GAIL: Market News: 1000Cr Net Profit every Quarter starting March 2011

GAIL CMP: 490.50 Market Cap: 62,218.8Cr
Market has that GAIL (Gas Authority of India) is on an expansion mode for past 4 years .. Company has doubled its GAS carrying capacity and Tripp-led its Gross Fixed Assets.. The company is also entering into City gas distribution.. There is an unmet demand of GAS along with falling GAS prices.. GAIL is expected to report net profit of 1000Cr every quarter consistently from year 2011 onwards.. 


The key risk is the subsidy burden..however deregulation of natural gas and petrol prices followed by fixing pipeline tariffs ? have been encouraging for the industry..
Gail is trading at a one year P/E of 17.5 against its five year high P/E of 23.3. Considering its future earnings, reasonable valuations and a low beta of 0.6, Gail is a good bet.

GAIL is using its Operating Cash flows to build new Assets.. It is also using the free Operating Cash flows to pay down its debt .. So this is really great for long term investors in GAIL.

The GAIL Stock is close to its 100 Day Exponential moving Average..where it has always found support This is a great price to enter for the long term..

Company: Nitta Gelatin: Value Buy Shares

Nitta Gelatin:
CMP: 142
Market Cap: 119.28Cr
Reserves: 99.43Cr
Debt: 0.26Cr
Sales TTM: 205.49Cr
Gross Profit TTM: 28.11Cr
Net Profit: 14.47Cr
5yrs Avg Cash Flow from Operations: 19.98Cr
ROCE: March 2010: 27.79%
Last dividend: Rs 6.0
Dividend Yield: 4.23%
http://www.gelatin.in/


Nitta Gelatin India Limited (NGIL), one of the most successful Indo-Japanese industrial ventures, was incorporated in 1975 and started commercial production in 1979. Using state-of-the-art production facilities NGIL manufactures Gelatin, Collagen Peptide, Ossein, Di Calcium Phosphate. and Chitosan.

This downturn has provided excellent opportunities to accumulate great companies at great prices.. Nitta Gelatine would be one such company available close to its 52 Week low. Company dividend payout contained a special dividend so dont expect the dividend yield to continue.

Consistent positive cash flows from operations

80% promoter holding

Zero Debt status..

Introducing new value added products ..

This is a great company at a great price.. and your money is safe the stock will also easily double from these levels in 1-2 years time frame for sure.. Must buy!!

Conclusion: Must buy!! 

Company :Tata Communications: Best Buy Stocks: Long Term only 5-10+ years

Tata Communications:
CMP: 258.35
Market Cap: 7362.98Cr
Following are the Consolidated figures as per Annual Report March 2010
Sales: 11194Cr
Debt : 7308Cr
Reserves : 4249Cr
Profit Before Tax: -ve 681Cr
EPS -ve 20.97

http://www.tatacommunications.com/
Annual Report March 2010


Tata Communications is a leading global provider of a new world of communications. With a leadership position in emerging markets, Tata Communications leverages its advanced solutions capabilities and domain expertise across its global and pan-India network to deliver managed solutions to multi-national enterprises, service providers and Indian consumers.

The Tata Global Network includes one of the most advanced and largest submarine cable networks, a Tier-1 IP network, with connectivity to more than 200 countries across 400 PoPs, and nearly 1 million square feet of data center and colocation space worldwide.

Tata Communications' depth and breadth of reach in emerging markets includes leadership in Indian enterprise data services, leadership in global international voice, and strategic investments in operators in South Africa (Neotel), Sri Lanka (Tata Communications Lanka Limited), and Nepal (United Telecom Limited).
===============
Tata Communications looks to be in dumps with a profit before tax of -ve 681Cr but lets dig a little deeper..
- look at Cash Flows from Operations one of the most basic numbers indication actual company health..

Net Cash from Operating Activities: 1552.80Cr
Cash Flow from Investing Activities: -ve 2502.85Cr
Cash flow from Financing Activities: 257.37Cr
Cash & cash Equivalents at the beginning of the year: 863Cr
Cash and Cash Equivalents at the end of the year: 257.37Cr

Tata Communications has invested 2502.85Cr in investment activity (new asset creation)

- To fund this .. cash flow from operations ie.. 1552.80Cr has been used..
- In addition 257.37Cr has been generated from financing activities
- In addition the company had cash in hand of 863Cr ..
So money flowing into the company from these 3 sources (Operations, Financing and Cash in hand from last year) has been used for investment..

So the company is making money at the operating level .. it is just that the company has so many deductions that it can report losses which will help in reducing taxes paid to the govt ..

