My Experiments with Finance

Piramal Healthcare’s 11% Vodafone Stake – Is it worth it?

2012-02-05T22:03:00.003+05:30

Piramal Healthcare on Friday added5.5% stake to Vodafone India to take its total shareholding in the telecommajor to 11%. Now, Piramal’s total investment in Vodafone i.e. telecom businessstands at Rs5870 crore. Considering this to be almost equivalent to a third ofthe sale proceeds to Abbot, I wanted to estimate how much is Vodafone actuallyworth (Neglecting the effect Supreme court ruling cancelling 2G licenses issuedin 2008 could have on its value).

Data used for the relativevaluation is taken from Vodafone Plc’s half yearly numbers, wherein Sales andEBITDA of India operations was given. As for comparison, MarketCapitalization/Salesand EV/EBITDA are considered. The comparable companies which have been takenfor this are Airtel, Idea, RComm and Tata Teleservices (TTML). The values forthe multiples as on 25^th Jan 2012 were:

	*EV/EBITDA*	*Mkt Cap/Sales*
Airtel	11.13	3.57
Idea	10.79	1.45
Rcomm	31.54	1.67
Tata Tele	6.78	1.44
Average	9.57*	*2.03*

For EV/EBITDA calculations, RComm’svalue is not taken, as it is disproportionately large. For MarketCap/Sales, allvalues are taken. Based upon these multiples and the annualised sales andEBITDA for this year based on H1 figures, we find the value of Vodafone asshown below:

All figures in Crore	Rs Crore	Value	Value of 11% stake
Sales	33109.88	67295.83	*7402.541*
EBITDA	8367.4	80048.13	*8805.294*

So, the average valuation (basedupon the multiples) indicates Piramal Healthcare received a discount close to 27.6%through the two deals.

Another indicator that may beused to judge the value of Vodafone India is Essar’s stake sale to Vodafone.Last October, when Essar exercised its option to sell its 22% stake to Vodafonefor $3.3bn, it valued the company at $15bn. Similarly, based upon our multiplesvaluation, the value of Vodafone comes out to be around $14.7bn (average of thetwo values obtained). On the other hand, Piramal’s 11% investment in Vodafonefor Rs5867 crore values the company at $10.66bn, which is at 28.9% discount tothe Vodafone deal. Moreover the EBITDA of Vodafone India is growing at around 14%.

Based upon these valuations, itseems Piramal Healthcare got a good deal for the Vodafone Investment.

Mahindra Satyam Ltd Results – What to expect tomorrow?

2012-02-01T18:33:00.006+05:30

Satyam came out with their Q3 results after the end oftrading today. The salient points in their result are:

Consolidated Revenue up 34% YoY and 9% QoQ at Rs1718Crore
Consolidated PAT stood at Rs 308 Crore, a riseof 29% QoQ and 424% YoY

A major point to be noted is that the pre-tax “Other Income”surged by 56.4% to Rs 151.3 crore. The EBITDA stood at increased by arelatively modest 15.1%. The EPS for Q3 was reported at Rs 2.62. The nine monthEPS stood at Rs 6.56. In absence of Q4 guidance, for a back-of-the-envelopecalculation, if we annualise this EPS, we get an EPS of Rs 8.75. But on theother hand, if a performance equivalent to this quarter were to come (flat QoQgrowth), then the EPS for the year ending March 2012 would stand at Rs 9.18.

Now, the IT industry average P/E multiple is around 20, whileat the present annualised P/E multiple, Satyam trades at 8.7. Considering theP/E multiple based upon the H1 EPS which stood at 2.52 (Annualised value of Rs 5.04),the stock was trading at a multiple of 15. With the better results for thecompany in the last quarter (EPS for Q3 was greater than that of H1 combined)the stock would be trading at a far lower multiple of 9 if it does not growtomorrow.

Hence, I would buy Satyam and set a target of Rs 100-110(When a current P/E multiple of 12-13 would be achieved).

Infosys Q3 FY12 Results – Is the 8.4% fall justified?

2012-01-13T01:06:00.000+05:30

Consolidated results for thequarter ended December 31, 2011 were reported by Infosys today. The highlightsof the same are:

1)Revenues were Rs 9,298crore for the quarter ended December 31, 2011; QoQ growth was 14.8%; YoY growthwas 30.8%

2)Net profit after tax was Rs 2,372crore for the quarter ended December 31, 2011; QoQ growth was 24.4%; YoY growthwas 33.3%

3) Earnings per share (EPS) was Rs 41.51for the quarter ended December 31, 2011; QoQ growth was 24.4%; YoY growth was33.3%

The results beat most of the market expectation. But theflat earnings projection (QoQ) for the last quarter of the year owing tovolatile economic environment especially in the Euro zone dampened the mood andthe stock of the company fell 8.4% by the end of the trading session. Now thequestion is: Is this fall justified?

Let us take a look at the Q4 guidance given by Infosys:

1) Revenues are expected to be in the range of Rs 9,391 crore and Rs 9,412 crore

2) Earnings per share (EPS) is expected to be Rs 42.12

Although this is almost flat QoQ,but if we consider the YoY implications of this guidance, revenues are expectedto grow by 29.5% to 29.8% andEPS by 32.4%. This is a rather impressive YoY growth which was last seen duringFY2008-09 for Infosys. For the past two years, the EPS growth was rathersluggish as compared to this. But is this stock fall owing to a drasticreduction in value of the company?

