Stocks Center

Rajesh Exports: Analysis of the Company in Brief

Introduction about the business:
Rajesh Exports introduces itself as a gold and diamond jewellery manufacturer. They procure the raw gold from natural sources (mines), they refine that gold, they twist and turn it into jewellery at their Bangalore plant. And they also have a new and growing presence in the retail distribution, apart from selling the refined jewellery to the established retailers and other consumers. This is the broad picture of what they're doing.

Their growth in the topline hasn't resulted to an equivalent growth in the bottomline. Their topline has a direct impact from world gold prices. As a refiner, you tend to benefit when raw material prices are in an uptrend, but since they don't grow perennially, they're bound to be ups and downs, and with gold, the downs seem to be less. The company hasn't been able to capitalize on the increase in gold prices, and the last quarter's margins were a poor 0.8%. However, given the country India, the gold and jewellery business is a sustainable one in and of itself.

The company has a reserve base of Rs. 1567 cr as of the annual figures posted for FY11. From 2006-07 to 2010-11, yearly profits have ranged from 80-250 crores on a topline ranging from 6,000cr to 21,000cr! There has been negligible depreciation, which makes me think if the entire business model is based on trading of gold and jewellery, which seems to be more likely. With rising interest expenditure (and slightly stable to rising gold prices in the past quarter), I would be interested to find out their performance for the June quarter.

The Board has recommended a dividend of Rs. 0.6 for the last year, as against Re. 1 for the "year des previous".

At Rs. 110 a share, the stock prices values the enterprise to 3,255cr. Now if we move in to the balance sheet (as at filing of '10 numbers), the company had total debt of around 2,086cr. It is operating and churning out meagre profits, the growth hasn't come (in terms of the bottom line) over the years. Assuming an upward of 250cr profit for the next two years, it still is an expensive proposition at 3,255 cr.

I would not understand why someone would buy this stock. Speculations aside, the business has historically not been heavy on the margins. The only significant thing about this entity is the enormous amount of business (only in terms of the turnover in currency). However, the value addition that entails the retail segment which they are pursuing opens up opportunities in a country like India. A steady business over the years, and goodwill will be of sure help. The risk factor would be the premium the stock has priced in at the current price. It may be a play for traders, but for a long term investor, it doesn't make sense for me to enter the stock at this price. Better put money in Gold ETFs directly if you're so fond of the metal. Either way, I would stay away. It's not the price to enter.

XL Energy: Fundamentals

XL Energy was earlier known as XL Telecom & Energy Ltd.

The company used to supply telecom equipment and cables to service providers such as BSNL in its hey days. It has also been present in the field of solar energy.

The company saw its business fall down- in the telecoms space. The business that had grown with BSNL saw the decline as there was no more of it later. Since then the stock has taken a heavy beating, falling from levels as high as 500 to 19.

When people are considering buying into this stock, they should know the following at the least:

1) The company's business has been reoriented to energy. It claims to be supplying solar energy equipment. The clients are unknown, and the business is very less transparent.
2) It claims to have a subsidiary in Spain that has started building solar power plants and aims to expand rapidly in solar space in Italy and Spain. As of now, only one of these plants has been operational and the others may take a large gestation period.
3) The balance sheet has taken a huge hit, and the company has undergone debt restructuring.
4) The announcements of the company look vague, though they try to give a promising outlook.
5) Goldman Sachs has picked up a large stake (about 8%) as a result of FCCB conversion, and has recently offloaded some stake, booking a loss.

Although turnover had totally vanished, it is returning slowly. It has a market cap if 45 cr at current market price; has large debt on the books, has large operational expenditure and is clearly net cash negative. That the stock price is still at a premium to the nominal value is a surprise if you go look at the financial performance of the last few quarters.

The contrarian would still bet on it- if the sales are a result of sales of solar panels to real clients, and if they pick up once again in the coming quarters, the stock may show some improvement- although the really large debt on the books may never allow the sales to beat the expenditure, and we can see losses for consecutive quarters- if not years, by this simple fact. And mounting negative cash flows can defeat the business sense altogether- the company may raise more debt or expand equity.

A risk averse investor would avoid this stock, but if you really feel like betting your bucks on a really large turnaround, and booming sales of solar panels to european markets where clients are unidentifiable and the company's management unclear, and this may all turn out to be good, you can go ahead, and make a killing. The risk is there, the stock is battered. Goldman Sachs is still holding a large stake, waiting for a turnaround.

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We've been inactive for almost a year now.

For those who've subscribed and have forgotten, you used to read this email/blog for economic insight and the fundamental stock views on BSE/NSE listed stocks.

A lot has changed in the past one year, and some of us have made money, while some, were not fortunate as much.

