Recommendation for March 15, 2008

Recommendation for March 15, 2008

Portfolio Choice


Large-Priced Scrip
Wockhardt
Healthy choice
Snapshot
BSE ticker code: 532300
NSE ticker code: WOCKPHARMA
Major activity: Pharmaceutical-India Bulk
Chairman Habil F Khorakiwala
Equity capital: Rs. 54.72 cr. (FV Rs.5)
52 week high/low: Rs. 450/295
CMP: Rs. 332
Market Capitalisation: Rs. 1817 cr.
Recommendation: Buy at declines

Wockhardt which is a global pharmaceutical and biotechnology company engaged in development and manufacture of formulations, biopharma ceuticals, nutrition products, vaccines and active pharmaceutical ingredients (APIs) has healthy prospects ahead. Just consider:
The company with an active multi-disciplinary R&D programme employing over 400 scientists has been a frontrunner in biotechnology research in the country. It has 15 manufacturing plants in India, UK, Ireland, France and US. These have the approval of major regulatory bodies, including US FDA and UK’s MHRA, with capabilities for both finished dosage formulations and APIs. Besides, it has subsidiaries in US, UK, Ireland and France and marketing offices in Africa, Russia, Central and South East Asia.
 As per ORG-IMS, the domestic business of the company recorded an annual growth of 19% vis-à-vis 13% industry growth rate. Its business in UK, Ireland, Germany and France recorded double-digit growth, almost twice the industry growth in these markets. The European formulation business grew 97% FY 2007. In the UK, the company launched the NRT (Nicotine Replacement Therapy) in patches and lozenges forms for curbing smoker’s habit.
 In October 2007, the company acquired Morton Grove Pharmaceuticals, the leading liquid generic and specialty dermatology company in US. With this acquisition, Wockhardt now have the right size of operations in US. It now has a complete range of dosage forms tablets, capsules, liquids and injectibles. Morton Grove has a portfolio of 31 products, 13 of which occupy the No.1 market position. All others are in the Top 3. The overall product range has now swelled to around 56 products for the US market, of which Wockhardt USA Inc is currently marketing 25 products. The US FDA also approved 13 ANDA’s, of which 11 products have already been launched.
 Wockhardt has in principle decided to hive off its research & development business into a separate entity. The new company will house the new drug discovery programme and the innovative new technologies being developed by the R&D team.
Wockhardt has a strong track record in acquisition management, with five successful acquisitions in the European market. The European business now contributes about 55% of revenues. The company which is enjoying a leading position in Europe, is steadily growing its market presence in the US. The management is confident of achieving the corporate target of becoming a $1 billion company by 2009.
The company is doing quite well. For the FY ended December 2007, it registered a 53% rise in sales to Rs 2,653 crore. PAT went up by 60% to Rs 386 crore. OPM grew by 100 basis points to 24.1%. For 2008, we expect the company to register EPS of Rs 42.5. The share price trades at Rs 332 P/E works out to just 8. 

Performance indicators (RS IN CRORE)
Year Net Op Net EPS Div BV RONW
sales profit profit (Rs.) (%) (Rs) (%)
2006 1731.48 400.27 301.62 27.6 100 87.4 29.3
2007 2653.20 639.10 382.50 35.1 225 111.5 29.7
2008 3250.00 780.00 465.00 42.5 275 141.3 30.0

Medium-Priced Scrip
Jagran Prakashan
Wake up to it
Snapshot
BSE ticker code: 532705
NSE ticker code: JAGRAN
Major activity: Entertainment-Electronic Media
Chairman Mahendra Mohan Gupta
Equity capital: Rs. 60.23 cr. (F V Rs. 2)
52 week high/low: Rs. 169/60
CMP: Rs. 110
Market Capitalisation: Rs. 3312.65 cr.
Recommendation: Buy