Let us consider a simple P/E multiple based valuation of thestock. As per the FY12 guidance, the EPSfor the period FY12 would stand at Rs 147.13 per share. Also, the market basedconsensus for Q4 EPS estimate was Rs 43.68 per share (http://finance.yahoo.com/news/Infosys-tumbles-Q4-guidance-theflyonthewall-691393143.html?x=0assuming USD/INR = 52), which implied a year end EPS of Rs 148.69 per share.

Let us assume that the market price as on 11^th Jan(before the result announcement) was in accordance with these estimates. Q1 andQ2 figures were already known and Q3 EPS figures were in line with the marketconsensus. So, whatever fall that occurred was owing to the lower guidance. So,forward looking P/E multiple as on 11^th would have been 19 (Closingprice of 2826 divided by 148.69). After the fall, the forward looking P/Emultiple stands at 17.59 (12^th Jan closing price of 2588.6 dividedby 147.13). This indicates a lowering down of P/E multiple. This indicateslowering of confidence in IT industry and not just Infosys.

So, if you feel that scenario for IT industry as a whole hasworsened in the past few days and that is why, the price of Infosys shouldfall, then stay out of the stock.

On the other hand, if IT industry scenario has not changed inthe past two days (my own view is along these lines), then the drastic fall inthe price of Infosys seems to be an overreaction to the lower guidance figure.Based upon that, I would keep a target of Rs 2800 (147.13*19 = 2795) forInfosys.

Analysis of Piramal Healthcare Ltd

2011-08-04T20:12:00.000+05:30

Piramal Healthcare, in their Analyst presentation came out with their future strategy of utilizing their cash. As mentioned in my earlier post, they are sitting on almost Rs 10,000 crore cash/cash equivalent. With the sale of the Domestic Formulations business, there was some anxiety as to which business would Mr Piramal decide to invest the money in.

The major focus of the investments lies in four areas as follows:

1) Pharma Solutions
Investment: Rs 2,700 Crore
Current Sales: Rs 1020 Crore
Sales Target: Rs 5,000 Crore by 2016 (CAGR of 37%)

They aim to be among the top-3 contract manufacturing organizations globally.

2) Critical Care
Investments: Rs 1500 Crore
Current Sales: Rs 388 Crore
Sales Target: Rs 2,000 Crore by 2016 (CAGR of 39%)

They aim to be among the top-2 anesthetic companies globally.

3) OTC
Investments: Rs 2,500 Crore
Current Sales: Rs 125 Crore

Sales Target: Rs 1000 Crore by 2016 (CAGR of 52%)

Among top 3 companies in India by 2016 (Currently in to 10)

4) Life Sciences
Investments: Rs 600 Crore
Current Sales: (Yet to be merged into PHL)
Sales Target: (High potential, they hope to launch their first drug (for cancer) by 2014)

Over and above this, they will be investing heavily in PHL Capital. The money left out will be used to invest in minority stake investments.

The growth they are targeting would be achieved through a combination of organic and inorganic route. With the monetary power of going forward towards this target, PHL seems to be poised for a high growth trajectory.

In the Analyst Presentation they set a sales target of Rs 10,000 Crore for FY2016. Based upon that and the other information that has been posted here, I have made some earnings estimates for PHL.

So, if we consider a P/E ratio of 20, the price by the end of 2016 could reach around Rs 1662. This is a relatively conservative estimate, given the P/E multiple of the current top 5 market cap pharmaceutical companies is well above 20 (With that of Sun Pharma being close to 37).

Analysis of L&T Finance IPO

2011-07-28T00:43:00.001+05:30

L&T Finance has generated quite a bit of hype for its IPO. Due to lack of time, I have not been able to make a better study of the same and hence valuation. Hence, I will restrict myself to a relative valuation this time around.

For this purpose, I shall use the companies that they have mentioned in the RHP. The various figures for them is mentioned below.

	EPS	Price (as on 27/07/11)	P/E	RONW	Book Value(BV) Per Share	P/BV
Shriram Trans. Fin.	53.92	665.90	12.35	24.87%	216.37	3.08
M&M Financial Serv.	50.92	689.95	13.55	19.36%	244.70	2.82
IDFC	8.77	133.70	15.25	11.39%	76.97	1.74
Rural Elect. Co	26.18	213.60	8.16	20.15%	129.90	1.64
PFC	23.06	192.50	8.35	17.37%	132.79	1.45
Sundaram Finance	70.01	570.05	8.14	21.53%	325.22	1.75
L&T Finance	2.87	59	20.56	13.58%	20.4	2.89

No, if we consider that the issue gets listed at the upper limit (as has been the trend in recent times), then L&T Finance has a P/E ratio greater than any of the peers that they mentioned in the RHP. What more, the closest anyone comes to it is IDFC, trading at a multiple of 15.25 times earnings. Although the P/BV is not so bad if we consider the same price of Rs 59. This in turn shows an important fact: The low RONW. Among the group L&T Finance has the second lowest RONW. The next highest is at 17.37% to its 13.58%.

The higher price may reflect a very important assumption – a faster growth in earnings than its peers. This may in turn increase the RONW in the coming years. When I took a look at that, L&T Finance’s profits surged by 49.26% Y-o-Y for FY11. Compared to this, M&M Financial services’ profit surged by 35.13%, Shriram Transport Finance’s by 40.86% and IDFC’s by 26.09%. If we assume (for argument sake, these growth rates may not be replicated, but the actual growth rates might be in proportion to these), then we get the following result:

	EPS	Price (as on 27/07/11)	Fwd looking P/E
Shriram Transport Finance	75.488	665.90	8.82
M&M Financial Services	68.742	689.95	10.04
IDFC	11.0502	133.70	12.10
L&T Finance	4.305	59	13.70

Based on this, the price does not seem too high. What more, in a preferential allocation of shares in September 2010, L&T invested Rs 425 crore at Rs 67 per share.

