market pulse july-2012 · 2012. 7. 11. · registered. no. : kol rms / 419 / 2011‐2013 rni...

Registered. No. : KOL RMS / 419 / 2011‐2013 RNI Registration. No. : WBENG/2010/34033 Page :Page :Page :‐‐‐ 111

Re. 1/-

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P r o f i t i s t h e A n s w e r

Volume 3 : Issue 4, 8th July 2012 Total Pages: 4

As notified earlier this will be the last print version of VCK Market Pulse (English). We encourage all readers to avail the e-version by registering their e-mail address at –[email protected] Thanking you, - Samir Kothari VCK Market Pulse (Editor)

NOTICE

NIFTY : FOLLOW THE TREND …….TREND IS YOUR FRIEND

Foreign portfolio investment is a double-edged sword. For small investors, presence of foreign funds imparts assurance that the company is on the growth path and the transparency levels are high. The management also turns cautions, avoiding taking any step that would antagonize this class of investors. On the flip side, foreign investment pushes up valuations.

They also create an invisible pressure for companies to set am-bitious goals, which may not always be possible to attain. In such a case, the punishment is swift, with heavy withdrawals affecting sentiment towards the stock. Before the opening up of the economy early 1990s, LIC and UTI were the movers and shakers of the market and their misuse by government has been extensively documented. But even these state institutions are looking puny in terms of the sheer size and scale of foreign eq-uity inflow into the Indian market. The presence of foreign inves-tors has spread to mid-cap stocks, too. As a result, overseas investors exercise far more influence on the Indian market to-day than before liberalization.

The government had to roll back the implementation of the Gen-eral Anti-Avoidance Rules for one year. The prime minister has decided to focus on infrastructure projects to boost foreign in-vestment. But loosening government hold on the economy and creating a level-playing field to attract long-term foreign investors to help increasing of jobs would balance the negative impact of withdrawal of subsidies. otherwise, the country has to face social unrest. Street riots forced Indonesia’s President Suharto to step down after 21 years in power a year after the currency turmoil in the region.

Thus, foreign investors will be increasingly viewed as the fifth estate after legislature, executive, judiciary and media, with their ability to force a runway government to become responsible, thereby taking an important step towards stamping out corrup-tion.

The growth rate has come down drastically, the fiscal, revenue and current account deficits are out of control, and the rupee has depreciated by almost 30 per cent over the last one year.

The Hidden Benefits Of Foreign Portfolio Investments

NIFTY SENSEX

5275.15 17391.98

NIFTY AS ON DATE OF CONSIDERATION: 9th JULY 2012

Note: ALL STOP LOSS ARE WEEKLY CLOSING BASIS .

Dear Friends,

Who is our next Finance Minister? i.e. Mr. Manmohan Singh as of now.

To allay the fears of having retrospective law, which will affect Companies like Vodafone, Mr. Manmohan Singh has decided to review the matter.

Internationally, there are many Countries where retrospective law cannot be made as per the Constitution of those Countries. Hence, the very initiation of

retrospective law is not considered internationally honorable, purely because it negates the basis on which the investments are made and this is not good for a Country like India, who wants to do business internationally as it send wrong signals to the investors world over.

Even in case of GAAR, it has made definite efforts to ensure that nobody can take advantage of existing provisions to escape tax. But in the same breath, I must say that this may not be the oppor-tune time, which is also to certain extent understood by Mr. Manmohan Singh and hence been de-ferred.

These steps cannot be the ultimate, since it has not reached finality, hence, the issues which con-cern the economy of India remains, which needs to be negotiated by the new incumbent at the Fi-nance Ministry.

Market still is clueless and as such I feel that market may not pick up and the temporary euphoria will die down and market may to the lower level. But, it gives an opportunity for you to pick up the quality stocks which can be advised by our Fundamental Research.

