Confidence Petroleum –Did you lack confidence in yourself, in CP or in HBJ Caps?

My Dear Friends,

Today, I wish to give a simple example wherein lack of confidence in yourself can deter you from making your money work for you. HBJ Caps may give you some of the best stock recommendations which none give and yet you may not take a call on a scrip only because you lack conviction- only because you lack confidence in yourself. Don’t let this happen to you. When we say “Buy” we mean it and we bet you’ll make money if you have the patience of a Buddha. The problem in stock markets is that people want fast money and many lack confidence and patience because of which they let golden opportunities drift pass them as they watch in awe and disgust when stocks that we recommend rise and rise and rise!

Please recall that we had recommended Confidence Petroleum way back in May 2009.  
Those who religiously followed our recommendation by buying the stock the SIP way may have got it at an average investment price of Rs.8 to Rs.8.50. We had even delighted the masses by making the recommendation public but I wonder how many ignored our recommendation and purchased stocks without thinking whether what they are purchasing has the inherent strength to be multibaggers and wealth creators in the years to come.

Friends, if you don’t have the time, energy and inclination to study stocks then do your self a favour by relying on professional advise – when I say professional, I mean the best guys on the street, professionals who can look beyond the horizon and forsee what none can see. Which is like asking, how many PMS & Equity Research firms recommended Confidence Petroleum when it was hovering at around Rs.7-8 for a long time indeed.

Lets see how the Confidence Petroleum stock moved in the last two and a half months :

June 2010
The High – Low range was Rs.8.42 [ on 8/6 ] and Rs. 7.48 [ on 8/6 ] and for most of June the stock was trading at less than Rs.8/share.

July 2010
The High – Low range was Rs.8.75 [ on 7/7 ] and Rs. 7.50 [ on 2/7 ] and for most of July the stock was trading between Rs.7.50 & Rs.8.75/ share.

Aug 2010
· Stock was available below Rs.9/share upto 6 August. It touched Rs.9 on 9 August.
· Stock was available below Rs.13 upto 18 August, thus ejecting strong signals of a slow but swift upward trend.

Today, on 20 August, 2010 the stock is trading in a range of Rs. 13.02 – Rs.14.25. The last traded price was Rs.14.03

Indeed, Confidence Petroleum has entered the bullish territory and shall hopefully continue staying put in this territory for a prolonged period of time. Recent price and volume related data supports this view:

Today, on 20 August, 2010 the stock is trading in a range of Rs. 13.02 – Rs.14.25. The last traded price was Rs.14.03

Indeed, Confidence Petroleum has entered the bullish territory and shall hopefully continue staying put in this territory for a prolonged period of time. Recent price and volume related data supports this view:

For six days between 2 August 2010 to 9 August2010, the average Traded Value and Traded Quantity was Rs.0.15 crores and 195195 and the average price was Rs.7.94. Suddenly, from 10 August 2010, volumes started zooming as shown under :

Date	Traded Value Rs.crs	Traded  Quantity	Closing Price Rs.
10 August 2010	3.13	3218036	9.97
11 August 2010	2.21	2085309	10.28
12 August 2010	3.14	2799504	11.67
13 August 2010	2.23	1890440	11.23
16 August 2010	2.34	2229290	10.61
17 August 2010	0.60	558043	10.89
18 August 2010	5.09	4284305	11.97
19 August 2010	3.36	2597405	13.16

Hence, it will be clear from the above that except for one freak trading session on 17 August, volumes have been pretty robust with corresponding slow and swift upward movement in the stock price. And my gut feeling is that this trend will continue for quite some time but may reverse if the markets start drifting downwards. And that’s when you can start accumulating more of this gem.

So, those who purchased the stock at say an average price of around Rs.8 would have already seen their profits rise by 78 per cent !

And those who preferred to shy away from Confidence should muster the courage to take a call on this fascinating scrip before its too late. You may accumulate Confidence Petroleum on every dip and stay put for 2 to 3 years in order to reap stunning returns.

Be Confident & Embrace Confidence. Remember, the worst problem is depression and not recession. But don’t be depressed since it’s still not too late to take a call on Confidence Petroleum which is destined to be a multibagger wealth creating stock in the months/years to come.

Besides our Research Report you may also perhaps wish to browse through the following link during your leisure time:

http://economictimes.indiatimes.com/Features/Investors-Guide/Confidence-Petroleum-to-emerge-important-player-in-LPG-CNG/articleshow/4544798.cms

Believe in HBJ Caps but more importantly BELIVE IN YOURSELF

  

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

I T L - Good value buy in a market that seems to defy gravity!