Although this is not a straightaway value pick according to me, but you can still put some money in it.

Analysis of Great Offshore Ltd Results

2011-07-27T01:44:00.002+05:30

I was pleasantly surprised when Great Offshore came out with the results today stating their net profit was up from Rs 26.73 Cr to Rs 54.90 Cr, a whopping 105% growth Y-o-Y. Amidst the relatively poor showing by the industry in the recent past, this seemed a silver lining. But on closer inspection, these clouds of delight evaporated.

Their income from operations was down from Rs 235.9 Cr to Rs 218.59 Cr. But the contributor to their bottom line was not their operations, but profit from sales of vessels, which amounted to Rs 47.85 Cr before tax. Now if we remove this figure from the PBT, the amount goes down from Rs 92.9 Cr to Rs 45.05 Cr. And this is excluding the taxes. If we consider 40% corporate tax (the amount by which they deducted their tax), the PAT comes down to Rs 27.03 Cr.

Thus, the actual growth of the company was by a marginal 1.12%. Considering this, their EPS for Q1 was 7.26. The stock of the company was down by 1.05% at 211.85, trading at a current PE multiple of 7.29, which considering the lack of significant operational growth can be justified.

For the moment, I would rather stay away from this stock.

Analysis of Opto Circuits India Ltd Results

2011-07-26T21:32:00.000+05:30

Opto Circuits India Ltd is a medical equipment manufacturer with presence in India and Abroad. The Q1 results for the same were exceedingly good. On a Y-o-Y standalone basis, net profit increased marginally from Rs 56.95 Cr to Rs 57.13 Cr. But the more attractive figures come from the consolidated results. The net profit has increased from Rs 83.09 Cr to Rs 116.38 Cr (Y-o-Y). This has led to an EPS increase from Rs 4.46 to Rs 6.24.

Opto Circuits India Ltd, in itself has not grown much and is itself purely in healthcare segment. But the subsidiaries are more attractive with interests in IT as well. The most important information out of the results is the exceedingly good performance by the subsidiaries. The profit from the subsidiaries has increased from Rs 26.14 Cr to Rs 59.25 Cr, indicating a whopping growth of 126%. The International Health care business has reported a significant gain in revenues by almost 51%.

The most significant concern for the company could be exchange rate risk, as the majority of the sales as well as the profits come from the international business. Profits from domestic segment as well as the margins here are very small.

The current EPS (I assume it to be 4 times latest EPS) is 24.96. This means that the stock is currently trading at a PE multiple of around 11, which is very low as compared to the industry (20.8). Moreover, for such a growth rate that they are experiencing, Opto Circuits may be considered a value buy.

I will post a better analysis as soon as I get their annual report for FY2010-11 and have a look at their balance sheet.

Analysis of Biocon Ltd Results

2011-07-22T11:13:00.001+05:30

When I first saw the FY11 Q1 results of Biocon, I was really disappointed. But on taking a closer look, there were some positives as well. Although the standalone net profit was down from Rs 72.3 crores to Rs 60.4 crores, their consolidated net profit from continuing operations (their subsidiary had sold its subsidiary) was marginally up by 7% from Rs 65.22 crore to Rs 70.05 crore. These figures indicate two important things:

1) The domestic profitability has taken a hit
2) The subsidiaries, many of whom are foreign, have turned profitable

If we take a look at Q1 FY10 results, the standalone profit was Rs 72.3 crores as against a consolidated profit of Rs 65.22 crores. This indicates that the continuing operations of their subsidiaries had lost a total of almost Rs 7 crore, as against a profit of almost Rs 10 crore this year (Rs 60.4 Cr of standalone profit as against Rs 70.05 Cr standalone profit).

Another positive came from the segment results. The profits from CRAMS had increased almost two folds from Rs 14.6 Cr to Rs 27.99 Cr. This shows a significant increase in a very promising business area.

Despite these small positives, the result has been very disappointing, especially if you compare it QoQ instead of YoY. But I will still stay bullish on Biocon and would suggest to buy some shares when it falls further (Below 340).

Analysis of Piramal Healthcare Ltd

2011-07-19T21:28:00.003+05:30

When I decided to value Piramal Healthcare (PHL), a question came to my mind: "How do you value a company that is sitting on a cash pile of Rs 596 per share, when it is trading at Rs 403 per share?"

With such a strong cash position and the current EPS (of the business remaining after the Abbott sale) being 39.2 (4xEPS of Q4), the current P/E ratio of the company is 10.3. Such a P/E ratio for a company, with a proven track record is significantly lower than its peers (with equivalent track record). Such a low P/E multiple indicates that the 'market' does not expect the company to grow significantly in the future, which is unlikely considering their management track record.

Moreover, they are also not considering the large cash pile. A 10.3x PE multiple is understandable, but the Rs 596 cash that is lying around in the coffers of the company is definitely being neglected. The potential of the utility of the cash definitely being forgotten.

If the company in the future (maybe a year or two down the line, when it utilizes the above mentioned cash in some venture) is able to get an ROCE of 10%, that means, an additional earnings per share of Rs 59.6. We are not considering the potential of the financial leverage here. Moreover, we are also not considering the past performance given by the same management team: a minimum of 20% ROCE (upto 29%) in the past 5 years.