With kind personal regards

-Uttiya Chandra

Hemal Kampani

- Contd. in pg-3

Finally we got a positive trend reversal as we stated in our previous issue. Nifty managed to close above the crucial trend deciding level, i.e. 5220 (38% re-tracement level-5629.95 to 4531.15) in weekly & monthly as well. So, our view was 100% right in terms of the direction of MARKET as we always did.

Let us discuss where the market is headed? If we connect the lower tops from the top of 6338.5 to 4531.15 then we will get a descending trend line in weekly chart, which broke on the upside in the month of Jan, 2012. Then Nifty went up to 5629.95 & made a correction of than 75% without fulfilling the target of 5760. After a long correction Nifty finally managed to close above the line of control of 4800 level. But the interesting thing is that the extended

descending trend line is still intact (shown in the chart) by closing basis. The same pattern repeated in Bank Nifty. The LOC stands far away from current price, i.e. 10170. Target for Bank Nifty stands at 11900-12000 in coming days. So it is very clear that bank Nifty is outperforming the Nifty. Now onwards the theme will buy on dips.

In between the supply levels are---- Spot Nifty—5380-5410, 5520 ; Bank Nifty—10550-10650, 11000, 11300, 11550 The support levels are— Spot Nifty—5260, 5190, 513-5159 ; Bank Nifty—10540, 10330

Delivery Calls

SCRIPT BUY/SELL STOP LOSS TARGET

Can Bank Buy & hold 410 450 & 470

Aban Offshore Buy & hold 395 450 & 468

Bhel Buy & Hold 225 250

BF Utilities Buy & Hold 419 505 & 535

M&M Buy & Hold 695 750 & 765

Kesoram Ind Buy & Hold 137 165 & 180

Indian Hotels Buy & Hold 57 69, 75 & 80

Sail Buy & Hold 89 100 & 105

The sectors to follow – Banks, Capital goods, Realty, Power & Metals. One can also follow the beaten down Midcaps, such as Aban, Jain irrigation, Jay-shree tea, Indian Hotels, BF Utilities, Gammon India, Adani ent , Jet Air-ways & & Sugar stocks—Balrampur, Renuka & Bajaj Hindustan.

- Samir Kothari

-Uttiya Chandra

Volume 3 : Issue 4, 8th July 2012 www.vckgroup.com VCK MARKET PULSE

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Company Back-ground - Kalpataru Power Transmis-

sion Limited (KPTL) is one of the largest and fastest growing specialized EPC com-panies in India engaged in power trans-mission & distribution, oil & gas pipeline, railways, infrastructure development, civil contracting and warehousing & logistics business with a strong international pres-ence in power transmission & distribution.

Fresh lease of life - Power transmission companies received a fresh lease of life after order flows from Power Grid Corpora-tion of India (PGCIL) picked up sharply in the last quarter of FY12. While quite a few lost their market shares to new players last fiscal, KPTL managed to retain its status in the top five in terms of market share, a minor dip notwithstanding.

The company’s strong order book supple-mented by its infrastructure subsidiary JMC Projects’ robust portfolio provides revenue visibility for the next couple of years. Sharp pick up in execution in both the parent and subsidiary companies in the recent quarter also suggests that the phase of slow delivery may be over.

Order Flow - PGCIL awards a host of or-ders in the transformer, substation, trans-mission lines and conductor segments to

name a few. In FY12, the proportion of power transmission towers and lines in the total orders awarded increased to about 45% from 37% a year ago. But this also prompted a number of new entrants in the space, resulting in players such as KEC International losing a good chunk of their market share. Kalpataru, though, managed to remain in the top five, losing market share by just a percentage point.

But retaining market share may have been possible only through aggressive bidding. Hence, EBITDA margins are likely to hover in the 9-9.5% range over the next couple of years, from the 10-11% it en-joyed earlier. Unlike a few others, the com-pany may not see further deterioration in margins on account of two reasons — one, Kalpataru has nearly half of its orders from overseas markets. These are typi-cally margin accretive.

