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Commodity and Futures - Physical commodity and financial futures markets.
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Posted by ronald.chis@googlemail.com on June 17, 2008, 9:44 am
Stocks to buy: OBC, Bhushan Steel, Pantaloon Retail, ABG Shipyard
BHUSHAN STEEL
CMP (Rs): 848.5
Chg From 52-Wk High (%): -51.0
M-Cap (Rs Cr): 3,603.6
P/E : 8.8
P/E (5-Yr Avg): 5.8
P/E (8-Yr Avg): 4.2
COMPETENCIES & OPPORTUNITIES
The demand for secondary steel products is bound to grow with the
overall growth in the economy.
Bhushan Steel has chalked out backward integration plans to produce
1.9 million tonnes of hot-rolled coil =97 the key
input for secondary steel products like cold-rolled coil and
galvanised steel.
It also plans to expand its existing secondary value-added steel
production capacity. Despite its expansion plans,
the stock is trading at just more than two times its book value as it
has taken a huge hit.
On the flip side, there are risks related to government measures to
cool down steel prices. Its profitability may be
affected by future movements in spot prices of key inputs, as it is
yet to become a fully integrated player.
PANTALOON RETAIL
CMP (Rs) : 429.8
Chg From 52-Wk High (%): -50.9
M-Cap (Rs Cr): 6,653.3
P/E: 66.7
P/E (5-Yr Avg): 58.2
P/E (8-Yr Avg): 40.0
COMPETENCIES & OPPORTUNITIES
The biggest retailer of India has been growing at an average of 75%
over the past three years and will maintain its
growth momentum.
It=92s present in segments like apparels, home furnishing, financial
products, and =91value for money=92 formats. Its
no-frills small stores cater to the middle-and low-income category
customers by providing higher discounts.
With a total retail space of 7.3m sq ft, it has a pan-India reach and
is present in virtually every format where a
customer can spend money.
Its target audience spreads across income levels, which insulates it
from the vagaries of consumer spending and
does not hamper its growth.
Its focus is concentrated on increasing the share of private labels in
all product categories as that helps to sustain
margins.
ABG SHIPYARD
CMP (Rs): 418.3
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Chg From 52-Wk High (%): - 60.0
M-Cap (Rs Cr): 2,130.0
P/E : 13.3
P/E (3-Yr Avg)*: 17.0
P/E (8-Yr Avg): =97
COMPETENCIES & OPPORTUNITIES
It is among the largest shipyard companies in India. ABG Shipyard
manufactures a variety of ships like dry bulk
carriers, anchor handling and tug vessels.
High dry bulk rates have pushed up demand for such vessels. Moreover,
as oil exploration and production activities
are moving to deep seas, the demand for offshore service vessels is
also increasing. This bodes well for the
company.
ABG Shipyard is in the high-growth phase. The company=92s FY08 revenue
and net profit grew by around 40% each.
OBC
CMP (Rs) : 155.1
Chg From 52-Wk High (%): -51.7
M-Cap (Rs Cr): 3,884.6
P/E : 6.7
P/E (5-Yr Avg): 8.4
P/E (8-Yr Avg): 6.4
COMPETENCIES & OPPORTUNITIES
Oriental Bank of Commerce=92s stock price quotes at a more than 30%
discount to its book value. No other PSU bank
trades at such a discount to its book value.
The write-offs of Global Trust Bank=92s losses are expected to be
completed by FY09 after which OBC=92s profitability
will improve.
The bank=92s performance on parameters like net interest margin &
business growth are at par with other PSU banks.
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BAJAJ HINDUSTHAN
CMP (Rs): 171.4
Chg From 52-Wk High (%): -57.1
M-Cap (Rs Cr): 2,423.6
P/E: 24.9
P/E (5-Yr Avg): 26.0
P/E (8-Yr Avg): 18.2
COMPETENCIES & OPPORTUNITIES
Bajaj Hindusthan is the largest sugar company in India. It=92s an
integrated player involved in production of sugar,
ethanol and paper board. It also generates power.
The sugar cycle is likely to turnaround from being a surplus crop to a
deficit one in the forthcoming season starting
from November this year.