Another very important number is Current Assets, Current Liabilities and Net Current Assets numbers:
Current Assets: 6141.74Cr
Current Liabilities: 7528.89Cr
Net Current Assets: -ve1387.15Cr

There are different valuation parameters
1. Off the hook valuation parameter is : If the Enterprise Value is less than Net current Assets then the company is selling for less than the cash in the system.
2. A more Sophisticated parameter is: If the Net current Assets is -ve which means you have more liabilities than Assets at the end of the year.. it means the company is in a position of strength (domination) and hence it is able to hold payments to its creditors (increasing liabilities) and extract money in advance from its debtors (reducing Current Assets) this results in a free float which the company can then use..

So a -ve Current Assets scenario shows that Tata communications is generating 1387Cr from its operations just by delaying payment to creditors and accepting cash from debtors .. this is possible only for very large well established companies.. in a commanding position in their area..and will result in interest savings of 138Cr (assuming 10% interest rate on 1387Cr float ..)

For Example let us look at Hindustan Unilever Limited (HUL)
Consolidated Current Assets:  5539Cr
Consolidated Current Liabilities: 6816Cr
Net Current Assets: -ve 1276.73Cr

So even HUL has a Net Current Asset number which is negative indicating it has a strong domination over the market.. can hold its creditors for longer period and expect debtors to pay upfront resulting in cash flows from its operations of 1276Cr which on a yearly basis at 10% interest works out to 127Cr
============================
In addition to the excellent and tight financial operating model that Tata communication has there is another investment bonanza for investors:

When the Govt dis-invested its stake in VSNL to Tata's there was a clause which said Tata's are supposed to release free hold land which measures 773.13Acres 85 acres in Chennai and majority of the rest of the land is in Pune .. some is in Delhi, Mumbai and Calcutta (these are the cities where VSNL had operations before takeover by Tata's)

- Share holders are supposed to receive compensation for the land.
- Since govt holds 25% and also sold 25% to Tata's with the same clause .. the majority of the beneficiary is going to be the Govt.
- Since VSNL disinvestment to public was done before selling of stake to Tata's... Individual investors will also get compensated for the Land bank..
- Individuals who tendered their shares when Tata's took controlling stake will also receive compensation..

Ofcourse the Tata's do say that the major beneficiary of the Land deal is Govt (which is true as the Govt  will receive 50% stake in the 773Acres land company that needs to be carved out of Tata Communication..

However Individual investors will also benefit and for the shares that they own in Tata Communications they will receive equivalent rights to the Property company that needs to be carved out of VSNL/Tata Communications.

So Right now Tata Communications is Tata Communications (operations) + 773Acres and the property company carved out will have Zero Debt...
 Ofcourse Tata Communications will try to wriggle out and try and reduce the amount of actual property transfer but its a long drawn out(Legal)  affair.. as this clause for a separate property company was part of the initial contract.. Also as part of the clause..Tata Communications cannot issue additional equity until the 773 Acres property is carved out of Tata Communications..

So the high debt is because Tata's have no way to grow other than debt..and now Tata's donot have the much wriggle room as debt is already pretty high...

This Value equation is well known to the Institutions..and is visible in the fact that actual Public holding in Tata Communications is  less than 2% and Institutional investors, Govt and Tata's own 98% stake in Tata Communications..

Conclusions: Tata Communications is a well oiled cash generator which is available Very Very Cheap. It also has a 773Acres Property company attached as a free gift. Go and buy !! It is a true Deep Deep discount stock and a multi-bagger but has a gestation period which could run into 2yrs or more..(when the property company is carved out..)  An addition into Best Value Buy For sure!!

Company: Fresenius Kabi Oncology Ltd: Ready to step up!!

Fresenius Kabi Oncology Ltd

CMP: 108.45

Market Cap: 1715.68Cr

Sales TTM: 422Cr

Gross Profit TTM: 100.5Cr

Net Profit TTM: 72Cr

Debt: 269Cr

Reserves: 476.28Cr

http://www.fresenius-kabi-oncology.com/index.html

Fresenius Kabi Oncology Limited strives to provide state-of-the-art third generation chemotherapeutic drugs right from development to manufacturing & marketing across the globe. It is all set to become a leading player in Oncology (Cancer) generics by virtue of a comprehensive product portfolio of injectables, oral cytotoxics, cytostatics, intermediates and active pharmaceutical ingredients (APIs). Fresenius Kabi Oncology Limited product portfolio and manufacturing facilities are being endorsed by world's leading regulatory authorities.

