industry growth of 20% to Rs.480 crore, as the extended summer boosted sales of room air conditioner (RAC) and refrigeration products. The professional electronics and industrial systems (PEIS) segment reported marginal increase of 2% YoY to Rs.26.1 crore. Order inflow, however, rose 14% YoY to Rs.400 crore while order backlog rose 9% YoY to Rs.1600 core including legacy projects of about Rs.125 crore.

The robust profitability in the CP segment helped Blue Star improve the EBITDA margin by 130 bps YoY to 6.3% as EBITDA jumped 38% YoY to Rs.53.1 core while adjusted PAT rose 36% YoY to Rs.31 crore. EBIT margin in the EMP & PAC declined 364 bps YoY to 1.6% as profitability was affected by lower billings coupled with cost overruns in specific legacy projects. EBIT margin in the CP segment shot up 390 bps YoY to 14.6% led by higher capacity utilization on the back of an extended summer, stable foreign currency and higher price realizations. EBIT margin in the PEIS segment fell 110 bps YoY to 16.3%.

Upbeat guidance for FY15E: The company expects order inflow cycle to pick-up in the EMP & PAC segments in second half of FY15. New orders are coming at 11% site margins. Hence margin expectation for FY15E is 6%.

It expects growth at 15% YoY in CP largely volume led. Hence it is likely to grow faster than the market at 25% in value terms and EBIT margin is likely to be 9-10%.

Boosting capital efficiency: The capital employed is to be scaled down in FY15 as Blue Star: (1) expedites closure of legacy projects, (2) releases working capital and (3) gets advances on new order inflows. Its strategy to: (a) selectively bid for orders and (b) pursue profitability over growth has and will keep it in good stead. Its retention of market share in the projects business and commercial refrigeration in a competitive environment is by itself quite commendable. We, therefore, have a BUY on Blue Star with a target of Rs.400/share at 15X FY16E earnings.

Technical Outlook: The Blue Star stock is very strong on the daily chart and looks good for investment. The stock has been making higher highs and higher lows and is very strong in all time frames. It stock is also trading above all important moving averages like 200-DMA & 100-DMA.

Start accumulating at CMP and on dips to Rs.310 for medium-to-long-term investment and price target of Rs.400+ in the next 6 months.

By Vihari

Sintex Industries: Great potential

EXPERT EYE

A Time Communications Publication 14

The share of Sintex Industries Ltd. (SIL) (Code: 502742) (FV: Rs.1) (Rs.78.25) is recommended for decent gains in the medium-term because of its improving fundamentals.

Sintex Industries Ltd. (SIL) was incorporated as Bharat Vijay Mills (BVM) at Kalol in Gujarat in 1931 and engaged in the textile business since 1931. In 1975, the company diversified into manufacturing plastic molded PVC liquid storage tanks including water tanks and introduced new plastic products like doors, window frames and pallets. In 1995, it was renamed as Sintex Industries and commenced manufacturing of sheet molding compound (SMC) molded products, undertook modernization and expansion of the textile unit and commenced the business of structured dyed yarns.

SIL entered the business of prefab structures in 2001 and started the monolithic business in 2005. The Sintex group has 36 manufacturing plants in India and abroad, spread across 9 countries in 4 continents. It has subsidiaries like Zep Infratech India, Sintex Holdings BV, Netherlands and six other subsidiaries in UK, USA, India and France. Sintex’s customised moldings business caters to Fortune 500 companies across the continents and various sectors.

Sintex made four acquisitions in India and overseas to enhance its presence in the composites segment. Globally, the composites industry is around US $67 billion with the USA, Europe and Japan as the biggest users. As per company estimates, the Indian market is close to US $1 billion and is expected to grow by 25% in transportation, infrastructure, wind energy, and in the oil & gas sectors. Its acquisitions in the composites segment include Wausaukee Components and Nero Plastics in USA, Bright Autoplast in India, and NIEF Plastics in France. These acquisitions have strengthened Sintex’s position giving it access to technology and customers. The company has also restructured the subsidiaries, which should enhance value going forward.

During FY14, SIL’s consolidated net profit rose 13% to Rs.365 crore on 13% higher sales of Rs.5864 crore. The EPS stood at Rs.11.4 and a dividend of 70% was paid. For Q1FY15, net profit rose 33% to Rs.62 crore on 19% higher sales of Rs.1345 crore. The Q1FY15 EPS stood at Rs.1.9.

