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.

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.

MultiBagger: Kamanwala Housing Constructions

KAMANWALA HOUSING CONSTRUCTIONS
BSE:511131
Current Price: 18
Target Price: 90 in 1 year

Kamanwala Housing Construction Ltd (KHCL) was originally incorporated in 1984 as Kamanwala Housing Development Finance Company mainly to cater middle class buyers by constructing low cost housing and financing it at nominal rates.

Kamanwala Housing Construction (KHCL) is a reputed small sized player in the housing construction segment. KHCL has a slew of projects lined up which would enable it to register aggressive growth in its revenues and earnings over the next two-three years.

KHCL has several projects lined up in prime localities of Mumbai due for completion in the next two years. KHCL's revenue and earnings will see strong growth trajectory due to the execution of these projects and also enable the company to enhance its image in segment and get into contracts of higher value going ahead.

Derisking business by expanding to new geographies
To de-risk the business model further, KHCL has undertaken geographical diversification as well and entered into a joint venture agreement having 20% share with M/s. Prajay Engineers & others for the development of a land admeasuring 35 acres at Patancheru, Hyderabad. It has also purchased additional 2 acre land in Hyderabad for 1.60 cr to construct commercial / residential buildings.

Diversification into commercial space
KHCL has entered into commercial segment as well and has drawn up ambitious expansion plan on a much larger scale. In the last couple of years, it has acquired good land bank in Mumbai for future projects.

Good track record
Having a track record of more than two decades, KHCL has completed the execution of 18 projects in Mumbai, with saleable area totaling more than one million square feet.

Recent developments
To de-risk the business model further, KHCL has undertaken geographical diversification as well and entered into a joint venture agreement having 20% share with M/s. Prajay Engineers & others for the development of a land admeasuring 35 acres at Patancheru, Hyderabad. It has also purchased additional 2 acre land in Hyderabad for 1.60 cr to construct commercial / residential buildings. Moreover KHCL has acquired some land in Mahim under SRA scheme. In a 33% joint venture with Aspen Property Pvt. Ltd., it is developing a property at the famous Filmistan Studio, comprising both residential and commercial units. Meanwhile it is negotiating for few projects at 4 bunglow, Andheri Kurla Road.

Amalgamation of Doongursee Diamond Tools
During Q4Fy08 the company has amalgamated its subsidiary called M/s. Doongursee Diamond Tools Ltd with itself. Notably, this subsidiary is holding one lakh FSI for the Malad project.

Bonus Issue
During Q1FY09, KHCL issued bonus shares in the proportion of one equity share of Rs 10 each for every existing equity share held. The company has also recommended a dividend of 25% for FY08.

Valuation
KHCL is expected to register robust growth in revenues and earnings going forward. It is currently quoting at compelling valuations of 0.8x and 0.7x FY10E and FY11E earnings. The stock has succumbed to the market turmoil and its price has declined significantly in the last 3 months. With a strong project pipeline to drive revenue and earnings growth, the stock has potential to deliver handsome returns to the investors over a period of next one year. Investors can enter into the stock at current level , which is very attractive and should enable investors to earn a healthy return on their investment.

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.

MultiBagger: Ahluwalia Contracts (India) Ltd

Multi Bagger: Ahluwalia Contracts (India) Ltd
Recommended Price Rs 32.10

Ahluwalia Contracts (India) Ltd (ACIL), promoted by Mr. Bikramjit Ahluwalia in 1979, is an Engineering-Procurement- Construction (EPC) company with business interests in the construction of Buildings including Malls, Multi- storeyed residential complexes, offices, Hotels, IT parks and Hospitals. The company which has been primarily involved in civil construction in the residential and commercial real estate segment has now diversified into the urban infra BOT space.

Ahluwalia Contracts (India) Ltd (ACIL) currently operates in two areas of business – Construction & Ready Mix Concrete, and derives over 90% revenues from Construction business.

Completed Projects:
The company’s experience of comprises execution of projects across a wide spectrum which includes Corporate Buildings, Residential Complexes, Hospitals, Hotels, Malls & Government Buildings and Government projects.

Current Projects:

The company has an order book of Rs 3750 crores as on 31st October 2008.

The company has bagged one of the largest housing construction contracts in the country - the Residential Complex for Commonwealth Games 2010. The value of the township project is Rs 688 crores. The project was awarded by Emaar MGF Construction This is the largest project ACIL has received so far.

The company has bagged and order worth Rs 229 crores for upgradation and renovation of Dr. S P M Swimming pool complex in New Delhi for the Commonwealth Games.

Awarded Hotel Leela Venture, Chankyapuri, New Delhi project worth of Rs 83 crores.

