MultiBagger: GVK Power & Infra

Multi Bagger:GVK Power & Infra
Recommended Price 27.05

Company Profile:
GVK Power and Infrastructure Ltd (GVKPIL) as a pioneer in infrastructure development in India has established a strong presence in areas such as Power, Airports and Roads.

Power:
GVK is developing power projects that are based on coal, gas and hydel resources. The projects are being developed across several states in the country including Andhra Pradesh, Punjab and Uttarakhand.

Airport:
Mumbai International Airport Pvt. Ltd. (MIAL), a joint venture company owned by the GVK led consortium (74%) and Airports Authority of India (26%) was formed in March 2006 to manage and develop CSIA.

Roads:
The Jaipur-Kishangarh BOT project, a segment of the Golden Quadrilateral National Highways Development Project of the Government of India.

Urban Infrastructure:
GVK One - Hyderabad's world-class retail scheme.

SEZ:
GVK has entered into a joint collaboration with Tamil Nadu Industrial Development Corporation Limited (TIDCO), an undertaking of the Government of Tamil Nadu to develop a multi-product Special Economic Zone (SEZ) in Perambalur district. The project is being implemented through a Special Purpose Vehicle (SPV) company, GVK Infratech Pvt. Ltd., a wholly owned subsidiary of GVK Power & Infrastructure Ltd (GVKPIL).

GVK�s Subsidiaries are GVK Airport Developers Pvt.Ltd., GVK Power (Goindwal Sahib) Ltd., GVK Coal (Tokisud) Pvt.Ltd., GVK Industries, GVK Jaipur Expressway Pvt.Ltd., and Alaknanda Hypo Power Co.Ltd.

Financial Position:
The net sales of FY�08 increased by 23.5% to Rs 470 crore from Rs 380.6 crore in FY�07. The EBIDTA declined by 5.93% to Rs 185.5 crore. The net profit showed a strong growth of 127.35% from Rs 59.6 crore to Rs 135.5 crore.

The net sales of third quarter FY�09 decreased by 6.04% on a YoY basis to Rs 104.3 crore. On a QoQ basis, it decreased by 4.75%. The revenues fell on account of lower power segment revenues while there was a slight increase in revenues from the road segment to Rs 36.5 crore. The EBIDTA also showed a decline of Rs 22.58% to Rs 43.2 crore. The EBIT from the power segment fell by 76% YoY and EBIT from the road segment fell by 8% due to flat traffic growth. MIAL (Mumbai Airport International Ltd.) EBITDA also fell due to higher employee and power expenses. The net profit showed a decrease of 49.54% on a YoY basis to Rs 16.3 crore. On a QoQ basis, it decreased by 25.91%. The decline in PAT was due to lower other income and payment of Rs 12.8 crore to the employees of Airport Authority of India on account of 6th pay commission revisions.

In spite of this insipid performance, we are of the view that there are enough triggers in the stock for it to move up strongly in the days to come.

Investment Positives:
Availability of gas from Reliance Industries:
Th start of gas supply of gas from Relaince Krishns-Godavari fields is the biggest trigger for the stock. The govt has granted Reliance permssion to sell gas from KG-D6 with the start of production to third parties. The visibility of gas supply from Reliance Industries will help GVK run its existing plants at peak capacity.

GVK has commissioned the 220 MW Jegurupadu second phase power plant using gas supplied by GAIL through a swap deal with Reliance Industries.

GVK plans to commission its 464-MW Gauthami Power project, thereby taking the company�s installed capacity to 900 MW. This project too was lying idle for want of gas.

This will be the first power plant to fire its turbines with the Reliance�s KG basin gas. Recently, Nagarjuna Fertiliser & Chemicals Ltd became the first fertiliser unit to get gas.

The gas supply follows a swap arrangement between GAIL and Reliance. The gas from the Hazira terminal (regassified liquefied natural gas), to be supplied by GAIL from the west coast to GVK, through pipelines, will be arranged to local consumers in Gujarat and the gas produced in the KG basin here will be delivered through GAIL pipelines to GVK power plants.

In line with the revised PPA, which permits 20% of capacity to be sold on merchant basis, the company has entered into an agreement with Power Trading Corporation (PTC) to sell surplus power for two years at 4.25/ unit.

