Pick of the Week: Crompton Greaves

STOCK OF THE WEEK

CROMPTON GREAVES
BSE Code (500093), CMP: 124.90

BUY CROMPTON GREAVES @ 124 to 126 TGT 136 to 138
IN SHORT TERM

Crompton Greaves, part of the Thapar Group, was incorporated in 1937. It is one of the largest players in India in the electrical equipment and engineering industry. The company is mainly engaged in the manufacture, distribution and sale of electrical and electronic equipment systems. The company makes a wide range of transformers, switchgear, motors, lighting products, fans, railway signaling equipment, and undertakes turnkey engineering projects. The company is organized into three business groups viz. Power Systems, Industrial Systems, Consumer Products. In addition the company also undertakes turnkey projects from concept to commissioning. Its manufacturing plants are spread across Gujarat, Maharashtra, Goa, Madhya Pradesh and Karnataka. Apart from the local markets CG exports its products to countries, which includes the Southeast Asian and Latin American markets.

INDUSTRY OUTLOOK: - the electrical equipment sector is in the growth phase with production of motors, generators and power transformer recorded a healthy rise. The industry looks attractive due to large expansion and capex plans in power sector along with the strong growth in infrastructure sector. The industry is also witnessing huge surge in the export sale of motors and generators. The present economic scenario and upcoming budget are expected to energize the sector with the companies in the sector are growing both organically and inorganically thereby lightening the future growth of the sector. Therefore, with the enormous potential for growth in this sector, we are bullish on this sector in medium to long term while betting on the company like Crompton Greaves.

INVESTMENT RATIONALE: - The Company has tied up with Dutch firm Lemnis Lighting for launching LED lighting products. The alliance with Lemnis Lighting in the area of solid-state lighting would usher in latest technology from the house of Lemnis supplemented by the strength of Crompton Greaves in application engineering and integrated solutions. The use of solid-state lighting has innumerable benefits and also addresses the issue of energy conservation. The company alliance with the Dutch firm will provide new state of technology which will help the company in strengthening its product line. The company through its 100% subsidiary CG International BV, Netherlands, has acquired 40% stake in PT Pauwels Trafo Asia, Indonesia, its joint venture partner. This step of the company will provide it with the complete autonomy in working and management. The company turnaround strategy begins by gaining global presence by acquiring companies that had strong business expertise and were cash starved. The company is expected to follow the same strategy in future by acquiring companies that are strategically fit and which have potential to synergize the company operations. Sales and NP for year ended 07-08 were 4000.2Cr. & 312.3 Cr. Sales and NP for latest Quarter 1082.9 Cr & 88.9 Cr. On YOY basis NP has increased by 66% & based on quarter latest its increased by 29% Dividend during year ended 07-08 was 80%

Multibagger: Coromandel Fertilisers

Coromandel Fertilisers

A part of the Murugappa group, Coromandel Fertiliser has probably posted one of the best set of results for the third quarter ended 31st Dec 2008. Despite operating in a cyclical sector, the company has, through its strategic products and marketing , managed to emerge victorious.

One of the largest manufacturers of phosphatic/complex fertilisers with an extensive distribution network all over India, the company for Q3FY09 posted an unbelievable 290% jump in net sales at Rs 3726.25 crore. The increase in fertilizer production cost has resulted into higher subsidies, which in turn has led to an increase in revenues.

For the 9MFY09, its net sales was at Rs 8518.12 crore which has already surpassed 12MFY08 sales of Rs 3757.34 crore. There is one more quarter to go, so surely FY09 would be a bumper year.

EBITDA for Q3FY09 was up 50% at Rs 216.03 crore. The company declared an interim dividend of 300% on a face value of Rs 2 per share. As on 31st Dec 2008, EID Parry held 62.70% shares of the company and another 1.04% by the promoters and family. Institutions hold 13.44% stake thus leaving a very low floating stock in the market. A big positive in today’s time.

Coromandel Fertilisers bought out the 25% equity holding of IFFCO in Godavari Fertilisers and Chemicals for a total consideration of Rs 120 crore in April 2007. The acquisition of EID Parry’s farm inputs division and pesticide maker Ficom Organics have helped Coromandel spread out its products basket to now include not just pesticides but also fertilisers, crop protection products and micro-nutrients across India. These acquisitions have also helped add on an extensive distribution network for its agri-inputs, giving it a pan-India presence and that is the biggest strength of the company.

