GUJARAT APOLLO INDUSTRIES LTD

GUJARAT APOLLO EQUIPMENTS LTD  CMP 170 market cap 280 crores.

The company is a leading player in different products used in road construction and has been in this field for over four decades.  The products manufactured by the company and its subsidiaries can be classified into two main categories:

First, Mobile construction machinery which includes paver finishers of all types and sizes and bitumen pressure distributors. These are high margin products on which the company has increased its focus.

Second type is industrial plant such as batch mix plants, drum mix plants, wet mix plants and crushing and screening plants. 

During FY 10 the company restructured its operations wherein manufacturing of all products under industrial plants are consolidated at Guj Apollo Inds and manufacturing of mobile construction machinery is now being done by Apollo Earthmovers Ltd and its subsididary Apollo Inds Products.

The company has more than 30% market share in most of the products it manufactures

.

Demand for the company’s products is likely to remain robust due to Persistent spending of various state govts on maintenance of existing roads and NHAI notifying contractors for having mandatory ownership of construction equipment.

The company has diversified product portfolio dealing with road construction segment. And since past few years the company is focussing more on mobile equipment group which offers higher margins.

Company has presence all around India by having branches which stock and sell spare parts and provide services. Exports continue to be the focus area for the company and during FY 11, the company is targeting markets in South Africa, New Zealand, and South America.

FINANCIALS:

The equity is 17 crores with 1.7 crores of Rs 10 each. Promoter holding is around 48% with FII holding around 3% and DII holding at around 8% as on Sep 10.  Promoter holding has reduced by around 1.5% due to selling of shares by distant cousins of the promoters during past 1 year.

DEBT has been low over the years with debt as at Sept 10 being at 38 crores.  ROE has been consistently above 20% since past six years.

Last six  years results

Year	05	06	07	08	09	10	HYsep10
Sales	68	113	156	187	181	214	111
NP	5.4	10.5	18	25.8	21.6	27	11.8

QUARTERLY RESULTS AND PROJECTIONS:

Coming to the stock performance, the stock price has corrected from a high of around  246 in Sep 2010 to a low of 162 in Dec 2010, mainly due to poor Sep quarter numbers.  These numbers were affected due to extended monsoon due to which the user companies did not place orders for the products and contribution from the lower margin products was higher leading to margin pressure as well.   But the pent up demand should give rise to good  Q3 and Q4 numbers. According to various estimates by brokerages, the company is likely to report sales of around 285 crores and net profit of around 34 crores, which yields EPS for FY 11 of around 20. For FY 12 company is projected to do eps of around 26-27 and current correction seems to offer a good entry point into a good company with bright future prospects.

POSITIVES:

1.       Company with good growth  available at reasonable valuation due to a poor quarter.

2.       Low debt

3.       Good balance sheet and return ratios

4.       Demand likely to be good due to govt focus on road development

5.       Company having good market share in the products it manufactures

NEGATIVES:

1.       Fortunes of the company largely depend upon govt spending on road projects

2.       Competition from foreign players is likely to intensify in view of high govt spending on road projects

3.       Sharp increase in raw material prices

4.       Competition from un organised sector

5.       Poor acceptance of new product like Crushers and Compacters on which the company is focussing.

ARIES AGRO LIMITED

ARIES AGRO

CMP 135 MARKET CAP 183 CR  BV 75, DEBT 99 CRORES AS ON SEP 2010

PRODUCTS:

NONE OF THE FOLLOWING PRODUCTS HAS GOT ANY SUBSIDY FROM GOVT OR HAS ANY PRICE CONTROL FROM GOVT.

1.       WATER SOLUBLE NPK FERTILISERS (12% OF SALES, GROSS MARGINS OF 12%),

2.       SECONDARY NUTRIENTS ( 10% OF SALES, 30% GROSS MARGINS),

3.       VALUE ADDED MICRO NUTRIENTS ( 58% OF SALES, 55% GROSS MARGINS),

4.       INORGANIC MICRONUTRIENTS (9% OF SALES, 15% GROSS MARGINS)

IN ALL, ARIES HAS  A PRODUCT RANGE OF 76 PRODUCTS ACROSS  VARIOUS SEGMENTS.

