Coal India Ltd: Will it meet the 1billion tonne production target?

Coal India Ltd has been missing its monthly target for 11 consecutive months, indicates that it is going to miss its 600 MT annual target this year. The target for 18-19 is 773 MT and 908 (1 billion ambitious target) by 19-20.

Being the larget coal mine in the world, it commands a superior position. But there are many factors that come in way. Major one is the availability of railway rakes, high loading times, railway congestions, piling of inventory, accidents, delays in acquiring lands, clearing delays from govt. and forest dept. Apart from mining related issues, transporting the coal from mines to the power plants is another issue. Therefore, the co has invested in building 3 major railway corridors.

Current situation:  

51 of the critical and super critical power plants are running out of stock. Having just 10 days against the required 22 days of stock. And since CIL is going to miss the target, India is going to have to import coal of the same amount as last year.

Pressure on margins:
Also, the co., per its 5 year salary and wages review has created provisions for increases amounting to 2000+ Cr. The emplyee cost has therefore increased by 11%. This is in addition to the increasing power expenses (rise in power tarrif) and contractual expenses. Thus putting pressure on the margins.

Outlook:
GOI has also encouraged commercial mining that will add to creating coal substitutes and curb the coal imports thus saving huge forerign exchange. Meanwhile, CIL has to find ways to address these issues if it has to reach its 1billion tonnes target by 19-20.

 Investment thesis:

At a price target of 400, this stock can show volatility and ample buying opportunity in the next 18-20 months. Accumalate on declines and keep an eye on the monthly production levels. BTW, the co has defered its decision on the dividends, sending a negative signal to the market.At Rs. 303, it is a hold.

MOIL Ltd : Riding on the growth of Indian steel industry

MOIL Ltd. is a 55 year old, Government of India Enterprise PSU with almost 65% holding by Gov. of India.

Industry:

The company primarily produces Manganese Ore which is a raw material for making steel. Most of the demand is generated by the domestic steel industry. The Indian Steel industry has had great recent years as it grew from 89 million tonnes to 95.6 million tonnes in the year 2016, growing at 7.4% while the global steel production grew only at 0.8%. China, the largest producer of steel grew at 1.2% while Japan, the second largest had a decline in its growth by 0.3%.

Therefore, the strong domestic steel production will continue to fuel the demand for domestic manganese ore raw material.

Nearly 6 kilograms of manganese is required for manufacturing one tonne of steel. It is also used for the manufacture of bleaching powder, insecticides, paints, batteries and china-clay.

India has the second largest manganese ore reserves in the world after Zimbabwe. The total in situ reserves of manganese ore are 406 million tonnes out of which 104 million tonnes are proved, 135 million tonnes are probable and 167 million tonnes are in possible categories.

India is the world’s fifth largest producer of manganese ore after Brazil, Gabon, South Africa and Australia. Production of manganese ore in India remains more or less static, with slight variations from year to year.

Company performance:

MOIL is the largest producer of manganese ore and commands a 45% market share. The total mining lease the company has spreads over 1742 Ha covering the states of Maharashtra and Madhya Pradesh.

The financials of the company are very strong.They currently have capacity of 1.15 million MT. Plan to expand this to 2 million MT by 2021 and 2.5 million MT by 2025. They have vocreed 460 Cr. in capex to double their production at Bhalghat from 0.37 million MT to 0.74 million MT by 2024.

Expected revenues to grow at 25% CAGR over the next 4 years to reach 2 million MT of production.

The revenue is primarily driven by the global Manganese ore prices. MOIL produces Ferro grade as well as some of lower grade ore. Therefore, the sales have a high correlation with the manganese ore prices.

Last year, the sales went up from 634 Cr to 989Cr by 56%. Primarily due to a better product mix and a price increase of 37%; from 5911 PMT to 8078 PMT. This was inline with the global uptrend in prices. Early this March, they have again increased prices by 10%. The volume increase last year was of 16.75 % as production went up from 0.967 million MT to 1.129 million MT

Fig 1. Manganese Outlook for 2018

The company issued a 1:1 bonus. Also there was a 60% dividend payout of Rs. 6.

 

This year, they have issued a share repurchase at the price of 240, which is ~20% above the current market price of 203. With this share repurchase, the RoE will increase from 10.9 to 11.79. and book value per share will go down from 210 to 100. The shares buy back will reduce the number of shares in the open market and hence increase the share of the investor in the company profits. It will also create less supply of shares which has a positive effect on the share prices.