Two, while its EBITDA margins were dented in the fourth quarter of FY12 (8.8%) due to volatile steel prices, it may yet recover it, given that about two-thirds of its orders have price variation clauses

linked to indices. How-ever, the recovery on these will come with a lag.

JMC Projects’ orders account for nearly half of the order book. Close to 50% of the subsidiary’s orders are from the buildings and factories segment that may suffer lesser uncertainties in execution, unlike infrastructure projects. Higher execution pace in the subsidiary is likely to provide traction to overall revenue growth. JMC Projects’ 43% growth in sales in the fourth quarter over a year ago is evidence to this.

Manageable Debt - With both the parent and the subsidiary company requiring capital deployment, Kalpataru saw its debt double in FY12. However, its debt equity ratio of 0.6 provides enough room for it to leverage more. Profits before interest and taxes too comfortably covered interest costs 2.8 times, causing little concern over debt servicing. Kalpataru’s consolidated sales increased by 22% to Rs.5,266 crore in FY12. Net profits, though, dipped 5% to Rs.189 crore. Sedate quarters in the early part of FY12 and foreign exchange losses, besides higher steel prices, worked as drags. But recoveries on input costs seem likely through escalation clauses. 10

Outlook and valuation – Driven by the opti-mistic scenario, management has guided for sales growth of ~15% for the stand-

alone business and ~20% for the consoli-dated business. At the current market price of Rs.83, the stock trades at 6.4 times its consolidated expected per share earnings for FY13. While this is in line with peer KEC International, the latter has lost market share in FY12 in orders from PGCIL. During the first four months of CY12E, the company bagged orders worth Rs.1,200 crore, with the total order book of Rs.3,600 cr as of April 2012, executable

Stocks To Stock Up: - Deepak Tewary, VCK Research

Kalpataru Power Transmission Ltd CMP: Rs.83.0 Target Price: Rs.105.0 FV: 2.0

Kalpataru’s consolidated or-der book stood at Rs.11,600 crore in FY12. That’s a healthy 2.2 times FY12 sales.

Gateway Distri-parks

15% return in 30 days!!!!

Why go elsewhere?

Commodity Call Report- June: success ratio-52% - Manas Garai

LAST MONTH

LME INVENTORY


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Formula Investing: - Ayan Doss “The investor’s chief problem - and even his worst enemy – is likely to be himself” --Benjamin Graham The world of investing is full of many such adages, but this truism from Mr. Benjamin Graham is particularly relevant in these volatile times. Con-trary to the hay days of 2002-2007, investors in the last couple of years had to face a myriad of headwinds. Compounding all this were the emo-tional biases of the investors which resulted in most portfolios underper-forming even the Buy-and-Hold benchmark. One way to overcome such emotional biases is to follow a strict discipline while investing. This is where “Formula Investing” comes in. Investopedia defines Formula Investing as a method of investing that rigidly follows a prescribed the-ory or formula, using the results as blanket investment policy. Formula investing can be related to how an investor handles asset allocation, investments between funds or secu-rities, or decides when and how much money to invest. The main advantage of formula investing is that a lot of the subjective decision making in taken out of the process.

In 2005, Joel Greenblatt in his semi-nal book “The Little Book That Beats the Market” explained how investors may outperform market averages by following his simple process of in-vesting in what he believes are good companies at bargain prices. Green-blatt defined good companies as companies with high ROE and used EV/EBITDA criteria to evaluate how expensive the securities are. Stocks were ranked on these two parame-ters and the top 20/30 stocks were selected for investment.

In our case we used Greenblatt’s technique and modified to suit our circumstances. We have ranked all the stocks on the basis of EV/EBIDTA, ROE, and 3yrs Operating Cash Flow Growth rate. The growth factors have been incorporated be-cause in the Indian context most growing companies command a huge premium, and if this factor is ignored then most of the fast grow-ing companies will left out from the portfolio. A list of top 10 stocks on the basis of these three criteria is given below. We believe that by in-vesting in these scrips investors can outperform the broader indices over a one year period.