Fresenius Kabi Oncology Limited is a 90% subsidiary of Fresenius Kabi. Fresenius Kabi specialize in therapy and care for critically and chronically ill patients.. Fresenius Kabi is the leader in infusion therapy and clinical nutrition in Europe and in its most important countries of Latin America and Asia Pacific. Within I.V. generic drugs, Fresenius Kabi counts among the leading suppliers in the U.S. market. 

All over the world more than 21,000 employees are committed to improving the quality of life of critically and chronically ill patients with innovative products for patients in hospitals and outpatients.

Fresenius Kabi Oncology Limited is erstwhile Dabur Pharmaceuticals which has been sold to Fresenius Kabi at Rs 75 per share.

It is a well known fact that India is strong in the generics market and Fresenius Kabi Oncology Limited is going to specialize in third generation generics for oncology. The good part is the parent company is a well established brand world wide and these generics are to be sold as Fresenius Kabi products. 

Reading through their latest annual report we see that Formulations unit in Baddi (India) and active pharmaceutical Ingredients unit in Kalyani have been  USFDA approved. the API unit in Kalyani is undergoing expansion project I and even before Project I is completed Expansion project II has already begun. We can also see that the company has been reporting better results starting year ending March 2010. 

Conclusion: Fresenius Kabi Oncology Limited is a focussed organization with a clear mandate to concentrate on generic oncology drugs. With a parent company with 90% stake in Fresenius Kabi Oncology Limited we can expect company to start delivering great numbers in the future consistently.. Company does not seem to be a deep value buy but it is specialized and concentrated in specific area where the parent company has inherent strengths. It will contribute to parent company revenues and complement and grow in a symbiotic relationship.. Worth keeping a watch and entering into it..

Company: AGC Networks: Cheap Stock..Value Buy!!

AGC Networks:
CMP: 229.50
Market Cap: 326.8Cr
Sales year ending Sept 2010: 541.80Cr
Gross Profit: 45.12Cr
Net Profit : 34.6Cr
Debt : NIL


AGC Networks erstwhile Avaya Global Connect majority stake was bought by Essar group from Avaya. 59% stake was sold for 44 million USD ie  198Cr that would put a value of 335Cr for AGC Networks. Essar group had a additional stock buyback for another 20%

Avaya is one of the leading players in the world for endpoint IP based solutions and it sure seems a bad move to sell a company (AGC Networks) in one of the fastest growing economies of the world (India).

Avaya however did make a 900 million buyout of Nortel enterprise solutions. Maybe Avaya needed the cash. AGC Networks already has a set practice which includes Avaya products and solutions. Essar becomes a high profile channel partner for India. (my guess).

lets return to AGC network valuations.. If you look at the latest Sept filing by AGC Networks..
Reserves is 238.82Cr
Cash and Bank Balances: 153.35Cr (consolidated) 143.26Cr (Standalone)

If we remove the cash component the Enterprise value would be Market cap - cash in hand = 326 - 153 = 173Cr

So here we have it Gross Profit is 45.12Cr Profit before tax is 52.34Cr as 6Cr is interest income. has 153.35Cr of cash and bank balances.. has Zero debt and 238Cr of reserves.. this is for a 500Cr sales company with enterprise value of 173Cr.

Conclusions: AGC networks is Cheap very cheap!! though promoters are now Essar group and not Avaya.
In a growing field with a global giant like avaya backstopping AGC with technological support its a Winner.. the only thing is the Essar group with 80% holding..hopefully they will have shareholders interest in mind as they are the largest shareholders.. FYI there is a Rs4.50 dividend with an Ex dividend date as 29th Nov 2010 ..

Company: Varun Industries: Listed Stock which is a Uranium Play?

Varun Industries:
CMP: 214.20
Market Cap: 473.68Cr
Sales TTM: 2159.36Cr
Gross Profit TTM: 160.42Cr
Net Profit TTM: 36.44Cr
Interest Payments TTM: 87.68Cr
Debt: 830Cr
Reserves: 150Cr
http://www.varun.com/index.php

Varun Industries Limited has evolved from being India's leading steel ware exporter  to a highly proactive multi-dimensional global conglomerate with business interests that include steel ware and steel raw materials, oil and natural gas, wind energy, uranium, mining, gems and jewellery...

Established in 1989 as a small trading house it was incorporated as Varun Continental Ltd in March  1996 and changed to Varun Industries Limited  in  April 2005.