Apart from having a diverse product basket of agri-inputs, the company has also worked on keeping its raw material procurement costs under control. It has acquired a 2.5% stake in large global supplier like Foskor of South Africa for procuring key raw materials such as rock phosphate.

It also has formed a JV to produce phosphoric acid with Groupe Chimique Tunisien and till 31st Dec 2008, considering the nine month period; it has invested Rs 61.73 crore in equity capital of this JV.

The advantage of the flexible product mix, giving it the best advantage of the subsidy regime, the cost structure of the Coromandel is amongst the lowest in the phosphatic/complexes space. This also means that the company is better poised to compete with imported fertilisers.

Net profit for the third quarter current year was up 75% on a YoY at Rs 131.24 crore. More significantly, its 9MFY09 net profit was at Rs 506.12 crore, which is already three times way above the net profit of Rs 210.09 crore posted in FY08.

Even assuming a conservative growth rate of 25-30% for FY09 in net profit, it is expected to end the current fiscal with a bumper profit in the range of Rs 650-700 crore.

On an equity of Rs 27.98 crore, it’s EPS is estimated to be in the range of Rs 47 on a face value of Rs 2 per share.

At the current price of Rs 101.45, accumulate the stock, as the company is well poised to move ahead exponentially on the persisting deficit in phosphatic/complex fertilizers.

WEEKLY VIEW

Sensex & Nifty has closed positive on a weekly basis. However market sustainability above 9400 & 2870 is in question. If market managed to sustain above 9400 & 2870 in coming week & not closed below that level in next week trading sessions than acceleration of rally is likely. From the derivative data it is seen that lot of put writing of strike price 2700 is taken place for the Month of February that indicating market trend will be positive until the level of 2700 intact in coming week.

Weekly Range : Sensex: 9150-9600 / Nifty : 2700-2975

SESAGOA-85
BUY ABOVE 85 WITH A STOPLOSS OF 80 FOR A TARGET OF 89 & ABOVE IN NEXT 5 TO 7 TRADING SESSION.

APTECH TRAINING-89
BUY ABOVE 89 WITH A STOPLOSS OF 85 FOR A TARGET OF 98 & ABOVE IN NEXT 5 TO 7 TRADING SESSION.

BARTRONICS-74
BUY ABOVE 74 WITH A STOPLOSS OF 69 FOR A TARGET OF 78 & ABOVE IN NEXT 5 TO 7 TRADING SESSION.

RCOM FEBRUARY FUTURE
BUY ABOVE 170 WITH A STOPLOSS OF 164 FOR A TARGET OF 179 & ABOVE IN NEXT 5 TO 7 TRADING SESSION.

REMARKS: Please take position on buy side above the suggested price and on sale side below the suggested price.

Pick of the Week: Sesa Goa

FOR SHORT TERM BUY SESA GOA (BSE Code : 500295)

CMP : 84.75, Target Rs. 94 to 96

SESA GOA HAS GIVEN GOOD BREAK OUT, AND WILL BLAST UPP IN COMING WEEK.


Sesa Goa Ltd. (SGL) is a 51% subsidairy of Vedanta Resources Plc, and is the largest Indian private mining company, with reserves of ~180mn mt (Mar-08). For the past five decades, the Group has been involved in iron ore mining, beneficiation and exports, with a group turonver of around Rs. 1800 crores. Over the last decade, it has diversified into the manufacture of pig iron and metallurgical coke. The Group operates a 280,000 TPY metallurgical coke plant and a 250,000 TPY pig iron plant. Sesa Goa Limited has mining operations in Goa, Karnataka and Orissa. Sesa Goa's MetCoke Division manufactures metallurgical coke. It has 84 coke ovens with a capacity of 280,000 tonnes. Sesa has developed an energy recovery technology to manufacture coke, compliant with advanced global emission norms.

Sales and NP for year ended 07-08 were 3602.2 Cr. & 1491.7 Cr. Sales and NP for latest Quarter 1273 Cr & 644.7 Cr. On YOY basis NP has increased by 145 % & based on quarter latest its increased by 442 %