It will gain in case the sugar sector witnesses complete de-control.
The company has increased its capacity three-fold in the past three
years. An increased capacity will, however,
require sufficient raw material
JINDAL SAW
CMP (Rs): 535.8
Chg From 52-Wk High (%): -56.3
M-Cap (Rs Cr): 2,792.6
P/E : 7.6
P/E (5-Yr Avg): 13.0
P/E (8-Yr Avg): 12.7
COMPETENCIES & OPPORTUNITIES
Higher demand for steel pipes across the globe, especially in the
Middle-East to transport oil and gas, augurs well
for the company.
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Jindal Saw enjoys the advantage of lower output and freight costs as
compared to its rivals from China, Japan and
Europe.
Domestic sourcing of steel plate, the key raw material in pipe making,
from its other group cos is likely to reduce
dependency on imports and also lower input costs.
Modernisation of its existing plant is expected to improve the
capacity utilisation and operating efficiency.
SHREE CEMENT
CMP (Rs) : 661.0
Chg From 52-Wk High (%): -61.0
M-Cap (Rs Cr): 2,302.9
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P/E : 8.0
P/E (5-Yr Avg): 54.7
P/E (8-Yr Avg): 50.0
COMPETENCIES & OPPORTUNITIES
A leader in the lucrative North Indian market, Shree Cement has an
unbroken profit record for the past 15 years.
It has used the current boom to more than triple its capacity and
further consolidate its position in the North. This
places it at an advantage over others in the event of a demand
slowdown.
The company is using the current regime of high cement prices to book
depreciation at a higher rate for its new
units. This has artificially depressed its profitability but is a
positive move from a long-term perspective.
ENGINEERS INDIA
CMP (Rs): 544.0
Chg From 52-Wk High (%): -58.6
M-Cap (Rs Cr): 3,055.1
P/E : 14.2
P/E (5-Yr Avg): 23.7
P/E (8-Yr Avg): 27.0
COMPETENCIES & OPPORTUNITIES
The company reported a 33% growth in March =9208 quarter profit and a
36% increase in its FY08 profit, significantly
higher than the growth rate implied in its price-earnings multiple of
14.2.
The recent joint ventures, including one with a global company to tap
the Middle-East market, provides significant
opportunities in a growing market.
The renewed focus on its high-margin lump-sum turnkey (LSTK) division
provides a new revenue stream. The
division clocked profits of Rs 10.2 crore in Q4=9208 against Rs 89 lakh
in the previous year.
KIRLOSKAR BROTHERS
CMP (Rs): 199.3.
Chg From 52-Wk High (%): -62.2%
M-Cap (Rs Cr): 2,107.6
P/E : 19.1
P/E (5-Yr Avg): 15.0
P/E (8-Yr Avg): 10.6
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COMPETENCIES & OPPORTUNITIES
The company is a leading pump maker in India. State governments have
been increasing their outlays on irrigation
projects, adding visibility to the company's business.
The growth in the B2B segment can slow down in case the investment
cycle has peaked. However, the company's
presence in the B2C market provides a cushion.
Its RoCE is at more than 25% for FY08. This is despite rising raw
material costs. Historically, the RoCE has hovered
at 40% providing it with more than enough headroom to stay float even
in a bad market.
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THERMAX
CMP (Rs): 413.0
Chg From 52-Wk High (%): - 57.3
M-Cap (Rs Cr): 4,921
P/E : 17.7
P/E (5-Yr Avg): 22.8
P/E (7-Yr Avg)*: 18.4
(*Since the company incurred a loss in FY01, the 7-year average P/E is
considered)
COMPETENCIES & OPPORTUNITIES
The increasing thrust on expanding generation capacity in the power
sector provides visibility to the company=92s
prospects as it manufactures boilers & heaters for the power sector.
The stock has taken a beating on concerns of rising interest rates, a
slowdown in growth and decline in the order
book. However, its foray into utility boilers bodes well for its
future.
Its financials are robust. It has the ability to generate high free
cash flows which, as a percentage of capital
employed, stand at more than 20% for the past 2-3 years.
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