Hindustan Zinc rallies on spiking zinc price

Hindustan Zinc rose 1.87%, to Rs 595.25 after the company raised its prices by 2.19%, to Rs 181,600 per tonne, from 26 August 2006.

As many as 2.89 crore shares were traded on the BSE. The counter has seen immense volatility in the last few months. From the low of Rs 449.05 on 8 June, it rose amid bouts of volatility to Rs 614.20 by 13 July, only to slip to Rs 511.55 by 1 August. Here, the stock advanced slowly to Rs 584.35 on 25 August 2006.

At the current market price of Rs 595.25, Hindustan Zinc trades at 7.20 times its Q1 June 2006 annualized EPS of Rs 82.60. The company has been frequently changing domestic zinc prices on cue from a trend in the metal's price on the London Metal Exchange (LME). The company revised prices six times last month. In late July, it had cut zinc prices by about 5% across all categories.

Hindustan Zinc (HZL) was a company of the Government of India until its dis-investment. In March 2002, Sterlite Industries (India), successfully acquired a 26% stake in the company for Rs 445 crores. Hindustan Zinc (HZL) has an advantage in terms of captive sources of ore. HZL is the country's only integrated producer of zinc and among the world's leading integrated producers with a domestic market share of approximately 70%.

Its zinc capacity is currently 4 lakh tonne per annum with smelter operations situated in Chanderiya, Debari and Visakhapatnam. Hindustan Zinc registered a net profit growth of 503%, to Rs 874 crore (Rs 145 crore) for Q1 June 2006. Net profit rose 206%, to Rs 1,610 crore (Rs 527 crore).

 

source: capitalmarket

Matrix Laboratories rose 1.21%, to Rs 280.50 on reports that US-based Mylan Laboratories plans to acquire 71.5% stake in the company

Matrix Laboratories rose 1.21%, to Rs 280.50 on reports that US-based Mylan Laboratories plans to acquire 71.5% stake in the company.

As many as 5.93 lakh shares were traded on the BSE. The counter has been advancing amid bouts of volatility since mid June 2006. From a low of Rs 192.10 on 14 June, it rose 44.27% to Rs 277.15 by 25 August 2006. At the current market price of Rs 280.50, Matrix Laboratories trades at 37.20 times its Q1 June 2006 annualized EPS of Rs 7.54.

US-based Mylan Laboratories has announced on Monday that it will acquire up to 71.5% stake in Matrix Laboratories, of which, 51.5% will be acquired directly from the latter and while an open offer will be announced for shareholders to acquire an additional 20%. Assuming the open offer is fully subscribed, the total purchase price is expected to be $ 736 million. Matrix will remain a publicly traded company in India.

During the year, Matrix Laboratories had filed 15 drug master files (DMFs) in the US, taking the total tally to 60. Of these 60 products, only 10 products have been commercially launched. During the current fiscal, the company proposes to double the number of launches and file 30 DMFs in the US.

Aimed at augmenting its finished dosage business, the company has established a R&D team of approximately 80 people in a short span of time and successfully filed its first abbreviated new drug application (ANDA) with the USFDA. The company expects record filings of approximately 30 ANDAs/Dossiers in US and Europe during the current fiscal.

The company said its 100% subsidiary, Docpharma NV, has initiated the process of divestment of its hospital business division (non-core). The process would be completed in the next two months. Docpharma has performed well in Belgium and the Netherlands, its core markets. Docpharma is now expanding its presence in Italy as further dossier approvals and consequent launches are expected in the current year.

Matrix Labs is a major manufacturer of Active Pharmaceutical Ingredients (APIs). The company mainly operates in the antibiotics and anti-viral space.

Matrix Labs had registered a net profit growth of 14.6% to Rs 28.97 crore (Rs 25.29 crore) for Q1 June 2006. Net sales rose 25.8% to Rs 194.12 crore (Rs 154.34 crore).

 

source: capitalmarket

Larsen & Toubro (L&T) rose 0.99%, to Rs 2, 375 on getting board approval for an issue of bonus shares

Larsen & Toubro rose 0.99%, to Rs 2,375 on getting board approval for an issue of bonus shares. The scrip also found support from the fact that its consortium had bagged an order worth around $ 150 million from Saudi Formaldehyde Chemical Company. A total of 13,284 shares were traded on the BSE.

The stock has advanced smartly since late July. From a recent low of Rs 2,022.35 on 21 July, it surged 16.28% to Rs 2,351.70 on 25 August 2006. At the current market price of Rs 2,375, Larsen & Toubro (L&T) trades at 38.24 times its FY06 EPS of Rs 62.10.