The book value per share of the company is also currently Rs 723. This is over 75% higher than the last traded price of the share. Piramal Healthcare has already entered the Financial Services business with the takeover of IndiaReit. With the merger of the New Chemical entity division into PHL, the new drug discovery front also looks promising as the risk profile of the R&D activity has also decreased a lot since the original demerger in 2007 (Owing to the molecules being higher up in the clinical trial process).

The potential for PHL seems great from my point of view.

P.S. There is a dividend of Rs 12 per share coming up this august. The dividend yield is almost 3%, tax free.

Valuation of Biocon Ltd

2011-07-05T22:28:00.001+05:30

Valuation of a company is not a straightforward task. There is no particular formula that will give a fixed value for the share of the company. I have tried using DCF (Discounted Cash Flow) method for valuing Biocon Ltd.

In the process of arriving at a particular value, several assumptions are required to be taken. I have tried to keep those assumptions as conservative as possible. The assumption for the same are as follows:

1) CAGR of Sales for the next 5 yrs: 25% (The past 5 yr average for Biocon is 28%, with growth touching 40% in the yr before last)

2) Target Operating Profit Margin of 20% (Past 5 yr avg for Biocon is over 25%. Most of the global players have the same closer to 30%)

3) Sales to capital ratio: 1.16 (Past 5 yr average for Biocon)

4) As the debt ratio of Biocon is very low (less than 0.1), for simplicity, I have taken the cost of capital as the cost of equity, which I obtained using the CAPM model.

5) The terminal value of the return on capital is assumed to be 15.5%. This is much lower than current ROIC of Biocon which is 22%

6) I have considered tax rate as 34% [as Biocon is a domestic company. This rate is supposed to further go down after implementation of the Direct Tax Code]

Considering the above mentioned assumptions, the final value I obtained for Biocon Share was Rs 435. The valuation depends a lot on the assumptions, but I believe the assumption that I have considered for the valuation of Biocon are conservative.

Excel sheet containing the calculation: Biocon Valuation

If you have any comments, please shoot :)

Analysis of Compact Disc India Ltd

2011-07-03T01:29:00.000+05:30

The uncertainty in the delisting of Compact Disc Ensues. Last month, HSBC Bank, bankers to the firm brought a stay order to the proposed voluntary delisting. This may mean several things, the first of which comes to my mind (i am speculating here) is the fact that the bankers may have lost faith in ability of the company to pay back and they feel that the money is being unnecessarily used to buy-back shares instead of doing something productive.

It is always tough for a company, if their banker, a reputed name in the industry shows such signs. This may hinder further raising of finances for the company. On a long run this may harm the growth of the company.

Moreover the resignation of key personnel from the board sends the wrong message. As mentioned in my previous post, the target of 60 (based upon the past 26 week avg) had been passed. Now if the delisting does not come about, any appreciation of price may not come up.

Despite of the good figures in the book of the company i shall recommend not to go in for the shares of the company.

News on Compact Disc India Ltd

2011-01-30T20:15:00.000+05:30

Delisting
Compact Disc India Ltd has informed BSE that the Board of Directors of the Company at its meeting held on January 28, 2011, inter alia, approved and adopted the following:

1. Board has approved the delisting of its equity from the Stock Exchanges where the securities of the company are listed. The Board convened an Extraordinary General Meeting on March 22, 2011 for approval from the esteemed shareholders. The reason for delisting shall be specified in the EGM notice.

I would like to remind the readers that for delisting, the company has to give a buy-back offer to the public as an exit opportunity as per a SEBI regulation. CDI has sufficient Reserves to accomplish this successfully. The minimum floor price of the offer is the 26-week average of the stock price, which in this case is around Rs58-59.

News on Compact Disc India Ltd

2011-01-21T20:39:00.000+05:30

Board Meeting on Jan 28, 2011 | 20/01/11 18:02

Compact Disc India Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on January 28, 2011, inter alia, to consider the following matters:

1. To consider and approve unaudited financial results of the Company for the quarter ended December 31, 2010.

2. To consider and approve the delisting of the securities of the Company from Bombay Stock Exchange and other stock exchanges where the securities of the company are listed.

3. To consider and convene the Extra Ordinary General Meeting of the members of the Company.
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My Analysis:
If the "Delisting of the shares is approved by the board on 28th, as per SEBI rules, they will have to give a Buy Back offer as an Exit opportunity for the shareholders.

The price of the buy back offer is decided by the book building process, where the floor price is the past 26 week average. Now, for Compact Discs India Ltd, the 26 week average is around Rs 60. So hold on to shares till they reach 60.

Happy Investing!!

News on Lupin Ltd

2011-01-14T15:46:00.000+05:30

Lupin receives FDA Approval for Nabumetone tablets | 14/01/11
[Source: www.bseindia.com ]

Lupin Limited announced today that its U.S subsidiary, Lupin Pharmaceuticals, Inc. (LPI) has been granted final approval for its Nabumetone tablets, 500 mg and 750 mg strengths from the U.S. Food and Drug Administration.

Lupin’s Nabumetone is the AB-rated generic equivalent of GlaxoSmithKline’s RELAFEN tablets indicated for acute and chronic treatment of the signs and sympto of osteoarthritis and rheumatoid arthritis. Annual sales for the Nabumetone market in the US was $66.8 mn for the twelve months ended September 2010, based on I Health sales data.