The promoters hold 43.1% in the equity capital, foreign holding is 23.1%, Institutions hold 4.6%, PCBs hold 6.8%, leaving the balance 22.4% with the investing public. SIL’s small equity of Rs.33.6 crore is supported by huge reserves of Rs.3250 crore, which gives its share a book value of Rs.97.7.

SIL’s gross block has zoomed from Rs.897 crore in FY07 to Rs.5214 crore in FY14. A net worth of Rs.3284 crore gives it a DER of 1.16:1. Current assets including cash on hand, short-term advances and other assets as at 31 March 2014 stood at Rs.644 crore or Rs.19.2/share. Thus SIL has sound financials and sees every opportunity in expansion and capital spending. The capex in FY13 was Rs.170 crore and in FY14 it was around Rs.250 crore. Cash plough back into the business was Rs.592.4 crore in 2013-14 as against Rs.525.98 crore in 2012-13 providing an adequate cushion to fund its growth initiatives.

SIL had raised a total of Rs.946 crore in December 2012 with Rs.176 crore through the QIP route and Rs.770 crore through FCCBs at a conversion price Rs.75.6 per share. While this provided relief on the liquidity front, it raised the equity capital to Rs.31.1 crore from Rs.27.1 crore in the previous year. SIL had earlier raised $225 million in 2008. It treated the FCCBs as debt on the balance sheet and had unutilized funds worth $150 million, which along with the funds raised in December 2012 helped tide over the payment dues.

With further allotment of equity shares of Re.1/- each to Foreign Currency Convertible Bond (FCCB) holders on exercise of their conversion right, the equity capital stands increased from Rs.31.1 crore to Rs.33.6 crore and further to Rs.34,2 crore. Meanwhile, Reserves account goes up by Rs.185 crore.

SIL has chalked out plans to expand the textile business. Of the 3-lakh spindles expansion in Gujarat, 1-lakh spindles will be commissioned in March 2015 and the balance 2-lakh by September 2015. This is further likely to be ramped up to 10 lakh spindles over

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A Time Communications Publication 15

the next five years. Since debt i.e. 75% of total capex of Rs.1800 crore had to be raised for this project, it would remain interest-free and will not have any material impact on its profit & loss account during the capex phase.

Around 75% of the products from this project will be exported. The company expects an RoI of ~18-20% from the project while the EBITDA margin is expected around 28-29% after accounting for the government incentives. In July 2014, Sintex NP SAS of France acquired the 100% equity of Groupe Simonin for €18 million in an all cash deal.

Sintex’s India construction business comprising monolithic and prefab accounts for 39% of revenue is geared to meet the large social sector spending by the Central and State governments low-cost housing, slum rehabilitation, schools construction of rural healthcare centers in remote areas. Although the monolithic business has been suffering due to sluggishness in government activity with consequent delays in execution and receivables pulled down SIL’s overall performance, it is expected to improve as Sintex has reduced the number of slow moving sites from seven to five and will reduce to three in the near future.

Sintex’s customised moldings business caters to Fortune 500 customers across continents and sectors and it intends to leverage these customers to enhance domestic manufacturing and outsourcing. This will significantly improve margin in the business over the next couple of years. Sintex enjoys an early-mover advantage in businesses that are linked to social sector spending like schools/low cost housing/healthcare centers, funded almost entirely by the government.

SIL has set-up a Roto-moulding facility inside its Pithampur factory which is expected to commence operation in the second quarter of 2014-15. In addition, the company is setting up a new composite manufacturing facility with LRTM (Light Resin Transfer Moulding) at its Pune unit. This technology has been acquired from Sintex Wausaukee Composites Inc of USA and will be used for manufacturing large- sized exterior and interior parts of (more than 2 Sq metre with painting for automotive, construction equipment, mass transit and medical equipment OEMs.

Sintex Infra Projects, a subsidiary that leverages its rich track record of executing civil and mechanical construction projects, is working on some important projects like 1) an EPC Contract worth Rs.1300 crore for Shirpur Power 2) constructing check posts in Madhya Pradesh and 3) developing pollution management infrastructure in Uttar Pradesh and 4) a low-cost housing project in Rajasthan. These projects have progressed as per schedule and the Company has consistently received funds as per the scheduled milestones.