Larsen & Toubro has announced that its board has approved the issue of bonus shares in the ratio of 1:1. (A share for every share already held). L&T, along with its consortium partner, Haldor Topsoe AS Denmark, has secured an order worth around $ 150 million from Saudi Formaldehyde Chemical Company (SFCCL) in Saudi Arabia. This E&P (Engineering & Procurement) order involves setting up high technology methanol and carbon monoxide plants. SFCCL is a private sector enterprise, developed, promoted and financed by a group of leading industrialists from the Gulf Co-operation Council (GCC) countries. It is a grass root, second-generation petrochemical complex located in the Al Jubail Industrial City, Saudi Arabia, manufacturing formaldehyde and its derivative products.

In June 2006, Larsen & Toubro (L&T) bagged a number of orders. Noteworthy among them are a Rs 750 crore contract from National Highways Authority of India's build-operate-transfer project to six-laning of the National Highway-8 between Vadodara and Bharuch in Gujarat; and a Rs 481.6 crore turnkey order for setting up a water supply system for the Bisalpur Water Supply Project from the Rajasthan Urban Infrastructure Development Project.

Recently, L&T had signed a joint venture agreement with a subsidiary of the widely diversified Kuwait-based Bader Al Mulla group. The co- venture will be called 'Larsen & Toubro Kuwait Construction WLL', and will be registered as a local company in Kuwait, focussing on construction projects in oil and gas, power and infrastructure.

L&T, in consortium with Toyo Engineering Corporation (Toyo), Japan, won a large scale turnkey contract valued over Rs 2,600 crore from Indian Oil Corporation (IOCL) for project management, engineering, procurement and construction of a naphtha cracker and associated units at its Panipat petrochemical complex in Haryana. L&T's share in the contract is Rs 900 crore.

L&T lately emerged as one of the key beneficiaries of a boom in capital expenditure and infrastructure segment. Its qualification in almost all segments of infrastructure work, coupled with the relatively bigger size of its balance-sheet, gives it an edge over other players in the country.

L&T registered a net profit growth of 10% to Rs 157.13 crore (Rs 142.97 crore) for Q1 June 2006. Net sales during the period rose 12% to Rs 3,468.90 crore (Rs 3,087.83 crore).

 

source: capitalmarket

Tata Chemicals: Buy - take exposure in the stock

Tata Chemicals: Buy

Healthy investment book
Growth opportunities in the soda ash and cement businesses
Higher offtake in the fertiliser business

Investors can consider taking exposure in the Tata Chemicals stock, which trades at about 15 times its standalone earnings for FY-06. Buoyed by an upturn in its soda ash and cement businesses, the company's inorganic chemicals division recorded a spurt in revenue and earnings in recent quarters. The uptrend in the soda ash and cement businesses is expected to continue in the medium term, bolstering earnings growth. The Brunner Mond acquisition enhances growth opportunities in the soda ash business. However, volumes are likely to be higher in the fertiliser business.

Soda ash

Soda ash contributes 20 per cent of Tata Chemicals' standalone revenues. The company caters to a wide spectrum of the user industry as it makes a variety of grades. Growth opportunities in the realty space are likely to bolster demand for float glass. This, in turn, is likely to result in volume growth for the soda ash industry as the float glass sector is among the major consumers of dense soda ash. Tata Chemicals, which is among the larger manufacturers of dense soda ash, is poised to tap this growth opportunity. Growth in the automotive glass sector is likely to contribute to better offtake.

The buoyant trend in the steel industry is also likely to heighten the demand for soda ash. Higher offtake for detergents on the back of rising rural incomes, is likely to have a spin-off effect on light soda ash. The expansion in the paper industry, which is also among the larger consumers of soda ash, is likely to translate into higher volumes for the soda ash industry.
Rising prices of soda ash in the domestic market are likely to improve margins for Tata Chemicals. This trend may continue in the medium term, as there are only a few players in this business. The global situation also provides comfort with FMC Wyoming Corporation of the US having raised prices by 10 per cent with effect from July after a similar hike in October 2005. Rising global prices reduces the threat of imports; however, declining prices of caustic soda — an alternative to soda ash — are a cause for concern.

Brunner Mond

The acquisition of Brunner Mond has propelled Tata Chemicals into the league of global soda ash majors. With this acquisition, Tata Chemicals' soda ash business is expected to contribute about 50 per cent of its consolidated revenues. The Brunner Mond Group has manufacturing facilities in the UK, the Netherlands and Kenya with a capacity of 16 lakh tonnes, 45 per cent of which is for making dense soda ash,which has better realisations.

With Brunner Mond under its belt, Tata Chemicals has access to the markets of Europe, Africa, Pakistan and the Asean region and better reach to West Asia. The acquisition also gives Tata Chemicals access to the natural soda ash process, which is cost-competitive.

