Stock Tips

Buy Sandur Manganese and Iron for a holding period of 1 year.

This pick is by Investment Advisor, Ashish Chugh.

Sandur Manganese and Iron : BSE ID : 504918 NSE ID : Reco Price Rs. 639.05 CMP: Rs.639.10 (Gain 0.01%)
As against valuation of Rs.15000 crores for the reserves on beaten down valuations, the EV of the company is a mere Rs.470 crores. Also investments made by the company in forward integration will start paying off from September 2010 onwards.

Sandur Manganese and Iron Ores

The Sandur Manganese and Iron Ores Ltd. was incorporated in 1954 is mainly engaged in the mining of Manganese Ore and Iron Ore. The company has a Ferro Alloys plant, Star Metallics and Power Pvt. Ltd., at Vyasankere, near Hospet in Karnataka which is a 74% subsidiary of the company. The company is currently implementing a 32MW Captive Power project which is expected to be operational in September 2010 and with this the company will start its Ferro Alloys plant also in September 2010.

Financials

The latest financials of the company are given as under :-
QUARTERLY – LATEST RESULTS – (Curr: Rs in Cr.) As on 15/08/2010
Particulars Quarter Ended Quarter Ended Quarter Ended Year Ended Year Ended Year Ended
10-Jun 9-Jun % Var 10-Mar 9-Mar % Var
-12 -12
Sales 99.46 54.6 82.2 287.47 427.82 -32.8
Other Income 2.07 0.91 127.5 15.03 2.13 605.6
Other Operating Income
PBIDT 44.67 -4.3 LP 54.97 234.95 -76.6
Interest 0.02 0.03 -33.3 1.54 0.02 7600
PBDT 44.65 -4.33 LP 53.43 234.93 -77.3
Depreciation 2.61 2.55 2.4 10.42 9.89 5.4
PBT 42.04 -6.88 LP 43.01 225.04 -80.9
Tax 13.27 -2.65 LP 13.84 88.47 -84.4
Deferred Tax 0 0 - 0 -10.9 100
PAT 28.77 -4.23 LP 29.17 147.47 -80.2

Latest Data As On 13/08/2010
Latest Equity(Subscribed) 8.75
Latest Reserve 205.15
Latest Reserve (cons.) 197.77
Latest EPS -Unit Curr. 71.05
Latest EPS (cons.) -Unit Curr. 27.01
Latest Bookvalue -Unit Curr. 244.46
Latest Bookvalue (cons.) -Unit Curr. 236.02
Face Value 10
Book Value (BS) – Unit Curr. 280.83

Stock Exchange BSE
Latest Market Price–Unit Curr. 639.05
Latest P/E Ratio 8.99
Latest P/E Ratio -cons 23.66
Latest P/BV 2.61
Latest P/BV – cons 2.71
52 Week High -Unit Curr. 782.8
52 Week High-Date 20/01/2010
All Time High -Unit Curr. 1429.7
All Time High-Date 31/07/2008
52 Week Low -Unit Curr. 315
52 Week Low-Date 17/08/2009
All Time Low -Unit Curr. 17.5
All Time Low-Date 21/11/1995
Market Capitalisation 559.17
Dividend Yield -% 0.47
Dividend Yield -% – cons 0.47
Price Date 13/08/2010

Valuation & Investment Rationale

Sandur Manganese is involved in the mining and sale of Iron Ore and Manganese Ore. Till late 2008/ early 2009, the company was mining around 715 Hectares of Land which had reserves of 5 Mn Tonnes of Iron Ore and 18 Mn Tonnes of Manganese Ore. Thereafter, the company got clearance to develop further mines and the total Mining area now stands at 2005 Hectares with reserves of over 50 Mn Tonnes of Iron Ore and 25 Mn Tonnes of Manganese Ore.

The company has a market cap of Rs.560 crores. The company has a debt of roughly Rs.18 crores towards working capital advances and also has Cash kept as bank deposits and investment in various Mutual Funds of Rs. 125 Crores. Considering Sundry Debtors, Creditors, Inventory and Working Capital Debt, the Enterprise Value of the company comes to roughly 470 crores. The company made an Operating Profit of Rs.235 crores in FY 09 & paid a Tax of Rs.88 crores. The EV of the company therefore is equivalent to the potential operating profits that the company can make in two good years. This is extremely low for a company where reserves can last atleast for a few decades, if not centuries, thus signifying great value and margin of safety.

