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.

Financials
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.

Valuation
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.

Fundamentals Analysis: ABG Shipyard

About the Company
ABG Shipyard is the flagship company of the ABG Group. It is India's largest private sector shipbuilding company. ABG Shipyard builds a variety of ships including bulk carriers, interceptor boats, anchor handling tugs, etc. As on May 2009, its order book was of Rs. 12470 cr. This is almost double the order book of its nearest competitor in the private sector, ie Bharati Shipyard. (We're not considering Pipavav, as it is yet to show results, and most of its orders are under arbitration.)

Sector Outlook
The shipbuilding sector is one of the worst hit sectors of the economy, due to the Great Recession. New orders have stopped coming in for most companies, as fleet owners opt for second hand vessels instead of new ones. Ship repair continues to be a recession free industry.

ABG Shipyards' current position
Currently, ABG Shipyard has a strong order book of Rs. 12,470 cr (as on May09). Much of the order book is unexecuted since ABG Shipyard is under capacity expansion, which would be concluded soon, if it hasn't already been. Consequently, the coming results should be very good. Also, ABG Shipyard is keen to buy Western India Shipyard, Goa. Western India Shipyard is mostly a Ship Repairs company and would add significantly to ABG's portfolio of services, apart from giving it a geographic location outside Gujarat, where both of its current yards are located. Also, the full operationalization of the Dahej Shipyard would mean tremendous capacity addition in terms of rig building. That was also a reason why ABG Shipyard was keen to buy a controlling stake in Great Offshore. ABG Shipyard has had to accept 15% of Great Offshore shares; which were tendered in the open offer. It will have to pay a hefty price of Rs. 520 per share, against the CMP of around Rs. 475. It already made short term gains on Great Offshore, when it sold its 8% stake at the start of the offer. It is believed that they will sooner or later sell this holding, in order not to stretch their interest costs.

Also, ABG Shipyard is promoted by Rishi Agarwal, nephew of Shashi Ruia. So, it is natural to assume that it will be getting orders from Essar Shipping.

Financials
ABG Shipyard has a lot of debt on its books, and interest costs would rise. It is, however, entitled to government subsidies worth around Rs. 1,700 cr. Its turnover is seen to rise, and will post increasing numbers this and the following quarters, as it executes pending orders. Dividend yield is low, and so are future expectations. The P/E ratio is 6.47.

(in Cr.)	Sep-09	Jun-09	FY08-09
Revenue	401.58	393.11	1,412.20
Net Profit	45.86	47.92	171.10
EPS	9.01	9.41	33.60
EPS-TTM	37.67	33.78	33.60
Cash EPS	9.92	10.30	36.45

Historic prices
ABG Shipyard reached a high of Rs. 1045 in 2007, and a low of Rs. 62 in March '09. It currently trades at Rs. 200+ (closing 217.5 on BSE, 8/Jan/10)

Year	Open Price	High Price	Low Price	Close Price	No. of Shares	No. of Trades	Total Turnover(Rs.)	* Spread (Rs.)
								H - L	C - O
2005	280.00	304.70	261.55	287.75	22455759	231630	6,343,297,450.00	43.15	7.75
2006	289.40	425.00	199.10	260.50	26094047	341819	8,418,558,769.00	225.90	-28.90
2007	262.80	1,045.00	260.00	992.30	18122640	289945	8,520,235,263.00	785.00	729.50
2008	1,029.95	1,029.95	80.05	133.40	8845336	168128	3,186,442,712.00	949.90	-896.55
2009	134.10	276.80	62.00	211.75	69718855	879860	10,413,725,832.00	214.80	77.65
2010	213.30	222.00	209.00	217.50	586072	10747	126,910,883.00	13.00	4.20

Investment opinion
ABG Shipyard is a long term investment candidate. As is with such companies, one has to give time to investments. Private shipbuilding will be in focus in the coming years. With a strong order book, and a new facility at Dahej, ABG Shipyard looks solid. However, debts are high. Government focus on this sector has been subdued, over the past few years, since 2002 when it announced subsidies for private shipbuilders. Also, what it does with the Great Offshore stake needs to be seen.

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Pipavav Shipyard- Cancellation of Order

Pipavav Shipyard lost an order worth $ 36 million.

The announcement on the BSE, which came today, January 8 2010, is worded as:
Pipavav Shipyard Ltd has informed BSE that Setaf sas of France, one of the customers of the Company has cancelled the order for one 74,500 DWT Panamax Vessel with aggregate contract value of US$ 36.00 million.

This vessel was to have been delivered in 2009, but was delayed. The installation of the Gollath crane was delayed on account of delay in issue of visas for expatriate Chinese workmen.

Putting things into perspective, Pipavav Shipyard came out with an IPO in September last year. In the red herring prospectus, they had mentioned the following:

are engaged in arbitration with Setaf s.a.s. (“Setaf”) regarding whether it has the right to cancel one or more of four firm order agreements for Panamax bulk-carriers of 74,500 DWT each, such orders having an aggregate value of US$ 144 million (Rs. 6,893 million), but we are also engaged in simultaneous discussions with Setaf in respect of the refund guarantees relating to these orders and are seeking to preserve these orders

If the vessel had to be delivered in 2009, then Pipavav Shipyard is certainly hiding something more. Also, will this hit the stock or not? That would be interesting to see on Monday.