I T L - KEY DATA

BSE Code	522183	Face Value	Rs.10	CMP	Rs.86
NSE Code	N.A.	Market Cap	Rs.28 cr	EPS	Rs.15.98
Book Value	Rs.49	P -Stake	45.19 %	PE Ratio	5.38

ITL is a global leader in the high speed Sawing Technology business. Since 1999, ITL has been manufacturing Tube and Pipe Mills, Section Mills, Straightening Machines, Draw Benches, Auto Cutt Off, Special Purpose Machines, Accumulators etc. Besides, ITL also fabricates Traction Locomotive Superstructures at its works in Indore – this could be a real money spinner if the Gulf states decide to get inter-connected by rail and this could be for real any time soon. Just read on.

A 1500 km railway network estimated at US Dollars 11 billion is scheduled to roll out in the next 7-8 years. The GCC network will include two rail lines : one that will connect all GCC countries and Qatar via a bridge and another that will stretch between Kuwait, Saudi Arabia, the UAE and end in Oman. For more information just get onto this link - http://gulfnews.com/business/general/gcc-countries-to-get-connected

“No force on earth can stop an idea whose time has come.” This adage of the French writer Victor Hugo symbolizes the ideal of ITL which took up the challenge of manufacturing the stated machines in our country which were being hitherto imported.

The company has got representatives spread across U.S., Europe and all across India, Being a pioneer in our home country, the company’s products have won acceptability across continents.

The Equity base is Rs.3.25 crores and the promoters stake is 45.19 per cent. Market Capitilization is Rs.28 crores only. Face Value of shares is Rs.10/= and the CMP is Rs.86/= and the 52 week range was Rs.99.65 / Rs.25 per share.

And now lets take a quick look at the not too distant financial performance of the company which is provided herein below:

Figs in Rs.crores

	Q – 1 30/6/10	Q – 2 30/6/09	FY 2009-10	FY 2008-09
Net Sales	10.90	8.08	62.97	31.33
PAT	1.01	0.53	5.19	1.36
PAT Margins %	9.26	6.55	8.24	4.34

So, one quick glance at the above table will reveal that on a q-o-q basis as well as on a y-o-y basis, Sales, Profits and corresponding PAT margins have increased significantly despite slow down in the global economy. The overall performance for fiscal 2009-10 has been really good with Net Sales increasing by 100 per cent plus and PAT increasing by 281.61 per cent and mind you that this has been achieved without the aid of any extraordinary or exceptional items. [ read income ]

ITL does annual business of close to .Rs.63 crores on an Equity base of .Rs.3.2 crores and it has Rs..5 crores in the form of cash/near cash. Yes, it does have Debt Equity Ratio of 0.95 which is well backed up by Interest Cover of 2.78 times. So not much to worry about.

Considering the good business model of the company, decent financial performance and a low valuation in terms of the stock being available at a PE of just 5.38, one can consider taking a call on this scrip at current market price or on corrections in order to get 25-50 per cent returns or perhaps even more and that too within 6-12 months.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

Swiss Glascoat Equipments Limited – It may not buy you a Swiss holiday but……………

Since 1992, Swiss Glascoat Ltd has been manufacturing a range of niche products both ready made [ for standard requirement ] and custom built [ for unique requirement ] sophisticated equipments and accessories of unique nature used by the global pharma and chemical industry. Swiss truly operates in areas that requires deployment of technological excellence and innovation. The barriers to entry are high – as one may have tons of money but it’s not easy to venture into areas that require you to take advantage of the unique properties of glass and steel, use advanced manufacturing facilities and latest technologies and manufacture products that require you to comply with global benchmarks for excellence in engineering.

Technocrat who manufactures niche products

Spearheaded by a talented technocrat, Mr.Sudhershan Amin, Swiss Glascoat has made its mark in the global market place for glass lined products within a pretty short span of 17 years when leaders in this field like GMM Pfaudler continue to master the trade since the last 125 years!

Swiss Glascoat manufactures an impressive array of Glasslined Reactors, Process Tanks, Evaporation Vessels, Distillation Columns, Mixers and Agitators, Heat Exchangers and Dryers, Blenders, Agitated Filters, Pipes, Valves and Fittings, and other paraphernalia used for critical industrial applications..