CAPACITY UTILISATION: TOTAL INSTALLED CAPACITY OF STANDALONE ENTITY IN INDIA IS 84,600 TONS SPREAD ACROSS 6 LOCATIONS AND UTILISATION FOR FY 10 WAS 42% WHICH IS SLATED TO INCREASE TO 57% IN FY 11 AND 71% IN FY 12.  THROUGH THEIR SUBSIDIARY IN FUJAIRAH AND SHARJAH, THE COMPANY HAS AN ADDITIONAL CAPACITY OF ANOTHER 70,000 MT.

REGION WISE SALES: MAJORITY OF SALES COMES FROM ANDHRA PRADESH -23%,  WEST BENGAL – 15%, MAHARASHTRA – 15% , UP – 10%, PUNJAB – 7%, AND MINOR CONTRIBUTION OF AROUND 1-4% COMING FROM VARIOUS OTHER STATES AND 3% FROM EXPORTS.

DISTRIBUTION CHANNELS -- COMPANY HAS 25 BRANCHES SPREAD ACROSS 22 STATES, MORE THAN 5600 DISTRIBUTORS, AND DIRECT LINK TO 79000 PLUS RETAIL DEALERS.

FOR DISTRIBUTION OF ITS PRODUCTS AND APPROACHING RURAL REGIONS, COMPANY HAS EMPLOYED A FLEET OF 100 KRISHI VIGYAN VAHANS – VEHICLES TO PROMOTE ITS PRODUCTS.

SUBSIDIARIES: 

COMPANY HAS OVERSEAS PRESENCE IN SHARJAH THROUGH GOLDEN HARVEST MIDDLE EAST FZE WHERE IT MANUFACTURES CHELATES. THIS UNIT COMMENCED COMMERCIAL PRODUCTION IN OCT 2008.

IT HAS ALSO ESTABLISHED AMARAK CHEMICALS FZC IN UAE TO TAP THE EASY AVAILABILITY OF SULPHUR BYPRODUCTS (WHICH ARE MAJOR RAW MATERIALS FOR THE COMPANY) FROM THE OIL REFINERIES LOCATED THERE.  TRIAL PRODUCTION COMMENCED IN JULY 2010. FINAL INSPECTION AND REGULATORY APPROVALS ARE PENDING.

THE COMPANY IS TARGETING INTERNATIONAL MARKETS IN VARIOUS COUNTRIES ( ASIA, MIDDLE EAST, AFRICA, EUROPE) AND EXPECTS INTERNATIONAL SALES TO BE 21% OF TOTAL REVENUES IN FY 11 AND 33% OF TOTAL REVENUES IN FY 12. IN FY 10, INTL SALES CONTRIBUTED 9.85% TO TOTAL SALES.

QUARTERLY RESULTS FOR LAST SIX QUARTERS

QUARTER	JUN 09	SEP 09	DEC 09	MAR 10	JUN 10	SEP 10
SALES	18.19	33.6	51.72	36.29	21.75	46.64
PBIDT	2.93	7.1	11.88	5.33	5.17	9.74
INT	1.36	1.89	2.06	1.9	2.67	2.68
TAX	0.3	1.5	3.1	0.8	0.55	2.11
NP	0.06	3.41	6.46	2.24	0.84	4.83

THERE IS SEASONALITY IN THE BUSINESS WITH DECEMBER BEING THE BEST QUARTER FOLLOWED BY SEPT, MARCH AND JUNE WHICH IS THE WORST.

LAST SIX YEARS RESULTS:

YEAR	05	06	07	08	09	10	H1 FY 11
SALES	39	59	74	103	110	139	68
NP	0.81	6.67	8.45	11.16	1.28	11.14	5.67

FOR FY 10, CONSOLIDATED SALES WERE WAS 152 CRORES AND CONS NET PROFIT WAS 14.81 CRORES, YIELDING AN EPS OF 11.4 BASED ON FULLY DILUTED EQUITY.

THE COMPANY EXPECTS TO DO CONS SALES OF 225 CRORES AND NET PROFITS OF 29 CRORES FOR FY 11 (STANDALONE SALES FOR FY 11E 175 CR AND NET PROFITS 19 CR) AND CONS SALES OF 295 CRORES AND NET PROFITS OF 40 CRORES FOR FY 12 (STANDALONE SALES FOR FY 12E 205 CR AND NET PROFITS OF 23.75).  IF THE COMPANY DOES MANAGE TO MEET ITS TARGETS THEN BASED ON FY 12 EARNINGS OF 30 PER SHARE, THIS STOCK DOES LOOK VERY APPEALING AT CMP OF 135.

