Pick of the week : Hanung Toys & Textiles Ltd

CMP : Rs.24.5 Book Value: Rs.97.46 52-Week High/Low: Rs.273/Rs.24.25 Face Value: Rs.10 EPS: Rs.30.18 Dividend: 15% P/E: 0.81 Market Cap: Rs.61.71 Cr Industry: Toys and Textiles
Introduction: Hanung Toys and Textile was set up in technical collaboration with a South Korean company. Hanung Toys and Textiles Ltd is the largest manufacturer and exporter of Non-Toxic, child safe stuffed toys in India. The company’s products include bedding, curtains, sheets, throws, cushions, decorative pillows, soft toys, window curtains, floorings, beanbags, etc. The company has Walt Disney’s franchise in India for Disney Soft Toys and Cushions.The company has the EN-71, ASTM and BS-5852 certifications. It has been awarded ISO 9001:2000 for quality management systems to manufacture, supply and export furnishings and stuff toys.
OVERVIEW: Hanung Toys and Textiles Ltd is engaged in the manufacturing of Stuffed Toys /Plush Toys and Home Textiles. Since incorporation in 1990, the company has continued to do well. In the initial formative years, company gained immensely from its technical tie-up/ collaboration with South Korean company.
Hanung Industrial Company Limited, as they helped establish well known Korean manufacturing practices and quality systems. After initial five years of collaboration, it has since been independently operating its manufacturing. Its toys manufacturing unit is established in the Noida Special Economic Zone (NSEZ) wherein the benefits of duty free imports and single window clearance for imports/exports are available.Thus its business units consist of toys manufacturing facility, home furnishing production facility and textile processing facility located in Noida. Roorkee & Bhiwandi. Its new production units in NSEZ & Roorkee enjoy 100% tax holiday for first five years. Products made by the company have found wide acceptability in the domestic market as well as in the competitive overseas markets. Domestically its brands Play-n-Pets and Splash are available with all major retailers.With a well established distribution network spread over towns, the products are distributed/ sold through number of outlets. In the Stuffed Toys /Plush Toys category, the company is the market leader and has the major share of the market. Further on the domestic front company has taken the lead by setting up its retail stores both in Home Textiles as well as Stuffed toys/Plush toys.On International front, it mainly deals with the overseas markets viz. Europe, USA, Latin America and the Middle East and has been able to attract and retain known names. The Company has been serving these markets with both stuff toys and home furnishings and its customers are primarily large importers/ whole sellers that service the respective retailers their country.Internationally, the Company’s products are sold in over 30 countries. Products made by this company are available with the leading, Tier One, top most retailers in the world. Besides, the company is also making products for some of the Finest International Brands. The company’s business in the international market has continued its growth trajectory.Shareholding Pattern: The promoters hold a whooping 62.28% while the general public holds 37.72%.
Financials: In the September, 2008 quarter, the company came out with brilliant set of numbers. The total income of the company for Q2FY09 came out to be Rs.166.95 Cr as against Rs.117.2 Cr in the same period previous year. The net profit of the company for Q2FY09 came out to be Rs. e Rs.19.44 Cr as against Rs.13.73 Cr in the same period previous year. The EPS of the company for Q3FY09 came out to be Rs.7.72 as against Rs.5.45 in the same period previous year. Both the net profit and operating profits were flat in Q2FY09 when compared Y-o-Y.Investment Rationale:1. The Company operates in two segments viz stuff toys and textiles. The company has the order book size of over Rs.1500 cr executable over 4 years time frame.2. The company has signed long term export order tie-up with leading US buyers, for exporting home furnishing and soft toys. These agreements will provide greater strength and better revenue stream to the company.3. Hanung Toys & Textiles Ltd currently is negotiating with two U.S. Companies for acquisition. The talks are on the advanced stage.4. The Company has signed MOU with a Chinese Company to buy latter's soft toy business in China by acquiring 100% stake in the said Company. The company is reportedly is having a toymanufacturing unit clocking annual sales of around $50-60 mn in China. The transaction would cost around $20 mn to the company. The Chinese acquisition will also bring the advantage of low cost technology, larger infrastructure and new clients to the Company.5. During FY08, the Company has started production in its new home textiles unit at Roorkee. The Roorkee unit has various tax benefits & accordingly higher capacity utilization of this unit will further boost the profitability of the Company in the coming years.6. The company is rapidly increasing its retail network, having opened its first Retail store for soft toys in Delhi on February 14, 20087. The board has approved issue of FCCBs & equity shares, GDR/ADR's, QIP's or any other financial instruments for US $50 mn for part financing capex/acquisition programs of the Company. This may increase the paid up capital of the company by about 25% assuming a conversion price of about Rs.250 per share in case of GDR/ADR's.8. After the recent acquisition of a small number of shares, JM Financial Mutual Fund holds 9.51% of company's share capital.9. The brilliant results in the September, 2008 quarter is due to better capacity utilization,efficiency and aggressive marketing of value 10. Activities relating to exports, initiatives taken to increase exports, developments of new exports markets for products and services, and export plans.