Customers of Swiss are Kings
The company caters to the ever growing global chemical and pharma business and its clients include Cipla, Wyeth, Cipla, Cadila, Max India, Hindustan Lever, Krebs Biochemicals, RCF, Atul, Dhanuka Pesticides etc.It also supplies its products to G.E.Plastics [ Netherland ], Saudi Formaldehyde Chemicals Co. Ltd, Koalkob of Germany. It also does business with BARC, Mumbai.

Financials

Swiss Glascoat has a market cap of Rs.24 crores – yes, Swiss is the tiny Lilliput that fights with 125 years seasoned global player like GMM Pfaudler. Swiss has an Equity base of Rs/5 crores, Debt Equity Ratio of 1.24 and Interest Cover of over 2.5 times.

The promoters stake in the company is 43.45 per cent. The company’s shares are traded on BSE [ Code 522215 ] and the market price was Rs.49.25/share as the closing bell thronged on Friday 30 July. And at the time of writing this the price has silently and swiftly risen by 4.16 per cent and is trading at Rs.51.30/share, up by Rs.2.05 over previous days close. The face value is Rs.10/=

The company’s Revenue and PAT during fiscal 2009-10 was Rs 45.49 crores and Rs.2.34 crores respectively. Corresponding figures for 2008-09 was Rs.42.38 crores and Rs.1.76 crores. Thus, revenues increased by merely 7.33 per cent but profits increased by 32.95 per cent.

Foresight

There are tremendous business opportunities in the booming global oil and energy business for companies like Swiss Glascoat. Just consider this: “GMM Pfaudler is very involved in the energy market with their Engineered Systems group. Among others, this group has designed systems to purify biodiesel and glycerin, and re-refine used motor oil.” Expect Swiss to do something similar and much more in the years to come..

Conclusion :

We need to remember that in the world of business and finance, it’s not easy to make money by venturing into niche areas which require unique talent and the relentless pursuit of technological excellence and innovation. And its not easy to compete with seasoned players like GMM Pfaudler.

Being in a niche segment supported by a very low market cap augurs well for the company in the sense that once analysts start tracking and talking about this company then even consistent and moderate spike in volumes can drive the price pretty high. Hence, it is difficult to foresee how high the price could go. The 52 week range was Rs.63-30 - 15. The EPS for fiscal 2009-10 was Rs. 4.69 and you can expect current years EPS t be around Rs.6.5 and if we consider a moderate PE of say 13, then going forward we should see the share trading at around Rs.85/share. Expect to generate a cool profit of 50 per cent plus in 6 to 12 months flat! But be quick to act lest the profits start thinning as the shares keep drifting northwards.

As I sign off, I’d like to assure you that though Swiss Glascoat may not buy you a Swiss holiday yet it will reward you fairly well enough to buy lots of Swiss chocolates for your fair lady and loved ones as the company has declared a dividend of 17 per cent for fiscal 2009-10. And continue rejoicing the sweetness of the scrip as you stay put and wait patiently even as Swiss Glacoat continues its northward journey reaching new peaks, not on the Alps but on the BSE!

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

Li Lu - From Tiananmen Square to Times Square

Over the last 2-3 days, the value investing community has been abuzz with talk of a successor to Warren Buffett. Finally, after great speculation, it has now emerged that Li Lu, a Chinese American is likely to play a major part in managing Berkshire Hathaway's investment portfolio. Who is Li Lu?

Li Lu was one of the leaders of the Tinanmen Square agitation in Beijing in 2009. After the Government's crackdown, he left for the US, where he enrolled at Columbia University, and completed 3 Masters degrees at the same time - Economics, Law and Business. During his stay at Columbia, he attended a lecture by Warren Buffett which converted him into a value investor for life.

After graduating, he worked as an investment banker for a few years, before striking out on his own to start Himalaya Capital, his own hedge fund, and met Charles Munger (Vice Chairman of Berkshire Hathaway). During this time, he helped Berkshire Hathaway to invest in BYD Auto, a Chinese manufacturer of automobile & rechargeable batteries. Buffet invested USD 290 mn in the firm for a 10% stake. This take has multipled 6x and is currently worth about USD 1.8 bn.

The latest news is that Warren Buffet has appointed Li Lu has one of his successors to take care of investment activities at Berkshire Hathaway.

To get an idea of what kind of investor Li Lu is, I am attaching the transcript of a speech given by him at Columbia University, on his investing philosophy:
(Courtesy: gurufocus.com)


Li Lu: Columbia is where my whole life in America started. I could barely speak the language. In Columbia it was where I had a new life. It was really in the Value Investing class where I got my career start. I was really worried about my student loan debt at the time and a friend told me about this class and said I need to see a lecture from Warren Buffett.