An ISO 9001: 2008 company, Varun was listed in November 2007 on both Bombay Stock Exchange and National Stock Exchange and  has featured in the list of Top 500 Indian companies in both 2008 and 2009 compiled by Dun & Bradstreet , Economic Times and other reputed agencies.  More important, the group is currently  touted as among the 50 fastest moving mid sized Indian companies. Enterprise Value: 473.68+830-0.78 = 1302.90Cr  Varun is not a deep discount stock.. but then when you hear about its uranium prospects: The Varun Group has acquired 1011 blocks (100 in process) covering approximately 6900 sq. kms and with estimated reserves of 17,00,000 tons of uranium, 43,50,000 tons tons thorium and traces of gold for the purpose of exploration, exploitation and out put sale. The preliminary work has been completed and the evaluation of Reserves will commence shortly. The Group is optimistic of completion of the Exploration phase before the generally estimated 2-5 years. Oil and Gas Prospects: Varun Group has acquired block 3101 covering approx. 6800 sq. kms . This block is located in the confirmed petroleum province of Madagascar. Varun also has an offshore Natural Gas block measuring 13,200 sq.kms on the basin of the Indian Ocean which is possibly among the largest in the world Geophysical and Geological inhouse studies have been completed and the prognostics are promising. Madagascar is an island nation in Indian ocean you can read more about it in Wikipedia  http://en.wikipedia.org/wiki/Madagascar Oil prospects and uranium both seem to be valid and well known..  Varun however has a lot of debt and lot of sundry debtors 681.93Cr. Conclusion: Uranium and Oil in a future with scarce energy resources is too good to be true.. Investors should keep an eye on the stock and maybe take small positions just in case  any positive developments take place in uranium and oil fields.. and we might get a bump..Right now the promoters are more interested in backward integration for their steel business.. which gives a fair indication that the uranium and oil prospects will remain prospects for some time. promoter's own estimate is 2-5 years for any development activity so hold on don't jump the gun yet.. watch and invest in dips..

Results on Diwali - 2010

Let us take this opportunity to look at how the suggested stock picks have performed..
I will also try and maintain Diwali day as day for review of stocks every year..

If hypothetically one had invested Rs10,000 in each and every recommendation (there are 16 recommendations) we would have invested 1,60,000. As of Diwali day investments would have generated absolute return of 54.35% on our investment.
- Please note this includes investment such as NILE which was recommended this Diwali itself and is just 2 days since it was recommended..
- I have included the rights issue by Camlin Fine chemicals at Rs 15 which means one has invested more than the Rs10,000 in Camlin to subscribe to buy all the stocks allotted as per rights issue..
- If one had invested Rs 50,000 each in the "Best Buy" stocks..(investment amount 1,50,000)  we would have made a slightly higher percentage  64.88%

As we can see the year to date results for the index we have beaten the Small Cap, Mid Cap and NIFTY and the top performing Bankex..
(again strictly not comparable as investment ideas were given as early as 29 may 2009 (Venky's) though most investment ideas were published starting Dec 2009)

Conclusion: Venky's has really matured as an investment which means one cannot expect Venky's to give 100% price appreciations.. 
- GAEL and Jayant Agro and a few others such as Pitti and Manugraph have started performing.. please note these all should give 100% or more so .. it would make sense to hold with a price target of 100% or more of investment price..

Diwali Dhamaka: NILE Limited

NILE Limited:
Current Market Price: 119.90
Market Cap: 35.99Cr
Reserves: 24.87Cr
Debt: 37.63Cr
Sales: 153.19Cr
Gross Profit: 11.21Cr
Net Profit: 3.24Cr
ROCE: 14.52%

NILE Limited: Nile Limited is an ISO 9001 certified company manufacturing world class Glass Lined Equipment, Pressure Vessels, Lead and Lead Alloys. Nile has emerged as a leader in achieving customer satisfaction by delivering quality products, with a fervent desire to convert every customer relationship into a prospective partnership.

NILE Limited has 2 divisions: 

- Glass Lined Equipment and Pressure Vessels and 

- Lead & Lead Alloys (32,000Tonnes Per Annum)

Home Page: http://www.nilelimited.com/index.html

GMM Pfaudler which is a leading player in Glass lined pressure equipments ..  has a 20% stake in NILE Limited  and a hostile takeover was attempted but unsuccessful and GMM Pfaudler will

have to sell its stake in NILE Limited

The company has recently expanded its capacity for Lead Recycling Plant to 32,000 Tonnes.

With profits returning the stock could easily give us 100% or more
 returns within 12 to 18 months time frame

PN: This is a Diwali Pick but does not mean that the stock is going to fly anytime soon.. It is however a
Value Buy!! HAPPY DIWALI