During the FY08 and H1FY09, 15 new customers were added. All these customers have the potential and will be converted into US$ 10 Millions each, or more, in the next two years. Some of these have already been converted into US$5 Million plus accounts. Products made by Hanung Toys and Textiles Ltd are available on the shelves of Bloomingdales. William-Sonoma Group, Macy's, Dillards, BBB, JC Penney, Target Stores, HBC. Rona, Home Depot, Wal-Mart, Anna's Linens, LNT, Tuesday Morning, Ikea, Francodim, Conforama, Homebase, Argos, etc.Key Concerns:1. Threat from China: China is the largest manufacturer of soft toys bat present. But, recent complaints about quality have lead Western companies to look to other countries for outsourcing.Moreover, the recent news that government of India has slapped a ban on import of toys from China after cheap supplies from the neighboring country upset the applecart of the domestic manufacturers augurs well for the company. The ban, notified by the Directorate General of Foreign Trade (DGFT), will remain valid for six months. While the government notification did not cite the reason for the ban, sources said it was concerned over a rise in imports of toys. Most of the varieties, including wheeled toys, dolls, stuffed toys, toyguns, wooden and metal toys, musical instruments, electric trains and puzzles are covered under the ban. The Toys Manufacturers Association of India said it was pleasantly surprised by the decision of the commerce ministry to prohibit shipments of cheap toys from China. “We welcome the decision. It is good for the industry,” association president Raj Kumar said, adding it is in the interest of the country. In the face of global downturn, Indian industry has been clamouring for protection from aggressive Chinese manufacturers.2. Foreign Currency Risk: The Company’s export earnings are around 74% (in FY07) and with rupee trading at historic levels as compared to USD, the company stands to benefit by this unusual INR movement. However, the Company's revenues are largely insulated from currency fluctuation risks because:a) Domestic revenue contributes around 20-25% of total revenue.b) Natural hedge by way of import of raw material for stuffed toys to the extent of 30%of total revenue.c) Exports to IKEA are denominated in Indian rupees.d) According to company sources remaining risk is fully hedged by long- term derivative deals.Thus, the Company is largely insulated from currency fluctuation risk because of its unique revenue model giving it a natural hedge.3. Impending slowdown in the U.S. and, in Europe can affect future demand of the Company’s products.Industry Outlook:The Indian toy market is around Rs.2000 cr, of which the organized stuffed toy market accounts for about Rs.300 cr and is growing at over 25% annually. There are three basic reasons for high growth in the stuffed toy market.Firstly, the disposable income of people has grown very fast in the last three to four years. This coupled with changing income distribution promises future expansion of demand. Hanung with its established brands of toys like Play-N-Pets and Muskan is well poised to take advantage of this trend.Further, gifting of stuff toys seems to be catching up in a big way. Mushrooming of shopping malls and mini markets is abetting these changes in tastes. The company has already tied up with a number of shopping malls in the country for this purpose.There were reports in a section of the media that the US authorities and consumer protection groups found harmful amounts of toxic lead content in Chinese-made toys and this have led to less import of Chinese toys in the recent times and could be one of the principle reasons for the growth of domestic industry.Also, the global toy makers like Toys “R” Us, Chicco and Clementino are shifting focus from China and have increased their sourcing from India while big retailers such as Ikea, Tesco, Metro, among others, have begun to place big orders on Indian Companies.Recommendation:At the current market price of Rs. 24.5, the stock is dirt cheap, considering the future potential of the company. The company is well positioned to capitalize on the growth in the burgeoning toys and textile markets. The company has a capacity to produce 20 mn toys per annum and 8 mn meters of textile furnishings segment.Between Mattel, Funskool and Hanung Toys, it has about 15-18% market share. The company has the domestic brands of Play-N-Pets and Muskan in soft toys and Splash in home furnishings.Hanung toys has more than 100 distributors and access to 3,000 retail stores and multi brand outlets including Kids Kemp, Lifestyle, Land Mark, Archies, Globus, Hyper City, Shoppers Stop, India Bulls, Wellspun, Odyssey, among others. Its overseas clients include IKEA (Sweden), Debenhams (UK), Wal-Mart ASDA (UK), Metro Group (Germany/Italy) and Marko Group (Poland).It has witnessed better margins because of increasing focus in the domestic market and has signed long term export contracts with some leading clients globally. These agreements will provide greater strength and better revenue stream to the company.If the growth prospects, as reflected in various contracts and plans fructify, this company has a potential to be a long run multi-bagger.
Short term set backs due to recession should be treated as opportunities to buy more shares. Therefore one can buy the share at the CMP of Rs.24.5 with a short term price target of Rs.60—Rs.65. Please keep a strict Stop Loss of Rs.21.75 and Rs.17.5 (exit) in case of any short term trade.