What I heard that night changed my life. He said three things:

1. A stock is not a piece of paper, it is a piece of ownership in a company.

2. You need a margin of safety so if you are wrong you don’t lose much.

3. In the market, most people are in it for the short term. It allows you a framework for dealing with the day to day volatility.

Those were three powerful concepts. I had never viewed the stock market like that. I viewed it negatively as a place made up of manipulators who were lining their own pockets. I embarked on an intensive two year study learning everything about Buffett.

Two years after that I bought my first stock. After I graduated I worked at an investment bank for a year and realized it was a mistake. I tried to start a fund but I didn’t have a track record. The first year I managed money I lost 19%.

Being a value investor means you look at the downside before looking at the upside. Before becoming an investor you need to look at how you can fail at this game. There are all sorts of ways you can fail. You need to examine who you are and see if you could be good at it. If you could ever find something you can do well that you really like — that will be your best investment. You will do better than competitors. If you can do it with intrinsic passion, that really over time will add enormous value to you.

Back to the game of investing. This concept of margin of safety is an essential concept to be a good investor. The future is unpredictable, you will always be dealt surprises, some positive most negative. You need to build in a level of safety so that whatever happens, you will not get crushed. If you can really successfully know what you are getting into, you can pretty much navigate. Most people are troubled by what they don’t know. The world is divided by those who know and those who don’t know. If you really know — you will not pull triggers like Wall St. traders. If you are truly intellectually honest, you would not do anything.

This class teaches you to know what you are getting into, especially accepting what things you don’t know. The game of investment is really continuous learning. Everything affects an investment, it constantly changes. You are not investing in the past but the accumulative cash flow of the future. You have to want to find a certain set up where you can know something that most people don’t know. There are plenty of things I don’t know but they don’t factor into the purchase because I am using a huge margin of safety. Buying a dollar at 50 cents. So if things turn against you, you will be okay. That is not easy. This business is brutally competitive. It is so impossible to know everything and know exactly what is going to happen to a business from now till the end that you really have to accept that what you don’t know.

Finding an edge really only comes from a right frame of mind and years of continuous study. But when you find those insights along the road of study, you need to have the guts and courage to back up the truck and ignore the opinions of everyone else. To be a better investor, you have to stand on your own. You just can’t copy other people’s insights. Sooner or later, the position turns against you. If you don’t have any insights into the business, when it goes from $100 to $50 you aren’t going to know if it will back to $100 or $200.

So this is really difficult, but on the other hand, the rewards are huge. Warren says that if you only come up with 10 good investments in your 40 year career, you will be extraordinarily rich. That’s really what it is. This shows how different value investing is than any other subject.

So how do you really understand and gain that great insight? Pick one business. Any business. And truly understand it. I tell my interns to work through this exercise – imagine a distant relative passes away and you find out that you have inherited 100% of a business they owned. What are you going to do about it? That is the mentality to take when looking at any business. I strongly encourage you to start and understand 1 business, inside out. That is better than any training possible. It does not have to be a great business, it could be any business. You need to be able to get a feel for how you would do as a 100% owner. If you can do that, you will have a tremendous leg up against the competition. Most people don’t take that first concept correctly and it is quite sad. People view it as a piece of paper and just trade because it is easy to trade. But if it was a business you inherited, you would not be trading. You would really seek out knowledge on how it should be run, how it works. If you start with that, you will eventually know how much that business is worth.

When I started in the business in 1997, it was in the middle of the Asian Financial Crisis. A few years later there was the Internet bubble. A couple years ago was the Great Crash of 2007 – 2008. They are billed as once in a century disasters but happen every few years. Every time it goes against you, your net worth or value of your investments might go down 50%. This is really where that insight and temperament comes in. In a sense, you have to have a certain confidence in your own judgement and not be swayed by other people’s views. It is not easy. But that is life. It is just a given. It happens to everyone. Berkshire had at least three times when the stock went down 50%. It happened to Carnegie too. It happened to Rockefeller. It happens to everyone. If you really made a mistake, it would not stop at 50% but go to 0.

