Recent dip - A buying opportunity?

Recently, we have seen lot of midcaps have started falling significantly, hence I believe it's a good buying opportunity for the long term investor at current point. Also, I am working on a new idea, and will be posted once I will confirmed all the aspects of the company. Meanwhile, the investors can look at the old recommendations to take call for their investments.

PNB Gilts - Future potential...

Company Profile - 

PNB Gilts was one of the first entities to be granted the primary dealership license by the RBI to deal in the Indian debt market. The company is a subsidiary of Punjab National Bank, and has played a pivotal role in strengthening of the domestic fixed income markets including retailing of government securities (g-secs). As a primary dealer, primary activities are supporting the government’s borrowing program via underwriting of government securities issuances and trading in a gamut of fixed-income instruments such as g-secs, treasury bills, state development loans, corporate bonds, interest-rate swaps and various money market instruments such as certificates of deposits, and commercial papers. 

Current Strengths- 

Its capital adequacy ratio stood at 49.14% end March 2014 as against the RBI-stipulated 15%. Income from operations rose 25% to Rs 87.76 crore in the quarter ended September 2014 over a year ago and in December it stood at 122 crores. It's net profit has shown a significant improvement by making it well above 70 crores which takes its EPS to close to 4 Rs. in first 9 months of current fiscal year.For the first time after many years, ideal conditions are getting evolved for a downtrend in interest rates over the next couple of years. This creates favourable conditions for a short-to medium term bullish g-sec and bond market, throwing up many trading and investment opportunities in the debt market. PNB Gilts is ideally placed to capitalise on these opportunities.The share price trades at Rs 33. With projected  EPS of this financial year of Rs 5.5, its trading currently at just 6 times. Since this favorable conditions are likely to continue for next fiscal year as well, we are seeing a potential re-rating in the stock once PNB Gilts starts posting handsome results. We expect PNB  Gilts to sustain it's profit margin through active trading in the markets in which they are operating. Hence, we are covering our positive look on the stock. 

SNL Bearing - consistent growth

SNL Bearings Ltd was incorporated as ‘Shriram Needle Bearings Industries Ltd’. The company was promoted by the ‘Shriram Group’ in 1983 in Ranchi, Bihar. It was a joint venture with Industriewerk Schaeffler INA, Germany to manufacture bearings. The joint venture agreement came to an end in 1997. In June 2000, SNL was acquired by NRB Bearings Ltd (NRB) and its name was changed to SNL Bearings Ltd (SNL). SNL manufactures ball bearings and roller bearings. Its offerings in roller bearings include tapered bearings, cylindrical bearings, needle bearings, spherical bearings, thrust bearings and others. These products are largely used by companies in automobile sector, general engineering sector, railways, and by electrical equipment manufacturers. It also manufactures special purpose machines and tools for the bearings industry. SNL Bearings Ltd is total solution provider engaged in the manufacture and marketing of anti-friction bearing products

The products of the company are supplied to a customer base comprising of original equipment manufacturers producing motorcycles, scooters, cars and trucks in India, and the company has made successful inroads into the motorcycle, chainsaw, hand tool and other industrial markets worldwide with established customers.

Industry Applications
• Automotive
• 2/3 Wheelers
• Motorcycles
• Scooters
• Three Wheelers
• Passengers Cars
• Commercial Vehicles.
• Tractors & farm Equipment
• Off High Way

Global Footprints
• USA
• Italy
• UK
• Portugal
• France
• Indonesia
• Malaysia
• Taiwan
• Singapore
• Thailand.
• Vietnam
• Philippines
• UAE
• Kenya
 
Products
• Needle Cages & Roller Cages
• Needle Bushes
• Bearing with Cage-Guided Needles
• Full Complement Needles Bearings
• Needle Rollers
• Cylindrical Roller Bearings
• Crank Pins
• Ball Bearings
• Tapered Roller Bearings

At the current market price of Rs.101, the stock P/E ratio is at 10x FY15E and 9x FY16E respectively. Earnings per share (EPS) of the company for the earnings for FY15E and FY16E are seen at Rs. 10.57 and Rs. 11.55 respectively. Net Sales and Operating Profit of the company are expected to grow at a CAGR of 7 percent and 3 percent over 2013 to 2016E respectively. Price to Book Value of the stock is expected to be at 2 x and 1.5 x respectively for FY15E and FY16E. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. Hence, we provide a positive coverage on the stock and medium term stock holders can look for right opportunity to buy it. 

Tata sponge iron - trading cheap...

Orissa – Based TATA Sponge Iron is a India’s Leading manufacture of sponge iron. TATA Sponge Iron is an associate company of TATA Steel.Orissa – Based TATA Sponge Iron is a India’s Leading manufacture of sponge iron. Tata Sponge sources iron ore fully from the mine of its parent and imports a good part of its coal needs, eliminating uncertainty of availability. It also generates its own power eliminating another source of availability uncertainty.

Why to buy?

1.  Tata Sponge operates its plant at near full capacity; and runs it well. For instance it tries to continuously minimize the coal and power needed to make a unit of sponge iron. Further the quality of sponge iron produced is consistent in its Iron content and weight – important consideration for customers. Operating a plant at full capacity allows its fixed costs to be spread over the largest possible quantity minimizing per unit costs of sponge iron – not to mention time and costs saved from rampant start-ups and shut-downs.

2. Tata Sponge uses waste heat from the sponge iron making process to generate power, 2/3rds of which at full capacity is sold to the local state electricity board. The marginal cost involved is about 30 – 40% of the price at which power is sold to the grid. These profits are independent of the sponge iron prices allowing the bottom-line to escape to an extent the cyclical nature of the sponge iron business.