Jagran Prakashan is a leading media house, which publishes Dainik Jagran, India’s largest read daily with a total readership of 536 lakh (IRS 2007 R2). It was also voted the most credible and trusted newspaper in India, according to a survey by Globscan, prospects for the company are quite encouraging. Just consider:
Dainik Jagran is now published in 31 editions across 11 states from 29 different facilities. The company also publishes two youth-oriented newspaper brands viz. I-Next a daily bilingual compact and City Plus, an English infotainment weekly compact, besides Sakhi, a monthly magazine targeted at women. The group also publishes Jagran Varshiki, an annual general knowledge digest, and various national and state statistical compilations. All these publications are doing quite well.
JP has consolidated its presence in established markets and added 17 new editions in the last five years. It is also expanding its operations pan India in out-of-home and events management. It has been building on its strong regional franchise and is open to inorganic route to further boost presence and growth.
Jagran Engage provides specialized ‘Out of Home’ (OOH) advertising services with a pan India footprint. Jagran Solutions is its event management business. Since this business compliments the OOH business, the company shares most of its clients with Jagran Engage. The clients of Jagran Solutions include Microsoft, Hutch, Godrej, TVS, ICICI Prudential, Escorts, Standard Chartered Bank, M&M, Bajaj and HLL.
 In FY06, JPL entered into a strategic partnership with Independent News and Media (INM), a reputed media house in Europe, publishing 175 titles of newspapers and magazines in nine countries across four continents. INM holds 20.8% stake in JPL and is eager to increase its stake though current FDI regulations do not permit it.
The Hindi language newspapers make 44.6% of the total newspaper industry in India. Thus JPL has the advantage of being the market leader in the largest media segment. The spread of literacy also augurs well for the future growth of the company. The literacy rate in Bihar (47.53%), Jharkhand (54.13%), Uttar Pradesh (57.36%), Jammu & Kashmir (54.46%) are all below the average literacy rate. As a result the growth potential is higher.
 We expect the company to register EPS of Rs. 3.4 in FY 2008 and Rs. 4.2 in FY 2009. The share price trades at Rs. 116. While P/E on FY 2008 EPS works out to 34.1, it falls to 27.6 on FY 209 EPS. Due to its premier position in Hindi daily news media which it is capitalising on through ad rate hikes, increased colour advertising, new synergistic launches, outdoor advertising, event management, internet and business newspaper, the company will continue to command premium valuations.

Performance indicators (RS IN CRORE)
Year Net Op Net EPS Div BV RONW
sales profit profit (Rs) (%) (Rs) (%)
2005-06 480.53 70.16 31.70 1.1 50.00 97.0 11.41
2006-07 598.18 119.84 73.48 2.4 75.00 84.9 15.28
2007-08 (E) 770.00 170.00 101.00 3.4 90.00 86.5 15.42
2008-09 (E) 960.00 212.00 125.00 4.2 100.00 88.7 15.81

Small-Priced Scrip
Hydro S&S Industries
Reinforced growth potential
Snapshot
BSE ticker code: 524019
NSE ticker code: Not listed
Major activity: Plastics
Chairman V Srinivasan
Equity capital: Rs. 6.53 cr. (FV. Rs. 10)
52 week high/low: Rs. 82/30
CMP: Rs. 58
Market Capitalisation: Rs. 37.87 cr.
Recommendation: Buy

Headquartered in Chennai, Hydro S&S Industries (HSSIL) is a leading manufacturer and supplier of high quality re-inforced polypropylene compounds, thermoplastic elastomers, and fibre reinforced composites. Polypropylene modified by the addition of reinforcements such as talc, chalk, mica and glass fibre has enabled it to establish itself as a metal substitute in engineering applications. This is a safe investment bet. Just consider:
 Established in 1987, in technical collaboration with the Performance Plastics Division of Norsk Hydro Polymers Limited, UK to manufacture polypropylene compounds, the company’s products find application in various industries like automotive, electrical, furniture and home appliances segments. Its clientele list includes Tata Motors, Maruti Udyog, Hyundai Motors, General Motors, Motherson Automotive Tech & Eng, Pricol, Fiat India, BPL, Tata Auto Plastics Systems, Tractor And Farm Equipments, Sundaram Auto Components, Nilkamal Plastics, Supreme Industries, Titan Plast, Indo Matsushita Appliances Co, Whirlpool of India, Amararaja Batteries, etc.
 The company’s production facilities are located at Pudukkottai in Tamil Nadu and Pondicherry. It has the capacity to supply 18000 MTS of compounds per annum and has latest R&D and testing facilities, which include Instron UTM, Ceast Impact and HDT testers, ATLAS weatherometer, UL Chamber, computerised colour matching facilities etc. Both the plants are certified under TS16949 quality standards by Det Norske Veritas.
 HSSIL is also evaluating plans to set up a new plant at Uttranchal in order to cater the north Indian market. Along with access to untapped market, the company will also get tax benefit.
The company is also the authorized distributor in India for a whole range of masterbatches, produced by Tosaf Compound Limited, Israel, a global leader in the field of performance masterbatches. Hydro S&S Industries is working in conjunction with Tosaf to service its clients needs of performance masterbatches.
The company has been appointed by ExxonMobil Petroleum & Chemical, BVBA as an authorised distributor in India for their ‘Santoprene’ range of Thermoplastic Elastomers. Field trials are underway to introduce various grades of these compounds into the market.
For the quarter ended December 2007, HSSIL registered sales growth of 25% to Rs. 30.01 crore. OPM improved by 680 basis points to 11.7%, which took OP up by 196% to Rs. 3.52 crore. PBT improved by 568% to Rs. 2.47 crore and PAT was up 645% to Rs. 1.66 crore. For the nine month ended December 2007, the company registered sales growth of 17% to Rs. 84.32 crore. PAT was up 149% to Rs. 4.49 crore.
For the fiscal 2008, we expect HSSIL to register EPS of Rs. 9.6. This is likely to rise to Rs. 12.4 in FY 2009. The share price trades at Rs. 58. While P/E on FY 208 EPS is just 6.1, if falls to 4.7 on FY 2009 EPS. 