BUT THE MANAGEMENT PROJECTIONS HAVE TO BE TAKEN WITH A PINCH OF SALT BECAUSE IN NOV 09 PRESENTATION, THE COMPANY HAD PROJECTED SALES OF 165 CRORES (ACTUAL ACHIEVED 139 CR) AND NET PROFITS OF 13.4 CR (ACTUAL ACHIEVED 11.14 CR) FOR FY 10.

INTERNATIONAL TRAVEL HOUSE -- ITHL

INTERNATIONAL TRAVEL HOUSE   BSE CODE 500213

Cmp 272 market cap 217 crores

Book value 92

ITHL commenced its operations in 1981 and has a full bouquet of travel services.  It is a part of the ITC group which owns around 61% stake in the company.

The client group of ITHL includes NDTV, Siemens, Citibank,HCL, ABN, Samsung, Essel Group,3M among others.

The services offered include corporate travel, car rentals, destination management, World Class Holidays, Conference management, Incentive group travel and foreign exchange.  The company owns a fleet of 900 cars which also includes outsourced ones.

ITHL has been appointed General Sales Agent of Globus/Cosmos, which is a leading Coach/Integrated travel company in the world with Holiday Programmes in US, Canada, Africa, Europe.  The company expects to leverage on this relationship to develop outbound leisure business.

The company is also focussing on Medical Tourism as one of its growth drivers.   It is now  also concentrating on Confernces and Exhibition business.  Travel Insurance also offers a good growth avenue.

MICE --- Meeting, Incentive, Conference and Exhibition tourism has picked up pace in recent years and the company is focussing on this segment.

FINANCIALS

YEAR	05	06	07	08	09	10	HY 11
SALES	47	60	74	79	104	108	68
NP	4.6	7	10.2	10.5	8.2	11.3	8.17

The company has shown steady growth in terms of sales and profits except for the hiccup in 09 due to global turmoil.

First Half for FY 11 has been excellent with company showing Sales of 68 crores against 46 cr for H1FY 10 and net profits of 8.17 crores vs 3.94 crores. Second half is usually better so the company should show net profits of around 18 crores which on an equity base of around 7.99 crores gives an EPS of around 22 which at cmp of around 272 gives a PE of around  12.4 which for an ITC promoted company with good growth prospects looks attractive.  ITHL is practically a debtfree company.

ITHL is a smaller player as compared to Cox and Kings and Thomas Cook but looking at strong parentage of ITC and recent developments, if the company manages to continue the growth shown in recent quarters, there might be a case for a rerating.

SREE SAKTHI PAPER LTD-- GROWTH CUM DIVIDEND PLAY

SREE SAKTHI PAPER LTD.  Bse code 532701

CMP 26-27  MARKET CAP 42 CRORES  BOOK VALUE AROUND 22

PROMOTER HOLDING AROUND 52%, NO PLEDGING.

PRODUCTS

The company is involved in manufacture of paper and paper boards . It is the largest kraft paper producer in south India.  Capacity is 1 lac ton per annum. 

Its corrugation division converts 300 MT of paper into corrugated cartons annually which is used as packaging material by the liquor, tea, cashew, sea food, latex, rubber industries.

FY 10 PROGRESS AND RESULTS

During FY 10, the production increased from 68692 MT to 71926 MT and capacity utilisation increased from 81 to 85%.  During FY 10, expansion  cum modernisation plan resulted in manufacture of high quality paper at its duplex board unit to cater to the needs to high end segment.  The debtor days reduced from 58 in FY 09 TO 49 in FY 10.  .  EBIDTA margin improved from  9.1 to 11.1 and NET PROFIT MARGIN improved from 2.4 to 3.3. During FY 10, debt has been brought down from 32 to 29 crores. As on Sep 2010 it was around 30.6 crores.

EXPANSION/MODERNISATION

Its Kraft paper Unit I has been modernised and capacity upgraded to 80 tpd by adding more dryers and installing second wire. Installation of second wire at Kraft paper unit Iwas completed in July 2010 and Third Wire at Kraft Paper Unit II was installed in October 2010 and hence full benefits will be felt in Dec qtr results and beyond.  These measures will help the company to address the demand of high end segment which has a huge demand.

CAPTIVE POWER PLANT is being set up by the company with 25 ton High pressure boiler and 2 MW back pressure turbine. Boiler and back pressure turbine are slated to be operational by end of this fiscal.  This is a part of captive  power generation which will cater to the steam requirement and will meet 30-40% of power requirement of the company.