This happens to even mighty companies. Look at the top 50 companies in America every 10 years. By the time 20-40 years go by, 2/3rds of them will be gone. By the time it goes to 100 years, there might be only a couple left. It’s just the way it is. Look at what happened to the once mighty General Motors. So thats why I’m saying is, investing is a continuous learning process because your investments are constantly changing

So for those of you that have curiosity and the temperament, this game couldn’t be better. Capitalism rewards people who are talented at capital allocator. So if you have the aptitude and temperament, it is the great game. If you don’t have that then I urge you not to go and become a nuisance. That is really what Wall Street did, they don’t really create anything they just move money around. Letting the financial industry get too big is bad for the economy, it is just as bad as getting addicted to casinos, drugs, and alcohol. None of them are really useful, they just transfer wealth. That is what I think happened on Wall Street over the last several decades. So avoid being harmful.

Facts About the Stock Market Crash of 1929

Friends, as a Value Investor

you don’t need to waste your time reading a book on the Great 1929 Stock Market Crash because all that you ever wanted to know about this topic is lucidly explained below:

On 29 October 1929, the US stock market crashed. The day became forever after known as "Black Tuesday" The so-called "Great Crash" is known by a variety of monikers including the "Wall Street Crash of 1929" and the "Stock Market Crash of 1929". It marked the beginning of the Great Depression, a ten-year economic slump that left the US in desperate straits.

It was the biggest financial crisis of the 20th century: Over $16 billion was lost in October 1929, a fact that threw the entire US economy into disarray. Over 40 percent of all banks (approximately 10,000) failed in the next two years, resulting in losses of over $2 billion. Stocks were devalued by more than 80 percent. Unemployment went up to almost 25 percent. These Stock Market Crash 1929 facts define the parameters of the event.

Prior to "Black Thursday"

The years leading up to "Black Tuesday" were referred to as the "Roaring Twenties." The country was filled with optimism and people made money hand over fist. It was a time of wealth and excess. A famous economist of the time, Irving Fisher, was recorded as saying, "Stock prices have reached what looks like a permanently high plateau." It was a bull market, meaning that stock prices were higher than what their true value would indicate.

In the week prior to "Black Tuesday", the US stock market was significantly unstable. Stock prices rose and fell like tides, swelling into a squall one minute and ebbing dramatically the next. Periods of high selling were matched with periods of high buying, and the volume of the same were significant. On "Black Tuesday", over 16 million shares were traded, a record that was not broken until 1968 (when there were more significantly more shares on the market).

The Economics of the Crash

The stock market began a slide in value on "Black Tuesday"; in total, the stock market declined by 89 percent over the course of the next three years. This crash came on the end of a series of intense speculation. Not only was speculation heavy in the stock market itself, to the point that people would borrow money to buy stocks, but brokers would lend smaller investors more than 66 percent of the value of the stocks they purchased. More and more people borrowed and invested. At one point, over $8.5 billion was on loan, a number far exceeding the amount of currency in circulation at the time. The stock market had been rapidly escalating in value since 3 September 1928.

When on 24 October 1929 the stock market began to decline under that 3 September peak, panic ensued. So many people moved to sell stock that the stock was rapidly devalued.

Consequences of the Crash

The decline in the stock market resulted in the inability of investors to repay their loans in spite of the fact that only 16 percent of US households were invested in the stock market. Many companies went bankrupt, so access to credit was limited and people lost their jobs. In turn, consumer spending was depressed. As a result, companies received less revenue, people were laid off, and, eventually, those companies too went bankrupt.

Rebuilding the Nation

When Word War II began in 1939, US unemployment was 17.2 percent. The US borrowed over $1 billion for war spending; US manufacturing went up by 50 percent between 1939 and 1941. Although, in total, the US increased deficit spending to over 120 percent the gross domestic product (GDP), the end of World War II marked the beginning of the greatest economic boom America had ever experienced. The US GDP almost doubled from 1940 to 1945 and over 98 percent of the US population was employed, a record that still stands today.

Understanding the Crash

The Stock Market Crash of 1929 is reminiscent of the 2007-2009 Recession. In both cases, speculation and an overly optimistic economy lead to over-lending and an ultimate overvaluing of the economy that resulted in a serious downturn. However, what saved 2007 from turning into 1929 was the provisions put in place after the Stock Market Crash that precluded anything of that magnitude happening again. For example, federal legislation began to require that all banks have enough cash to cover all of its deposits..

Friends, allow me to reiterate : Never fear a crash. Embrace darkness because light invariably follows darkness and do muster the courage to invest when blood is running in the streets. Pray that there should never be a crash similar to that of 1929 but should you ever witness a moderate/severe crash in your life time, don't go into a coma. Instead, put on your armour of courage and wisdom and stay put! And, you will become a King amongst men. You will be richly rewarded. That's my word. And my word is my bond.