Performance indicators (RS IN CRORE)
Year Net Op Net EPS Div BV RONW
sales profit profit (Rs) (%) (Rs) (%)
2005-06 81.47 4.36 2.61 1.6 12.00 30.8 5.7
2006-07 100.69 6.99 2.94 4.5 12.00 33.9 12.0
2007-08 (E) 120.00 13.50 6.24 9.6 18.00 41.7 13.4
2008-09 (E) 144.00 17.20 8.09 12.4 20.00 52.0 13.6


Market Wind

Mahindra & Mahindra
(Ticker code 500520)
A fund manager with a leading mutual fund has turned distinctly bullish on Mahindra and Mahindra after the budget. According to him M & M is one of the top beneficiary companies on account of the budgetary provisions. While the debt waiver for farmers would give a boost to demand for tractors and utility vehicles in rural areas, the provision of deduction for dividend tax paid by its subsidiaries will push up the bottom line. “I will not be surprised if the M & M remains in demand even when the overall market is slack,” the fund manager avers and insists the share price is bound to move up.
(FV Rs. 10, H/L Rs. 872/543, CMP Rs.692.80)
Ashok Layland
(Ticker code 500477)
A Mumbai-based investment banker feels that Ashok Leyland will be a scrip to watch on the stock market in the current year. Of course, the company’s fundamentals are sound and its growth prospects are quite encouraging. Now the liberal duty concessions announced in the union budget will further improve its future financial performance. The reduction in the excise duty on buses and their chassis from 16 per cent to 12 per cent will go a long way in giving a boost to its bottom line besides pushing up demand for its buses. He expects the share price to move up to Rs. 50 in due course.
(FV. Rs. 1, 52, H/L Rs.58/26, CMP Rs. 37.45)
Sesa Goa
(Ticker code 500295)
An investment expert at a FII favours Sesa Goa, the iron one mining company located in Goa which now belongs to the Vedanta group. The company is also in the manufacture of pig iron and metallurgical coke, the market for which is growing. The widespread fears of a hike in export duty on iron ore have proved wrong as the Finance Minister Mr. Chidambaram has kept the export duty unchanged. During the third quarter of the current fiscal, the company’s net profit has shot up by 153 per cent to Rs. 493 crore and the FII investment expert expects a further improvement in the last quarter.
(FV. Rs.10, H/L Rs. 3969/1485, CMP Rs. 3464.20)
Infosys Technologies
(Ticker code 500209)
A knowledgeable market operator advises his friends and associates to keep away from IT stocks in general and Infosys Technologies in particular for the time being. The fiscal year 2008-09 is not a good year for Infosys, he maintains and adds “the finance minister has not taken the right step by not extending the STPI tax benefit beyond March 2009, and creating uncertainties. The operator fears the share price may go down to Rs. 1000-Rs. 1200 range
(FV Rs. 5, H /L Rs.2183/1212, CMP Rs. 1546.85)
State Bank of India
(Ticker code 500112)
An analyst of the banking sector working with a leading financial institution is very bullish on State Bank of India. According to him, the prospects for the banking company are highly encouraging and the union budget has brightened them all the more. The writing off of the farm loans will not only bring the funds which were unlikely to be received but will also clean its balance sheet. The relief provided in terms of the distribution of the dividend tax will further push up the bottom line as SBI has several subsidiaries.
(FV Rs. 10, H/L Rs. 2397/797 CMP Rs. 2109.70)
Hitachi Home & Life
(Ticker Code 523398)
A senior fund manager with a FII stronlgy recommends Hitachi Home and Life, the Indian outfit of the Japanese giant Hitachi for medium to long term investment. According to him, the company was on a strong wicket itself and the union budget has made it all the more attractive invesmnt bet. As the demand for refrigerators and air conditioners is likley to shoot up on account of liberal tax concession, so will the sales as well as the bottomline of Hitachi.
Again, the share is available rather cheap around Rs 130, indicating a price equity ratio of just 7. “One should not wonder if the share price doubles within the next 2 to 3 years”, the fund manager insists.
(FV Rs 10, H/L Rs. 180/64 , CMP Rs. 132.60)
Jain Irrigation
( Ticker Code 500219)
A high networth investor who is a buyer in Jain Irrigation strongly advocates the inclusion of this scrip in the portfolios of his friends. According to him, the union budget is extremely favourable to the company. Even before the budget the company has been doing very well with its net profit during the first three quarters amounting to Rs 103 crore as against the net of Rs. 98.80 crore earned in the entire previous year. According to him, the company’s reserves will shortly reach Rs. 100-crore mark against its paid up capital of Rs. 67 cropre and one can certainly expect a bonus issue within a couple of years or so.
( FV Rs. 10, H/L Rs. 766/399, CMP Rs. 716.85 )