In FY 09, the company sold 2.95 Lakh tones of Manganese Ore and 14.50 lakh tones of Iron Ore and made an average realization of Rs. 7200 per ton for Manganese Ore and Rs.1450 per ton for Iron ore. The current reserves of the company stand at over 50 Mn Tons of Iron Ore and 25 Mn Tons of Manganese Ore. The valuation of these reserves comes to Rs.15000 crores assuming beaten down valuation of Rs.4000 per ton for Manganese Ore and Rs.1000 per ton for Iron Ore. Assuming Iron Ore and Manganese Ore prices at their highs would make the reserves of the company at over Rs.25000 crores. The Enterprise Value of the company at Rs.470 Crores looks small given the valuation of its reserves even at most conservative estimates. The promoters holding at 75% provides added confidence.

Investment in Star Metallics and Power Pvt Ltd., a 74% subsidiary

Star Metallics and Power Pvt . Ltd., a 74% subsidiary of the company is a joint venture between Sandur Manganese & Iron Ores Limited, Euro Industrial Enterprises Private Limited, and ETA Star Holdings Limited, Dubai. The company has a ferro alloys plant at Vyasankere, near Hospet. and a 32 MW Captive power project is being implemented.

Sandur Manganese has deployed roughly Rs.110 crores in Star Metallics and Power Pvt. Ltd.. This forward integration by the company would lead to high value addition when the plant of Star Metallics goes operational. The plant is expected to become operational in September 2010 as the 32 MW power project becomes operational. The benefits of investment of Rs.110 crores in forward integration will therefore start accruing to the company from the quarter Oct-Dec 10 onwards, with increased cash flow and higher profitability.

Other Initiatives

The company has recently received in-principle approvals from the Government of Karnataka to set up a 2.5 lakh tonnes per year medium sized special alloy steel plant, iron ore beneficiation plant of an optimum feed capacity of 1.7 million tones of Run of Mines and a Ropeway over a length of 4 km from Mines to Railway siding.

Major Concerns

The short term concerns however may be mining restrictions and restrictions on movement of Iron Ore being imposed by Karnataka government currently. Also, imposition of any additional tax on mining by the government is another concern. However, these concerns may be opportunities to accumulate the stock at current levels and on declines for the long term investors.

We believe the stock of Sandur Manganese carries high potential and also provides good margin of safety to the long term investors. The company pays tax at full rates and paid nearly Rs.88 crores Income tax in FY 09 and Rs. 13.25 crores for Q1 FY 10. The market cap of the company is small in relation to the tax payments which it makes. The company has nearly doubled its Sales in the first quarter of 2010 (over the same period last year) and has made an operating margin of 52% and made a PAT of Rs. 28 crores. The performance of the company for the next few quarters may be muted on account of restrictions on mining and restrictions on movement of Iron ore imposed by the Karnataka government. Assuming that for the next 3 quarters, the company does a profit of only 70% of what it has done in Q1, the full year profits can be Rs.87 crores. This would translate into an EPS of Rs.100. The stock is thus available at a PE of around 6.5. The company carries potential to make supernormal profits in boom times for Iron Ore and Manganese Ore. Also, in the event of the company offering a stake to a strategic investor, this can lead to unlocking of value for the shareholders.

Long term investors can choose to accumulate the stock at the current price and on declines.

Ashish Chugh is an equity analyst and investment consultant based at New Delhi, INDIA. At the time of writing this article, he, his firm and dependent family members have a position in the stocks mentioned above. The author, his firm or any of his dependent family members may make purchases or sale of the securities mentioned in the report while the report is in circulation. The author invites readers to send him email and welcomes comments, feedback & queries at nexgenfin@yahoo.com.

Buy Hindustan Construction Company for Long Term

HCC – Longterm

Entry Price: 125+ Rs
Target: 200.Rs

1 year Investment Horizon

Value unlocking through Lavassa

Jyoti Ltd :

BSE ID : 504076

Recommended Price Rs. 80

Target Price: Rs. 150-300

As against an order book of Rs.1000 crores, the market cap of the company is just Rs.100 crores. The company caters to Water, Power and Irrigation sectors where immense opportunities exist.