CARBON CREDITS  -- The company’s project titled METHANE RECOVERY FROM WASTE WATER generated at Paper manufacturing unit in Kerala was recognised under CDM of UNFCC  in Oct 09 and the estimated emission reduction will be around 3923 metric tones of CO2.  The project is in progress and is likely to earn income from carbon credits as and when the formalities are completed.

HYDROPOWER PROJECTS  -- The company is involved in setting up three small Hydropower projects in collobaration with the govt of Kerala.

RESULTS

YEAR	MAR 06	MAR 07	MAR 08	MAR 09	MAR 10	HY SEP 10
SALES	64	68	116	144	147	87
NP	1.7	2	3.02	3.3	4.64	3.5
EPS	1.04	1.22	1.84	2.02	2.83	2.13*

Sep 2010 half yearly EPS is not annualised.  For full year if company manages to achieve EPS of 4 or higher, dividend is expected to go up also and dividend yield which is currently very attractive will be even more so.

INVESTMENT THEME:

The company is slated to complete most of its expansion projects during FY 2010-2011 and some of the benefits of sales and profit growth can be seen in the results of first half of FY 11.  The second half is also likely to be equally good for the company.  Full impact of expansion and modernisation will be felt during FY 12.  Hence company is currently at an inflection point.

DIVIDEND

Company had declared Dividend of Rs 1 for fy 07, 1.5 for FY 08,  1.5 for FY 09 and Rs 1.8 per share during FY 10 (which included two interim dividends of 90 paise each).  At current market price of around 26-27, the dividend yield turns out to be around 7%  which provides a good margin of safety to the investors.   There is a board meeting on Nov 22 to consider interim dividend for FY 11. I expect the total dividend payout for FY 11 to increase in line with increase in profits.

HOV SERVICES

HOV SERVICES  cmp 133  market cap 166 crore

HOVS is one of the largest end-to-end BPO companies, providing healthcare, finance and accounting, e-content management, document lifecycle, presentment, HR assist, and strategic consulting services across key verticals such as BFSI, Healthcare, Government, Telco, Publishing, Retail, Commercial and Industrial Manufacturing industries.

The motto of the company is “Exceed Expectations”.

                                                              

True to the word, the company exceeded expectations of shareholders on the downside in terms of share price.

Reason: It sold of its stake in various subsidiaries namely 100% Stake in Bay Area Credit Services, 100% interest in HOV AR Management Services, and 30% minority stake in TRAC Holdings to Rustic Canyon for a consideration of 12 Million usd.  In doing so the company effectively booked exceptional loss of 132 crores and hence reported a loss at net level in FY 10.

FINANCIALS

After all this mess clean-up, the company reported the following results for Q1 FY 11.

Sales    182 cr   vs 223 cr (decline in revenues is due to divestment of subsidiaries)

NP        17.64 cr  vs  12.27 cr  ( improvement in margins is evident)

Interest payment has reduced from 9.41 cr to 7.36 cr.

As on June 2010 qtr, the total debt was at USD 100 Million down from 119 Million a year earlier.

Quarterly EPS  is at 14.13.

Total outstanding shares are at 1.25 cr and total market cap is at around 166 crores.

Debt as on march 2010 was around 520 crores which is expected to go down.

Dividend declared during fy 10 was Rs 4.

Promoter holding is around 49%-- no pledging  (around 9% shares were re classified as non promter from promoter category—hence q-on q reduction in promoter shareholding)

Company bought back around 63000 shares at an avg price of 32 during buyback which finished in Jan 2010.

INVESTMENT THEME:

If one were to annualise the quarterly eps of 14, we get an annualised EPS of around 56.  So we are surprised why the stock is available at a pe of roughly 3 and market cap to sales of around 0.25?   And that is where the dilemma occurs.

Sometimes we are faced with a situation which is just “too good to be true”.   In such situations, one begins to wonder if there are skeletons hidden in the cupboard waiting to come out.  I tried hard to find out whether there are any significant negatives in this company.  Except debt and the write off, I couldn’t find too much.

Currency fluctuations could impact earnings.

Disc:  I have HOV in my portfolio.   The dividend declared has been regularly deposited in my bank account so the earnings are for real.

WHILE RESEARCHING/LOOKING AT THE RESULTS OF THIS COMPANY, ONE NEEDS TO LOOK AT THE CONSOLIDATED FIGURES BECAUSE MOST OF THE REVENUES COME FROM OVERSEAS MARKETS.

Next quarterly results for Sep 2010 will be declared on 28^th Oct along with declaration of interim dividend.