Normally, Share Price goes up based on an-nouncement of Bonus Issue. We have found out such shares which have announced Bonus and their subsequent share price move . We have calculated the price difference between the announcement price and today's (02.07.12) price. Total 15 Companies have announced the bonus issue in this calendar year. 6 stocks out of 15 have fallen in value. At present the prices are bellow from the an-nouncement date. But price had increased in between for most of the stocks .

Among the 15 stocks, KPIT cummins (67%.up), Vakranyjee Software%), Atul Auto, Orbit Exports our have significantly out per-formed. Only Opto Circuits have not performed well. Bonus announcement can be used as a triggered for positional trading. We should just ensure the stocks are good tradable once.

What are bonus shares? An offer of free additional shares to existing shareholders. A company may decide to dis-tribute further shares as an alternative to in-creasing the dividend payout They are additional shares given without any cost to existing shareholders. These shares are issued in a certain proportion to the existing holding. So, a 2 for 1 bonus would mean you get two additional shares -- free of cost -- for the one share you hold in the company. If you hold 100 shares of a company and a 2:1 bonus offer is declared, you get 200 shares free. That means your total holding of shares in that company will now be 300 instead of 100 at no cost to you.

Will the price change after a bonus issue? A bonus issue adds to the total number of

shares in the market. Say a company had 10 million shares. Now, with a bonus issue of 2:1, there will be 20 mil-lion shares issueed. So now, there will be 30 million shares. This is referred to as a dilution in equity. Now the earnings of the company will have to be divided by that many more shares. Earnings Per Share = Net Profit/ Number of Shares Since the profits remain the same but the num-ber of shares has increased, the EPS will de-cline. Theoretically, the stock price should also de-crease proportionately to the number of new shares. But, in reality, it may not happen. That's because: i.) The stock is now more liquid. Now that there are so many more shares, it is easier to buy and sell. ii.) A bonus issue is a signal that the company is in a position to service its larger equity. What it means is that the management would not have given these shares if it was not confident of being able to increase its profits and distrib-ute dividends on all these shares in the future. A bonus issue is taken as a sign of the good health of the company. When a bonus issue is announced, the com-pany also announces a record date for the is-sue. The record date is the date on which the bonus takes effect, and shareholders on that date are entitled to the bonus. After the announcement of the bonus but be-fore the record date, the shares are referred to as cum-bonus. After the record date, when the bonus has been given effect, the shares be-come ex-bonus.

Can We Benefit From Bonus Issue - Panchugopal Singha

- Contd. From pg-1

The only saving grace is that we have large reserves of foreign ex-change, but these cannot be used to fuel GDP growth. inflation has been at the highest levels during his ten-ure, and everyone is feeling de-pressed and unhappy about it. De-spite knowing his own failure as a Finance Minister fully well, he be-lieves that the situation is not as bed as is being projected. In fact, he has been trying to convince people that the situation is improving. Such false statements by him have been sup-ported by the PM as well as the Chairman of the Planning commis-

sion, who misguided people all throughout that inflation would come down to five-six per cent and GDP growth would be at around 7.5 to 8 per cent. Of course, they were ex-posed when moody’s, Fitch and Standard & Poor’s downgraded our country’s credit rating badly.

Currently, the Finance portfolio is with the Prime Minister, and hence, he cannot blame anyone else for any failure that may happen. This is probably the last chance for the gov-ernment to take immediate action and introduce reforms.

The Hidden Benefits Of Foreign Portfolio Investments

Performance Of Stocks After Bonus Issue Announcement

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market pulse july-2012 · 2012. 7. 11. · registered. no. : kol rms / 419 / 2011‐2013 rni...

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