Vikas Metal & Power Ltd...............

Vikash Metal & Power Ltd

BSE Code: 532677 CMP: Rs.8.89 Face Value: Rs.10 EPS: Rs.3.59 Div: 5% Book Value: Rs.24.12 P/E: 2.48 Market Cap: Rs.31.22

Introduction: Vikash Metals, a VKP group company is an insurgence of Impex Ferrotech Ltd. Impex Ferrotech, in its own right was born way back in 90's. The journey began in the year 1995 with Ferro Alloys and from its humble beginning, the company has achieved such heights that in the following quarter of the century, the company crossed turnover of over Rs.200 crores, which no one ever dreamt of.The growing demand in the alloy & metal and infrastructure sector resulting in the Industrial growth was the vision of Group Chairman, Shri Vimal Kumar Patni, coupled with the Government's “Look East Policy” thus providing many more opportunities in West Bengal in particular. Vikash Metal & Power Ltd, the Fully Computerized and Automated Integrated Steel Plant is a part of the esteemed Impex Group.An Impex Group Company, Vikash Metal & Power Ltd.(VMPL) was Incorporated in 1996 & is in the manufacturing of Sponge Iron , MS Billets,TMT Bars & Strips. The group’s product range spans a wide array of Structural Products to Ferro Alloys serving the nation with pride.Vikash Metal & Power Ltd, manufacturing sponge iron in its unit having capacity of 100 tpd x 4 kiln and MS Billets in its induction furnace capacity of 8 MT x 3 along with Concast Plant serve large section of the Structural and Infrastructure industries, with the slogan 'From Structure To infrastructure”, using world's most advanced technology, the TEMPCORE process under license from Centre De Recherches Mettalurgigues (CRM) Belgium. “Vikash” brand TMT bars are supplied to leading construction companies and turnkey projects. Apart from receiving the prestigious ISO 9001-2000 SGS certification, the company has also received accreditation by UKAS Quality Management System, Geneva, Switzerland.Ensuring quality, the group with its Vikash brand TMT Bars has created high demand in the infrastructure sector and turnkey projects believing in Values, Trust, Respect and Fellowship.
Shareholding Pattern: The promoters hold 58.95% while the general public holds 41.05%. Among the general holding Corporate Bodies hold 17.46% of the shares of the company.
Financials: For Q2FY09, the company came out with superb set of topline though the bottomline suffered due to higher expenditure, interest and depreciation. The total income of the company came out to be Rs.133.8 Cr as against Rs.60.9 Cr in the same period previous year. The net profit of the company for Q2FY09 came out to be Rs.1.69 Cr as against Rs.2.8 Cr in the same period previous year. However, the expenditure is expected come down drastically due to the fall in the price of raw materials.
Investment Rationale:• The Commercial production of Ferro Silico Managenese & Ferro Managanese has started from October 18, 2008.• Vikas Metal and Power Ltd (VMPL) is looking for opportunities to acquire /enter into JV / alliance with any other entity engaged in the same line of business to reap more profits.• VMPL had started commercial production from its Hot Rolling Mill having a capacity of 1,50,000 MTPA since September, 2007 while company has started the commercial production of additional 65000 MTPA Sponge Iron Plant & 85500 MTPA MS Billet Plant in June, 2007.• VMPL has some more expansion plans which includes: (a) Pelletization Plant: 487500 MTPA, (b) MS Billet Plant: 28500 MTPA and (c) Brequetting Plant: 60000 MTPA. Apart from this company is in the final stage of executing its 10 MW Waste Heat Recovery Power Plant.• VMPL’s Waste Heat Recovery based captive power plant has been registered under CMD project with UNFCCC. The captive power plant is based on waste heat recovery module whereby flue gas released by the sponge iron kilns is used to generate steam in the boiler thereby replacing fossil fuel for generating power. It will involve reduction of 55,000 metric tones of CO2 equivalent per annum, which will lead to a substantial revenue inflow by selling CE R credits, which will accrue to the company for a period of 10 years.• VMPL has signed an MOU with Bihar State Electricity Board for execution of 2X250MW thermal project in Begusarai. This Project is requiring an investment of Rs.2500 crore which will be funded through a mix of debt and equity and is likely to be commissioned by 2011. The company has approached the Union coal Ministry for coal blocks & has been allotted 300 acres of land by the Bihar Industrial Area Development Authority at Bagusarai. The company even has future expansion plans for setting 2000MW power plant in phases.
Key Concerns:• Escalating Raw Material Prices: Raw Materials comprise of around 76 % of Company’s sales.High prices of Iron ore & Steel Scraps may put some pressure on company’s margins, but during last year company has been successful to offset this pressure by increasing the Sponge iron prices & shifting its focus on MS ingots. This year the raw material prices are likely to remain low.• Slowdown in the global economy: Steel is a cyclical industry & dependent on growth of many sectors viz. Automobile, Infrastructure & construction. However India is concentrating on infrastructure development & a lot of development is to be seen in the short term as well as in the long run so demand for steel looks intact.
Conclusion: At the current market price of Rs.8.89, the stock is dirt cheap. Considering the pace of growth of the company one can buy the scrip taking time horizon of 12-18 months for at least 60% to 70% returns from the current price. However, from the chartical point of view one should only buy the scrip above Rs.8. 50, below which it could break the bullish pattern.