November 2010 IIP Figures

2011-01-12T18:31:00.000+05:30

The Ministry Of Statistics and Program Implementation has released the IIP estimates for November 2010. The Press Note is as follows:

------------------

The Quick Estimates of Index of Industrial Production (IIP) with base 1993-94 for the month of November 2010 have been released by the Central Statistics Office of the Ministry of Statistics and Programme Implementation. The General Index stands at 317.9, which is 2.7% higher as compared to the level in the month of November 2009. The cumulative growth for the period April- November, 2010-11 stands at 9.5% over the corresponding period of the previous year.

The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of November 2010 stand at 205.8, 343.9, and 230.5 respectively, with the corresponding growth rates of 6.0%, 2.3% and 4.6% as compared to November 2009. The cumulative growth during April-November, 2010-11 over the corresponding period of 2009-10 in these three sectors have been 8.0%, 10.0% and 4.5% respectively, which moved the overall growth in the General Index to 9.5%.

In terms of industries, nine (9) out of the seventeen (17) industry groups (as per 2-digit NIC-1987) have shown positive growth during the month of November 2010 as compared to the corresponding month of the previous year.

The industry group ‘Transport Equipment and Parts’ have shown the highest growth of 15.6%, followed by 12.6% in ‘Leather and Leather & Fur Products’ and 9.6% in ‘Other Manufacturing Industries’.

On the other hand, the industry group ‘Wood and Wood Products; Furniture and Fixtures’ have shown a negative growth of 27.4% followed by 17.5% in ‘Jute and other vegetable fiber Textiles (except cotton)’.

As per Use-based classification, the Sectoral growth rates in November 2010 over November 2009 are 4.5% in Basic goods, 12.6% in Capital goods and 2.4% in Intermediate goods. The Consumer durables and Consumer non-durables have recorded growth of 4.3% and (-) 6.0% respectively, with the overall growth in Consumer goods being (-) 3.1%.

5. During the current month, low growth has been observed in Intermediate goods and Consumer non-durable goods. Important items registering highly negative growth include ‘Spun pipes’ [(-) 38.2%], ‘Railway/concrete sleeper’ [(-) 34.9%] and ‘Particle board’ [(-) 29.6%] in case of Intermediate goods and
‘Rice bran oil’ [(-) 57.9%] and ‘Hair oil/ayurvedic hair oil’ [(-) 42.5%] in case of Consumer non-durable goods. Moreover ‘Agricultural implements’ [(-) 55.6%] and ‘Industrial machinery’ [(-) 46.7%] of Capital goods are also showing highly negative growth.

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News on Lanco Infratech Ltd

2011-01-07T13:47:00.000+05:30

Lanco Infratech's successful Bid | 30/12/10

Lanco Infratech Ltd has informed BSE that:
"Lanco Infratech Limited (LITL), has emerged as successful Bidder for 2 Laning with paved shoulders of Aligarh to Kanpur Section of NH-91 from KM 140.000 to KM 418.162 in the State of Uttar Pradesh on Design, Build, Finance, Operate and Transfer (DBFOT) on Toll Basis of National Highways Authority of India (NHAI).

The Scope of Work involves 2 Laning with paved shoulders of existing road, repair, widening and reconstruction of 3 major & 29 minor bridges, construction of 5 new Rail-over-Bridges, 4 toll plazas and other wayside amenities.

The Project involves an investment of around Rs. 1,000 Crores. The Grant from NHAI would be Rs. 287.91 Crores. The concession period for the Project is 12 Years including a Construction Period of 18 Months. The concessionaire will have the right to collect toll over the entire concession period starting from the Commercial Operations Date of the Project."

News on Lupin Ltd

2011-01-07T13:39:00.001+05:30

Lupin signs strategic agreement with FARMANGUINHOS, Brazil | 05/01/11
[Source: www.bseindia.com ]

Lupin Ltd announced that it has entered into an agreement with Farmanguinhos, Brazil's largest PSU in health care for the supply of its 4 in 1 combination drug of Rifampicin, Isoniazide, Ethambutol and Pyrazinamide for tuberculosis. Lupin will supply the product for the next five years and also provide Farmanguinhos with the desired support for the set up of its local manufacturing in future.

With this agreement between Lupin and Farmanguinhos in place, Farmanguinhos has entered into a commitment to produce and supply the 4 in 1 combination drug to the Department of Health (Brazil), which will result in substantial savings for the government.

The 4 in 1 combination reduces the pill burden on the patient drastically, particularly as the treatment lasts for at least six months. As per WHO, the treatment abandonment rate has fallen from 8 per cent to only 5 per cent due to this reduced pill burden provided by the combination drug. WHO estimates indicate that globally there are 9.2 million new cases each year resulting in 1.7 million deaths.

News on Parabolic Drugs Ltd

2011-01-07T13:26:00.000+05:30

Completion of First Phase of Expansion Programme with the commissioning of MP-II Plant at Derabassi, Punjab | 05/01/11 [Source: www.bseindia.com]

Parabolic Drugs Ltd has informed BSE that the Company has successfully completed the first phase of its expansion programme initiated in 2008 with the commissioning of Multi-Purpose Plant II comprising of 5 manufacturing blocks for parallel production in Derabassi, Punjab. With the commissioning of MP II, the Company has added 325 TPA capacities at its Cephalosporin campus at Derabassi, resulting in a total production capacity of 773 TPA.

Analysis of Lanco Infratech Ltd

2011-01-04T17:10:00.000+05:30

Introduction

[From Company Website]
Lanco Infratech has subsidiaries and divisions across a synergistic span of verticals. These include Construction, Power, EPC, Infrastructure, Property Development, and Renewables. Lanco Infratech’s projects, operational and underway, are spread across India.