Jyoti Ltd

Jyoti Ltd. is a leading manufacturer of pumps in the country and caters primarily to the Water, Irrigation and Power sectors. The company manufactures Large Pumps, Motors and Generators.

The Company has a presence in the Small Hydel Sectors, Water Handling Sector, Lift Irrigation Sectors and also in the Wind Energy sectors.

The company has lately diversified in the field of Wind Power and has taken number of steps for the development of Wind Turbine with latest technology and its commercialization through development of Wind Farms. The company manufactures indigenously designed and developed Permanent Magnet Synchronous Motor for manufacture of Turbines.

Financials:

The latest Financials of the company are given as under :-

QUARTERLY – LATEST RESULTS – Jyoti Ltd (Curr: Rs in Cr.)
Particulars Quarter Ended Quarter Ended Quarter Ended Year Ended Year Ended Year Ended
(Mar 09) (Mar 08) (% Var) (Mar 09) (12) (Mar 08) (12) (%Var)
Sales 91.09 87.35 4.3 253.33 207.62 22
Other Income 0.24 0.08 200 0.56 0.41 36.6
PBIDT 5.48 9.26 -40.8 22.01 25.1 -12.3
Interest 3.72 2.77 34.3 13.73 12.36 11.1
PBDT 1.76 6.49 -72.9 8.28 12.74 -35
Depreciation 0.61 0.55 10.9 1.96 1.76 11.4
PBT 1.15 5.94 -80.6 6.32 10.98 -42.4
Tax 1.84 1.02 80.4 1.99 1.12 77.7
Deferred Tax -0.31 -0.61 49.2 -0.31 -0.61 49.2
PAT -0.38 5.53 PL 4.64 10.47 -55.7

Latest Data As On 14/07/2009
Latest Equity(Subscribed) 12.98
Latest Reserve 41.21
Latest Bookvalue -Unit Curr. 41.75
Latest EPS -Unit Curr. 3.66
Latest Market Price -Unit Curr. 34
Latest P/E Ratio 9.29
52 Week High -Unit Curr. 65
52 Week High-Date 7/16/2008
52 Week Low -Unit Curr. 25
52 Week Low-Date 3/9/2009
Market Capitalisation 44.1
Stock Exchange BSE
Dividend Yield -% 0

(Source : Capitaline)

Conclusion & Investment Rationale:

Jyoti Ltd. has been in existence for over 60 years and manufactures Large Pumps, Motors and Generators for core Infrastructure sectors like Water, Irrigation and Power. Besides, the company is sitting on huge real estate assets. The company has 15 acres of land close to Vadodara Railway station, which has potential to be exploited commercially. This can be achieved by relocating the company’s production base elsewhere. The company had shortlisted Mogar, near Anand as a possible alternative.

The stock of Jyoti Ltd. suffers from a few negatives. The company has high debt – the company paid an interest of roughly Rs 14 crores for FY 09. An interest cost of Rs 14 crores on EBIDTA of Rs 22 crores leaves the company with poor Interest Cover. The high interest cost has been a big drag on the profitability of the company. Low promoters holding of around 22% is another cause of concern. Moreover, the company suffers from Information dissemination issues like voluntarily disclosing status of execution of various orders and new orders received or holding periodic Investor or Analyst conferences.

On the positive side, the company has a very healthy order book of Rs 1000 crores. The company has last year bagged orders worth Rs 541 crores (Jyoti’s share of the orders in JV) for supply of pumps for Irrigation and Drinking Water projects from the Karnataka Neeravari Nigam Ltd (KNNL), set up by the Karnataka Government. Jyoti Ltd. is responsible for complete electro-mechanical work with associated control and instrumentation system, including transmission line of 110 KV and 220 KV along with sub-stations. The pumps would make available water for irrigation to 1.07 lakh hectares of farm land in Karnataka. Besides, nearly 20 lakh people in about 315 villages and some urban areas in drought-prone belt would be supplied drinking water from 700 water tanks to be set up in the southern State. This is the single, largest electro-mechanical package awarded to any pump manufacturer in India and is to be executed over 3 year period. The company had also received turnkey order worth Rs 27.24 crores from Aravali Power Co. Pvt. Ltd. (A Joint Venture of NTPC, HPGCL and IPGCL) for design, engineering, supply, erection, testing and commissioning of cooling water system and make up water system for Indira Gandhi Super Thermal Power Plant — Jhajjar