WIND ENERGY IS NEXT GENERATION - PICK UP

Mr.Barrack Hussein Obama is lobbying for quick congressional passage of an $825 billion stimulus package to pump up the US economy.

"We would add more than 3,000 miles of electric lines to transport Alternative Energy across the country", Mr.Obama Said.

Keep accumulating Indowind Energy Ltd and Southern Online Bio Technologies Ltd.
Sell Suzlon Ltd as it could become bankrupt in 2009, due to highly leveraged balance sheet, unless some concrete steps are taken by the company concerned.
WASHINGTON-- President Barack Obama painted a bleak economic picture of the country Saturday, hours before he met with his economic team.
"We begin this year and this administration in the midst of an unprecedented crisis that calls for unprecedented action," he said in his weekly radio and Internet address.
"Just this week, we saw more people file for unemployment than at any time in the last 26 years, and experts agree that if nothing is done, the unemployment rate could reach double digits," Obama said.
The president pleaded for urgent action, saying, "If we do not act boldly and swiftly, a bad situation could become dramatically worse."
Obama's remarks came as he is lobbying for quick congressional passage of an $825 billion stimulus package to pump up the economy.
The president revealed more details of his stimulus package, which he said would add more than 3,000 miles of electric lines to transport alternative energy across the country.
Obama also said the plan would save taxpayers $2 billion by making three-quarters of federal buildings more energy efficient and would "save the average working family $350 on their energy bills by weatherizing 2.5 million homes."
The White House also released a report on the American Recovery and Reinvestment Plan, which calls for greater investment in Pell Grants for college students, a $2,500 college tax credit for 4 million college students and the tripling of the number of fellowships in science to help spur innovation.
Obama promised full accountability for government spending. After a stimulus bill is passed, a Web site, http://www.recovery.gov/, will show taxpayers how their money is being spent, he said.
In the Republicans' response, Rep. Cathy McMorris Rodgers criticized the Democratic plan.
"The $800 billion plan largely ignores the fact that we cannot keep borrowing and spending our way back to prosperity," said McMorris Rodgers, R-Washington.
"Instead of letting American families keep more of their hard-earned tax dollars, this plan proposes to spend additional money -- billions -- on such programs as new government cars, global warming studies and a billion extra dollars for the U.S. Census."
Balancing the budget and enacting tax cuts "are central to moving our economy forward," she said.
The president is calling for the plan, which he hopes will create up to 4 million jobs over the next two years, to be passed by Congress and at his desk for signing by February 16, which is Presidents Day.
Posted by SumanSpeaks

Is Satyam Computers Services Ltd, a buy at Rs.39.95 ??!!