Courtesy:www.brighthub.com

SRF Ltd [Earlier name Shriram Fibres Ltd ] -- A strong, reliable and focussed company

SRF established in 1973 is a multi-business, multi-location company which a part of Bharat Sriram Group and is engaged in the manufacture of the following products :

• Textiles Business – manufactures Nylon Tyre Cord Fabrics & Coated Fbrics, Nylon Tyre Cord Fabric used as reinforcement for all kinds of tyres
• Chemical Business – manufactures Refrigerant Gases which is primarily used in air-conditioning and refrigeration.
• Pharma Chemicals Business – manufactures intermediates, conducts contract research, custom synthesis /contract services to the Pharma industry.
• Packaging Films Business – manufactures Biaxially Oriented Poly Ethylene Terephthalate [ BOPET ] or Polyster [ PET ] used in flexible packaging.

SRF has manufacturing facilities in Manali, Gwalior, Bhiwadi and Indore. Besides, it has operations in U.A.E, South Africa and Thailand.

In 2004, SRF became the first tyre cord company in the world to win the prestigious Deming Application Prize for Total Quality Management. In 2008, Mr. Arun Bharat Ram, Chairman, Chairman honoured with the prestigious Officer's Cross of the Order of Merit, presented by the Federal Government of Germany.

Asset Growth & Sales Growth

Gross assets which stood at Rs.1418 crores has touched Rs.2707 crores as of March 2010, an incremental growth of Rs.1259 crores and currently Rs.127 crores is capital WIP. All this is happening against the backdrop of a Debt Equity ratio which has been less than one for the past five years, meaning much of the expansion has been financed from internal accruals in the absence of equity dilution.

The top line is growing at a CARG of 11.08 per cent and PAT registered CARG of 24.33 per cent. Revenue and PAT for fiscal 2009-10 was Rs.2193 crores and Rs.309 crores respectively. The corresponding figures for fiscal 2008-09 was Rs.1812 crores and Rs.163 crores respectively.

Thus, topline has increased by 21 per cent whereas bottom line has impressively shot up by 89 per cent.

Good fundamentals

SRF has generated Net Profit margins in the range of 11-22 per cent since the last five years. The Debt Equity ratio is less than one and Book Value is around Rs.200 as against today’s Share price of Rs. 246.55, up by Rs.5.55 /2.30 per cent over previous day’s close. Besides having good working capital management, the company’s Return on Equity is 29.07 per cent and Return on Capital Employed is 26.40 per cent. The promotors stake in the company is 47.25 per cent.

Conclusion: SRF which has a Market capitalization of 1462 crores is available at a PE of just 4.73 and is definitely an attractive medium/long term buy considering the strong potential of the various business segments that the company operates in especially the technical textile business which contributes to more than 50 per cent revenue. Moreover, the company enjoys a global leadership status in the technical textile business segment. Now, on an Equity base of about Rs.60 crores, the EPS for fiscal works out to Rs.51 and if the company continues to perform well then we can apply a conservative PE of 10 and we get a piece of business that should be quoting at Rs.510/share! Hence, going forward we can expect the stock price to more than double in about a years time. And there is good news for short term investors too. From the technical angle too the stock is in a bullish territory with the Fibonacci price projections revealing the potential for the stock to move up to a level of Rs.317/= which signifies a return close to 30 per cent that can be generated probably in less than three months. In any case, SRF should be purchased and accumulated on sharp corrections to magnify returns.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

P R I C O L – A TURNAROUND SCRIP

PRICOL predominantly operates in the Motor Vehicle parts and accessories sector.

The company has seven plants spread across India as under:

• Two plants in Uttarakhand
• One plant in Gurgaon
• One plant in Pune and
• Three plants in Tamil Nadu

The company manufactures instrument clusters, speed sensors, fuel level sensors, vehicle security systems etc. These parts/components/accessories are supplied to the units of companies which manufacture motor cycles, scooters, 3-wheelers, cars, SUV’s, trucks, tractors and construction equipments.

There were major labour problems in PRICOL’s plant in Tamil Nadu some time back but now things are normal. All companies based in Tamil Nadu have to live with this one problem whereby the increasing number of disputes in major companies is due to the fight among the unions to show their supremacy to represent workers.

The Balance Sheet of PRICOL

PRICOL has an equity base of Rs.9 crores and reserves are 18.7 times of equity which stands at Rs.169.11 crores. The promoters stake in the company stands at 35.8 per cent.