Vedanta Aluminum, Orissa Project worth of Rs 118.55 crores.

NBCC, Kundli, residential Project worth of Rs 99.26 crores.

Elphinston Mills, Mumbai project worth of Rs 73.00 crores.

Henkel Switchgear, Mumbai project worth of Rs 130.78 crores.

Housing project at Gurgaon from Emaar MGF worth Rs197 crores.

Office Building for IDBI at BKC, Mumbai worth Rs 97 crores.

Office Building for PNB at BKC, Mumbai worth Rs 54 crores.

BOT Projects:
ACIL has ventured into the urban infra space with a maiden Rs 72 crores order on BOT basis from Rajasthan State Road Transport Corporation (RSRTC) for the construction of a model bus terminal with a commercial complex at Kota (Rajasthan). The total plot area is 26,343 sq meters, out of which 3,300 sq meters built up area for bus terminal is to be handed over to RSRTC and the remaining 23,000 sq meters commercial space will be licensed to the company for 40 years. The company will develop a total of 2, 50,000 sq ft at the existing site, where it proposes to develop a commercial complex, budget hotels, multiplex, etc. ACIL plans to bid for similar projects in Rajasthan, UP, Punjab, Uttaranchal, etc.

ACIL also plans to enter the asset ownership space in the multi level car parking segment. It had executed similar projects on a cash contract basis and hence, is pre-qualified in this space for BOT projects.

Hospitals, Hotels, Malls & Government Buildings and Government projects.

The company has an order book of Rs 3750 crores as on 31st October 2008.

The company has bagged one of the largest housing construction contracts in the country - the Residential Complex for Commonwealth Games 2010. The value of the township project is Rs 688 crores. The project was awarded by Emaar MGF Construction This is the largest project ACIL has received so far.

The company has bagged and order worth Rs 229 crores for upgradation and renovation of Dr. S P M Swimming pool complex in New Delhi for the Commonwealth Games.

Awarded Hotel Leela Venture, Chankyapuri, New Delhi project worth of Rs 83 crores.

Vedanta Aluminum, Orissa Project worth of Rs 118.55 crores.

NBCC, Kundli, residential Project worth of Rs 99.26 crores.

Elphinston Mills, Mumbai project worth of Rs 73.00 crores.

Henkel Switchgear, Mumbai project worth of Rs 130.78 crores.

Housing project at Gurgaon from Emaar MGF worth Rs197 crores.

Office Building for IDBI at BKC, Mumbai worth Rs 97 crores.

Office Building for PNB at BKC, Mumbai worth Rs 54 crores.

BOT Projects:
ACIL has ventured into the urban infra space with a maiden Rs 72 crores order on BOT basis from Rajasthan State Road Transport Corporation (RSRTC) for the construction of a model bus terminal with a commercial complex at Kota (Rajasthan). The total plot area is 26,343 sq meters, out of which 3,300 sq meters built up area for bus terminal is to be handed over to RSRTC and the remaining 23,000 sq meters commercial space will be licensed to the company for 40 years. The company will develop a total of 2, 50,000 sq ft at the existing site, where it proposes to develop a commercial complex, budget hotels, multiplex, etc. ACIL plans to bid for similar projects in Rajasthan, UP, Punjab, Uttaranchal, etc.

ACIL also plans to enter the asset ownership space in the multi level car parking segment. It had executed similar projects on a cash contract basis and hence, is pre-qualified in this space for BOT projects.

Conclusion:
The stock of Ahluwalia Contracts has seen a sharp fall from a high of Rs 393 touched in January 2008 to its current price of Rs 32. This is inspite of the fact that there has been a growth in both the topline and bottomline of the company in the first 6 months of the current FY - Topline has grown 50% and bottomline over 30% in the first half of the current FY.

The stock has been down primarily on concerns of a slowdown in Infrastructure spending by the government, and slowdown in real estate sector. Also, of late, a large FII has been pressing sales on the counter. We believe another reason for the depressed investor sentiment in the stock is probably due to the uncertainty regarding slow work progress at the Residential Complex at Commonwealth Games Village. Since Emaar MGF lacks sufficient liquidity to execute the project, it has approached the government for loan to execute the project – we believe that the issue will be sorted out soon and the stock of Ahluwalia Contracts can see a sharp upmove as soon as the uncertainty is lifted.

The company has a debt of Rs 55 crores as on 31st March 2008 –which is much lower than the peer group with similar revenues/ order book. The company’s market cap of Rs 200 crores looks small given its order book of Rs 3750 crores. The company’s operating profit for FY 08 was Rs 110 crores and the current market cap is infact less than 2 years of operating profits and less than 20% of the current FYs expected revenues. Promoters holding 74% stake in the company gives added confidence.