To understand this fact, let us consider the following points, a little meticulously .........
Satyam Computer Services Ltd
Scrip Code : 500376

The following Fund Houses sold shares yesterday in the open market due to too much panic created by the "Media Terrorists":

Hence it can be concluded from the above data that Majority of Fund Houses feel that Satyam Computers Ltd will be able to come out of the mess created by its Founder Chairman Mr. B Ramalinga Raju??!!
Moreover, Sukumar Rajah, chief investment officer (CIO) of equity in India at Franklin Templeton Investments, which manages $4 billion of assets in the country, said in an e-mail, “This unfortunate development will be a short-term negative for market sentiment,”. Still, by forcing regulators to improve oversight, the incident “should be a Long Term Positive,” Rajah said.

According to a well known and reputed financial web-site, developing-nation stocks are trading near their cheapest levels in a decade after the global economic slowdown and a slump in commodity prices sent the MSCI Emerging Markets Index down 54 percent in 2008. In comparison, the MSCI World Index dropped 42 percent. Shares in the MSCI emerging-markets index trade at 8.8 times reported earnings, while developed shares fetch 11.5 times profit. Sensex companies trade at 9.5 times earnings.
Aberdeen Asset Management Asia Ltd., Satyam’s largest institutional investor as of September, said its investment outlook for India hasn’t changed. Funds run by Aberdeen own at least 5.12 percent of Satyam, according the Hyderabad-based company’s filings for the quarter ended Sept. 31.
“People will grow a bit more dispassionate, but you can say the same for the U.S. and elsewhere,” said Hugh Young, managing director at Aberdeen’s Asian unit, which manages $37.3 billion. “India has great companies that do the right things. Hopefully this is a one off.” He declined to say how many Satyam shares Aberdeen holds, or whether any were sold recently.
India’s $1.2 trillion economy may grow 7 percent in the year ending March 31, the slowest pace since 2003, according to government forecasts. The economy may expand at close to that rate in the next fiscal year as the global recession cuts exports and domestic demand wanes, Junior Industry Minister Ashwani Kumar said in New Delhi yesterday.
To understand the mammoth-ness of Satyam Computers Services Ltd let us take note of the following facts: Satyam Computer Services Ltd, employs 53,000 people, operates in 65 countries and serves almost 700 companies, including 185 Fortune 500 companies. More than half of its revenue comes from the United States.
The most encouraging news came from http://www.cnn.com/ which writes: "Analysts say Satyam is ripe for a takeover, and the government is expected to submit a formal report on the matter Thursday".
Therefore, can we construe that those highly skilled stock market professionals, who have purchased some shares of Satyam Computers Ltd will have a field day in the next few months??!!
However, the most horrifying part of this event is that that cash balance that was non-existent got certified by one of most reputed auditors in the world map, PricewaterhouseCoopers LLP. This reputed auditor of Satyam Computers Ltd’s, declined to comment on the scandal, according to an e-mail from the New York- based firm’s public relations adviser, Edelman.