In FY14, SIL bagged a Rs.1406.5 crore EPC contract for setting up a Spinning Project in Gujarat.

SIL’s prefab business retained its pole position with large business volumes from Maharashtra (for sprucing up education facilities), Gujarat (for strengthening infrastructure in tribal areas) and rising volumes from other States. Other businesses like water storage tanks, sandwich panels and sub-ground structures also logged in strong volumes and made a meaningful contribution to this segment’s growth. The SMC business was the key growth contributor as SIL extended its footprint into new states to generate good volumes. Pallets and insulated boxes also made an important contribution to this division's growth.

Based on the current going, SIL is all set to post an EPS of Rs.12 on its enhanced equity capital, which would again rise to Rs.14 in FY16. At the CMP of Rs.78, the Sintex share trades at a P/E multiple of just 6.5 on FY15E and 5.6 on FY16E earnings. The share is expected to fetch a decent gain of 33% in the medium term with a price target of Rs.100. The 52-week high/low of the share has been Rs.107/17.

*******

Kalpena Industries: Poised for a smart rise The share of Kalpena Industries Ltd (KIL) (Code: 526409) (Rs.116.15) is recommended for investment because of its improving performance after the recent completion of expansion.

KIL is a part of the House of Surana's and in the last 3 decades, it has attained the status of the most respected Polymer Compounder in India. During these 3 decades, it has graduated from a producer of commodity compounds like PVC to high performance compounds like medium voltage Insulation and semi-conducting grades. Its products find application mainly in the cable, packaging and footwear industries.

KIL has an installed capacity of 30,000 TPA of PVC compounds, 40,000 TPA of Silane based compound, 12,000 TPA of XLPE compound, 36,000 TPA of PE & PP filled compound, 6,000 TPA of Semicon compound for strippable and non-strippable applications. In addition to the above, KIL manufactures speciality compounds and Master Batches. The quality of all its products conform to national & international standards.

During Q1FY15, KIL’s net profit zoomed 134% to Rs.7.5 crore on 56% higher sales of Rs.415.6 crore and the EPS stood at Rs.4 against Rs.1.6 in Q1FY14. During FY14, its net profit decreased marginally by 2.5% to Rs.19.5 crore on 7% higher sales of Rs.1245.6 crore while the annual EPS stood at Rs.10.4 and a dividend of 12% was paid.

A Time Communications Publication 16

The plastic Industry faced a considerable setback in 2013-14 because of the steep depreciation of the Rupee, which reached an all-time low against the US Dollar and polymer prices were very volatile. This affected input costs resulting in thin margins. However, the jump in input costs and financial costs were largely offset by improved operational efficiency.

KIL’s equity capital is Rs.18.8 crore and with reserves of Rs.210 crore, the book value of its share works out to Rs.122. The value of its gross block in FY14 stood at Rs.428 crore. The DER works out to 1.8:1. Cash on hand, short-term loans and other current assets stood at Rs.84.4 crore or Rs.44.9/share.

In its drive towards strategic expansions, KIL had commissioned a new 2,00,000 TPA production unit at Surangi in Union Territory of Silvassa. This unit is spread over an area of approx. 56,000 sq. mtrs. and full capacity utilization was expected by June 2014.

The new unit will produce various grades of compounds which include XLPE, HFFR, Filled PP for furniture & appliances, Filled PE Compounds for antifab used for Woven Sack, White & Black Master Batches, & Pipe Jointing, Rigid and Flexible PVC Compound used for Cable insulation, Footwear & Pipe jointing and other value added compositions like Zero Halogen Fire Retardant Compound and Engineering Plastics.

KIL has also set up a Rs.150-crore Flexible Packaging Project at Dankuni (West Bengal) as a step towards diversification and commercial production has begun. As a measure of backward integration, Kalpena has also invested in manufacturing of Industrial ink at Bhasa, where commercial production has already started.