3. Further Tata Sponge has turned a profit every year in the past since 1992. Tata Sponge features excellent business economics with high returns on tangible capital employed in excess of 50% and return on tangible equity over 20%. Impressively, Tata Sponge has grown revenue 15 out of the last 20 years.

4. Greater visibility on coal block statutory clearances  which will lead to margin expansion and  government focus on infrastructure growth should see a sustained demand for sponge iron. 



Cheap valuation, Tata group backed company, access to Tata Steel`s iron ore and excellent operational efficiency are reasons convincing enough to stock up on this script.

MINDA INDUSTRIES - STRONG OUTLOOK

Minda Industries (MIL), a flagship company of NK Minda Group (UNO Minda) is market leader in the domestic Switches and Horns, commanding a market share of 61% and 47% respectively. Switches/Lighting/Horns account for 45%/18%/22% of revenues with ~83% sales to OEMs Bajaj Auto/TVS Motor/ HMSI/Maruti Suzuki account for 27%/16%/9%/6% of standalone revenues.  MIL will benefit from the expected revival in automotive demand, given its strong and improving market share.

Key notes - 

 - During FY14, the exports contributed 19% to the consolidated top-line while the remaining 81% of the consolidated revenues came from domestic markets; 13% of the revenues were recorded from replacement markets while 87% of the revenues were from OEMs. The two-wheeler and four-wheeler percentage in the consolidated revenues stood at 63% and 37%, respectively. The domain-wise revenues break-up was as follows: Electricals & Electronics (46%), Body & Structure (14%), Chassis & Motor Systems (21%) and remaining others (19%).

- The Management stated that the FY14 performance lagged on the consolidated basis primarily due to lower utilization levels in the recently expanded capacities and non-recurring extra-ordinary expenses incurred on acquisition of Spanish Company, Clarton Horn. The acquired entity registered a top-line of above 2,000.0 mn but incurred a loss of approximately Rs.110 mn at the PBT levels which included a one-time Management Fees of roughly Rs.60 mn which was paid to the erstwhile stakeholders for the smooth transfer of operations. The EBITDA margin stood at 4.5% which is likely to go up over the period of next two years on account various cost-cutting measures and streamlining activities to synthesize the Indian and Spanish operations. The subsidiary received upgraded business orders from Renault and Nissan. Additionally, the leading horn manufacturer came out with new horn product for both OEM and Aftermarket.

- The Lighting division which contributed 14% of the top-line was substantially impacted by the slowdown in the four-wheeler category as majority of its revenues are being derived from four-wheelers. The profitability was also impacted in this segment on account of extended investments in Manesar, Pune and Chennai facilities. The Management stated that during last three years, the company has been investing substantially in capacity expansions in lighting division. The capacities are now ready and awaiting a ramp-up in improving the utilization levels. The old facilities have been running at 85-90% but the recently added capacities witnessed low utilization levels of 30-40% which is likely to improve during the current fiscal. The Pune plant is likely to break-even during Q1 FY15. The company has received new orders from Nissan and Mahindra & Mahindra in this division.  The EBITDA margin in the lighting division has come down from 14.96% to 13.72% during FY14.

- The Switches business also dragged the overall performance as the Hosur Plant which started production only in Q1 FY14 took almost three quarters to break-even. The Management expects the full benefits of this added facility only in the second half of FY15. The old capacities of this segment run at 85% utilization levels but the Hosur one ran at  55% in the recent quarter which is likely to move up to 80% within two quarters.

- Minda Distribution & Services Ltd. (MDSL) which is a distribution company for the aftermarket segment is primarily run as a cost-centre and all the profits are passed on to Minda Industries Ltd. and thus, despite a good top-line the profits are negligible. 

- The top-line of another subsidiary, Minda Kyurako doubled from Rs.210.7 mn in FY13 to Rs.467.0 mn in FY14, however, the losses at the PBT levels widened from Rs.15.7 mn in FY13 to Rs.44.3 mn in FY14 primarily due to addition of Bawal facility which started commercial production only during the last year and a paint shop which was added recently. Due to high investments, as reflected in higher interest and depreciation costs, led to widened losses. Nevertheless, the Management expects improved capacity utilization levels in FY15 which will positively impact the profitability levels.

- During the fiscal, the Company has started production of Fuel Caps for Maruti Suzuki India Ltd. The fuel cap business is currently running at 50% capacity utilization levels and is likely to go to 75-80% levels during H2 FY15. In addition, the revenues of Minda Auto Components jumped from Rs.550 mn to Rs.650 mn while the PBT levels improved moderately from Rs.35 mn in FY13 to Rs.40 mn in FY14.

Management Guidance - 

Management expects net sales CAGR to move up to a higher trajectory over FY2014-16E driven by the demand recovery and ramp-up at new facilities/ customers. EBITDA margin is expected to improve from ~5% in FY14 to near double digits over the next two years, on the back of higher utilization levels. Management’s guidance of strong revenue growth, near double-digit EBITDA margin and benefits of deleveraging implies a possible EPS of ~Rs 39 in FY15 and ~Rs 55 in FY16. At the CMP, the stock would be trading at an implied P/E of 12x FY16E earnings respectively. On management’s view of growth/profitability/capex, the company could see a RoCE of ~15% in FY16 and Net Debt:Equity is likely to come down from 0.9x in FY14 to 0.3x in FY16E.