Srinivasa Shipping and Property Development Ltd

Srinivasa Shipping and Property Development Ltd moved to Rs.28 before cooling down a bit. This is a wonderful company which was recommended by me in a number of occassions. Srinivasa Shipping and Property Development Ltd (SSPDL) is a three city Real Estate play on Bangalore, Hyderabad and Chennai markets, where a property boom is going on.
SSPDL is a property development company primarily developing commercial (IT parks, Shopping Malls, Hotel projects, service apartments etc) and residential properties (gated communities, villas, apartments and serviced plots) in Chennai, Bangalore, Hyderabad and Kerala.
The business model is as follows:
(a) The Company purchases land and develops it based on market needs
(b) The Company takes land on development from the landowners and shares the developed property with the landowner in a particular ratio and
(c) The Company takes on third party construction contracts in the building sector.
The projects on hand are:
-Bangalore Retreat - December 2009
-OMR Mixed Development Project, Chennai - September 2010
-OMR Residential Project, Chennai - December 2009
-Hyderabad Retreat, Hyderabad - December 2012
-The Retreat, Kallar Valley, Kerala - Dec 2010
The value of projects under execution exceeds Rs.2250 crore with over 7 Million Sq. ft of Built Up Space aggregating to a Sale Value of Rs.1800 Crores Plus in various stages of execution.
SSPDL has also announced plans to take up the following projects:
-Gundla Pochampally/Kompally, Hyderabad - a 40+ acre residential gated community
-Bangalore-Mysore Highway Project - a 60+ acre residential community
- Montieth Road Property Chennai - Office space.
The Retreat, Hyderabad has an SEZ as an integral part of the project. SSPDL has appointed Surbana, the Singapore based architects for this project and currently planning is underway. The earliest revenues will be recognized from 3rd quarter of 2008 (or in Q3FY09).
At Kallar Valley in Kerala SSPDL has acquired about 325 Acres of pristine Plantation Land with natural forest and waterfalls, springs etc. The site is located in the Hills and is a 2 hour drive from Kochi Airport.
SSPDL intends to put up a 20 acre world class resort with a Hospitality Partner. Besides this it will promote Vacation Homes of super luxury quality by invitation. In addition, the Company has been awarded construction contracts aggregating to Rs.78.20 Crores for the following works from third parties.
(i) Construction contract with NBCC, Hyderabad for construction of 1.5 lakh sq feet office building.
(ii) Construction contract of warehouse for SAIL Ltd at Vizag.
(iii) Construction contract for TCG IT Park, Chennai.
(iv) Construction contract for 50 villas for Ferns-Regalia Realty Ltd, Chennai.
2. SSPDL Infrastructure Developers Pvt Ltd, a SPV held jointly by the Company together with Innovative Realty Opportunity Fund Ltd have entered into a sate agreement with Accor Group of Hotels for hotel space in "The Promenade" Project, at Egattur, OMR, Chennai.
3. SSPDL Ltd and Indiareit Fund Advisors Pvt Ltd through their SPVs have acquired 42 acres in Gundtapochampalty village, Hyderabad to develop a gated residential villa community "SSPDL Northwoods". Total estimated project value is Rs 250 crores.

source : sumanspeaks

Ram Informatics Ltd

Ram Informatics Ltd (BSE Code--->530951) hit the buyer freeze with good volumes. The stock was recommend on 31st December, 2008. This ulitmately became the New Year Gift to all. Good days are ahead for the company as it is into election software space. Moreover, since it has expertise in the e-governance space and hence it would do well going forward as the centre is expected to give new thrust to e-governance.
RAM INFORMATICS (RAMINFO) is a contemporary technologies software services and products company offering solutions for Government, Banking, Insurance and Retail Business---most important part is that it generates most of its revenues from the domestic market. certified company for its software development and education & training services. The company leads in providing e-Governance solutions to the Government sector, Enterprise Applications integration solutions besides Banking, Insurance and retail-business sectors. As an end-to-end software solution provider, the company identified the need to develop the right technical manpower to meet the ever-changing technology needs of the IT industry. Moreover, RAMInfo, the Education & Training Division of RAM Informatics Limited has a mission " to create future-proof IT professionals through quality training". The courses are designed, developed and delivered in compliance with ISO 9001 standards. Also the course contents are enriched on a continuous basis, at our R&D division incorporating real-time project exercises, problem-solving techniques and personal leadership modules.
This integrated training methodology helped thousands of students to get placed in Fortune 500 companies worldwide successfully. The training business is similar to Everonn Systems Ltd or Educomp Solutions Ltd or may be Aptech Ltd (Rakeskh Jhunjhunwala holds substantial stake in the company and hence buy on declines). The fact that it has Governments of Karnataka, Andhra Pradesh, Uttar Pradesh, etc. as its client, give a steadiness of earnings. One of its most prestigious clients is the mammoth, Andhra Pradesh State Road and Transport Corporation.