A member of the UN Global Compact, Lanco Infratech is recognized for its Good Corporate Governance and Corporate Social Responsibility initiatives led by the Lanco Foundation.

[Analysed]
Lanco Power
Lanco has 2092 MW of operational Power Plants. A further 7148 MW plants are under construction at various locations, out of which around 650 MW is of renewable energy including Hydro Power and Solar Power. They are also engaged in Power Trading.

The increasing Power requirement of a developing India augurs well for the company.

Infrastructure/Construction Projects

Lanco Hills is one of the largest mixed property development projects in India located at Manikonda in Hyderabad, India. It is spread over 100 acres and it is a Rs 5500 Crore project. It includes 15 Residential Towers, 11 towers of sez/non sez IT spaces, club house, multiplex, mall, 5 star and business class hotels, serviced apartments and more. The proposed signature tower with 121 floors would be the tallest residential tower in the world.

Under Construction Order Book

Construction of New Terminal Building at Biju Patnaik Airport, Bhubaneswar.
1015 MW Imported Coal –based Power Project of Udipi Power Corporation Ltd at Udupi in Karnataka.
2 x 300 MW Coal-based Power Project of LANCO Amarkantak Power Ltd at Pathadi near Korba in Chhattisgarh.
2 x 35 MW Hydropower Projects of LANCO Green Power Pvt Ltd in Himachal Pradesh.
2 x 5 MW Hydropower Projects of Vamshi Industrial Power Ltd.
4 X 125 MW Teesta VI Hydro Electric Project of LANCO Energy Pvt Ltd in Sikkim
2 X 600 MW Thermal Power Project of LANCO Anpara Power Ltd in Uttar Pradesh.
368 MW Kondapalli Gas Power Project
81 km Road connecting Bangalore –Hoskote–Mudbagal in Karnataka for NHAI.
82 km Road Connecting Neelamangla-Devihalli in Karnataka for NHAI.
Construction Order for Lanco Hills.
Construction of New Terminal Building at Varanasi Airport for Airports Authority of India.
Construction of Medical College at Srikakulam in Andhra Pradesh.
Construction of Medical College at Ongole in Andhra Pradesh.
Construction of Vedic University at Tirupati in Andhra Pradesh.
Construction of Medical College at Belgaum in Karnataka.
Lanco is executing the construction of New Terminal for Varanasi Airport for the Airports Authority of India.

Financial

Sales for Sep '10 stood at Rs 1095 Cr and were higher than preceding quarter's of Rs 1075 Cr (Jun '10) but were considerably lower than that of Sep '09, which stood at Rs 1474.9 Cr. YoY net Profit decrreased from Rs127.38 Cr to Rs 45.79 Cr, which were lower than June '10 net profit of Rs 71.32 Cr.

Current annualised EPS stands at Rs 0.98 (Rs 0.49 for the half year ending Sep '10). Thus the current PE multiple stands at around 66 (For the price of Rs 65). The EPS has almost halved from the previous year, thereby doubling the PE multiple.

The Book Value per Share of the company stands at Rs 12.82 for FY10. Thus, the stock currently trades over 5 times the book value. Debt-Equity ratio is good for the company at 0.88.

Thus, although the financials don't look good for the company, following reasons are keeping the price as high as Rs 65:

An Extremely Strong Order Book
A Rs 4100 Cr EPC (Engineering, Procurement and Construction) contract from a Moser Baer Subsidiary
Host of Power Plant projects.

Analysis of Parabolic Drugs Ltd

2010-12-29T18:39:00.000+05:30

Introduction

[Based upon Company Website]
Parabolic Drugs Limited is one of the fast growing API (Active Pharmaceutical Ingredients) and API intermediate manufacturing and marketing company in the SME segment, with increasing international presence and a strong R&D foundation, based at Chandigarh, India.

Commissioned in 1998, PDL has two fully functional, state of the art manufacturing units, a WHO-GMP certified Unit based in Derabassi (Punjab) and a world class Semi Synthetic Penicillin manufacturing plant at Panchkula, (Haryana) with one of its products been approved for sales to USA, respectively. With Presence in over 45 countries, Parabolic Drugs Ltd emerges as one of the fastest growing Pharma Company.

PDL has a dedicated Custom Synthesis and Research & development Centre at Barwala (Haryana), fully equipped with latest analytical facilities and backed up with cGMP pilot plant for scale up of technologies and filing of DMFs.

Financial

PDL registered a modest growth of sales in Q2 FY11, as against that in the previous fiscal. Sales grew from Rs 128.84 Cr to Rs 147.45 Cr. On the other hand, the Net profit registered a tremendous growth from Rs 5.42 Cr to Rs 14.29 Cr. Operating profit margins have increased in this period. Equity capital has changed in the same period from Rs 10.75 Cr to Rs 61.89 Cr, thereby, direct comparison of EPS is not logical.

It should be noted that Q4 results of previous fiscal (FY10) showed a sales of Rs 167.76 Cr, which indicates a lower sales in the last quarter, but the positive indicator is, although sales have fallen, the profits have increased from Rs 11.52 Cr.

For the first half of this fiscal, sales stands at Rs 275.25 Cr as against Rs 233.42 Cr. The profits have also increased from Rs 13.15 Cr to Rs 24.82 Cr - a growth of 89%. The improving margins are a good indicator of the hopefully good performance by the company in the future.