Approval of Airport Development fees:
The Government has granted approval to Mumbai International Airport Ltd. (MIAL) for charging an Airport Development Fee (ADF) to departing passengers at the Mumbai airport. The ADF is Rs600 from international passengers and Rs100 from domestic passengers. This will be used to fund the gap in the airport development project. Since GVK Power was to take care of funding the gap, the ADF will be a huge boost to the company. The ADF will be charged for a period of four years effective from 1st April 2009 and is inclusive of all taxes.

If the ADF collection exceeds Rs 1543 crore in the four-year period, the excess funds will be monitored by the govt. ADF will be treated as capital receipts and therefore MIAL will not be required to pay the revenue share to Airport Authority of India. MIAL shareholders are required to increase their equity contribution from Rs 600 crore to Rs 1200 crore. If the cost of the project rises above Rs 9802 crore, it would be financed by MIAL.

Divesting stake to raise funds for future growth:
GVK is likely to dilute up to 49% stake in roads and power ventures. GVK is currently holding talks with five companies regarding the stake sale. Some foreign firms have evinced their interest in aligning with GVK. It is currently in advanced stages of negotiations for divesting part of its stake in the Jaipur-Kishangarh road project.

Concerns:

Slow growth in the air traffic:
Slow growth in the air traffic can cause a slowdown in GVK�s earnings. Domestic traffic fell 23% YoY, while international traffic was marginally higher at 1%.

Competition:
The Central Govt has approved the plan to construct a second airport in Navi Mumbai. GVK will also bid for the project but if it loses the bid, the new airport will compete with the old one.

Valuation:
The approval of the Airport Development Fees (ADF) will be a huge boom to GVK�s earnings. The availability of gas from Reliance Industries will help the company run its existing plants at peak capacity. It is expected to have an annualized EPS of around Rs 0.93 per share for FY09. At CMP of Rs 27.05, it trades at a P/E of around 26. This is admittedly high compared to its peers. However given the big triggers in the form of Gas supply from Reliance and the ADF approved for the Mumbai Airport, we expect a quantum jump in earnings in the coming year. We recommend the stock as an excellent investment with a target price of Rs 35.

Pick of the Week: Man Industries

Man Industries

BSE Code (513269), CMP: 30

Target: 36 to 38 IN SHORT TERM

Man industry Ltd is the flagship company of the Man Group, UK and is involved in manufacturing and supply of steel pipes for high and medium pressure applications such as Oil, Gas, Petrochemical and water and transportation and Anti Corrosion Coating systems. Man also manufactures large diameter LSAW and HSAW pipes at its plants in Pithampur and Anjar. These pipes contribute 50 percent each to the companys revenue. The Man Group has a track record of over 32 Years as a successful trading organization and now over 16 Years as an ambitious and fast growing manufacturer of Aluminum Extrusion Products and Large Dia. Line Pipes. With strategic investments and continuous growth, Man Industries (India) Ltd. has emerged out as a prominent player in the league of world-class manufacturers of Line Pipe and Coating Systems in a short span of eight years of its entry into the Global market. The group under the leadership of Mr. R C Mansukhani and Mr. J C Mansukhani is committed to quality products and also treasures its employees who make it happen. Its vast organizational strength comprises of dedicated and skilled teammates whose core competence lies in making a good products, a better one.

Rationale for Investment :- Beneficiary of huge investments planned in Oil & Gas sector Huge investments are being planned by oil and gas industry worldwide especially in the hydrocarbons exploration and production activities as oil prices continue to rise. An estimated 235000 km of pipeline projects are being planned globally of which an estimated 34 percent is likely to be from Middle East and Asia. Domestically, GAIL itself has announced plans to add 8000 km of pipeline network. This will definitely lead to an increased demand for SAW pipes.


Timely and balanced capacity expansion: - The Company currently has an installed capacity of 500000 tonne and 300000 tonne of LSAW and HSAW pipes respectively. It recently commissioned 200000 tonne capacity of HSAW pipes in September 2007and is in the process of setting up another 200000 tonne capacity by March 2008. This will take total capacity of SAW pipes to 1 million tone; equally divided between LSAW and HSAW pipes which provides additional stability to company�s business. Moreover this capacity expansion comes at an opportune time and will enable the company to benefit from huge demand growth for pipes.


Strong order book lends visibility: - The company currently has an order book of Rs2000 crore which is almost twice its FY2007 revenue. On an increased capacity base, this order book lends revenue visibility of over 1 to 1.5 years. Sales and NP for year ended 07-08 were 1446.8 Cr & 71.2 Cr. Sales and NP for latest Quarter 456.6 Cr & 2.7 Cr. On YOY basis NP has increased by 29% Dividend during year ended 07-08 was 30%

Multibagger: Nucleus Software Exports Ltd.