Investment thesis:

The FY 18 revenue is expected to reach around Rs. 1,200 Cr and expected EPS can be between 22 to 24. On a conservative valuation basis, at a PE of 13, the target price is expected to be Rs.300.

Based on current market price of Rs. 203, this translates to an expected returns of 47%. Traders can buy for 4-6 months with a stop loss of Rs. 180

Entertainment and Media Industry Analysis

Market attractiveness-

The Indian entertainment and media industry can be characterized as follows –

• Current size of Indian television media industry: INR 191 billion (USD 4.7 billion). Expected CAGR over next 5 years: 22%

• Total no of households in India: 187 million

• Total no of TV households: 112 million (60% penetration)

• Total no of pay TV households: 70 million

• Total no of cable households: 68 million, projected CAGR over next 5 years: 5%

• Total no of DTH households: 2 million, projected CAGR over next 5 years: 43%

• The industry has been forecast to outperform the economic growth in each year, till 2011

• Foreign investment climate: Liberal FDI policies across every industry segment
• Regulatory status: Selective government intervention to accelerate industry growth.

Out of the total Indian entertainment and media industry, the composition on Television and Filmed entertainment industry is following:

Industry	2006 US$ bn	% share	05-10 CAGR %	FDI limit %
Television	3.7	42	24	49
Filmed entertainment	1.7	20	18	100

Source: 2006 annual edition of the FICCI-PriceWaterhouseCoopers’ report

In India, television is the largest entertainment segment accounting for nearly 42% of the industry’s revenues followed by the print media (30%) and films (20%) in 2005-06.

Going ahead, the share of television in the advertising pie is expected to increase to more than 50% by 2010.

So whats driving this growth and is it sustainable?

1. India growth story suggests strong economy sustaining the growth momentum and achieving an annual average growth of 7-8 % in the next five years. Strong economic growth are giving rise to employment and rising the household income. Rising income levels and consumerism are creating a growing demand for entertainment.
2. This coupled with technological advancements, policy initiatives taken by the Indian Government that are encouraging the inflow of investment and initiative by private media companies.
3. With the rise in consumerism and a consequent growth in corporate profitability, the total ad spend is expected to grow significantly in future. In 2004 the total ad spend stood at 0.5% of the GDP. This is further expected to growing interest from global brands attracted by India's huge and growing market.
4. As per published data, Zenith publication 2004, India’s ad spend as a percentage of GDP is low as compared to other developing markets. This presents a good upside as the market matures for increased ad spend by corporate in the future.
5. With the advent of digitalization, a lot of channels have turned in to pay channels. Pay TV penetration is expected to reach 113 million by 2011.

So what does all this mean?

All the above detailed reasons, figures and comparison with other markets indicate a healthy opportunity for the growth of advertising revenues for Indian broadcasters. The TV advertising market is expected to grow from Rs. 66 bn in 2006 to Rs. 123 bn by 2011.

DTH and IPTV are expected to strengthen cable and satellite advertising from $1.02 billion in 2005 to $1.8 billion by 2010 and $2.4 billion by 2015 (source MPA report, March 2007). TATA SKY has just signed its one millionth subscriber in less that one year of launch.

Who is watching what?

According to TAM peoplemeters, ADEX report on the share of viewership across genres of channels, the "Mass entertainment" (programmes like soap operas) has been consistently scoring high at around 40% of the total viewership, followed closely by regional language programmes at 37%.

India has a large number of medium class population. According to a McKinsey report if India achieves the growth of 7-8 %, its middle class will swell to 583 million people or 41 percent of the population. A majority of the Mass entertainment programmes (like soap opera ) viewers from this class of society can be characterized as housewives. TV soap operas targeted towards this audience have had high success rates and toped TRP ratings attracting maximum ad revenues. It comes as no surprise then that the leading segments of advertisements on TV comes from products targetted towards this same audience. According to TAM Adex data, shampoos and toilet soaps advertisements make the top two segments.

Socio-Economic Category (SEC) profiles are a commonly used tool by marketers to segment their target bases on the basis of income earned and educational classifications. Advertisers use channels that show popular soap operas to target specific viewer segment or SEC profile that matches with their targeted audience. FMCG companies selling products bought by housewives flock to TV soap operas for advertisements.