The company’s Debt Equity ratio which was 1.98 in fiscal end 2008-09 now stands reduced to 1.43 as on 31 March 2010.

The total CashBank balance coupled with near cash Investments stood at Rs.37 crores as of 31 March 2010.

The company’s working capital is good especially if we consider that roughly 25 per cent of sales are outstanding/collectible at any given point of time.

The P&L a/c of PRICOL

For the I Q of 2010-11 Net Sales/Income from operations was Rs.189 crores as compared to I Q of 2009-10 which stood at Rs.164 crores, a top line growth of 15.2 per cent. PAT for I Q of 2010-11 was Rs. 9.30 crores as against Net Loss of Rs. 5.31 crores for corresponding quarter of previous fiscal.

For the fiscal period 2009-10 Net Sales/Income from operations was Rs. 742 crores as compared to 2008-09 which stood at Rs. 614 crores, a top line growth of 20.8 per cent.

Exports represented roughly 22.47 per cent in 2008-09 whereas it slipped to 14.69 per cent in 2009-10. The lower dependence on export revenue is appreciated for obvious reasons.

PAT for fiscal 2009-10 was Rs.25.48 crores as against Net Loss of Rs.30 crores during fiscal 2008-09

The Face Value is Rs.1/= and the 52 week range is Rs.33.95 – 10.26 and the shares of PRICOL are currently trading at Rs. 29.80 [ 27 July, 10 a.m. ] and the PE is 11.71.

Conclusion: Since the two wheeler and four wheeler industry is doing well and because PRICOL’s products have an established presence both in India as well as overseas markets, it is good medium term bet that may give reasonably good returns.By the way, auto industry recorded a growth of 25 per cent in 2009-10 over previous year. Expect this growth trend to continue long into the future at least for the next 5 to 6 years considering the strong demographics of India. Moreover, the company has just turned around and the only area of concern is the fluid labour situation in Tamil Nadu as briefly explained above. Those who love to embrace risks may well go ahead and embrace PRICOL and hold on to it for the medium term.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

The Indian Seamless Metal Tubes Limited – Seamless returns?

ISMT an abbreviation for The Indian Seamless Metal Tubes Limited which was promoted in 1977 by a team of technocrats. The company is well managed by Mr. Salil Taneja - Chief Executive Officer (CEO) who has 18 years rich experience in this line of business.

ISMT is the largest integrated specialized seamless tube manufacturer in India.

ISMT is one of the most diversified manufacturers of specialized seamless tubes in the world, producing tubes in the range of 6 to 273 mm OD.

And it’s the one of the most modern alloy Steel plants in India that produces a wide range of alloy steels from 20 to 225 mm diameter.

The company is well represented in the global market place by ISMT America, ISMT Europe, Structo Hydraulics AB, Sweeden . Besides, it has s group company called Taneja Aerospace and Aviation Ltd.[ TAAL ] . TAAL Technologies is a nichè Engineering Services and Technology Solutions company helping global corporations in Aerospace & Defense, Power Generation, Oil & Gas and Industrial Segments.

ISMT has two major manufacturing divisions, one in Ahmednagar and one in Baramati, the Installed Capacities of which are as under :

Installed Cap	Current	Proposed
Steel	250000 TPA	300000 TPA	To be completed by Q IV 2010
Tubes	155000 TPA	475000 TPA	Almost complete

Steel : Carbon Steel, Alloy, Bearing Steel for various industrial applications
Tubes : Hot finished and Cold finished tubes

Seamless pipes are used by the oil and gas exploration, auto components, boilers and mission critical / high pressure functions. Major customers of ISMT are Tata Motors, Bajaj Auto, M&M, ONGC, Oil etc.

Maharashtra Seamless Ltd having 500000 MTPA capacity ranks first and ISMT with 475000 MTPA capacity ranks second.

Backward Integration
A major quantum of high grade alloy steel produced by the company is used for captive consumption in the Tubes section and the balance is sold in the open market. This is a major part of the supply equation and the cost thereof is under management control.

Captive Power Plant
ISMT will soon have in place a 40 MW Captive Power Plant that will commence operations in second half of 2010-11 Thus uninterrupted power supply and cost thereof is totally under management control.

Growing Oil E&P sector
Rising oil prices, “peak oil” theory and massive investments in E&P and oil/gas transport networks has made ISMT move more towards high margin OCTG [ oil country tubular goods ] segment.