This email/blog is just to say a hi! and a happy new year to all readers/patrons. And of course, remind you that this web page you once frequented for checking out fundamentals analysis and economic news and views is still un-dead.


Wait for my first post! (Again)

Fundamentals Analysis: GTL Infrastructure Ltd

About the company
GTL Infrastructure Ltd ("GTL Infra") offers passive infrastructure to wireless telecom operators. In more colloquial wordings, it owns those mobile "towers". It is now the world's largest independent tower company, and aims to have a portfolio of 50,000 towers across India. The company is part of the Global Group and is a pioneer in its field. It has a massive network of towers, supporting the large passive infrastructure that is needed across the country for wireless telecom operations.

Sector Outlook
The telecom sector is maturing now, but with new entrants and the growing population- it remains an exciting place. The sector (telecom/infrastructure) where GTL Infra lies in is the backend of the telecom sector. The sector is particularly very important as it supports the basis of the future of telecommunications- wireless telecom. New technologies and innovations are the only ways to outperformance in this sector. "The more, the merrier" - as more and more telecom operators come to India, the telecom equipment/infrastructure sector will see growth. However, as the front end margins would crash as a result of negative competition, this might have an impact on the sector under consideration. This, however, remains to be seen- and is just a conjecture.

GTL Infra, per se
GTL Infra has been growing rapidly over the past quarters, with Quarter-on-Quarter growth in revenues clocking 10% plus. It offers its infrastructure to leading mobile operators in the country. It has built around 9400 towers in the country, and the tower portfolio is seen to expand- adding to the revenues. It is also working on in-building-solutions, and expanding its services portfolio in this direction.

The revenues are growing at a nice rate, however, due to the high capital expenditure incurred in setting up the business and allied activities, the company has high debt. This is reflected in the high interest expenditure in its accounts, and this impacts the net profit negatively. The operating profit margins are high, very high indeed- more than 70%. The net profit margins take a beating due to the high debt costs.

Valuation and Historic Price
It went for a rights issue in 2007, at the interesting ratio of 1:1, at par face value. The stock traded at an all time high of 106.5 on the BSE in 2008. Its all time low is Rs. 27.6 and its LTP is Rs. 44.7. At Rs. 44.7, the P/E notwithstanding, buying the stock implies betting bigtime on the prospects of its tower portfolio- which is rational too. This stock is and has been expensive, considering the price at which it is traded vis-a-vis the EPS (P/E). The total share capital is 956 cr of Rs. 10 shares. The EPS will take time to climb up, and so will the share price.

StocksCenter Verdict
The stock is expensively priced at the moment. If one is bullish on the telecom infrastructure sector, and one does have reasons to be so, GTL Infra is a good candidate for long term investing. Again, the EPS will take time to climb up, and a killing can be made in the long term- when, hopefully, its balance sheet recovers.

Fundamentals Analysis: Parekh Aluminex

About the company
Parekh Aluminex is India's largest aluminum foil containers, aluminum foils and allied products manufacturer. It is an established company, and a leader in its industry. In the organized sector, it commands upto 70% market share.

Sector Outlook
The industry in which Parekh Aluminex operates is in a very nascent stage, and it is a pioneer. The raw materials command a large amount of operating costs, and thus affect margins very directly. Aluminum prices were down till now, and with demand picking up, they are seen to rise- a negative, if the company hasn't hedged well.

Parekh Aluminex's current position
The topline of Parekh Aluminex is growing at a CAGR of over 50%. From a topline of Rs. 102 cr in 2006, the company has grown to posting a topline of Rs. 421 cr in 2008. The company expects 30% growth in the next fiscal. Exports constitute more than a third of the total revenues of the company, so a revival in the world markets would augur well for the company.

Parekh Aluminex had concluded significant capacity addition last year- and this allowed them to increase their topline by a significant amount. This capacity addition was made possible by closure through debt, and interest costs for the company are rising rapidly. This is a negative.

They've already notched 270 cr of sales in the first two quarters. The company is indeed growing at a very high pace. Promoter holding is low, but it has increased over the past year from 24% to 34%. Long term debt programs of the company have received a rating of A- by CARE. This means, the credit risk is low- affirming the company's capacity to handle debt.

The company now trades at a P/E of close to 5, against an industry P/E of 17. The market has discounted the debt of the company in this valuation- and it doesn't expect the company's bottomline (or topline too? maybe.) to grow as fast now. The results of the coming 4 quarters of this calendar year matter a lot. And that would gain the markets' sentiment. The stock had reached a high of Rs. 301 during the bull run of 2007, and now trades at Rs. 157 a share as on Friday's(8/jan/10) close. It reached a low of Rs. 45.15 in 2009. It seems to be trading at fair value- but a lot depends on the market sentiment, which would be affected by the Q3 earnings season and the budget.

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