As programmes become popular with the targeted audience, the TRP ratings for the programmes start going up. Increase in viewership and viewer loyalty provides a strong case for negotiating rate hikes with broadcasters and advertisers. Average annual rate hikes can be 10-12% on popular content broadcasted at prime time on highly ranked channels. The price trends are closely related with the TRP ratings of the programmes.

Market dynamics and the 5 forces -

One the supply side, presently there are about 300 TV channels. It is expected that the total number of TV channels will grow to 500 in the next 2 years.

On the demand side, channels are falling short of quality programmes in the fight for viewership. Demand of quality programmes of mass entertainment at prime time continues to be high.

Bargaining power of viewers is relatively high as viewers have a surfeit of channels and programmes to choose from.

As a competitive strategy, channels are searching for niche areas. Programmes broadcasted during the prime time have been achieving higher TRP ratings. However prime time broadcasting is equally expensive as there is huge competition for this prime time slot.

In nutshell, competition for mass entertainments programmes is high. Quality programmes with differentiation offered by unique concepts provide great entertainment value and therefore attract wide viewership and revenues.

YOU CAN BUY THE REST OF THE REPORT. MAIL ME FOR THE TABLE OF CONTENT OF THIS REPORT AND A SAMPLE RESEARCH REPORT mohan.late@gmail.com

Portfolio Management

Let me first define risk. Risk is not the risk of losing money here. Risk is the standard deviation from the expected returns. So if you expect Reliance to give 30% return in one year, then risk is the percentage it will miss the expected return. A portfolio manager will tell you that Reliance has a low risk and will deviate by +-5% or so. (the figures are only for explanation). Lets say a Jai Corp is also exptected to give 30% return. But the risk here is high. It may deviate by 15%.

In short an investor will take on more risk provided he is compensated by a higher return. On the flip side, an investor will bear more risk if he wants a higher return.

Why portfolio? A portfolio is a mix of assets. The idea is to diversify and not put all eggs in one basket. At the same time, create a portfolio that balances the risk return to suit your need. Lets say- you want both a Relaince and a Jai Corp AND try to get a higher return on a lower risk, by MIXING the two in the right proportion. The portfolio then has its own risk and return profile.

So how to have the right mix? This depends on the characteristics of individual investor. I would not suggest the same asset to both a retired person with no source of income and also to someone who has started a great career. There are a host of things to be considered. .e.g. Risk appetite, investment horizon, liquidity concerns, tax concerns, etc. before designing an optimum portfolio that suits an investors risk and return profile.

If you want and are able ( a portfolio manager will ascertain both) to take more risk, your portfolio will have a higher weightage of risky assets. And Vice versa. Portfolio returns are weighted average of individual assets in its compostion. The formula for the portfolio risk is a lot complicated. I have the code written somewhere.

IDFC: BUY with a Target Price of Rs 222

IDFC is all set to ride the infrastructure boom in India for the next 3-4 years. THe spend on infrastructure plans is Rs 14500bn during the 11th plan (2007-2012), an increase of 8% by 2012 of GDP from currently 4.5% of GDP. Indian Government has encourages private participation and eased entry of private players by oferring concessions and offering great opportunities for private players among which IDFC is a dominant player in this segment.

IDFC has strategically built domain expertise in many sectors and its positioning itself as a specialist infrastructure institution has helped it develop a sharp focus in areas such as project appraisal. IT has developed strong risk management systems and as result of which it has one of the best asset quality in the industry. The company’s Gross NPAs stood at Rs 300 mn (0.2%) and Net NPAs are nil.

IDFC is also diversifying its revenue stream from lending spreads to the fee based income. The company has made a smart move by developing the capabilities in
fee-generation segments viz. Asset management and the investment banking to mitigate the risk of the rising interest rates.

Income from Operations went up by 49.2% in FY07 and PAT increased by 29%.

At the CMP of 193, the stock trades at 31.12X, FY09E EPS of Rs 6.2, 4X FY09E Book Value of Rs 47.3.

BUY with a 12 month Target Price of Rs 222 at which it would quote at 4.7x of its FY09E book value.