posted by sumanspeaks

Megasoft Ltd - A Short Term Pick

Saturday, January 03, 2009

Megasoft Ltd: Mega Telecom Foray to Propel Growth
Face Value: Rs.10
BSE Code: 532408
CMP: Rs.20.7
Book Value: Rs.68.14
Market Cap: Rs.91.63 Cr
52-Week High /Low: Rs.134 /Rs.17.10
P/E : 4 (Good software /IT companies generally command a P/E > 10)
Introduction: Megasoft is a trans-national Intellectual Property driven, product-based technology company. Established in 1994 in Virginia USA & Listed in Mumbai Stock Exchange. Megasoft, a public listed company operates out of offices spanning Europe, Asia and America.
The company has operations in more than nine countries worldwide including its development centers in India and China. Megasoft is currently focusing on Telecom as thrust area given its strong management and delivery capabilities in these industry domains. Telecom sector at present is witnessing tremendous growth throughout the world including India and China. Strong partnerships with global leaders like HP, Teleglobe and TNZI have given XIUS-bcgi the reach and credibility to build a customer base spanning across Asia, Americas, Europe and the Middle East with over 65 commercial installations to its credit till date.
Description of the Group: Megasoft Limited ("the Company") together with its subsidiary companies (collectively "the Group") are engaged in the business of providing Information Technology services to customers.
Name of the subsidiary companies:
Direct subsidiaries:
(i) Megasoft Consultants Sdn Bhd (Malaysia)
(ii) Megasoft Consultants Pte Ltd (Singapore)
(iii) Megasoft Consultants, Inc. (USA)
(iv) Boston Communications Group, Inc. (USA)
(v) Beam AG (Germany)
Indirect subsidiaries:
(i) Megasoft Consultants Limited (UK)
(ii) Megasoft Consultants GmBH (Germany)
(iii) Megasoft Consultants BV (The Netherlands)
(iv) Cellular Express, Inc. (USA)
(v) Puresight Technologies Ltd (Israel)
(vi) Boston Communications Group de Mexico, S.R.L. (Mexico)
(vii) BCGI Wireless Pvt Lt (India)
Shareholding Pattern: The promoters hold 15.84 % of the shares of the company while the General public holds 84.16 % of the shares of the company. It is interesting to note that Mutual Funds hold 14.93%, Venture Capital Funds hold 8.50% and FIIs hold 13.32 % of the shares of companies, indicating the quality of the company. All these three entities constitute around 36% of the shares of the company. Among the general public there are some interesting data:
(a) Individual shareholders holding nominal share capital up to Rs. 1 lakh is 12.78%
(b) Bodies Corporate hold 9.28
(c) Directors & their Relatives & Friends hold 5.02%
(d) Non Resident Indians hold 2.34 and
(e) Foreign Corporate Bodies hold 4.34% of the shares of the company, leaving very little shares in the hands of common investors. THIS GIVES PREMIUM TO THE SHARES OF THE COMPANY.
Some Very Great Names or who's who of Industry, emerge if we study the share holding pattern, in details:
(a) ICICI Prudential Tax Plan holds 3%
(b) ICICI Prudential Fusion Fund holds 2.01 %
(c) Birla Sun Life Trustee Company Pvt Ltd A/c Birla Sun Life Equity Fund holds 3.92 %
(d) BNP Paribas Arbitrage holds 2.21 %
(e) Morgan Stanley Mauritius Company Ltd holds 1.75 %
(f) Deutsche Securities Mauritius holds 3.96 %
(g) Copthall Mauritius Investment Ltd holds 4.80%
(h) SAIF II Mauritius Company Ltd holds 3.95% and
(i) ICICI Prudential Emerging Star (Stock Targeted at returns) Fund holds 3.54%
Financials: On a standalone basis the total income of the company for Q2FY09, came out to be Rs.32.4 Cr as against Rs.17.23 Cr in the same period previous year. PBDT (Profit Before Tax and Depreciation) of the company came out to be Rs.10.3 Cr as against Rs.5.52 Cr in the same period previous year. Profit before tax is a whopping (ten times) Rs.6.09 Cr as against a mere Rs.66 lakhs in Q2FY08 (same period the previous year). The net profit of the company for Q2FY09, came out to be mind boggling Rs.5.6 Cr as against Rs.1.43 Cr in the same period previous year. Another point which is worth noting is that both the operating and net profit margins in Q2FY09, increased considerably, over the previous year. The cash EPS of the company for Q2FY09, came out to be Rs.2.21 as against Rs.1.42 in the same period previous year.
Investment Rationale:
1. The fact that Megasoft Ltd is currently focusing on Telecom as thrust area given its strong management and delivery capabilities in these industry domains, is a song to the shareholders as telecom sector at present is witnessing tremendous growth throughout the world including India and China.
2. Strong partnerships with global leaders like HP, Teleglobe and TNZI have given XIUS-bcgi the reach and credibility to build a customer base spanning across Asia, Americas, Europe and the Middle East with over 65 commercial installations to its credit till date.