Tata Chemicals plans to leverage this competitiveness by doubling the capacity of its Kenyan facility to about 7lakh tonnes at a cost of about $100 million (about Rs 450 crore). Kenya is among the key players in the natural soda ash business, next only in size to the US. The acquisition has also enhanced Tata Chemicals' sodium bicarbonate capacity to about 2.25 lakh tonnes.

Brunner Mond's European sodium bicarbonate business caters mainly to the pharmaceutical sector. The company plans to tap Brunner Mond's cost-reduction strategies in the soda ash business and technology in the sodium bicarbonate segment, besides increasing the salt business of its Kenyan operations.

Fertilisers

Tata Chemicals' fertiliser division contributes about 60 per cent of its standalone revenues. The prospects of the fertiliser business depend largely on Government policy.

Abundant rainfall and healthy water storage levels across the country are likely to result in higher offtake for its fertiliser business. To ensure availability of phosphoric acid, Tata Chemicals acquired a 33 per cent stake in IMACID, which was earlier a 50:50 joint venture between the Kingdom of Morocco and Chambal Fertilisers and Chemicals.

Food and other businesses

Tata Chemicals, at its domestic facility, also manufactures sodium bicarbonate, cement and caustic soda and chlorine, sodium tri-polyphosphate (STPP), cooking soda and iodised salt. Though these businesses play a smaller role on the revenues front, they provide Tata Chemicals with sizeable cash flows. Volumes are expected to better for STPP, an active ingredient in detergents.

Growth in the realty and infrastructure space would provide volumes for cement; consolidation in the sector would help firm up prices. The caustic soda business is likely to face margin pressure in the medium term with global prices on the decline since December.
Investment book Tata Chemicals' sizeable investment book provides cushion against downside risk. The company would be among the key beneficiaries, should the Tata group decide to unlock its intra-group holdings.

Hotel Leela Venture: Buy - recommend exposure with a one/two-year perspective

Hotel Leela Venture: Buy

Expansion in north India
New properties in emerging
business and tourist spots
Eyeing the foreign markets

We reiterate our buy on the Hotel Leela Venture (Leela) stock and recommend exposure with a one/two-year perspective. Assuming a conservative growth estimate, the stock now trades at 16 times its expected per share earnings for FY-08 on a fully diluted basis. The valuations are at a discount to peers such as Asian Hotels.

Leela's first quarter performance has been notable with revenue and earnings growth of 21 per cent and 63 per cent respectively, adjusted for the extraordinary income due to the sale of The Leela Business Park in Mumbai.

Leela would be one of the frontline hotel chains to gain from the well-poised economy, stable political environment and a healthy business-tourist traffic escalation. It has emerged as one of the major players in the premium segment, though it is present in western and southern India only. But it has identified this lacuna and embarked on an expansion spree to set up a pan-India presence to capitalise on the increasing demand in the country.

Leela's Udaipur property is likely to contribute to revenues from FY-08 onwards. The palace hotel would host an array of restaurants and lounges, a spa and banquet facilities to cater to both the growing conventions and conference markets.

Growth avenues

With an increase in the IT and ITeS industries in Hyderabad and Pune, Leela's entry into these cities should give a fillip to its revenues.

Both cities have in the recent past seen a surge in demand due to the growing number of business travellers; the occupancy rates (ORs) and the average room rents (ARRs) are on a high. Leela's Hyderabad foray may, however, face stiff competition from the already-established players.

There are several players vying for Leela's Chennai property that faces the sea, but with the growing demand-supply mismatch, this may not have an immediate effect on the occupancy rate.

The company's bottomline could get affected due to softening of rates. However, the Chennai property is likely to contribute to revenues from FY-09 only.

With the growing need for serviced apartments, Leela's entry into a contract to manage a Gurgaon property of 319 rooms and 90 apartments is a positive.

This move could help it cash in on the growing number of business travellers to the Delhi satellite that is emerging a major IT, ITeS and BPO centre.

Stable source of income

The revamping of the Mumbai property is expected to be completed by October, post which the contribution from the city is likely to improve further.

Leela's Bangalore property, which has been enjoying the highest ARRs and ORs, recently expanded its capacity, but with the entry of other players, a softening of rates can be expected. This risk may be mitigated with the execution of other properties on time.

Leela's Goa property saw a rise in ARR last year; room rents averaged around $400 per night.
With an increasing number of business conferences being conducted in the resort and a rise in the number of tourist arrivals, Goa would continue to attract revenues.

Leela's food & beverages (F&B) business contributes significantly to the earnings and enjoys good margins.

With increased consumer spending, the F&B business would continue to be an alternate source of income for Leela.

Overseas Foray

Leela is eyeing the markets of West Asia, London and Singapore by way of management and operating contracts.

The Kempinski brand name that the group uses would help it attract West Asian travellers to its foreign and Indian properties.