Industrial Development Bank of India (IDBI): BUY with a traget of 200

It owns 5% of IFCI. IFCI is currently under-going a structural change in its
existence with a probable infusion of a strategic partner, which could be Citigroup OR some other from the same global pedigree. IDBI also co-owns with IFCI, reputed firms of the capital markets like SEBI, NSE, SHCIL, CARE, ISIL, OTCEI and NSDL. It also owns sizable holdings in Money Market institutions like DFHIL, STCIL and CCI.
Apart from these investments, IDBI owns equity investments in various companies and institutions. The bank has quoted equity investments of Rs 85.1bn (Book Value as on March 2006), with a market value of Rs 85.9bn.
The discounted realizable value of these investments are worth Rs 82.3/ share.

The UWB acquisition was very good and IDBI will benefit from it in the long-run. The acquisition increased IDBI’s network by 230 branches from 195 branches to 425 branches. IDBI can leverage on UWB’s widespread network, access to the Low Cost Deposits and expand its Retail Credit Portfolio.

IDBI is also focusing on increasing its Fee Based Income. It has tied up with Fortis Insurance & Federal Bank to form a Life Insurance company, where the Bank holds major stake i.e. 48%. Further, leveraging on corporate relationships, the Bank is expected to increase its offerings and enter businesses such as Assent Management .

There was an increase of 73% in NII and a 12.4% increase in Net Profit. The NII margins went up 20 basis points from 0.5% to 0,7% in FY 07. For the quarter ended Sept. 07, Sales increased by 42.6% and PAT increase by 11.55%.
Great set of numbers !

At the CMP of 160, the stock trades at 14x FY09E EPS of Rs11.3, 1.23x FY09E Book Value of Rs 129.7. It is a clear Buy with a target of Rs 200 over next 12 months.

Technically, the setup looks for some big upmoves in the next few sessions. Though 160 is a strong resistance, it looks like we may see a breakout in couple of days. The volumes are increasing.

For those who want to trade in the short term, BUY with a SL of 145.

Suzlon Energy: BUY with a SL of 1560.

Things are looking bright for Suzlon. Has an order book position of Rs 16,328.04 crore comprising of Rs 1988.88 crore of domestic orders and Rs 14,339.16 crore of export orders. The board of Suzlon Energy approved for the stock split of 5-for-1.

Suzlon Wind Energy Corporation, the US based step down wholly owned subsidiary of the company signed a contract for a 400 mega watt (MW) of wind turbine capacity with Horizon Wind of Houston, Texas, one of the largest wind power developers in the United States.

On 3 October 2007, the company secured a major order from DLF for setting up of a wind farm of 150 MW wind turbine capacity in the State of Gujarat.

Suzlon Energy’s net profit rose 40.27% to Rs 355.58 crore on 31.27% growth in sales to Rs 1687.46 crore in Q2 September 2007 over Q2 September 2006. The result was announced during the trading hours today, 23 October 2007.

The stock corrected from 1800 levels to 1500-1518 levels. It bounced with a gap up and many missed the chance of re-entering this stock. At current levels it looks overbought. Buy with a stoploss of 1800 or on dips with a much lower stoploss of 1560.

Bombay Burmah Trading Corporation Ltd (BBTCL): BUY with a Stoploss of 640 and Target of 750

As per reports, Wadia Group might use its cash reserves in group company Bombay Burmah Trading Corporation to buy French dairy major Groupe Danone’s 25.5% stake in biscuit-maker Britannia Industries. As per Bombay Burmah’s latest annual report, it has Rs 608.27 crore in consolidated reserves and surplus.

Groupe Danone and the Wadia Group hold an equal stake in Associated Biscuits International Holding (ABIH), which in turn holds 51% in Britannia Industries.

At current stock prices of Rs 1610 on the BSE, Britannia Industries is valued at about Rs 3846.29 crore. At market value, the cost of acquiring Danone’s share will be approximately Rs 961 crore, though the Wadia Group is expected to acquire the shares at a discount.

Bombay Burmah’s net profit rose 16.3% to Rs 3.28 crore on 0.8% fall in sales to Rs 52.10 crore in Q1 June 2007 over Q1 June 2006.

Bombay Burmah is part of the Nusli Wadia Group. The company has major interest in tea/coffee plantation, though it has diversified in other streams like laminated products (Sunmika), springs, weighing products, dental products, ophthalmic products, and orthopedic products.