3. The company plans to aggressively market its VOISE solution across the EU, especially to the telecom service providers in Germany, the UK, France, Italy, etc. Megasoft Ltd, also plans to tap the potential being generated in the industry because of the outsourcing requirements.
4. The company is also planning to increase its focus on the life sciences domain, primarily on Electronic Data Capture (EDC) applications (required in clinical research).With an enhanced understanding of customer needs, Megasoft is focusing on tapping the increasing market requirement for EDC applications in the pharmaceutical industry, especially in the EU and the US. Megasoft Ltd. generates approximately 60 per cent of its revenues from its consulting division.The company has plans to increase its geographic presence and provide quality consulting services to its clients.
5. It has earlier amalgamated erstwhile, VisualSoft Technologies Ltd with effect from 1st October, 2006, which is giving great thrust in its revenues.
6. On August 30, 2007 the company completed acquisition of US based "Boston Communications Group, Inc." ("bcgi") by acquiring 100% of the bcgi’s shares through a open tender offer. bcgi has become a wholly owned subsidiary from that date.
7. It is a dividend paying excellent company in the software sector. The company has now moved to a managed services model from the License sale of revenues. By this change in the Revenue model, the company has a substantial visibility of its revenues for the near future.
The fact that the scrip is trading near its 52-week low price of Rs.17.10, gives it limited downside from the CMP of Rs.20.7.
8. Megasoft Ltd. made a strategic investment of US$ 3,000,000 in Keystone Wireless, LLC, USA during June 2007 as 5% stakeholder. Keystone is a mobile telecom service provider based out of the United States. The result of this investment has started to show in the quarterly results.
9. With the quarterly results of some of the well known or who' s who, in the information technology (IT) space, coming in this month, we could see some buoyancy in the shares of IT companies in the days to come. Hence, we could see some great movement in the shares of the company as it is a very well managed company, working across various verticals.
10. The company has a strong intellectual property portfolio and is a forerunner in adopting new technologies for its innovation and co-creation strategies.
It is a multi-national and multi-continent company and hence should trade at high valuations.
11. Megasoft has substantial exposure to foreign exchange related risks because of earnings denominated in foreign currency arising from export of software. Majority of the company's revenues are US dollar (USD) denominated and the continued Depreciation of Rupee (INR) vis-à-vis the USD can further pump up the revenues and margins going forward, through indirect gains. The company hedged its forex exposure through forward contracts. The company also has a natural hedge as most of its expenditure is in the US Dollar. The company has not entered into any derivative transactions during the year.
Concerns: Growth of Megasoft Ltd is dependant on the telecoms industry. Any vagaries in the telecom business environment will influence the performance of the company. The Telecom Industry has a historical practice of extended sales cycle and high debtors' position. This may be detrimental to cash flows of the company.
Conclusion: Megasoft Ltd perceives the market opportunities to be favourably inclined to its current offerings and strategies. With the US markets showing weaker growth and the emphasis on cost reduction globally, Megasoft is rightly positioned as a niche player with a strong brand value in the telecom products segment and a number one player in the ADMS and PLM space. Moreover, the US economy is set to improve going further, triggering a rally in the IT stocks. With the increasing focus on innovative technology solutions and a strong R&D back ground along with product development expertise, Megasoft Ltd is ready for exploiting this unparalleled opportunity to expand and grow in these areas as a strong entity.
If we look at the charts we will find that Bollinger Bands, Stochastic, MACD, and Candle Stick Chart Pattern indicates an immediate rise in the price of the scrip. Also, on last Friday, the scrip rose with high volumes indicating that bulls have started to enter the scrip.
Moreover, from the daily charts it is found that the scrip has broken out of the envelop pattern on the positive side, indicating further upmove in the price of the scrip.
Hence, one can buy the scrip at the CMP of Rs.20.7, for a target of Rs.35--Rs.55 in the short to medium term.
Posted by SumanSpeaks