Leela has funded its capex plans through a mix of debt and equity. Till such time the foreign currency convertible bonds (FCCBs) are converted fully, high gearing would be a cause for concern. The HUDCO settlement payment, when completed, would help it reduce debt considerably.

A slowdown in the growth of the economy, entry of foreign counterparts with comparable or lower tariffs, drop in tourist arrivals due to extraneous factors, and the possibility of supply outstripping demand, are key risks to our recommendation.

source: business line

R Systems: Buy - Investors can consider taking exposure in the R Systems International stock with a one/two-year perspective

R Systems: Buy

Promising market for OPD
Robust quarterly performance
Acquisitions to add pep

Investors can consider taking exposure in the R Systems International stock with a one/two-year perspective. As the stock has run-up by about 10 per cent recently, investors can use any declines linked to the broad market to step up exposure. The stock trades at a price-earnings multiple of 13 times the expected per share earnings for calendar 2006.

Compared to the initial offer price of Rs 250, the stock trades at a 30 per cent discount. We had recommended that investors subscribe to the IPO in March, and we continue to remain bullish on the prospects for the company's core business of outsourced product development (OPD). The relatively nascent growth of the OPD space, good client relationships, vertical expertise spanning banking/manufacturing and robust second-quarter performance lend strength to the stock.

The principal risks are the likely slowdown in the US economy, impacting IT spends in the OPD arena and higher volatility in financial performance owing to project relationships.
With greater willingness among Fortune 1000 companies to offshore their product portfolio, the OPD market has taken off in a big way. As offshoring continues to offer compelling cost and time-to-market advantage, several established and start-up companies in the US are capitalising on this potential. Using its proprietary pSuite execution framework and iPLM services that confer these advantages, R Systems has been able to build some established client relationships in this space. Though competition in the OPD space is stiff, the company's visibility through these relationships is fairly high.

The company recently acquired the US-based WebConverse Inc., a technical support company with a special focus on the mobile applications market. The consideration payable on the acquisition works out to $10.7 million (inclusive of earn-outs). The company reported revenues of $5.1 million in calendar 2005.

To derisk its portfolio of offerings to some extent, R Systems had forayed into the banking domain by acquiring Indus Software in 2002 , and in manufacturing/logistics through a buyout of ECnet in 2004. Through Indus Software, the company offers solutions for the retail lending market and ECnet focusses on supply chain management solutions for manufacturing clients. GE is one of the key clients for the company's banking suite, apart from ABN Amro and Standard Chartered.

Financials

On a consolidated basis, for the second quarter-ended June, R Systems reported revenues of Rs 49.5 crore, up 26 per cent over the corresponding previous period. Post-tax earnings nearly doubled over this period and, even after excluding `other income', have grown by over 70 per cent. With better control over operating expenses, the company has expanded its operating margins by nearly three percentage points to 13.6 per cent. With higher utilisation levels and greater offshoring, R Systems will be able to steadily increase its operating margins.

Hindalco: Buy - Investors may consider buying the Hindalco stock with a one- to two-year perspective

Investors may consider buying the Hindalco stock with a one- to two-year perspective. At its current price of Rs 172, the stock is trading at a multiple of about nine times its expected FY07 per-share earnings.

Hindalco has come out with a strong set of numbers for the June quarter. The highlight has been a strong rebound in its copper business. Higher capacity utilisation, coupled with a sharp recovery in treatment and refining charges (Tc/Rc), aided the copper division. Despite scheduled shutdown at one of its smelters, volume growth has been robust at 72 per cent. The spot Tc/Rc rates have contracted slightly on account of mining disruptions. However, contract Tc/Rc are likely to remain firm in the medium term, leaving scope for earnings expansion. The ramp up in copper production is likely to ensure higher volumes. This is also likely to buffer earnings from highly volatile prices. The overall outlook for copper business appears encouraging.

Hindalco's aluminium business has also turned in an impressive performance. Firm aluminium prices and higher share of value-added products were factors behind the company's strong numbers. Average realisations, which were higher by 35 per cent for aluminium and about 90 per cent for alumina on a YoY basis, helped in an over 10-percentage point expansion of the segment's operating margins to 43.1 per cent. Alumina prices, which have nearly doubled over the last one year, are unlikely to sustain. Fresh supplies from China have already started flowing into the market. While this is expected to ease pressure on aluminium prices, higher demand and rising costs of fuel are likely to ensure that prices stabilise at higher levels. A superior product-mix, with value-added products currently contributing to 63 per cent of total output, is likely to place the company in a relatively comfortable position in the event of any cyclical downturn.

Hindalco has embarked on a series of brownfield and greenfield projects in alumina and aluminium. It expects these projects to commence operations in various stages starting December. This is likely to generate greater volumes and place Hindalco in a strong position to cater to the rising demand in the long term.

source: business line