The financials are strong with consistent performance record. Here is a DuPont analysis for the co-



Stock is in an uptrend. A good buying opportunity on this correction as it takes a pause to catch some breath. But the steam is not out though it looks overbought. Bulls are not ready to sell and new buyers are coming in good numbers.

For a more detailed technical analysis, visit my post here -

http://TechnicalChartsAnalysis.blogspot.com

Here is a real-time track of the stock movement.



Aah, this chart is showing a nice Bollinger Band squeeze in the making. We may see a big move in either direction. Normally it is in the direction of the major trend - UpTrend in this case.
YOU CAN BUY THE COMPLETE EQUITY RESEARCH ANALYSIS REPORT. Mail me for more information at mohan.late@gmail.com

Vindhya Telelinks Ltd - Investment holding companies a Value BUY

Investment holding companies cos have most of their assets from long term investments in other companies. Some companies also have business activities generating revenues from core operations. Mostly these companies have investments in the their group companies. The promoters are the same of these cos and the operating cos.

Investment holding companies are traded at a discount to their NAV because of the uncertainty of the holding period and lack of liquidity. If the promoters are same they would never liquidate their investments. Recently the discount to which they trade is shrinking. Indian holding cos trade a deep discout as compared to holding cos in developed countries like the US.

This trend is changing as both the FIIs and Mutual funds have started buying them at lesser discounts. Buying shares of companies at a discount through a holding companies gives an investor a long term view.

I was looking at the investments of Vindhya Telelinks Ltd. Here is an analysis of its investment holdings -

Quoted shares
Universal Cables: Total 4839908 no. of shares. The value at CMP of 96 is 464,631,168
Birla ericson optical: Total 4000000 no. of shares. The value at CMP 20 is 80,000,000
Birla corp: Total 6380000 mp/of shares. The value at CMP of 341 is 2,175,580,000

Total value of Quotes shares: 2,720,211,168

Total value of Unquoted shares from the company annual report is 575,703,000

TOTAL 3,295,914,168

Vindhya Telelinks Ltd has a total of 11820000 outstanding shares. Therefore the value of the investment comes out to 278.84 per share.

Consider the three investments in listed companies, viz Universal Cables Ltd., Birla Ericson Optical Ltd., Birla Corporation Ltd. Calculating the total value taking the current market price as on 5th Oct 07, comes out to Rs. 272 Cr. Vindhya Telelinks Ltd. Has a total 1.18 Cr. Outstanding shares which gives a B.V. per share of Rs. 230.

The stock is available at a discount of 34% to just its investments value in the three listed companies. Add the value of the unquoted investments and the B.V. goes up to Rs. 278, and an attractive discount of 45%.

This is just the investment of the company. Lets take a look at their operations.

It was established in joint sector between Universal Cables Limited, Satna, belonging to M.P. Birla Group and Madhya Pradesh State Industrial Development Corporation Limited to implement a project for manufacturing of Polyethylene Insulated Jelly Filled Telephone Cables (JFTC).

The company has become the leading supplier of Jelly Filled Telecommunication cables to Bharat Sanchar Nigam Limited (BSNL), Mahanagar Telephone Nigam Limited (MTNL) and other leading user organizations like Bharti, Huges, Reliance Infocomm, Tata Tele Services, Spice Telecom, NTPC, SAIL, Railways, Defence organizations, Different Coal Fields & Mining Companies, Oil & Refining companies, Department of Atomic Energy, Nuclear Power Corporation etc.

BUY with a target of 278



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Bajaj Hindustan: Intermediate uptrend after bottoming out?

Bajaj Hindustan is looking like it has bottomed out. The weekly charts show a plausble start of an intermediate uptrend. Check out my post here for a detailed technical analysis report.

http://TechnicalChartsAnalysis.blogspot.com

Here is a real-time track of the stock performance. BUY with a Stop loss of 170.

Shipping Industry Analysis

The global shipping industry can be broadly classified into wet bulk (like crude and petroleum products) and dry bulk (like iron ore, and coal). Commodity prices may be soaring on record demand for raw materials but so too are the prices for shipping these goods around the world.

Shipping is an international business and the freight rates and earnings are closely related to world economic growth and global demand and supply trends.