Multi Bagger: Nucleus Software Exports Ltd.
Recommended Price Rs 52.60

Nucleus Software Exports Ltd. is a Delhi based company with over 20 years experience of Software development for the Banking & Financial Services industry. The company is focused on Banking, Financial Services and Insurance sectors (BFSI). The company has a 5 acres State of the Art Development Centre in Noida and employs over 2000 people. Besides Noida, the company has development centres in Singapore, Pune and Chennai.

In the mid to late nineties and early two thousands, when most players in the software industry were focusing on low risk service model focusing mainly on the US markets, Nucleus Software chose to take the High Risk model of Product Development and focused on markets in Asia and Far East, the rewards of which have been accruing to the company over the past few years. Infact, the company’s products like FinnOne and Cash@Will command leadership positions in their respective product categories, with FinnOne becoming the world’s largest selling product in its product category.

Nucleus has offices and subsidiaries across the globe – in Japan, Australia, Singapore, Netherlands, UAE, Hong Kong,Philippines and Korea. The company has four development centres globally. The company has a client list comprising of who’s who of the Banking & Financial sector.

The company has been getting various accolades and awards from time to time, recent ones being :-

a) The company’s product FinnOne has recently been ranked as World’s No.1 Selling Lending Software product by International Banking Systems (IBS), UK for the fourth consecutive year.

b) The Annual Report and Accounts of the company for year ended March 31, 2008, have been adjudged as the BEST under the category 'Information Technology, Communication and Entertainment enterprises' of the 'ICAI Awards for Excellence in Financial Reporting', by the Institute of Chartered Accountants of India (ICAI). A Gold shield will be awarded to the Company by ICAI.

c) For the third consecutive year in 2008, the Company has been selected as one of the “Top 25 Companies Adopting Good Corporate Governance Practices”, by the Institute of Company Secretaries of India (ICSI).

d) For the second year running, the Company has been listed among “Top 15 Exciting Emerging Companies to Work For” by NASSCOM. Your Company has also been recognized under “Best Practices” for Performance Management System by NASSCOM for the year 2008.

Investment Rationale:
Strong Order Flow inspite of Economic Slowdown – Inspite of the slowdown being witnessed across the globe, order flows for the company in the recent times have been strong and the company has added new customers. Nucleus bagged 8 new product orders and acquired 6 new customers for implementing 20 product modules of the FinnOne Suite & Cash@Will in the third quarter of year 2008-09. Product orders were bagged from leading financial institutions in Middle East, South East Asia, India & US. Consolidated for nine months ending December 31, 2008, Nucleus has won 20 new customers and 25 new product orders for implementing 84 modules of FinnOne and Cash Management Suite. The order flow continues in the Jan-Mar 09 quarter too as is evident from various announcements made by the company to the Stock Exchanges in recent months. Despite global recession, the company has not lost any clients.

Insulated from US Markets - The company derives just about 1% of its total revenues from the US markets and is largely insulated from the happenings in the US Financial markets. The company thus may not get significantly impacted by the collapsing Banks & Financial Institutions in the US.

Cash is King – The company has Cash and Bank Balance of over Rs 100 cr. The total market cap of the company currently is about Rs 170 cr. The core business is thus going at very attractive valuations. Moreover, the company carries no secured or unsecured loans on its balance sheet and is totally debt free.

The stock of Nucleus Software has fallen from a high of Rs 600 witnessed in 2007 to a current price of around Rs 50. Even though, the slowdown in the world economy and the margin pressure being witnessed by the company may be some of the factors which have taken a toll on the stock price, we feel that the stock of Nucleus Software has been battered primarily on account of the perception factor – when you think of a software company catering to the Banking & Financial Institution sector, the first thing which comes to an investors mind is US and the crumbling Banks, Financial Institutions and Insurance companies there – a closer scrutiny of the company shows that contribution from US is just about 1% of the total revenues of the company.

Besides the pressure on margins being witnessed by the company, one of the reasons for lower profits was Forex losses of Rs 9 cr in the 9 months of the current FY, which may not be of recurring nature. The company has actively taken cost cutting measures and rationalization of resources, the impact of which we believe will show in the coming quarters.

We believe that this debt free company, having Cash and Bank Balance of over Rs 100 cr available at a market cap of Rs 170 cr is attractively valued at the CMP.

Investors can choose to accumulate the stock at the current price and on declines.