The Indian plastic industry has been growing at a rate of 12% over the years. With its true potential harnessed, it is all set to reach 12.5 million TPA by consumption making India the 3rd largest consumer of plastics by 2015. To match this figure, India would require 42,000 new machines and around US $10 billion of project investment by 2020. Packaging, Electronics, Telecommunications, Infrastructure, Transportation, Healthcare and Consumer Durables are the fastest growing sectors of Indian economy offering growth for plastics consumption.

KIL also has more expansion projects in the pipeline catering to untapped regions to enlarge its geographic footprint in various parts of the country. Today, it has one of the strongest operating matrix in the Plastics industry in India. With its cost competitiveness, quality products, a robust marketing distribution system and extensive network, KIL has reinforced its formidable brand position.

KIL has also commenced full scale pre-marketing activities with its target customers so that the production from the new plants would be able to deliver quality products to prospective customers in multiple segments in the shortest possible time. KIL has focused its attention towards development of products that have wide industrial application particularly in cable, piping, packaging and footwear industry.

For FY15, KIL is expected to clock sales of Rs.1650 crore and post a net profit of Rs.34 crore, which would fetch an EPS of Rs.18. At the current market price of Rs.116, the share trades at a P/E of just 6.4 on its FY15E earnings. A conservative P/E of even 7.5 will take its share price to Rs.135 in the medium-term and Rs.168 thereafter. The 52-week high/low of the share has been Rs.115/30.

By Nayan Patel

Kauntum Papers Ltd. BSE Code: 532937

Last Close: Rs.83.90

Incorporated in 1997, Chandigarh based Kuantum Papers Ltd (KPL). produces and markets wood free writing and printing paper. Its products comprise maplitho, coloured ledger, cartridge, parchment and duplicating papers, and wood-free speciality papers, which are used in printing of books, trade directories, diaries, calendars, computer stationery, note books and other stationery items. It also exports its products. The company was formerly known as ABC Paper Ltd. and changed its name to Kuantum Papers Ltd. in March 2012.

EXPERT EYE

Review

Two weeks ago on 25 August 2014, we recommended Bhagiradha Chemicals at Rs.61.3. In intra-day trades, the stock zoomed to Rs.79 levels and has recorded 28% appreciations.

On 11 August 2014, we recommended Puneet Resins at Rs.31. Within just one month, the stock has zoomed to Rs.40 recording 29% appreciation.

On 3 March 2014, we had recommended Linc Pen at Rs.49, which has zoomed to Rs.126.70 in 6 months recording over 158% appreciation.

A Time Communications Publication 17

KPL has an equity base of Rs.8.73 crore that is supported by reserves of around Rs.99.57 crore, which is 11.40 times its equity. It has a share book value of Rs.124.11 and price:book value ratio of just 0.65, which is highly encouraging. The promoters hold 70.30% while the investing public holds 29.69% equity stake in the company.

For Q1FY15, while sales rose marginally to Rs.110.40 crore from Rs.109.66 crore in Q1FY14. Net profit rose to Rs.5.66 crore from Rs. 5.28 crore in Q1FY14. The quarterly EPS stood at Rs.6.48 as against Rs.6.05 in Q1FY14. The FY14 EPS stood at Rs.36.24.

For FY15, KPL may deliver net at Rs.510 crore with profit of Rs.37 crore translating into an EPS of Rs.42.38 while for FY16, sales are estimated at Rs.560 crore with profit of Rs.43 crore yielding into an EPS of Rs.49.25. The scrip is trading at 1.98x FY15(E) EPS & 1.70x FY16(E) EPS.

Since its peer companies like Seshasayee Paper, Rainbow Paper, J K Paper etc. are trading at P/E multiples of 10-15, the Kauntam Paper stock is trading dirt cheap. Investors can buy this stock with stop loss of Rs.72. One the upper side, it will zoom, to Rs.110-112 levels in the medium-term. At a P/E ratio of 4, its share price could touch Rs.170 in the next 9-12 months. Its all-time high is Rs.112.

(Rs. in crore) Q1FY15 Q1FY14 FY14 FY15 (E) FY16 (E)

Sales 110.40 109.66 479.05 510 560 Profit Before Tax 8.01 8.04 37.32 - - Tax 2.35 2.76 3.77 - - Profit After Tax 5.66 5.28 33.55 37 43 EPS 6.48 6.05 36.24 42.38 49.25

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A Time Communications Publication 18

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