Where is the demand for dry bulk transportation coming from?
Global steel demand is forecasted to grow by 5-6% in the coming year, with China's steel exports alone expected to increase by 10-15% and iron ore import expected to increase by 40-50 million tons. With a large number of coal fired power plants becoming operational in China, India and Europe, coal trade is also expected to increase. Strong demand for raw materials in China and India, whose rapidly expanding economies have fuelled the current commodity boom, has stoked demand for the transportation of these goods.

With all this, the dry bulk trade is expected to remain buoyant in the near future. The buoyancy in the dry bulk market is evident from the freight rates and vessel values which have reached alarming levels during the last six months. This week, the Baltic Exchange’s dry freight index, a composite of prices for shipping dry commodities, hit a record high of 9561. The index has risen more than 50% this year.

What about the supply side?
On supply side, the availability of ships plays crucial role in determining tanker freight rates. All the 6600 vessels on the sea are carrying freight on the sea. There is a lot of demand for these vessels. Port congestion in Australia and Brazil. Some ships have to wait for offloading and loading for about 25 days. Port congestion has led to delays and extra costs that shipping companies are passing on to customers. This restricts the fleet availability on the supply side, creating a further upside in their demand. And the new capacity of ships is not expected in the near future. Ship building can cost anything between USD 20-200 million each and can take one to two years to deliver.

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Hanung Toys and Textiles Ltd. (HTTL) : Buy.

HTTL is a manufacturer and exporter of soft toys and home furnishings to European countries and US.

1. Best technical knowhow - was set up in collaboration with a South Korean co. Hanung Industrial Co. Ltd.
2. Presence in Europe and US and other developed countries.
3. Cost focus strategy- Most competitively priced in the niche market of Soft Toys and children's furnishings.
4. Self designed 4000 designs driven by market and trends.
5. End to end integrated-
6. Play-n-Pets and Muskan brands in Stuffed Toys:Over 100 distributors across India, for stuffed toys. Including multi brands outlets like shoppers Stop.Over 70% of the organized soft toys market share . Local market growing rapidly.
7. Splash in furnishings available in 600 stores across India
8. International markets - About 85-90% of company revenues come from Exports. USA - 5 stores, One each on Germany, Italy, Poland, Portugal and 2 in UK and Sweden and One in Latin America, Chile
9. Leading manufacturer and exporter of Soft Toys. License holder of the Walt disney characters in India
10. One of the leading manufacturer and exporter of home furnishings.Pioneers in Shape cushions- revolution in domestic and foreign markets
11. Manufacturing Facilities- IPO proceeds used to set up manufacturing facility in Utaranchal over a 25 acre land and an investment of 150 Crores to be operational in early 2007. Has 2 units in Noida. One for each LOB. The third will be to make cushions and quilts and bedsheets etc.

The stock had underperformed the market over the last one-month to 24 September 2007, rising 16.23% compared to the Sensex's return of 16.78%. It had also underperformed the market rising 7.19% compared to Sensex's rise of 16.17% in the past one quarter.

The current price of Rs 136 discounts its Q1 June 2007 annualized EPS of Rs 14.75 by a PE multiple of 9.2.

Signed export order tie-up with a leading US buyer, for exporting home furnishing to the extent of US $ 50 million to be completed by December 2009. This agreement will bring greater strength and better revenue to the company. The order is to be completed by December 2009. The company has so far signed long-term export contracts worth $265 million, the company said.

HTTL’s net profit rose 93.5% to Rs 9.29 crore on 55.7% growth in net sales to Rs 85.20 crore in Q1 June 2007 over Q1 June 2006.

Refer to the following charts to get real time stock price trend. At the time of this report, the stock was trading at 136. BUY with a target of 300.

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Real test of India growth story

New highs for Sensex at 17000 and Nifty at 5000, and the rally continues. How further up do we see from these dizzy heights? The million dollar question is - Are these levels backed by fundamentals?
The markets have witnessed the much talked about decoupling with the US economy. And while the Rupee continues to get stronger the export businesses are taking their share of beatings. It is time to test the India growth story of domestic demand. While there is ample liquidity world over, it will chase the emerging markets that prove to have the most promising sustainable domestic demand.

Where does the domestic demand come from? It comes from private, government consumption and household consumption. Slowdown in exports reduces private investments and puts a downward pressure on the growth. These business have started exploring the domestic markets.