Ahluwalia Contracts is also bidding for the Stadium renovation projects for the Commonwealth Games. The company has bid for the Jawaharlal Nehru stadium renovation project worth about Rs 400 crores and the Talkatora stadium renovation project worth about Rs 250 crores. Besides, there are a few other stadium renovation projects to be undertaken in Delhi itself and Ahluwalia Contracts is prequalified for all the projects. Ahluwalia Contracts being a large player in civil construction segment in the NCR, we expect the company to continue to bag a few more large orders for Commonwealth Games. ACIL also plans to enter the asset ownership space in the multi level car parking segment. The company has bid for eight multilevel car parking projects, out of which it expects to win two to four projects. The average sizes for these projects are in the range of Rs 125-160 crore.

Ahluwalia Contracts has an order book of Rs 3750 crores (as on 31st October 2008). A significant portion of this order book comprises orders linked to the Commonwealth Games scheduled for end 2010. With the new government headed by Smt. Sheela Dixit in Delhi now in place, we may see the execution of these projects being put on the fast track from now onwards, since these projects have to adhere to strict time schedules. The concerns of slowdown as far as Ahluwalia Contracts is concerned therefore may be unfounded, even though a slowdown for one or two quarters is not totally ruled out.

The stock having dropped over 90% from a high of Rs 393 touched in January 2008 to the current levels of Rs 32 looks attractive for investment.

Multibagger: 3i Infotech

3i Infotech
Cluster: MultiBagger
Recommendation: Buy
Price target: Rs79
Current market price: Rs45

Price target revised to Rs79

Result highlights

• 3i Infotech’s top line grew by 28.4% quarter on quarter (qoq) to Rs601.6 crore in Q2FY2009. The Regulus’ acquisition contributed 18.1% to the sequential growth in the top line and the organic revenues rose by 8.7% during the quarter.
• The operating profit margin (OPM) contracted 101 basis points to 20.8% sequentially in Q2FY2009 on account of unfavourable sales mix (higher revenue contribution from low-margin Regulus acquisition). Consequently, the operating profit went up by 22.5% qoq to Rs124.9 crore during the quarter.
• The net income was up 16.5% sequentially to Rs68.4 crore in Q2FY2009, slightly above our expectation of Rs66.6 crore. The net income was lower than the operating profit growth on account of higher interest and depreciation expenses.
• In terms of outlook, 3i Infotech has upgraded its revenue guidance and the fully diluted earnings per share (EPS) on account of Regulus’ acquisition and better than expected organic growth. The company has raised it revenue guidance to Rs2,200-2,300 crore from the previous Rs1,700 crore and has also raised the fully diluted EPS (including foreign currency convertible bonds [FCCBs]) to Rs14-Rs14.5 from the previous guidance of Rs13-13.5.
• The order book grew by 49.6% to Rs1,372.8 crore during the quarter. The order book includes Regulus’ order book of Rs300 crore. Adjusting for the same, the company’s order book grew by 16.9% to Rs1,072.8 crore in Q2FY2009. Though the strong order book provides visibility for FY2010, the uncertain demand environment from the financial meltdown in the USA and the anticipated slowdown in the Europe has put a question mark on FY2011 earning growth.
• On FCCB front, 3i Infotech did not provide for any foreign exchange (forex) loss or gain on outstanding FCCBs. The management has highlighted that the company has made investment in US Dollar, Euro and Pound Sterling from the proceeds of FCCBs, which provides natural hedge against FCCB borrowing. Moreover, the management has mentioned that there is no call option to the bondholder (ie the bondholder cannot redeem the debt before maturity) and there is no reset clause for the exercise price. However, we believe the redemption of FCCBs on maturity would increase the company’s leverage ratios significantly and is likely to remain an overhang on the stock.
• We have already incorporated the acquisition of Regulus in our estimates. Though the company has a strong order book, we have built conservatism in our estimates to reflect the uncertain demand environment. We have incorporated around 10% organic growth and incremental revenues from the acquisitions’ full-year impact in our FY2010 estimates. Consequently, we have revised downward our FY2009 earnings estimate by 1.1% and FY2010 earnings estimate by 10.2%.
• Given 3i infotech’s exposure in the banking, financial services and insurance (BFSI) vertical and the concern over the conversion of FCCBs, the sentiments toward the counter are expected to be weak in near term. However, the same is already reflected in 3i Infotech’s stock price. Considering the strong order book and the Regulus acquisition ensuring an earning growth of 27% during the period FY2008-FY2010, the stock is currently trading at attractive valuation of 3.1x FY2009 and 2.8x FY2010 earning estimates. In fact, the current valuation is the lowest since 3i Infotech’s listing in April 2005. Hence, we maintain our Buy recommendation on the stock with a revised price target of Rs79. We have also lowered our target price/earnings multiple to 5x to reflect the uncertainty on the demand environment in the BFSI vertical and the concern over the conversion of the FCCBs.