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Is BNP Paribas extremely bullish on India?

I turned on CNBC TV18 this morning to find Manishi Raychaudhuri (MD and Head of Research, BNP Paribas Securities) talking about the Sensex and the Rupee. He expected a 10-15% correction from current levels, but also said that they've put a 21,000 target for the Sensex for the year.

While he said that fund flows would be muted in emerging markets in 2010, in the same stead, he did not rule out the possibility of a repeat of last year's flows into India. If that happens, the Sensex can shoot to 25k+, but that looks unrealistic to us, at least for now.

He also looked quite bullish on India, and said that India would be at a 20% higher P/E than the rest of Asia- and gave a year end target of 42 for the INR (rupee) versus the USD (dollar).

You can read/view the interview online on moneycontrol.com

Stockscenter view:
Putting the contradictions aside, it really makes sense to be bullish on India. India is a growing democracy- with a large consumer base, with growing purchasing power. On the other hand, many of the developed countries aren't going anywhere- the stocks moved up, yes, but that was much of an upward correction to their rational values. We're where we should be right now, and if things do not go wrong at the macro level, we should see strong gestures from the economic indicators (for India) that would push the markets upward. Downward corrections shouldn't spook one, unless they're triggered by the collapse of another major bank in the USA! Ergo, what BNP Paribus says might just be true- expect a correction, but do not let it spook you. While that's difficult, we really advise investors to stay cautious.

Reliance: Sale of Shares by Petroleum Trust

In early morning trades, Petroleum Trust sold approximately 258.5 lakh shares of Reliance Ltd.

The Trust will get Rs. 2675 crore at an average price of about Rs. 1035 per share.

This will get reflected in the consolidated financial statements of the Company.

Petroleum Trust is a promoter in the company.

China, India and Food Prices

Well, what a year has it been! Begin January 2009, and foreign investors were ready to pull out money, de-leveraging their positions, going into their shells. Everyone was "playing safe", and money was becoming expensive, and scarce. To counter that, interest rates were lowered, bail outs were carried out, and in what scale. Then, as money became cheaper, it became abundant, "in every rich man's pocket". That money was cheap, borrowed at dirt cheap interest rates. When money becomes cheap, it goes places- it goes everywhere. One of the places it went, was commodities. Food prices soared, with a definite support (in India- the debated MSP) And the double whammy was bad monsoons.

The bad, and irregular monsoons meant less supply to a hungry lot of a billion people in India. Food prices were going to increase, as indicated by their futures- and they did. Now, India is talking about importing food items. That has the capacity to send enough speculation in the international market to keep the prices up. The price elasticity itself has been tampered with. Oh, and did the farmer benefit? No. They had not much to sell- well, most of them didn't. Their crops were doomed, and on a lighter note, so was deflation in food prices! And of course, that did not and will not save the economy! It has been lack of supply, and so it should be increased supply that would solve the problem. But then, when the economy improves and starts creating jobs at a faster rate, when the purchasing power of more than a billion people in India and roughly two billion people in China increase, they would certainly buy more food- that is sufficient for them, or more than sufficient for them. And when the per capita food/related consumption reaches the level of USA, that would send the food prices flying into the never ending sky. This can only be softened by a proportionate increase in food supply- and both the countries become self sufficient. In other words, a Malthusian catastrophe has to be averted.

Then comes China, and its obsession with a weaker yuan. There are two cases here- either China lets the yuan appreciate against the dollar, or it maintains status quo. In the first case, China would start offloading its US Treasury portfolio (if it gets irritated!), and start selling the dollar. When that would happen, interest rates would have to go up- but when there is an already large amount of cheap money lying around, that wouldn't make much of a difference. The size of the cycle, as we say, would increase, and the next bubble would be humongous. That would be due to the second chance given to a failed US-styled free movement of funds, in the same tax havens, and more liberty to greedy punters in the commodities futures, and more expensive food. But then, in a capitalist economy, people argue, this is good. But then, China has to let things be, freely, free. The economy at its core is a free economy, which takes care of itself.

In the second case, if China maintains status quo- which it shouldn't, the dollar remains strong when it shouldn't. China has that "geopolitical" advantage, which it really doesn't, and it continues to spoil the world markets with its cheaper substitutes. This has to phase out quickly, if equitable distribution of global wealth has to ensue. Now, if China has been a gainer, it has to show it in its currency as US did. And, the world has to stop thinking about things as they used to be and start thinking about what they will be in the future. China can be the new US, with its large trade surplus, if it follows true capitalist rules (which i doubt), and Shanghai is allowed to become a financial center like New York, with lesser constraints. But then, that takes time, and a lot of stomach to change ideologies. China has to care for its billions, and it's doing that all right, in the left way, which is the wrong way!

To sum it all, food prices are going to remain high, if the supply side is not taken care of- which would be very difficult in the long term because of the Malthusian catastrophe. The purchasing power has to increase, along with employment in the emerging markets. The focus in the next decade would be seen to shift from the US and the Euro zone to Asia and South America, with the capitalist American's help.

Market timings change from Monday Jan 4, 2009 | News

NSE		BSE
MARKET OPEN 09:00 hrs. to 15:30 hrs.		MARKET OPEN 09:00 hrs. to 15:30 hrs.
CLOSING SESSION 15:50 hrs. to 16:00 hrs.		CLOSING SESSION 15:40 hrs. to 16:00 hrs.