The company has successfully executed a Rs 250 crores project received from the JV of Hindustan Construction Co. Ltd and Nagarjuna Construction for Godavari Lift Irrigation Scheme in Andhra Pradesh. The company is looking for more orders for other upcoming irrigation schemes of Gujarat, Chattisgarh, Karnataka and Andhra Pradesh.

We believe that successful execution of the Rs 250 crore Godavari Lift Irrigation Project and also of the Rs 541 crores project from Karnataka Government will qualify the company for various other large Water and Irrigation projects in the future. Government’s impetus on Irrigation and Water with large outlays and also the large capacities coming up in Power sector augur well for the company and provide significant revenue visibility to the company.

We believe that the negatives look fully discounted in the current market price of the stock and the possibility of the stock drifting down too much, at least in the short to medium term, from the current levels looks low. Investors can choose to accumulate the stock at the current price and on declines.

Capital Market / 07:34 , Jun 12, 2010
Jyoti targets Rs 400-cr sales this fiscal
The Vadodara-based Jyoti Ltd, which makes hydel power equipment, engineered pumps, rotating electric machines and switch gears, has set itself a sales target of Rs 400 crore this fiscal, up from Rs 292 crore in 2009-10.

The 65-year-old company has an order book of Rs 1,023 crore. The hydel division has a 25 per cent market share in small hydel projects (up to 10 MW) and has installed 450 hydel sets with a cumulative capacity of 300 MW.Mr Rahul Amin, Chairman and Managing Director, said there was immense potential in small hydro projects with the Centre having identified an opportunity to generate 30,000 MW through this route. He also said, the hydel division plans to book orders worth Rs 150 crore this fiscal.

Ashish Chugh is an equity analyst and investment consultant based at New Delhi, INDIA. At the time of writing this article, he, his firm and dependent family members have a position in the stocks mentioned above. The author, his firm or any of his dependent family members may make purchases or sale of the securities mentioned in the report while the report is in circulation.

Buy Pyramid Saimira

High Risk Pick. But gains could be high too.

Risks:

There is possibility that this stock could be stopped from trading.
The promoters are banned from accessing the capital markets for 7 years.
No active running business.
All company accounts under IT attachment.
So many creditors with Winding up petition.

Gains:

There is a possibility that the company could come out this crisis .
Creditors could workout a package.
Promoters may infuse money into company if creditors approve the plan.
Company could restart theatre business.

Buy at the current price between Rs.9 to Rs.10

Target: 30.Rs

I hold a decent amount of shares in this company.

Buy GULF Oil

Entry: 90.Rs

Target: 200-300.Rs

Duration: 1 Year

Buy GULF Oil for 1-2 year investment Horizon.

Good Dividend:

Gulf Oil Corporation Ltd has announced that the Board of Directors of the Company at its meeting held on May 14, 2010, inter alia, has recommended payment of Dividend Rs. 1.80 per share @ 90% for the year 2009-10, subject to the approval of shareholders at Annual General Meeting.

Subsidiary Listing:

Gulf Oil Corporation’s Saudi Arabian unit plans to raise as much as $1 billion selling shares in the Saudi stock exchange at the end of the year.

Buy Jyothy Laboratories

Price: Rs.250

Target: Rs.500-750  in 1-2 years

Results:

Jyothy Laboratories has announced its financial year 2009-10 results. It has reported consolidated net profit of Rs 74.3 crore as against Rs 38.3 crore.
Consolidated net sales increased to Rs 598 crore from Rs 363 crore.

Fund Raising:

Jyothy Laboratories said it is looking to raise up to Rs 300 crore through the issue of shares to qualified institutional buyers.

Laundry Business:

Jyothy Labs eyes Rs 600cr revenue from laundry business in 3 years

Acquisition:

Jyothy Labs has announced plans for acquisition in home, fabric care space

With all these things , i advice Buy on Jyothy Laboratories. Do your own research before you invest.