EPS for the H1 of this fiscal stood at Rs 4.93, which take the annualised current EPS of the stock to Rs 9.86. The stock is currently trading at Rs 57, at a current PE multiple of 5.78, which is way below the industry average of 26.

The book value per share of the company stands at Rs 32.5. Thus, the stock trades at twice the book value, as against a higher Price per Book Value for peers ( Lupin - 8.23, Aurobindo Pharma - 3.89).

The long term debt equity ratio is 1.02, down from 1.21, which is good for a growing company. Total debt to equity has also fallen from 2.89 to 2.65. Current ratio has increased in the same period from 3.06 to 4.26. Cash flow to total debt ratio is at 10.52, which shows the financial stability of the company (Ability to pay debt through cash flows generated).

FIIs hold 16% in the company and the DIIs another 15%. The IPO of the company had listed at Rs 75 (lower band) in June this year. The company has a current market Capitalisation of Rs 350 Cr.

Recommendation

We can Invest into the company keeping a long term view.

Patience and Value Investing

2010-12-27T14:57:00.000+05:30

If value determination of a stock is the soul of Investing, then Patience is the heart, which will keep the "Investor" beating. Pateince can get you a multi bagger or convert that multi-bagger into a multi-loser. Warren Buffet has been quoted in the book "How to Pick Stocks Like Warren Buffett: Profiting from the Bargain Hunting Strategies of the World's Greatest Value Investor" by Timothy Vick, giving an example of the baseball player Ted Williams, having the seventh highest batting average of all time and the last man to average more than 0.4 in an entire season. Ted William says,

“To be a good hitter, you’ve got to get a good ball to hit.”

Along the same lines, to get a multi-bagger you should patiently wait for the right stock, at the correct value to make a buy and hope to make money out of it. Te patience part does not end at buying the right stock. The level at which you sell is also very important. Thus, if your stock is not doing well, you should still persist with it if you think you really have picked a value company, for in the coming time, the market will definitely recognize the worth of the company.

Sharing my own experience, I'll give you an example. I started investing at the most inopportune time for an Investor. I started when I had just joined Engineering College and after maintaining a Dummy Portfolio for an year (2006-07 to 2007-08). I had achieved a return of over 50% in the Dummy, and hence I decided to get into the real thing. The market (Bombay Stock Exchange) was at its peak of 21000. I purchased some shares of IndusInd Bank, that time trading at 122. They had fallen from a high of 135. In the last six months, they had traded between 100 and 135. Then Baer Stearns and Lehman Bros collapsed. The great fall started. Sensex fell from 21000 to 9000. IndusInd did the same from 122 to 40. I panicked. It seemed a bottomless pit and I was still in my infancy as far as the markets were concerned. I sold as soon as the stock reached 45. Today, the market has not crossed 21000, but IndusInd trades at 270.

This was selling while trying to stop your losses (only when the company is doing well fundamentally). But you may sell the stock prematurely as well. I had purchased Bank of Baroda at Rs 215. Within 4 months, It was up at Rs 300. With a gain of around 40% in four weeks, I felt it had increased a lot. I booked a profit. Now, the company at that level was still trading at PE multiple of around 5 to 6. Moreover, its profits were growing. The stock had not fully realized its potential. Today the stock trades at Rs 887 (After having touched Rs 1000).

Thus, Patience should be used, together with Value investing if you want to succeed.

Analysis of Ind-Swift Ltd

2010-12-22T12:51:00.000+05:30

Introduction

Ind-Swift Ltd is the formulations division of the Ind-Swift group which was incorporated in the year 1986. The company, over and above the local formulations business is also engaged in CRAMS (Contract Research And Maufacturing Services), a very lucrative outsourcing business for pharma companies in India. It also indulges in R&D to supplement the CRAMS as well as its own aspirations.

Financials

The Q2FY11 sales for the company stood at Rs 214.94 Cr against Rs 161.86 Cr in Q2FY10. Net profit is up from Rs 9.52 Cr to Rs 9.57 Cr, owing to pressure on profit margins. For H1FY11, the sales stood at Rs 393.34 Cr up from Rs 320.81 Cr for H1FY10. Net profit in the same period was up from Rs 18.17 Cr to Rs 20.58 Cr.

The EPS for this half is Rs 5.26, bringing the current EPS to Rs 10.52 as against Rs 9.12 for the previous fiscal. The current PE multiple stands at 3.2, much lower than the Pharma sector average of around 26.1. If the company delivers a good performance in Q3, the share may touch a level of 46 from which it had fallen in the last month.

Other Positives

Current ratio of the company stands at 2.96 up from 2.71. Cash flow to debt ratio is also at a respectable value of 9.25. The cash position of the company has increased to Rs 52.4 Cr at the end of FY10 from Rs22.96 Cr for the previous fiscal.

In this fiscal, the Promoters have increased their stake in the company by 3%, which is also a sign of their confidence in the company.

Negatives

The major negative is the increasing Debt of the company which has taken the total debt-equity ratio to 2.05. This in turn may mean large amount of investments for expansion.

Analysis of Lupin Ltd

2010-12-22T12:14:00.000+05:30

Introduction

Lupin Ltd is among the top 5 pharmaceutical companies in India, with a market capitalisation of Rs 20,000 Cr. What differentiates it from the other Indian pharma giants is its foray into the US market with a branded paediatric drug Suprax. With, the branded drug, they can boast of a bigger profit margin as compared to its Indian peers. In the coming year or two, Lupin is going to launch few more branded drugs, which increases its potential of growth in US.

With small acquisitions across the globe, viz Kyowa Pharma - Japan, Pharma Dynamics - South Africa, Multicare Pharma - Phillipines and Generic Health - Australia, they have obtained a toe hold in both emerging as well as developed markets, which they can leverage to their advantage.

Financials

Standalone sales for Q2FY11 stand at Rs 1073.09 Cr as against Rs 1009.36 Cr. This discounts the growth caused by the acquiations, which saw the consolidated sales growing from Rs 1114.69 Cr in Q2FY10 to Rs 1405.05, a growth of 26%.

At the same time consolidated PAT grew from Rs 164.62 Cr to Rs 220.69, a growth of 34%, which shows an increasing margin.

The consolidated EPS has grown from 3.8 to 4.83 in the same period.

The half yearly EPS stands at Rs 9.24 against Rs 7.18 for the previous quater. The annualised current EPS is Rs 18.48, which puts the PE multiple (Price: Rs 450) at 24.35, much lower than its peers, namely Dr Reddy for which it stands at 30.68 (Current EPS of Rs 54.98 growing at a slower pace and Price of Rs 1687) and Sun Pharma for which it stands at 33.48 (Current EPS of Rs 12.9 and a stock price of Rs 432).

Assuming the market remains steady, the stock can grow to 550, which will bring the PE multiple to its peer level of 30.

The long term debt to equity ratio stands at 0.05 for FY10 and total debt to equity ratio at 0.35. An increasing inventory turnover ratio is also a good sign for the company, in FY10 it stood at 5.7 as against 4.53 for the previous fiscal. In the same period current ratio has also increased from 1.71 to 2.45.

The company is poised for another patch of rapid growth.

Analysis of Compact Discs India Ltd.

2010-12-20T12:52:00.000+05:30

About the company:

Compact Discs India Ltd is a leading player in the South Asian Animation Industry. Their major source of revenue comes from animation outsourcing projects. These animation projects (related to movies) are contractual and hence are not risky, but lack of any Intellectual Property Rights over it also reduces the scope for prolonged revenues.

In order to tackle that, they are coming up with two animation feature films "Eternal Love" and "Futebol with Pele". In the latter movie, Pele has been roped in as an executive producer. In March this year. Compact Discs has also inked a deal with BBC to co-produce a film "Blame It On The Bhangra". They have also reported having struck a deal worth $82 mn with a british production house to make an animation movie on Adolf Hitler.

The company also plans to come up with five animation degree awarding institutes, thereby foraying into the Education business.

Financials:

Q2 FY11: Sales at Rs 78.4 Cr, up from Rs 61.67 Cr in Q2 FY10
PAT Rs 16.87 Cr vs Rs 12.84 Cr in Q2 FY10

EPS for Q2 FY11 stands at Rs 17.62 vs Rs 13.42 for Q2 FY10

For the first half (H1) of FY10, sales were Rs 129.17 Cr vs Rs 105.88 Cr for H1 FY10
and PAT was Rs 26.96 Cr vs Rs 22.01 Cr in the same half last year.

Their current EPS for the first half of FY11 stands at 28.17. Thus, if the trend for the year is to continue, the EPS for FY11 can be around Rs 56.

The stock is currently trading at Rs 52, making the valuations very attractive, given the growth in sales keeping the profit margins intact.

The PE multiple based on the current EPS is less than 1 and the book value per share (bps) of the company, which stood at Rs 107.92 at the end of FY10 vs Rs 79.79 for FY09. The Price per book value multiple is also currently 0.48.

The Long term debt equity ratio stood at 0.21 for FY10, which shows the company in decent health.

Negatives

An extremely low promoter holding in the company (24.7%) coupled with a high public holding (60.29%) does not show confidence of the promoters.

Except the news about the movies they will be producing, no other news has come up. No footage of the trailer has been released as yet.

Investment versus Speculation

2010-11-21T18:49:00.001+05:30

Today there is but a thin line that differentiates an Investor from a Speculator. According to Benjamin Graham - The Father of Value Investing -

An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting this requirement are speculative.

The most important point of this definition is "Investment promises safety of principal and an adequate return".

Now take for example a Short seller. Is he now an investor or is he a Speculator? A short seller is one who borrows shares of a company and sells them with a hope that the prices of the shares will fall and he would be able to buy back the shares at a lower price and return them. The difference in the price is the return he gets. If the price of the share increases, he loses. Now where do you see any investment happening? Where is the principal he is investing and what is he investing his money in? What is the difference between this short seller and a punter betting on a horse who he feels will win?

According to Warren Buffett, a stock investment is like starting your business. Suppose you start a business (say tuition classes) next Monday morning, do you sell the same business in the evening? The answer is a definite NO. Then how can a short seller be called an investor? Short selling is definitely speculation and it should be treated as such.

The sorry state of the Stock market Scenario can be judged from the fact that even the Indian Regulator SEBI, calls people who engage in Short Selling "investors". Refer the following link for the same www.sebi.gov.in/commreport/rep40.pdf. Here they mention "Presently, there is no prohibition on short selling by retail investors".

An individual should realize that what he is doing is not investment, but speculation. He should also realize the risks associated with speculation. Risk of speculative activities like Short Selling and Futures trading is more than just the loss of the Principal. It is a bottomless pit.

F&O/Derivatives Trading, Short selling, Buying shares with an intention to sell within an year are all a form of speculation. Just to get a notion how dangerous derivative trading/speculation may be for a layman/lay investor, please refer the following article on Forbes

http://http//www.forbes.com/global/2009/0316/030_harvard_meltdown.html

If Harvard can lose money speculating, why should you speculate?

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