Multibagger: Sah Petroleums

Sah Petroleums Limited is a manufacturer of industrial lubricants in India and manufacturing wide range of industrial and automotive lubricants, specialties and process oils etc., under the brand name of "IPOL". The company started in 1973 as a private limited company and became listed in 2004. The company has its plants located at Vasai near Mumbai and at Daman. The plants at Vasai and Daman are equipped with High-Tech blending facilities, quality control labs and automatic filling and packing stations. The company also has one of the largest in-house storage farms in the private sector in India for storing oil sourced from all over the world.

Besides, the company has an all India sales and service network with offices / depots / CFAs located in Mumbai, Pune, Vadodara, Indore, Jabalpur, Jaipur, Delhi, Ghaziabad, Faridabad, Kaithal, Chandigarh, Patiala, Kolkata, Jamshedpur, Hyderabad, Bangalore and Chennai.

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

Particulars	Quarter Ended	Quarter Ended	Quarter Ended	Year Ended	Year Ended	Year Ended
	(Jun 08)	(Jun 07)	(% Var)	(Mar 08)(12)	(Mar 07) (12)	(%Var)
Sales	60.31	44.14	36.6	205.51	179.67	14.4
Other Income	0.76	0.51	49	6.7	3.96	69.2
PBIDT	5.43	4.01	35.4	22.67	15.38	47.4
Interest	0.66	0.48	37.5	2.72	2.93	-7.2
PBDT	4.77	3.53	35.1	19.95	12.45	60.2
Depreciation	0.29	0.21	38.1	1.01	0.74	36.5
PBT	4.48	3.32	34.9	18.94	11.71	61.7
Tax	0.83	0.32	159.4	0.28	1.45	-80.7
Deferred Tax	0	0	-	0.22	0.18	22.2
PAT	3.65	3	21.7	18.44	10.08	82.9

(Rs Crore)

Latest Data As On 20/10/2008
Latest Equity(Subscribed)–Rs. Cr	16
Latest Reserve –Rs. Cr.	67.58
Latest Bookvalue -Unit Curr.(Rs.)	26.12
Latest EPS -Unit Curr.(Rs.)	6.83
Latest Market Price -Unit Curr.(Rs.)	14.4
Latest P/E Ratio	2.11
52 Week High -Unit Curr.(Rs.)	29.3
52 Week High-Date	1/3/2008
52 Week Low -Unit Curr.(Rs.)	8
52 Week Low-Date	10/10/2008
Market Capitalisation (Rs.cr.)	46.08
Stock Exchange	BSE
Dividend Yield -%	1.74

Conclusion:
Sah Petroleums has a current Equity Capital of Rs.16 crores comprising of 3.2 crore Equity Shares of Rs.5 each. The current promoters of the company hold 1.74 crore shares comprising 54.47% of the equity while the Non-Promoter shareholding is 45.53%. 

The Board of Sah Petroleums in their Board Meeting on October 17, 2008 has resolved to issue 1.2 Crore Equity Shares of the company to NAF India Holdings Pvt. Ltd. at a price of Rs 26.65 per equity share on preferential basis, which comprises. This is roughly 27.27% of the diluted equity of the company. Since this investment constitutes acquisition of more than 15% Equity of the company, the transaction will necessitate a public announcement in compliance with the takeover regulations of SEBI. The acquirers alongwith persons acting in concert have made a Public Announcement for acquiring 88 Lakh shares, comprising 20% of the diluted equity at a price of Rs 48.50 per share. In all probability, the current promoters of the company would not be allowed to participate in the open offer. The current public shareholding is roughly 1.46 crore shares. Assuming all non promoter shareholders opt for the open offer and tender their shares, the acceptance ratio would be 60%, which means any shareholder tendering 100 shares in the open offer, will have 60 shares accepted by the acquirer at a price of Rs.48.50 per share. In reality, the acceptance ratio can be higher.

The stock of Sah Petroleums offer an attractive arbitrage with significant upside from the current levels, in these uncertain times.The caution here is that the time schedule for the open offer (December 4, 2008 as date of opening of offer) may get delayed, as has been seen in numerous other cases of open offer, due to delays in approvals & compliances.