Thyssen Krupp Mannex (TKM) and ISMT have signed an agreement whereby TKM will represent ISMT for the sale of OCTG tubes in U.S.A., Canada, Iran, Iraq, Algeria and certain other countries in North Africa and the Middle East. With the addition of a new PQF Mill, ISMT is now well positioned to supply high quality Casings, Tubings and Line Pipe required by the Oil Exploration sector. The addition of TKM to ISMT's marketing network is expected to give a boost to OCTG tube sales and establish ISMT as global supplier of such tubes.

Besides, the robust growth in Oil E&P as evidenced by Baker Hughes “rig count” report seems to auger well for focusing more on Oil Casings and Tubing products.:

As per Baker Hughes Incorporated (NYSE: BHI) the international rig count for June 2010 was 1,099, up 9 from the 1,090 counted in May 2010, and up 132 from the 967 counted in June 2009. The international offshore rig count for June 2010 was 312, up 14 from the 298 counted in May 2010 and up 45 from the 267 counted in June 2009. [www.oilandgasonline.com ]

Growing Power Sector
1 lakh MW capacity addition in the 12th Five Year Plan augers well for the growth of ISMT which supplies Boiler Tubes to the power sector. Currently, the demand for such tubes far exceeds the supply which are met by imports. Besides, there is good replacement demand for boiler tubes.

The Negatives

• Slow down in oil E&P in case the price of oil goes downhill
• Increase in price of billets used for manufacturing seamless tubes
• Forex risks emanating from forex loans and export earnings

Financials

• For last five years topline is above Rs.1000 crores p.a.
• Equity base was rock steady at around Rs. 72.25 crores for last 5 years despite expansion which signifies that growth has not taken place through equity dilution.
• Operating profit has been in the range of 14-23 per cent.

Total Sales and Net Profits for fiscal 2009-10 was Rs.1193 crores and Rs.73 crores respectively. The corresponding figures for previous year was Rs.1300 crs and Rs. 56 crores.and thus profits for 2009-10 have increased by Rs.17 crores despite a 8.9 per cent reduction in sales. This was primarily possible due to better cost control especially that relating to raw material consumption.

The Future
Mr.Taneja, CEO of the company has this to say about the future of ISMT:
“The sectors that we are focused on and which will drive the company's growth are Energy, Construction, Oil & Natural Gas, Bearings, General Engineering and Mining. Fortunately all of these sectors are doing well and will, likely, continue to do so in spite of the general industrial slow down.”

Conclusion
If we consider the following factors, the stock price of ISMT will swiftly move up in the months to come:

• ISMT is an integrated player having a market share of 25 per cent
• The company’s products have wide application in High Pressure Oil & Gas Exploration & Drilling, Boiler, Automobiles, Process, Pipelines and Refineries
• Anti dumping effected by U.S. and China and probe on Chinese dumping by India
• Economies of scale and superior technology compared to its rivals
• Installation of SMS Meer, Mönchengladbach, Germany’s new seamless tube plant employing the PQF® process (Premium Quality Finishing) at Baramati, Maharashtra..
• Commissioning of 40 MW Captive Power Plant resulting in considerable savings in power costs.
• Increased focus on higher margin products like OCTG relating to Oil E&P.

The Market Cap is Rs. 766 crores, the shares are valued at PE of 10.46 and were last traded at 52.30, the 52 week range being Rs. 64.95 – 29.70. Face Value is Rs.5.

Now tell me, can you afford to ignore ISMT, a company which is gifted with a bright future backed by an ultra bright future in the global Oil E&P sector and the electrifying power sector of India!

Yes, and you may ask whether the current share price can give seamless/consistent returns and the answer is : Yes, indeed. Once can buy at the current levels of Rs.52 and on dips – the SIP way as always. ISMT is a good medium/long term bet.

Technically too the stock is in a bullish territory if we consider the fact that ISMT has crossed its 200 DMA of Rs.52 and expect the stock to move up once it crosses Resistance level of Rs. 53.40. The Fibonacci price projections reflects that ISMT has the potential of touching level of Rs.72/ share. Considering the robust and sophisticated business model of ISMT and the future prospects, the downside risk is minimum and yes the share price could slide down to 46 levels but then that’s part of the game and the yo-yo concept applies to all stocks.

Overall, one can expect 50 per cent return over a 6-12 month period which can be considered respectable when we consider the negative returns that we folks get by parking our money in PSU /Private Banks / Co-operative Banks [ the most dangerous of the lot where you may get “NO” returns at all ]. Remember Bank of Karad. By the way, 19 cooperative banks have gone bankrupt/closed operations in 2008-09 !

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd