Long term investment strategy (not named yet)

Long Term Investment StrategyThis strategy was designed in Oct 2010 and the report below was created in 31st Oct

2010. Now (17th May 2012) results are compared with Sensex and this strategy to

invest is proving to be really successful for long term investing with 40.5% excess

returns than Sensex for the same period.

To see return calculation go to the last page.

Submitted By:-

Tanesh Gagnani (081121)

Rohit Mehta (091162)

Strategy

We have devised an investment strategy of our own with main focus on finding companies which have

been consistently improving their performance. Here ‘performance’ implies both companies own

profitability and returns for investor. The objective of this strategy is very similar to that of the strategies

of Philip Arthur Fisher i.e. investing in a few outstanding stocks rather than lot of good investments, but

the implementation of strategy is somewhat different from that of Fisher’s. Fisher’s strategy focused on

the business of the company with main focus on issues such as products offered by the company, its

research and the quality of management as a whole etc. but our main focus is on the financial

performance of company whatever the product may be.

This approach is a mix of strategies of major investment gurus like Philip Arthur Fisher (small

companies), Benjamin Graham (low or moderate P/E and P/BV), etc.

The criteria chosen to filter companies are

1. PBITDM (%): This ratio as it tells us the amount of money the company is earning on its

sales. Higher value is appreciated for this ratio as that would indicate that the company is

able to keep its earnings at a good level via efficient processes that have kept certain

expenses low.

a. Usage: A filter was applied on all the companies being traded on BSE that company

should have continues year on year growth in PBITDM(%) for the last 4 years.

b. Logic: For a company to have continuously improving PBITDM(%) can be a result of

improving efficiencies of that company and if the processes within the company has

been improving for the last 4 years, then it is likely that this is a result of efficient

management. Which means the company is likely to have better future prospects.

2. APTAM (%): A company's after-tax profit margin tells us the percentage of money a

company actually earns on sales. it helps to measure of how well a company controls its

costs after taxes. A high after-tax profit margin is generally seen as better but a low after-tax

profit margin is not necessarily a negative sign. Some companies and industries are

expensive to run and have low margins by their nature.

a. Usage: A filter was applied on all the companies being traded on BSE that company

should have continues year on year growth in APTAM (%) for the last 5 years.

b. Logic: For a company to have improving APTAM (%) for the last 5 years means that

company is generating greater amount of funds which is likely to result into a

greater reinvestment which will result into growth or greater dividends either way

investors are bound to profit, either from increase in stock prices or in a more direct

way of dividends.

3. RONW (%): It is the ratio of net income after taxes to total end of the year net worth. This

ratio indicates the return on stockholder's total equity. Higher value of RONW is preferred.

RONW indicates how efficiently the company is using the equity to generate profits.

a. Usage: Just as before here also a filter was applied on all the companies being

traded on BSE that company should have continues year on year growth in RONW

(%) for the last 5 years.

b. Logic: A direct implication can be drawn about improving RONW (%) is that

company is generating greater amount of percentage funds on the shareholder’s

money which is invested and since here the filter is of continues 5 years of

improving RONW (%) we can imply that company is performing extremely well.

What we do not mean with this:

DeBondt and Thaler (1985, 1987) report found out that long-term past losers outperform

long-term past winners over the subsequent three to five years. We are not challenging

their research. Their findings were in relation to market price movements whereas we have

filtered companies on the basis of ‘company’s performance’ and not the performance of

their stock. We believe that improved performance of company will eventually result into

increase in share price.

Stocks selected after applying filters

Company Name

Average Growth

in PBITDM (%)

Average Growth in

APTAM(%)

Average Growth in

RONW (%)

Priya Ltd. 0.24 0.48 0.54

Jaysynth Dyestuff

(India) Ltd

Turn Around

(NMF*)

Turn Around

(NMF*) -0.61

BCL Industries &

Infrastructures Ltd 0.32 0.89 0.69

Zensar Technologies

Ltd 0.05 0.12 0.15

Simplex Castings Ltd 0.12 0.36 0.39

Relaxo Footwears Ltd 0.11 0.19 0.24

Ajanta Pharma Ltd 0.11 0.12 0.29

Himalya International

Ltd 0.28 0.43 0.43

Sanco Trans Ltd 0.28 0.52 0.44

Patels Airtemp (India)

Ltd 0.17 0.28 0.29

Globsyn Infotech Ltd 0.32

Turn Around

(NMF*)

Turn Around

(NMF*)

Gini Silk Mills Ltd 0.15

Turn Around

(NMF*)

Turn Around

(NMF*)

Jolly Board Ltd 0.52 1.02 0.92

HEG Ltd 0.20 0.20 0.23

LIC Housing Finance

Ltd 0.03 0.08 0.18

Genesys International 0.24 Turn Around Turn Around

Corporation Ltd (NMF*) (NMF*)

Glodyne Technoserve

Ltd 0.23 0.22 0.06

Redington India Ltd 0.14 0.18 0.14

Hawkins Cooker Ltd 0.25 0.32 0.33

Goodricke Group Ltd 0.34 0.58 0.67

Bata India Ltd 0.25

Turn Around

(NMF*)

Turn Around

(NMF*)

DFM Foods Ltd 0.10 0.09 0.40

Alka Securities Ltd 0.38 0.75 0.90

Compact Disc India

Ltd 0.55

Turn Around

(NMF*)

Turn Around

(NMF*)

*Company turned around from negative to positive and hence the CAGR became mathematically not-meaningful

Basis of Selecting 6 companies

From the above 24 companies 6 companies were zeroed in with an idea of reducing risk. Which is done

by choosing companies of as different sectors as possible this again was done by finding out sectors to

which each company belongs to and then assigning an industry group i.e. combining related industries

into one and then choosing fundamentally sound companies with low(in comparison to their sub

industry) P/E and P/BV while maximizing diversification.

Following is the list of companies with industries in which they belong to

Company Name

latest

P/E

TTM

latest

P/BV

Industry

P/E

TTM Industry

Industry

Grouping

BCL Industries & Infrastructures Ltd 7.87 0.49 15.32

Solvent

Extraction -

Large Chemicals

Jaysynth Dyestuff (India) Ltd 2.69 0.51 8.92

Dyes-

Intermediaries Chemicals

Bata India Ltd 25.31 6.7 18.25 Footwear

Cloth, apparel

and accessories

Gini Silk Mills Ltd 4.77 1.65 11.29 Textiles

Cloth, apparel

and accessories

Relaxo Footwears Ltd 13.7 4.51 18.25 Footwear

Cloth, apparel

and accessories

Genesys International Corporation

Ltd 31.92 7.13 14.34 software Computer

Globsyn Infotech Ltd 0 0.51 8.74 software Computer

Glodyne Technoserve Ltd 18.64 6.09 14.34 Software Computer

Redington India Ltd 30.59 4.91 36.84 Computer -HW Computer

Zensar Technologies Ltd 8.02 2.5 14.34 Software Computer

Hawkins Cooker Ltd 14.07 13.67 17.66

Domestic

appliances Domestic goods

Jolly Board Ltd 8.39 2.05 16.28

Decorative

wood based Domestic goods

HEG Ltd 8.62 1.87 8.27 Electrodes Engineering and

Graphite metal

Patels Airtemp (India) Ltd 5.49 1.62 18.51 Engineering

Engineering and

metal

Simplex Castings Ltd 5.11 1.08 12.19

Casting

Steel/Alloy

Engineering and

metal

Compact Disc India Ltd 1.29 0.6 33.7 Entertainment Entertainment

Alka Securities Ltd 0 2 20.25

Finance

Investment Finance

LIC Housing Finance Ltd 15.28 3.38 22.07 Finance Finance

Priya Ltd. 6.08 0.33 205.53 Trading Large Finance

DFM Foods Ltd 10.75 2.85 12.58 Food Processing Food

Goodricke Group Ltd 7.83 2.75 7.56 Tea Food

Himalya International Ltd 8.56 1.21 20.11 Food Processing Food

Sanco Trans Ltd 10.33 2.07 30.64 Misc. Misc.

Ajanta Pharma Ltd 8.62 1.52 11.07 Pharmaceuticals Pharmaceuticals

1. BCL Industries & Infrastructures Ltd:

a. The biggest problem with this company is the number of traded of this stock are also

very few, this may create problems while exiting (we simply may not be able to find a

buyer for a long time while selling this stock).

b. Operating profit of this company has seen a major decline for the year 2010.

2. Jaysynth Dyestuff (India) Ltd:

a. The one major problem with this company is that latest data for this company is not

available and hence this makes the investment very risky.

b. Number of traded of this stock are also very few, this may create problems while exiting

(we simply may not be able to find a buyer for a long time while selling this stock).

3. Bata India Ltd:

a. Higher than industry P/E.

b. Bata has seen a steady rise in cash from operating over the last few years.

c. One of its subsidiaries has been a non-performer for a very long time and hence a

liability.

4. Gini Silk Mills Ltd:




b. Cash for operations became negative in 2007 from which is recovered.

c. Financial data for 2010 is not available.

d. Financial performance has significantly improved over the past 4 years (till 2009).

5. Relaxo Footwears Ltd:

a. Financial data for 2010 is not available.

b. Financial performance prior to that was extremely good.

c. Number of traded of this stock are also very few, this may create problems while exiting


6. Genesys International Corporation Ltd:




b. Its cash from operations has seen huge fluctuations.

7. Globsyn Infotech Ltd:

a. Cash from operations are on continues decline from 2008 onwards.

b. Higher profits are not a result of operating activities and hence should not be

considered sustainable over a long period.

c. Very poor cash position.

d. It has a low RONW% but it is on continues increase.

e. Latest data for this company is not available and hence this makes the investment very

risky.

f. Number of traded of this stock are also very few, this may create problems while exiting


8. Glodyne Technoserve Ltd:

a. Latest data for this company is not available and hence this makes the investment very

risky.



c. Its financial performance has been very good in the last 5 years.

9. Redington India Ltd:

a. Performance is moderately good but it is a small company and hence considered a risky

investment which makes it an unattractive investment.

10. Zensar Technologies Ltd:

a. Performance has been constantly improving since 2006.

b. Very good cash position.

c. Steady rise in RONW%.

d. Better than industry P/E.

11. Hawkins Cooker Ltd:

a. Financial performance has been exceptional over the years.

b. Very good cash position.

c. Steady rise in RONW%.


12. Jolly Board Ltd:

a. Its cash from operating activities is negative for the year 2009.



13. HEG Ltd:

a. Operating cash flows dipped in 2009 but they were completely recovered in 2010.



14. Patels Airtemp (India) Ltd:

a. Cash from operating activities is good.

b. Financial performance has been good.

c. RONW%, PAT% are excellent.

d. Financial ratios have been continuously improving

e. Better than industry P/E.

15. Simplex Castings Ltd:


risky.

b. Cash from operating activities dipped in 2008.

c. Number of traded of this stock are also very few, this may create problems while exiting


16. Compact Disc India Ltd:

a. Company seems fraudulent.

b. It has a very poor revenue reorganization policy.

c. Huge debtors.

d. Very poor cash position.

e. Number of directors in board is only 3 with no independent director, may get delisted.

17. Alka Securities Ltd:


risky.

b. Excellent growth in profits and RONW% seems like a good investment for someone with

high risk propensity.

18. LIC Housing Finance Ltd:

a. It has very good cash from operating activities, continuously increasing.

b. RONW%, PAT% are excellent.

c. Financial ratios have been continuously improving


19. Priya Ltd:

a. Performance is moderately good but it is a small company and hence considered a risky

investment which makes it an unattractive investment.

20. DFM Foods Ltd:

a. Performance has been moderately good till 2009.

b. There is a significant improvement in financial performance in 2010 it will become a

excellent investment if it is able to repeat this performance for the next few years.

21. Goodricke Group Ltd:

a. Cash from operating activities has increased significantly.

b. Its RONW% is constantly increasing mostly due to constantly improving operating

margins.

22. Himalya International Ltd:


risky.

b. Excellent growth in profits and RONW% seems like a good investment for someone with

high risk propensity.

c. Its financial performance has been excellent till the time for which data is available

(2009).

23. Sanco Trans Ltd:

a. Company has shown excellent growth in the last 5 years barring 2010.

b. Growth can be attributed to increase in exports.

c. This growth is likely to continue as the exports from our country increase.


24. Ajanta Pharma Ltd:

a. Company has very good cash from operating activities.

b. Company is aggressively investing its cash also.

c. Company has shown wonderful growth over the past 5 years.


Six companies finally selected are

Company

Name

latest

P/E

TTM

latest

P/BV

Industry

P/E

TTM Industry

Industry

Grouping

Zensar

Technologies

Ltd 8.02 2.5 14.34 Software Computer

LIC Housing

Finance Ltd 15.28 3.38 22.07 Finance Finance

Ajanta

Pharma Ltd 8.62 1.52 11.07 Pharmaceuticals Pharmaceuticals

Patels

Airtemp

(India) Ltd 5.49 1.62 18.51 Engineering

Engineering and

metal

Sanco Trans

Ltd 10.33 2.07 30.64 Misc. Misc.

Hawkins

Cooker Ltd 14.07 13.67 17.66

Domestic

appliances Domestic goods

Analysis for selected Six Companies

LIC Housing finance Ltd.

Industry Analysis

Since the 1970s, the Indian government had given special emphasis to the housing industry and made

providing housing one of its main objectives. However, due to the scarcity of finance, owning a house

remained a distant dream for the average Indian;

even a lifetime's earnings and investments were not

enough to fund the purchase of a house.

As a result, even by 2001, the country faced a shortage of 19.40 million dwelling units. The housing

finance industry emerged as the answer to the problem of housing by providing finance to individuals

planning to own a house (Refer Exhibit II for information about the concept of housing finance).

Till then, banks had offered personal loans for properties. But these loans were restricted to bank and

government (public sector) employees. Private sector employees had to undergo a lot of hardship to

obtain housing loans.

To take care of this problem and to boost investment in the housing industry, the government

established the Housing Development Finance Corporation Ltd (HDFC) in 1977.

The objective of HDFC was identified as 'promoting home ownership by providing long-term finance to

households for their housing needs.'

During the 1980s and 1990s, increased urbanization and the migration of the rural population to the

cities resulted in heavy demand for housing. This created a great need for housing finance.

Housing finance sector benefited from realty boom since 2002-03. But in the past few months, the

demand for new dwelling units has turned sluggish partly due to skyrocketed prices, slowdown in

economy and relatively higher interest costs. Further, as there is general expectation of a likely fall in

realty prices, many prospective buyers have postponed their purchase decisions.

Thanks to falling interest rate regime in the country, housing finance companies in India too have

responded warmly by lowering their lending rates. All banks and most financial institutions offering

home loans have enable home seekers to avail best loan under competitive rates. State Bank of India,

IDBI, HDFC, Punjab National Bank, LIC Housing Finance Ltd. and some finance companies have a number

of schemes across all categories of housing requirements most important of which are the purchase of

flats, construction of residential houses and also for repairs, renovations, additions and

alterations/improvements.

Industry Expectations from Union Budget 2009-10

Ensure parity between HFCs and banks on CAR requirement

There should be parity between banks and HFCs as far as risk weight (RW) and Capital adequacy

requirement (CAR) are concerned. CAR for Housing finance companies is 12% as compared to 9% for

banks even though the risk weight on housing loans is same for Banks & HFCs at 50% for loans up to Rs

30 lakh with LTV up to 75% and for loans above Rs 30 lakh it is 75%.

Increase deduction under Section 80 C

that currently allows Rs 1 lakh deduction on various payments / deposits including principal amount of

housing loan to be raised to Rs 3 lakh i.e. Rs 2 lakh exclusively to be allowed for principal repayment.

Double the deduction on interest payment of self occupied properties to Rs 3 lakh

The deduction of interest on housing loans is 100% for rented dwelling units and Rs 1.5 lakh for owner

occupied houses. Deduction available should be 100% of interest for both rented as well as owner

occupied houses. In case 100% deduction is not agreed, limit of deduction should be raised from Rs 1.5

lakh to Rs 3 lakh.

To Increase deduction under Section 36(1) (viii) of IT Act

Currently 20% of profit derived from business of providing long term housing finance is deducted from

income carried to special reserve. But earlier this rate used to be 40% of profit derived from business of

providing long term housing finance. The Association claims for restoring 40% deduction instead of 20%

prevailing now.

To extend section 36(1) (vii a) of IT Act to HFC's

Deduction for bad and doubtful debts equivalent to 10% of the doubtful and loss assets is available to

banks. This should be extended to Housing Finance Companies like for banks and all the bad debts

should be considered for deduction on provisions made and interest de-recognized as per the

Regulators' directions.

Reintroduce section 10(23G) of IT Act

This was omitted by Finance Act 2006 wef 01-04-2007. It used to exempt income from investment by

HFCs in housing projects, which were treated as infrastructure.

Analyst Expectation

The Housing Finance companies have sought for parity between HFC's and Banks. They have also

requested for increasing the deduction under Section 36(1) (viii) from current 20% to 40% which will

help in improving the thin margins of HFC's and in turn increase their resources for affordable lending.

Moreover extending section 36(1) (vii a) to HFC's that are presently applicable to banks will ensure

sustained growth of Housing sector and also help them to efficiently handle their NPA's.

By increasing the deduction under Sec 24(b) of the Income Tax Act, 1961 to Rs 250000 and also allowing

Rs 2 lakh as deduction exclusively for principal repayment. We could see some spurt in demand from

home loan segments, which will prove beneficial for HFC's.

Companies to Watch:

1.) HDFC

2.) LIC Housing Finance

3.) Dewan Housing Finance

Outlook

The second half of Year 2008-2009 was bad for the real estate market owing to global economic crisis.

Real estate industry has gone through unprecedented liquidity crunch and slows down in demand. The

uncertain financial outlook for most consumers has pulled down the home seekers

sentiments. Nevertheless we currently see the home loan market is hotting up with promise of more

goodies from the HFC's side. We expect the Union Budget 2009-10 to bring in more cheer to this

segment by way of more concessions and grants.

Sector Ratios

Year 2010 2009 2008 2007 2006 2005No. Of Companies 6 10 12 13 13 6Key Ratios

Debt-Equity Ratio 8.51 6.63 7.25 8.48 8.07 8.14Long Term Debt-Equity Ratio 8.34 6.05 6.75 8.06 7.7 7.93Current Ratio 14.17 7.6 8.85 10.5 10.68 12.84

Turnover Ratios Fixed Assets 11.73 25.45 20.79 15.52 11.84 9.49 Inventory 65.29 323.76 143.12 83.86 70.48 67.9 Debtors 2,916.75 440.13 629.72 1,021.80 3,043.48 4,247.81

Interest Cover Ratio 1.42 1.38 1.43 1.4 1.42 1.47PBIDTM (%) 88.48 94.56 88.91 90.4 88.24 87.78PBITM (%) 88.13 94.39 88.71 90.13 87.86 87.41PBDTM (%) 26.4 26.14 26.69 25.88 26.28 28.37CPM (%) 20.94 18.03 19.2 20.15 20.77 20.78APATM (%) 20.59 17.86 18.99 19.88 20.39 20.4ROCE (%) 8.53 11.56 10.43 9.41 8.44 8.99RONW (%) 18.98 16.7 18.45 19.71 17.81 19.23

Highlights:

The profit margin for industry has increased in the current period to 20.94% (APATM) due to

increase in profits from individual disbursement and project loans. The increase in margins is

also due to reduction in administrative expenses taken up by companies like LICHFL and HDFC.

This has also resulted in a better interest coverage ratio

The Debt-Equity ratio has increased for the industry to 8.51 from 6.63 a year earlier due to

better availability of funds on account of better economic growth; this has also resulted in fall in

ROCE due to higher Debt.

The RONW has increased beyond FY2008 levels after falling in FY2009

CRISIL Research estimates housing finance disbursements to have grown by 18 percent in 2009-

10 to Rs.1, 38,200 crore as compared with Rs.1, 17,000 crore in 2008-09.

The following factors have supported a healthy growth in 2009-10:

Reduction in interest rates:

Aggressive interest rate schemes launched by public sector banks led to intense competition in

the industry and reduction in interest rates by 200-250 basis points, thereby benefiting the

consumer;

Increase in balance transfer cases:

Lower interest rates also increased the incidence of balance transfer cases in 2009-10, thereby

contributing significantly towards disbursement growth. The growth without balance transfer is

estimated at 11.9 percent;

Pent-up demand from 2008-09: Lower property prices in the first half of 2009-10 encouraged

first-time buyers to purchase new homes, leading to consumption of the previous year's stock;

Rise in average ticket size:

The second half of 2009-10 saw property prices rise in major markets (mainly Mumbai and

Delhi), along with new project launches with larger area by many builders. This led to an

overall increase of 8 to 9 percent in average ticket size of loans and contributed towards value

growth in 2009-10.Housing constitutes over 70 percent of the real estate sector and is

amongst the three basic necessities of life viz. Food, clothing and shelter. However, it is

largely ignored. The estimated shortage in dwelling units during the period 2007-12 is 5.57 crore

approx. With increase in urbanisation and improving affordability, the demand for mortgage

loans will continue to grow at a healthy pace.

Company Analysis

Company background

The largest housing finance company in India and recognized by National Housing Bank is known as LIC

Housing Finance Limited (LICHFL), having network of six regional offices, 126 marketing units across

India and overseas representative offices in Dubai and Kuwait. The Company was promoted by Life

Insurance Corporation on 19th June 1989. The main objective of the company is providing long term

finance to individuals for purchase / construction / repair and renovation of new / existing flats / houses.

The Company also provides finance on existing property for business / personal needs and gives loans to

professionals for purchase / construction of Clinics / Nursing Homes / Diagnostic Centres / Office Space

and also for purchase of equipments.

During the year 1989, the company had introduced various schemes like, Griha Prakash a general

scheme, Griha Tara under which it accepts only Bima Sandesh Plan as Life Insurance Corporation, Griha

Shobha for Non Resident Indians (NRI) and Griha Lakshmi for people to have a second house. In the year

of 1994, LICHFL's status was converted to Public Limited Company from Private Limited Company. The

company had decided to carry out fund based and one-fund based activities during the period of 1996

via debt securitization, lease and hire purchase, renting of properties and giving guarantee to co-operate

bodies. In the period of 2001, the company had launched its new scheme called Griha Vikas. In 2002,

LICHFL had signed a deed of assignment to take over individual housing loan portfolio of Citibank. The

company had unveiled a new project for elderly people called LICHFL Care Homes in the year 2003.

LICHFL had successfully concluded its maiden offering of Global Depository Shares (GDS) in the year

2004 and also the company had introduced flexi-fixed scheme offering fixed rate of interest for first five

years and variable thereafter.

In October of the year 2005, the company had started offering of 'New Griha Laxmi' housing loans

against the security of certain approved financial assets like Bank Fixed Deposits, National Savings

Certificates and Life Insurance Policies. In the year of 2006, the company had introduced new Griha

Jestha for senior citizens for buying unit of LICHFL Care Homes Limited. First time since its inception, the

company had launched maiden Fixed Deposit Scheme in May of the year 2007, LICHFL decided to raise

resources from individual depositors via an attractive Fixed Deposit scheme. The Company had formed

three new wholly owned subsidiaries in 2007-08 to manage its interests in financial services, venture

fund and asset management. In February of the year 2008, LICHFL had launched reverse mortage for

senior citizens above 60 years of age. In 12th March of the same year, the company had launched a new

venture capital fund for realty projects. CRISIL assigns AAA (so)/Stable rating to Series A1, A2 to the

company in June of the same year 2008.

The Company is marching with the vision of to be the best housing finance company in the country and

also with the mission of Provide secured housing finance at an affordable cost, maximizing shareholders'

value with higher customer sensitivity.

Sector Analysis

YRC Aggregate H D F C Dewan

Housing

LIC Housing

Fin.

H U D C

O

ICICI Home

Fin

201003 201003 201003 201003 201003

Key Ratios

Debt-Equity Ratio 8.51 6.37 10.67 10.7 3.56 9.22

Long Term Debt-Equity

Ratio

8.34 5.84 10.67 10.45 3.51 7.21

Current Ratio 14.17 8.03 57.6 12.77 11.24 3.95

Turnover Ratios

Fixed Assets 11.73 0 0 0 0 0

Inventory 65.29 0 0 0 0 0

Debtors 2,916.75 0 0 0 0 0

Interest Cover Ratio 1.42 0 0 0 0 0

PBIDTM (%) 88.48 96.8 88.31 94.67 87.09 86.24

PBITM (%) 88.13 96.64 88.03 94.49 86.92 86.18

PBDTM (%) 26.4 34.63 20.66 26.17 31.25 13.27

CPM (%) 20.94 25.04 15.47 19.07 19.76 9.97

APATM (%) 20.59 24.88 15.18 18.89 19.58 9.91

ROCE (%) 8.53 10.52 10.79 10.07 9.88 10.82

RONW (%) 18.98 19.95 21.82 23.56 10.14 12.72

http://www.capitaline.com

Highlights:

The company has a higher Debt-Equity ratio then the industry standard and is also the

highest in its peer group. This has lead to increase in interest payments resulting in lower

profit margins but highlight the fund generating capability of the company. The company

has started accepting deposits from the public, as on 31st March, 2010, the outstanding

amount on account of public deposits was Rs. 326, 19, 37,820/-

The company has the highest RONW among its peer group and is also higher than the

industry average. The P/E ratio of the company is 18 which is lower when compared to

others like HDFC (34.2) and show that price appreciation can be expected in the future.

Company Financials

Key financial ratios

Mar-

10

Mar-

09

Mar-

08

Mar-

07

Mar-

06

Mar-

05

Key Ratios


Long Term Debt-Equity Ratio 10.45 11.07 10.72 10.26 9.69 9.31

Current Ratio 12.77 13.84 15.98 15.77 19.05 22.22

Turnover Ratios

Loans Turnover 0.11 0.12 0.11 0.1 0.1 0.1

Advance / Loans Funds (%) 109.29 108.42 107.71 107.71 109.21 108.95

Tot. Income / Capital Employed (%) 10.66 11.69 10.99 9.68 9.43 9.56

Interest Expended / Capital Employed

(%) 7.3 8.1 7.46 6.71 6.28 6.09

PBIDTM (%) 94.67 94.37 92.28 91.76 87.24 83.14

PBITM (%) 94.49 94.2 92.11 91.52 86.89 82.84

PBDTM (%) 26.17 25.11 24.36 22.39 20.62 19.4

CPM (%) 19.07 18.42 17.77 17.72 16.51 13.74

APATM (%) 18.89 18.25 17.6 17.48 16.16 13.43

ROCE (%) 10.07 11.01 10.12 8.86 8.2 7.92

RONW (%) 23.56 26.15 22.94 19.32 16.42 13.33

http://www.capitaline.com

DuPont model

Mar-

10

Mar-

09

Mar-

08

Mar-

07

Mar-

06

Mar-

05

PBIDT/Sales(%) 94.67 94.37 92.28 91.76 87.24 83.14

Sales/Net Assets 0.09 0.11 0.1 0.09 0.09 0.09

PBDIT/Net Assets 0.09 0.1 0.09 0.08 0.07 0.07

PAT/PBIDT(%) 19.95 19.34 19.07 19.05 18.52 16.15

Net Assets/Net Worth 11.26 12.38 12.11 11.58 11.24 10.24

ROE(%) 23.56 26.15 22.94 19.32 16.42 13.33

Highlights

Performance/Operation Highlights

During the year, the Company sanctioned Rs.18,043.17 crore and disbursed

Rs.14, 852.93 crore registering a growth of 65.56 percent and 69.52 percent respectively. For

the year ended March 2010, the Company's total income from operations was Rs.3,456.24 crore

as against Rs.2,880 crore during the same period last year. Net profit for year ended March

2010 zoomed to

Rs.661.64 crore when compared to Rs.531.62 crore in the corresponding

period last year, thereby achieving a growth of 24.45 percent. The outstanding mortgage

portfolio as at March 2010 was Rs.38,081 crore as against Rs.27,679 crore on March 2009 thus

registering a growth of 37,58 percent.

Marketing

LIC Housing Finance is one of the largest housing finance companies in India having one of the widest

networks of 158 marketing offices as on 31st March, 2010 across the country and representative offices

in Dubai and Kuwait. The Company continues to serve the customers at their door step through Home

Loan Agents, Direct Selling Agents and Customer Relation Associates. During the year, the Company also

participated in property exhibitions in various parts of the country and the same has been an impetus

for successful marketing tool.

Recovery Management

The gross net performing assets (NPA) as on 31st March 2010 stood at

Rs.263 crore as against Rs.297 crore as on 31st March, 2009 registering a reduction of 11

percent. The gross NPA of the company stood at 0.69 percent

as on 31st March, 2010 as against 1.07 percent as on 31st March, 2009. Net

NPAs were 0.12 percent as against 0.21 percent for the corresponding dates.

The provision cover on the NPAs stood at 82.4 percent as on 31st March,

2010. The net interest margin for the year stood at 2.70 percent.

Outlook for 2010-11

The initiatives taken by the Company during the year are expected to improve its operational

and financial performance. Major initiatives taken by the Company include:

Expanding its operations by establishing new business centres.

Increasing its distribution by appointing new agents and activising mare agents.

Supplementing its distribution channel by operationalising a new company LICHFL

Financial Services Limited.

Incentivising and motivating the marketing intermediaries systematically for improving

productivity.

Raising funds through loans at attractive rate of interest and terms.

Maintaining good relations with lenders for reducing overall cost of funds.

Reviewing the existing lending rates at regular quarterly intervals in view of the change

in interest rate scenario, thereby insulating the stakeholders of risk of interest fluctuation

and passing on the benefits as applicable to the customer.

Timely review of credit appraisal system to improve the loan asset quality.

Initiating steps to upgrade Information Technology platform to ensure prompt and

effective service to the clientele.

Initiating brand building measures to generate general awareness and improve the image

of the Company and also increase the overall market share

Swift, appropriate and competitive pricing of its existing loan schemes to attract new

customers.

Call on LIC housing Finance Ltd

We have given it a ‘BUY’ recommendation.

This recommendation is given keeping in mind

Shortage of housing finance in the country

Industry’s growth expectations.

Support of mother holding company LIC India Ltd

Positive trends in profit margins and other financial indicators for past years which is expected

to continue in the future.

Hawkins cookers Ltd

Industry Analysis

The Size of Pressure Cooker industry in India is projected at INR6.50 Bn and cookware is projected as

Rs.1, 500 Mn. Another Big potential, Modular Kitchen Market size is expected to around INR10 Bn.

Overall, the entire kitchenware industry is worth about INR38 Bn. the pressure cooker industry has been

growing at a rate of 10% YOY for last 5 years. It suffers from low entry barriers. As a result, the market

has regional and unorganized players along with national companies like

Hawkins and TTK Prestige, which commands over 50%, share in the domestic pressure cooker market.

There are about 250 brands of pressure cookers in the market. According to industry sources, 90% of

urban India already owns a pressure cooker whilst barely 22% of rural India owns a pressure cooker.

The demand from urban India will be predominantly from upgrading whereas additional pressure

cookers and emergence of new households is the great opportunity in rural India. The growth in

demand for domestic home appliance products especially, the kitchenware production continues to rise

in tandem with the increase in income and living standards of the people both in the urban and rural

areas of the country. The growth rate of the industry is likely to be around the 14% mark in the coming

years.

Key Risks

Saturation of market: The growth rate of the industry is dependent on the ability of players to tap the

rural market. However if this does not materialize then the industry may experience a flat sales growth

rate.

Non-Diversified Business: Pressure cookers contribute to over 80% of Hawkins topline. Any downturn in

the industry can cause the sales to drop substantially.

Inflation risk: Pressure cooker industry has suffers on account of rise of input prices and not all costs are

transferable to the customers.

Excise duty: Increase or decrease in excise duty has a high impact on the bottom line of the pressure

cooker industry. An increase in excise duty can’t be ruled out as economic stimulus is taken back by the

government in phased manner.

Leading Players

There are four major/leading players in the industry: -

Hawkins Cookers

Gorani Inds.

Panasonic Home

TTK Prestige

Sector Ratios

Year Latest 2009 2008 2007 2006 2005 2004 2003 2002 2001

No. Of Companies 15 6 10 11 13 10 11 12 12 11

http://www.capitaline.com/user/backg.asp?id=cbg&cocode=4301




Key Ratios

Debt-Equity Ratio 1.46 0.46 0.69 1.2 1.82 2.02 2.26 2.12 1.73 1.3

Long Term Debt-

Equity Ratio 0.75 0.24 0.41 0.74 1.05 1.1 1.13 1.02 0.91 0.75

Current Ratio 1.34 1.36 1.44 1.41 1.32 1.39 1.3 1.28 1.44 1.59

Turnover Ratios

Fixed Assets 3.67 4.05 4.37 3.95 3.58 3.57 3.18 3.21 3.08 2.94

Inventory 5.95 6.69 7.01 6.15 5.44 5.45 5.06 4.77 4.56 4.98

Debtors 7.68 7.41 8.57 8.05 7.39 7.36 6.13 5.66 5.31 4.73

Interest Cover Ratio 2.68 6.36 4.69 3.97 3.4 2.14 1.69 0.34 0.8 1.18

PBIDTM (%) 7.06 9.57 9.05 7.79 9.21 6.14 7.04 3.16 5.69 7.84

PBITM (%) 5.14 8.61 7.41 6.26 7.35 4.63 5.4 1.56 3.92 5.96

PBDTM (%) 5.14 8.22 7.47 6.21 7.05 3.97 3.84

-

1.42 0.78 2.78

CPM (%) 4.07 6.04 6.09 4.86 4.99 3.78 3.38

-

1.03 0.89 1.96

APATM (%) 2.15 5.09 4.45 3.33 3.12 2.27 1.74

-

2.64

-

0.88 0.07

ROCE (%) 10.76 27.9 23.88 15.88 15.42 8.83 9.86 0 0 8.97

RONW (%) 9.56 25.01 25.36 18.37 16.14 10.41 8.91 0 0 0.16

Highlights:

The number of companies has increased sharply from FY 2009 indicating towards growing

competition in the market.

The companies in the sector have started borrowing heavily for expansion to make the most of

high growth opportunities due to strengthening of the economy after recession, as can be seen

from increase in sector Debt-to-Equity ratio to 1.46 from 0.46

Profit margins had been rising till FY 2009 but have fallen in current year on account of rising

input cost and increase in tax rates.

Analysis of the company with respect to the sector

Company Background

Started in 1959 by a professional manager turned entrepreneurs when pressure cookers were virtually

unknown in India, Hawkins Cookers was known as Pressure Cookers and Appliances. In 1986, the

company acquired the present name. It is a leading manufacturer of cookers with a 32% market share,

competing with more than 100 models of cookers in the market, from both the organised and

unorganised sectors. Hawkins has an extensive product range consisting of pressure cookers, cooker

accessories, non-stick cookware, cuisinettes and stilton cookware.

The company markets its entire product range in the domestic market under its own brand name,

Hawkins, while it exports its products to the US under the Futura brand name. It is sold in some of the

top departmental stores in Europe and America. The company also exports to Yugoslavia, Japan,

Panama, Mexico, Finland and the Netherlands.

In 1989, with the sale of cookers crossing the one crore mark, it joined a select group of companies

which have sold more than one crore consumer durables. The company diversified by launching blended

spices, specially formulated for pressure cooking. PCA Engineers, a subsidiary, was merged with the

company in 1993 and its entire business and undertakings were transferred to Hawkins.

Hawkins cookers is a manufacturer of pressure cookers and cookwares incorporated in 1959 as a private

company and converted into public company on 1st Feb 1975. In fiscal end 2010 it reported sales of

295.41 crore. Hawkins is the number one brand in thr pressure cooker market in India.

Hawkins cooker is headquartered in Mumbai, India. It has manufacturing units in Janpur, Thane and

Hoshiarpur. The company primarily caters to the domestic market with over 90% of the total sales being

contributed by the domestic market. The company has more than 68 valid patents and design

registration in force in 7 countries. It has a strong R&D effort and has not imported ant technology for

past 7 years.

The strength of Hawkins lies in its brand and distribution activities which were revamped after the

company suffered losses in FY 01 and FY 02. However inspite of the diversification, pressure cooker

contributes more than 80% of the revenue. The segment is a mature segment and the urban market are

growing at a very slow rate. The oppurtunities lies in the rural market and other kitchen appliances

mixer grinder.

Investment Highlights

Well Established Brand Name: Hawkins has a strong brand presence which is well established from the

last 4 decade in the minds of Indian people. Hawkins brand has traditional pressure cookers like Hawkins

Classic, Hawkins Bigboy, Hawkins Contura, Hawkins Ventura and Hawkins stainless Steel. ‘Futura’ brand

has both cookers and cookware. ‘Miss Mary’ brand has pressure cookers which give trouble free service,

totally safe and don’t leak properties.

Huge capacity available to meet the increase in demand: The Company has low capacity utilization with

utilization of 31.5% in FY2009 and an average utilization of 25% in the last 5 years. No future capital

expenses are required to fuel expansion for Hawkins in Pressure Cooker segment. It can very well

increase its capacity utilization with the increase in demand.

Growing Brand Aspiration, Rural development & Rising Income to spur demand: Brand awareness has

been growing with the change in changing lifestyle of the society. Also rural development and fast-

changing demographics have led to a growing demand for additional homes, which in turn have

increased demand for kitchen appliances. Shrinking household sizes due to nuclearisation, coupled with

higher incomes, are expected to drive demand for household products, including kitchenware.

Strong Return on Equity: The company has been maintaining a very healthy return on Equity from the

last 5 years. Its ROE has grown from 26.2% in 2005 to 81.8% in the year 2009 to 112.25% in 2010.

Comparitive Analysis of Hawkins Cooker Ltd with the leading players in the Industry

YRC Aggregate Hawkins

Cookers

TTK

Prestige

Gorani

Inds.

Panasonic

Home

201003 201003 200903 200903

Key Ratios

Debt-Equity Ratio 1.46 0.32 0.11 1.61 0.13


Ratio

0.75 0.32 0.03 1.37 0.13

Current Ratio 1.34 1.44 1.36 2.78 1.35

Turnover Ratios

Fixed Assets 3.67 8.15 6.68 0.75 3.76

Inventory 5.95 10.43 9.26 2.14 9.02

Debtors 7.68 10.81 9.47 2.16 16.12

Interest Cover Ratio 2.68 33.68 22.73 6.5 5.11

PBIDTM (%) 7.06 20.07 15.96 14.45 4.61

PBITM (%) 5.14 19.49 15.26 9.09 2.93

PBDTM (%) 5.14 19.49 15.28 13.05 4.04

CPM (%) 4.07 13.04 10.84 13.05 2.98

APATM (%) 2.15 12.47 10.15 7.69 1.29

ROCE (%) 10.76 132.85 69.18 4.68 16.14

RONW (%) 9.56 112.25 51.28 6.97 8.01

Highlights:

The company has Debt-Equity ratio which is significantly lower than the industry average. It also

has a much higher interest coverage ratio of 33.68 which indicates that the company can easily

borrow in the future to generate capital if needed in the future.

The return on net worth and ROCE of the company is far higher than the industry average or

peer group indicating towards better utilisation of capital and a more efficient use of financial

leverage.

The profit margin of Hawkins is 12.47(APATM %) which is six times the industry average and

highest in peer group. The company has made efforts to control costs even in good times and

has more efficient operational capabilities.

Company financials:

Mar-10

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

Key RatiosDebt-Equity Ratio 0.32 0.36 0.51 0.86 1.39 1.94Long Term Debt-Equity Ratio 0.32 0.36 0.43 0.49 0.72 0.96Current Ratio 1.44 1.35 1.28 1.22 1.23 1.24

Turnover RatiosFixed Assets 8.15 7.51 6.73 5.96 4.9 4.46Inventory 10.43 9.74 9.05 8.89 6.53 5.82Debtors 10.81 10.65 10.33 10.43 10.63 8.7Interest Cover Ratio 33.68 22.43 13.2 7.66 3.88 2.05PBIDTM (%) 20.07 12.72 9.58 8.09 6.58 6.24PBITM (%) 19.49 12.07 8.86 7.26 5.54 5PBDTM (%) 19.49 12.18 8.91 7.15 5.15 3.8CPM (%) 13.04 8.16 5.9 4.89 3.82 3.7APATM (%) 12.47 7.51 5.18 4.06 2.78 2.46ROCE (%) 132.85 96.74 69.45 47.84 25.89 18.13RONW (%) 112.25 81.85 61.45 49.67 31.01 26.27

DuPont Model

Mar-

10

Mar-

09

Mar-

08

Mar-

07

Mar-

06

Mar-

05

PBIDT/Sales (%) 20.07 12.72 9.58 8.09 6.58 6.24

Sales/Net Assets 5.77 7.17 7.77 6.72 5.09 3.77

PBDIT/Net Assets 1.16 0.91 0.74 0.54 0.33 0.24

PAT/PBIDT (%) 62.15 59.03 54.03 50.13 42.2 39.42


ROE (%) 112.25 81.85 61.45 49.67 31.01 26.27

Call on Hawkins Cookers Ltd



Hawkin Cookers constantly improving efficiency which is reflected by RONW (%), ROCE (%),

APTAM (%) and PBITDM (%).


The company is well positioned to take advantage of growth in demand in the market

competitively ( directors report)

FOB value of exports was Rs.1 14.8 million, down 10% over the previous year mainly owing to

delayed shipments because of product scarcity. Foreign Exchange used in the year under report

was Rs.6.9 million (previous year: Rs.10.4 million).

The ROE has shown continuous improvement from the last five years and the trend is expected

to continue in the future

Sanco Trans Ltd.

Sector Analysis: Logistics

The logistics segment can be broadly categorized into three segments– transportation,

warehousing and value add services.

Transportation: By providing transport facilities one earns freight as revenues. Transportation

can take place through surface that is by road and rail, or one can use air or water transport

depending upon urgency and cost feasibility.

Rails are operated by Indian Railways, a government undertaking. Till 2007, Container

Corporation was the only player who operated container trains. But in 2007, container

rail freight services were privatized but still Concor, a government undertaking, is the

dominant player.

Ocean or Sea freight has recently been witnessing robust growth with increase in foreign

trade. Olympics and booming emerging economies like China and India supported

growth of this segment with increase in transportation of iron ore, coking coal, steel etc.

Air freight segment accounts for a small pie of India’s freight market but is growing at a

fast pace. Liberalisation and globalization has given a fillip to the growth of this segment.

Sophisticated machinery components, pharmaceutical dyes, fruits, vegetables, flowers,

fish and meat form part of air cargo.

Warehousing: Warehousing is nothing but storage of product and goods to be transported

whether inbound or outbound. The size of the segment in 2006 was estimated at Rs 1.2 trillion.

Warehousing facility needs do change depending upon the mode of transport.. Privatisation of

container rail transport is expected to drive growth of Container Freight Stations (CFS) and

Inland Container Depots (ICD). Such warehouses are used for transhipments. There are

different types of warehouses such as multimodal, port based, air cargo transhipments etc to

cater to the needs of different modes of transport.

Warehousing has also been dominated by small players who lack scale, handling and stacking

technologies. In general, warehousing and packing losses account for little over 25% of total

logistics costs.

Value added services: Apart from transportation and warehousing, logistics industry comprises

of other related services such as packaging, labelling and assembling, express services,

tracking and tracing, cold chain, third party logistics etc. Again, depending upon mode of

transport, service requirements differ. In case of rail transport, service such as stuffing, de-

stuffing, rail container services are required. On the other hand, in case of water and air

transport, services such as custom clearances, freight forwarding is provided.

Company AnalysisSanco Trans Ltd operates as a logistics company primarily in India. The company provides various

services, such as air cargo, stevedoring, warehousing and distribution, transport, container terminal,

customs clearance, multimodal transport operation/freight forwarding, and civil engineering. Sanco

Trans Ltd was incorporated in the year 1979 as a private limited company. In the year 1986, the

company was converted into public limited company. By this time, the company has established their

niche in the market for the high quality of services in the Transport and Clearing & Forwarding sector.

The company is having a covered warehouse space of 100,000 sq. ft, open warehouse space of 60,000 sq

ft, and having a capacity to store and handle 1,500 TEUs. They cater to clients like ABN Amro Central

Enterprises, Bharat Heavy Electricals, Bharat Petroleum Corporation, Chennai Petroleum Corporation,

Hindustan Petroleum Corporation and several others.

During the year 2007-08, the company acquired additional land measuring about 5.40 acres adjacent to

the existing plant of operation at a cost of Rs 853 lakh to handle increased volume of business. Also,

they improved their operating fleet by acquiring Reach Stacker, Fork lifts, Tractors Trailers, Light

commercial vehicles at a total cost of about Rs 381 lakh.

The company is taking the necessary steps proactively to upgrade their facilities by increasing the

capacity of their container storage yard and attendant requirements of operating fleet and equipments

at an estimated capital cost of nearly Rs 900 lakh.

Key Financial Ratios

Mar-10 Mar-09 Mar-08 Mar-07 Mar-06

Key Ratios

Debt-Equity Ratio 0.65 0.98 1.11 0.85 1.15Long Term Debt-Equity Ratio 0.62 0.94 1.01 0.62 0.71

Current Ratio 1.42 1.21 1.05 0.96 0.93

Turnover Ratios

Fixed Assets 1.37 1.87 1.74 1.93 1.75

Inventory 265.84 342.61 2,864.00 3,269.00 5,026.00

Debtors 5.23 7.47 6.34 5.32 4.72Interest Cover Ratio 6.32 9.81 7.18 5.72 4.16

PBIDTM (%) 24.53 31.62 21.53 17.47 15.2

PBITM (%) 22.02 29.9 19.88 15.23 13.57

PBDTM (%) 21.05 28.57 18.76 14.81 11.94

CPM (%) 14.61 18.92 12.52 10.68 8.75

APATM (%) 12.1 17.2 10.87 8.44 7.12

ROCE (%) 29.43 59.48 42.54 40.47 31.28

RONW (%) 25.58 63.8 46.4 40.09 34.52

DuPont Model


PBIDT/Sales(%) 24.53 31.62 21.53 17.47 15.2

Sales/Net Assets 0.57 0.73 1.61 2.42 2.27

PBDIT/Net Assets 0.14 0.23 0.35 0.42 0.34

PAT/PBIDT (%) 49.31 54.41 50.49 48.34 46.86

Net Assets/Net

Worth 3.33 3.98 2.19 1.69 1.92

ROE(%) 25.58 63.8 46.4 40.09 34.52

Highlights:

Sanco Trans has been constantly reducing its debt for 5 years its debt-equity ratio in 2006 was

1.15 and by 2010 they have reduced it to 0.65.

Company has increasing its profit margin constantly for the last 5 years barring 2010 in which

the profit margin took a dip from 2009 levels still the CAGR% has been 12.7%.

In the last 5 years after tax profit margin has increased from 7.12% to 12.1% for 2009 the

APTAM (%) was 17.2% it dipped to 12.1%.

ROCE (%) and RONW (%) peaked in 2009 to the levels of 59.48% and 63.8% respectively. Both

ROCE (%) and RONW (%) have shown a sharp decline 2010 to the levels of 29.43% and 25.58%.

Competitor Analysis:

Since it is a very fragmented industry there are not many companies in the same sector to compare

sanco Trans Ltd. with them. Therefore we have compared Sanco Trans Ltd. with companies which cater

to niches or are one off listed players belonging to miscellaneous category in various databases (here we

have used capitaline) which are of similar size.

Company Name Sales NPAPTAM

(%) P/E P/BV

Contract Advt. 51.79 8.48 0.163738 0 0

COSCO (India) 57.52 0.58 0.010083 37.3 1.13

ETC Networks 52.05 2.66 0.051105 98.1 2.46

Sanco Trans 50.51 6.12 0.121164 8.8 2

Urja Global 49.66 0.4 0.008055 0 7.08

Aggregate

sector

Sanco

Trans

Urja

Global

Contract

Advt.

ETC

Networks

COSCO

(India)

Key Ratios

Debt-Equity Ratio 1.11 0.65 0 0 0.25 1.52


Ratio 1.03 0.62 0 0 0.25 0.58

Current Ratio 1.29 1.42 12.88 1.55 2.74 1.68

Turnover Ratios

Fixed Assets 0.35 1.37 2,483.00 4.43 1.74 3.07

Inventory 6.61 265.84 0 0 23.81 1.94

Debtors 5.61 5.23 0 2.03 2.2 6.93

Interest Cover Ratio 1.79 6.32 0 0 4 1.25

PBIDTM (%) 17.38 24.53 0.97 27.77 32 7.26

PBITM (%) 12.89 22.02 0.97 24.91 26.87 5.83

PBDTM (%) 10.16 21.05 0.97 27.77 25.28 2.61

CPM (%) 7.59 14.61 0.81 19.23 18.05 2.96

APATM (%) 3.11 12.1 0.81 16.37 12.92 1.53

ROCE (%) 3.7 29.43 2.05 47.99 14.34 6.85

RONW (%) 1.82 25.58 1.68 31.55 8.65 4.53

Highlights

Sanco Trans has APTAM (%) on the higher side compared to its peers.

Sanco Trans has very low P/E ratio compared to its peers.

Sanco Trans has a good RONW (%) considering that fact that it had declined to a great degree it

is a very good buy.

Sanco Trans also has best intrest coverage ratio among peers.

Before Tax Profit Margin is also on the higher side.

Sanco is a high growth company and it has a P/BV at 2 which is fairly low.

Call on Sanco Trans Ltd..

We give a ‘BUY’ recommendation for Sanco Trans Ltd.


Sanco’s track record of improving profitability (barring 2010) makes it a great buy.

Fairly low P/E for a high growth company.

Industry’s growth expectations (trade and construction are bound to grow in emmergind

economy like India).

Low P/BV at just 2

Excellent cash position

Patels Airtemp Ltd

INDUSTRY ANALYSIS

The Engineering sector is the largest sector in the overall industrial segments in India. The sector

employs over 4 million skilled and semi-skilled workers (direct and indirect). It is a diverse industry with

a number of segments, and can be broadly categorised into two

Segments:

• The Heavy Engineering Segment, and

• The Light Engineering Segment

The sector is relatively less fragmented at the top, as the competencies required are high, while it is

highly fragmented at the lower end (e.g. unbranded transformers for the retail segment) and is

dominated by smaller players.

1.1 The Heavy Engineering Segment

The heavy engineering goods accounts for bulk of the engineering goods production in

India. Most of the leading players are engaged in the production of heavy engineering goods and mainly

produces high-value products using high-end technology. Requirement of high level of capital

investment poses as a major entry barrier. Consequently, the small and unorganised firms have a small

market presence.

1.2 The Light Engineering Segment

The light engineering goods segment, on the other hand, uses medium to low-end technology. Entry

barrier is low on account of the comparatively lower requirement of capital and technology. This

segment is characterised by the dominance of small and unorganised players which manufacture low-

value added products. However, there are few medium and large scale firms which manufacture high-

value added products. This segment is also characterised by small capacities and high level of

competition among the players.

The major end-user industries for heavy engineering goods are power, infrastructure, steel, cement,

petrochemicals, oil & gas, refineries, fertilisers, mining, railways, automobiles, textiles, etc. Light

engineering goods are essentially used as inputs by the heavy engineering industry.

GOVERNMENT POLICIES AND INITIATIVES

Government of India reviews its Foreign Direct Investment (FDI) policy regularly, in a bid to attract more

investment. Recently, the government permitted 100 per cent FDI in construction and development

projects. India has opened up to private sector participation and FDI in infrastructure projects for power,

roads, ports, mining sector, and pharmaceutical sector.

Around 36 per cent of the total FDI is directed towards engineering industry through an automatic

route, but subject to a limit of US$ 2 million of lump sum payments. Royalty payment is restricted to 5

per cent and 8 per cent on domestic and exports respectively.

Depreciation on general plant and machinery is proposed to be around 15 per cent.

These initiatives of the government serve as a catalyst to further raise the demand for engineering

goods and machinery.

Some specific initiatives by the government, which positively impact the engineering sector are:

• Removal of tariff protection on capital goods.

• Delicensing of heavy electrical industry and allowance of 100 per cent FDI.

• Various initiatives focused on infrastructure development and construction.

• Initiatives to increase power generation and improve quality of power supply.

• The reduction of custom duties on various equipments.

These above initiatives are aimed at creating a facilitating environment in which the engineering sector

can thrive. They have also helped the sector in becoming competitive.

Leading Players

Following are the major/leading players in the industry: -

Avtec

Batliboi

Brady & Morris

Cenlub Inds.

Cont. Valves

Electrotherm(I)

Envair Electrody

Fluidomat

G G Dandekar

GEI Industrial

Hari Machines

Hercules Hoists

Mazda

Mirch Tech.

Patels Airtemp

Pitti Lamination

Remi Proc. Plant

Rolcon Engg. Co.

Shivagrico Impl.

Stewarts & Lloyd

T & I Projects

Tulive Developer

United Van Der
























UT

Veritas (India)

Viksit Engg.

Sector Ratios

Year Latest 2009 2008 2007 2006 2005 2004 2003 2002 2001No.Of Companies 111 32 57 84 36 52 66 74 72 66Key RatiosDebt-Equity Ratio 1.32 1.25 0.91 0.79 0.86 0.78 0.82 1.19 1.75 1.73Long Term Debt-Equity Ratio 0.93 0.8 0.6 0.53 0.55 0.45 0.54 0.89 1.29 1.29Current Ratio 1.25 1.32 1.37 1.32 1.31 1.26 1.15 1.18 1.34 1.38Turnover Ratios Fixed Assets 2.02 2.31 2.72 3.04 2.72 2.52 1.52 1.25 1.4 1.69 Inventory 4.23 4.16 4.44 4.3 4.48 4.6 4.32 4.05 3.36 3.69 Debtors 4.6 4.13 5.05 5.77 5.31 4.96 3.93 3.31 2.99 3.46Interest Cover Ratio 2.87 2.25 3.52 4.97 5.2 4.74 2.86 2.02 0.6 0.49PBIDTM (%) 13.02 13.14 14.15 13.65 13.11 11.39 11.15 10.94 6.94 6.06PBITM (%) 10.8 10.43 11.87 11.7 11.49 9.73 8.51 7.81 3.75 2.94PBDTM (%) 9.25 8.51 10.78 11.3 10.9 9.33 8.17 7.08 0.71 0CPM (%) 6.6 6.3 7.55 8.2 8.27 7.46 5.59 4.38 -0.52 -1.57APATM (%) 4.38 3.58 5.28 6.24 6.64 5.8 2.95 1.25 -3.71 -4.69ROCE (%) 16.37 14.5 21.13 24.61 24.55 19.86 11.69 9.64 0 0RONW (%) 13.7 11.1 17.95 23.88 27.22 20.61 6.83 3.13 0 0

Highlights:

The number of listed companies has increased sharply from 32 in FY 2009 to 132 in current

period indicating towards a higher competition in future as well as the high growth of the

industry.

The industry is showing positive trends in operating profits as well as Profit margins (APATM)

which have increased after falling from FY 2008 to FY 2009



The ROCE and RONW have also shown positive trend but have not returned to even 2008 levels.

The fall in FY 2009 was mainly due to economic downturn globally but as things have started

improving in the developed markets the production as well as profitability is also increasing.

Analysis of the company with respect to the sector

Company Background

Patel Airtemp India Ltd. was promoted by shri Narayanbhai.G. Patel & associates who have been in the

business of design and fabrication of process equipment and engineering goods.The company was

incorporated on august 28, 1992 under the companies act, 1956 mainly with the object of taking over

two of the 8 existing units of the group in order to create a harmony in the groups product range and to

avoid competition among the group companies. These two existing profit making companies viz., M/s

Patel Airtemp Private Ltd. and M/s Gujarat Patcon Pvt Ltd. have been merged into Patels Airtemp (India)

Ltd. The company set up a new fully equipped plant as unit No.3 of the company at Village Santej,

Mehsana District (state notified backward area) near Ahmadabad.

The group promoted by Shri N.G.Patel and associates, earlier comprised of eight concerns which were

engaged in the fabrication/manufacturing of engineering components and products. The existing

product range of the group includes heat exchangers, shell and tube water cooled condensers, air

conditioning and recreation and process cooling equipment industrial fans and blowers, axial flow fans,

heavy duty compressors, fans coil units and air handing units.

During 1996-97, The Company embarked upon an expansion cum diversification project by setting up

unit no. 4 of the company which is adjacent to the unit 3 located at Rakanpur. The company has

acquired technology from M/s Tek-fins, USA and the project is already in the pipeline. Total cost of the

project is Rs 1150 lakhs.

The company manufactures a wide range of engineering equipment such as heat exchangers, pressure

vessels, industrial fans and blowers as well as air-conditioning and refrigeration equipment. The

company's product range is used extensively as capital equipment in several projects like fertilisers,

petrochemicals, cement, agro-chemicals, chemicals, pharmaceuticals, power plants, etc. With the third

unit on stream, the company manufactures special pressure vessels like horten spheres, LPG bullets and

storage vessels for hazardous chemicals.

Company has completed two prestigious Jobs for Nirma Ltd for their LAB as well as Soda Ash Project.

These jobs were successfully completed with rigid quality specifications. Similarly, Company also

executed certain critical jobs pertaining to ventilation and Air conditioning Equipment & Project for M/s

Reliance Petroleum Ltd- Jamnagar, also some Special Heat Exchanger for Indo Gulf Fertilisers & over 16

Bullets for IOCL for its various plants located all over country. Company also seriously exploring the

possibility of going for the lucrative line of Turnkey Projects.

During August 2004, the Vatva division of the company has been demerged into Patels Airflow Ltd.In

consideration, thereof One equity share of Rs.10/- each of Patels Airflow Ltd has been issued for every

Four existing equity shares held. Consequently the existing equity shares of Rs.10/- each get reduced to

Rs.7.50 each, which were consolidated into three equity shares Rs.10/- each for every Four Shares of

Rs.7.50 each.

2005

Delistes shares of Company voluntarily from The Stock Exchange,

Ahmedabad (ASE) w.e.f. February 28, 2005

Investment Highlights:

The company has grown its top line by more than 30% and bottom line 40%+ in the last 6 years.

However at the same time the growth has come from extremely small base. The company has

paid off its debt and is now debt free.

The company has a fairly diverse clientele and supplies its products to a wide variety of

industries such as cement, chemicals, petrochemicals, textiles and engineering. In addition the

company has the benefit of an ever expanding and growing market for its products.

The company has been business since 1973, but has started doing well for the last 5 years. The

ROE of the company has increased from 7% to around 30% in 2009. The company is almost debt

free and may have some excess cash by the end of 2010.

The company has bagged orders aggregating Rs 16.30 crore from Indian Oil Corporation for

supply of heat exchangers for Paradip refinery project, Orissa

Comparitive Analysis of Patel Airtemp Ltd with the leading players in the Industry

YRC

Aggregate

Rolcon Engg. Co.

Patels Airtemp

Avtec

GEI Industrial

Electrotherm(I)

Remi Proc. Plant

Fluidomat

Pitti Lamination

Cont. Valves

20100320100

3201003

200903

200903 200903

200903 200903

200403

Key Ratios Debt-Equity Ratio 1.32 0.02 0.32 0.97 0.93 2.43 0.8 0.28 1.16 0.69Long Term Debt-Equity Ratio 0.93 0.02 0 0.63 0.41 1.69 0.46 0.23 0.68 0.69Current Ratio 1.25 1.87 1.72 1.09 1.53 1.34 0.96 2.03 1.23 4.16 Turnover Ratios Fixed Assets 2.02 2.12 4.24 1.25 5.6 2.47 2.29 2.04 2.95 0.48Inventory 4.23 28.79 14.69 6.5 3.47 4.55 3.95 5.7 5.25 2.39Debtors 4.6 7.63 3.26 4.56 3.84 6.64 4.78 3.79 6.76 3.92Interest Cover Ratio 2.87 17.38 10.9 2.4 2.14 1.67 4.57 8.89 1.7 0.33

PBIDTM (%)13.0

2 10.39 20.4216.9

514.2

5 14.35 16.09 17.6 10.29 6.12

PBITM (%) 10.8 7.2 19.26 8.9813.4

9 11.3 14.3715.6

5 8.22 2.04

PBDTM (%) 9.25 9.97 18.6513.2

1 7.95 7.59 12.9515.8

4 5.46 0

CPM (%) 6.6 7.78 12.6111.3

8 5.12 6.11 8.5510.7

5 4.36 0APATM (%) 4.38 4.59 11.45 3.41 4.36 3.07 6.83 8.8 2.29 -4.08

ROCE (%)16.3

7 23.01 41.8610.5

728.5

1 13.62 18.7931.0

9 17.87 0

RONW (%) 13.7 14.94 32.92 7.9118.3

9 12.56 16.0623.4

9 10.75 0Highlights

The company has a low Debt-Equity ratio in comparison to industry standards as well as within

the peer group. The company has managed to pay most of its debt in recent past and is in a

favourable position to generate capital for future growth if needed. It’s long term Debt-Equity

ratio is 0. The company also has a higher interest coverage ratio when compared to industry

standards.

The high inventory turnover ratio indicates a lower inventory carrying cost and efficient

operations when compared to industry.

Patels Airtemp Ltd has the highest profit margin (APATM) in its peer group and also has a high

ROCE and RONW in relative comparison which make the future prospect of price direction

favourable.

Company Financials

Mar-

10

Mar-

09

Mar-

08

Mar-

07

Mar-

06

Mar-

05

Key Ratios


Long Term Debt-Equity Ratio 0 0.01 0.1 0.25 0.36 0.5

Current Ratio 1.72 1.63 1.54 1.52 1.42 1.4

Turnover Ratios

Fixed Assets 4.24 5.03 4.52 3.7 2.8 2.62

Inventory 14.69 12.91 12.3 9.9 6.12 5.12

Debtors 3.26 4.03 4.49 4.66 3.74 4.65

Interest Cover Ratio 10.9 11.07 7.06 4.04 2.57 2.12

PBIDTM (%) 20.42 17.5 15.64 11.62 10.82 10.6

PBITM (%) 19.26 16.59 14.61 10.31 9.16 8.83

PBDTM (%) 18.65 16 13.57 9.07 7.26 6.43

CPM (%) 12.61 10.75 9.54 6.75 5.77 5.4

APATM (%) 11.45 9.84 8.51 5.44 4.1 3.62

ROCE (%) 41.86 46.98 46.35 29.73 18.99 16.98

RONW (%) 32.92 36.57 36.3 22.59 14.41 13.28

DuPont Model

Mar-

10

Mar-

09

Mar-

08

Mar-

07

Mar-

06

Mar-

05

PBIDT/Sales(%) 20.42 17.5 15.64 11.62 10.82 10.6

Sales/Net Assets 1.87 2.49 2.76 2.84 2.11 1.87

PBDIT/Net Assets 0.38 0.44 0.43 0.33 0.23 0.2

PAT/PBIDT(%) 56.07 56.25 54.43 46.86 37.91 34.15


ROE(%) 32.92 36.57 36.3 22.59 14.41 13.28

FUTURE PROSPECTS

The Company is in engineering industry and is engaged in Manufacturing/fabricating tailor made

machines and therefore, the order Book position of such type of company can play pivotal role in

the growth of the Company. The Company is having confirmed orders of about Rs.58 Crores on

hand as on 22nd May, 2010. Thus, inspite of the general slowdown,

As per the present policy of the Government of India, there is a thrust on development of various

infrastructure sectors and accordingly Government is continuously spending and developing

refineries, fertilize projects, thermal power plant and nuclear power plant. There is wide scope

for the Company to supply the Capital goods equipments to the Companies under this segment.

Thus the Company can supply equipments like Shell & Tube heat Exchangers, Pressure Vessels

& Columns, Air Cooled Heat Exchangers and Air Conditioning and Refrigeration equipments to

this segment.

POSITIVES:

1.CONSISTENT GROWTH

2.VERY LOW DEBT

3.CONSISTENT DIVIDEND PAYMENT SINCE 3 YEARS

4.MARKET PRICE CLOSE TO BOOK VALUE

5.VERY GOOD GROWTH PROSPECTS IF ECONOMY GETS BACK ON TRACK

6.CHEAP VALUATIONS AND CONSISTENTLY GOOD RETURN RATIOS

NEGATIVES:

1.COMPANY IS A SMALL PLAYER AND HENCE RISKS ASSOCIATED WITH SMALL AND

MICRO CAPS

1.POOR LIQUIDITY

Call on Patels Airtemp Ltd



Patels Airtemp Ltd constantly improving efficiency which is reflected by RONW (%), ROCE (%),



Low debt of the Company and its potential to generate capital for future growth

Ajanta Pharma Ltd.

Sector Analysis

The Indian Pharmaceutical industry is highly fragmented with about 24,000 players (around 330 in the

organised sector). The top ten companies make up for more than a third of the market. The revenues

generated by the industry are approximately US$ 7.6 bn and have grown at an average rate of 10% over

last five years. The Indian pharma industry accounts for about 1% of the world's pharma industry in

value terms and 8% in volume terms.

In the recent past, Indian companies have targeted international markets and have extended their

presence there. While some companies are exporting bulk drugs, others have moved up the value chain

and are exporting formulations and generic products. India also offers excellent exports opportunities

for clinical trials, R&D, custom synthesis and technical services like Bioinformatics.

Sector Trends

Indian Pharmaceutical sector witnessed a growth of 17.7% for the year 2009-10 and this growth is likely

to continue in the current year also with good signs such as 23.9% Y-o-Y growth in April 2010. This is also

a increase when compared to growth in March 2010 which was 18.8%. The value growth as per MAT

was recorded a growth of 18.8% in the month of April 2010 compared to 17.7% in the month of March

2010 and 10% in the month of March 2010. As per IIPA, the value growth recorded in the month of

Apr'10 was 17.2% comparable to 17.1% in the month of Mar'10. In terms of therapies value growth,

Anti- Diabetic therapy has recorded 26%, Dermatology by 22%, Cardio Vascular System, Central Nervous

System and Respiratory have recorded 21% and followed by Anti-infective up by 15%.

Financial Ratios for Pharma sector

Year 2010 2009 2008 2007 2006

No.Of Companies 128 52 56 68 52

Key Ratios


Long Term Debt-Equity Ratio 0.72 0.75 0.78 0.6 0.43

Current Ratio 1.37 1.47 1.5 1.46 1.44

Turnover Ratios

Fixed Assets 2.54 2.63 2.8 2.69 2.52

Inventory 5.54 5.1 6.26 6.44 6.3

Debtors 3.91 3.24 3.51 3.59 3.4


PBIDTM (%) 11.72 9.91 14.23 13.52 13.13

PBITM (%) 9.73 7.89 12.44 11.78 11.52

PBDTM (%) 7.43 5.4 9.68 10.36 10.06

CPM (%) 5.57 3.77 8.17 8.65 8.35

APATM (%) 3.57 1.75 6.38 6.91 6.75

ROCE (%) 11.97 8.23 13.24 13.83 14.39

RONW (%) 8.33 3.97 14.51 15.69 14.62

Highlights:

The total number of listed companies in the pharma sector has more than doubled.

All the profitability ratios have worsened in the last 5 years which is likely due to increased

competition.

Company Analysis:

Key Financial Ratios:


Key Ratios


Long Term Debt-Equity Ratio 0.88 0.83 0.55 0.37 0.35

Current Ratio 1.62 1.64 1.75 1.92 2.13

Turnover Ratios

Fixed Assets 1.96 2.19 2.63 2.65 2.52

Inventory 3.77 3.39 3.65 3.75 3.45

Debtors 4.22 3.58 3.67 3.41 3.29


PBIDTM (%) 18.84 18.96 16.01 14.85 13.74

PBITM (%) 13.71 14.88 13.62 12.11 10.83

PBDTM (%) 13.88 12.12 10.84 10.18 8.5

CPM (%) 12.55 10.71 8.49 8.29 7.79

APATM (%) 7.42 6.63 6.1 5.55 4.87

ROCE (%) 13.67 13.87 15.04 14.2 12.31

RONW (%) 17.4 14.93 13.96 11.91 9.81

DuPont Model


PBIDT/Sales(%) 18.84 18.96 16.01 14.85 13.74

Sales/Net Assets 1.01 0.82 0.97 1.08 1.1

PBDIT/Net Assets 0.19 0.16 0.16 0.16 0.15

PAT/PBIDT(%) 39.37 34.98 38.09 37.35 35.46

Net Assets/Net Worth 2.16 2.58 2.23 1.9 1.75

ROE(%) 17.4 14.93 13.96 11.91 9.81Highlights

Over the last 5 years company’s debt-equity ratio has improved significantly.

Increased debt has resulted into a decreased cost of capital, thus increased profit margins.

Company’s return on net worth has almost doubled over the last 5 years.

Company’s after tax profit margins have grown almost 80% over the last 5 years.

Competitor Analysis

Competitors of Ajanta Pharma Ltd. considered on the basis of companies being in the same industry and

similar sales as that of Ajanta Pharma. We have assumed companies in the same industry and of similar

size will be in a similar risk class.

Industry

Aggregate

Arvind

Remedies

Ajanta

Pharma

Plethico

Pharma

Sharon

Bio-

Med.

Twilight

Litaka

Key Ratios


Long Term Debt-Equity Ratio 0.72 0.62 0.88 0.88 1.36 1.27

Current Ratio 1.37 1.45 1.62 4.25 1.72 1.62

Turnover Ratios

Fixed Assets 2.54 6.67 1.96 3.22 6.67 7

Inventory 5.54 7.82 3.77 28.21 5.7 8.45

Debtors 3.91 3.25 4.22 1.4 3.68 2.91

Interest Cover Ratio 2.27 2.08 2.76 3.83 2.55 2.35

PBIDTM (%) 11.72 10.22 18.84 27.21 9.7 13.89

PBITM (%) 9.73 9.54 13.71 25.9 8.71 13.2

PBDTM (%) 7.43 5.64 13.88 20.45 6.28 8.27

CPM (%) 5.57 4.12 12.55 20.38 5.43 6.64

APATM (%) 3.57 3.44 7.42 19.08 4.43 5.95

ROCE (%) 11.97 15.97 13.67 9.75 10.89 25.25

RONW (%) 8.33 14.91 17.4 14.05 19.14 40.78

DuPont Model

Company Name Sales NP

APTAM

(%) P/E P/BV

Ajanta Pharma 381.65 28.5 0.0746758 10.5 1.67

Arvind Remedies 297.77 10.58 0.0355308 0 0.56

Plethico Pharma. 471.47 90.44 0.1918256 14.5 1.9

Sharon Bio-Med. 496.58 21.52 0.0433364 7.1 1.23

Twilight Litaka 491.96 32.63 0.0663265 11.2 3.94

Highlights

Its debt even after increasing is on the lower side when compared to industry peers.

Ajanta Pharma has the lowest inventory among its peers.

Ajanta Pharma also has the highest before tax profit margin.

Call on Ajanta Pharma Ltd.



Ajanta Pharma’s constantly improving efficiency which is reflected by RONW (%), ROCE (%),



Zensar Technologies Ltd.

Sector analysis

Information Technology sector can be broadly classified into software development, software services,

software products, consulting services, BPO services, e-commerce & web services, engineering services

off shoring and animation and gaming. Banking, Financial Services and Insurance (also known as BFSI) is

an industry name commonly used by IT/ITES/BPO companies to refer to the services they offer to

companies in these domains. US contribute more than 50% of the revenues for the Indian IT companies.

Rupee movement vis-à-vis dollar plays a major role on the earnings of the Indian IT companies. The

contracts are either value based or hourly billing. Indian IT services gets tax exemption under Sec-10A

(for STPs, software technology parks), which exempts companies from taxes on export revenues.

Sector Trends:

Software sector continued its good performance in quarter ending March 2010 this was attributed to

strong volume growth. Unlike quarter ending December 2009 in which the growth was mainly attributed

to Banking Financial Services and Insurance (BFSI) sector this quarter showed a more inclusive growth

with sectors like telecom and manufacturing verticals also picking up.

The employee addition was high in the quarter and so was the employee attrition giving signs of good

times to come. Infosys Technologies added 9313 employees on gross basis and 3914 employees on net

basis. TCS added 16851 employees on gross basis and 10775 employees on net basis.

Volume growth continues Mar-10 Dec-10 Var. (%)Net Sales 32810 32193 2OPM (%) 26 26.3 Operating Profits 8539 8476 1Other Income 659 386 71PBIDT 9198 8863 4Interest 130 200 -35PBDT 9068 8662 5Depreciation 1042 1100 -5PBT 8026 7563 6Tax 1438 1217 18Profit After Tax 6588 6346 4Minority Interest 49 23 117Net Profit 6539 6323 3

Key Financial Ratios for the Sector

Year Latest 2009 2008 2007 2006 2005No.Of Companies 497 214 309 369 247 308Key RatiosDebt-Equity Ratio 0.23 0.38 0.33 0.28 0.24 0.22Long Term Debt-Equity Ratio 0.16 0.3 0.26 0.22 0.17 0.15Current Ratio 2.15 2.24 2.37 2.41 2.25 2.43Turnover Ratios Fixed Assets 1.89 1.73 2.05 2.25 1.92 1.6 Inventory 39.13 49.02 51.85 52.6 42.25 25.28 Debtors 3.29 2.79 3.25 3.42 3.23 2.95Interest Cover Ratio 11.82 6.84 9.46 11.97 13.26 10.04PBIDTM (%) 22.74 21.55 23.05 23.46 23.07 20.4PBITM (%) 16.1 16.39 18.17 18.36 16.86 14.29PBDTM (%) 21.38 19.15 21.13 21.92 21.8 18.98CPM (%) 19.7 16.91 18.92 20.41 20.13 17.57

APATM (%) 13.05 11.75 14.04 15.32 13.91 11.46ROCE (%) 13.72 10.69 12.81 14.84 14.36 10.89RONW (%) 13.78 11.12 14.06 16.73 14.97 10.78

Highlights:

The number of listed companies in the sector has increased sharply when compared to last year

due to growth in developed markets and bullish market.

The profit margins of the industry too have seen a rise though have not reached FY 2008 levels

and are even lower than 2006 levels however with improving economies of western markets the

sector has positive outlook for the future and will see growth trends in near future as more and

more software capabilities are shifted to low cost Countries like India

The interest coverage ratio has sharply increased for the sector and the Debt-Equity ratio has

also fallen indicating higher borrowing capacity in the future for the industry.

Company Analysis

Incorporated in Mar.'83 as International Computers and Tabulators Indian Manufacturing Company, was

established in technical and financial collaboration with International Computers, UK. It was promoted

by its foreign collaborators ICL, UK; Fujitsu, Japan; and Northern Telecom, Canada.

The company manufactures and markets computer hardware and software. Its chief products are digital

computer systems including peripherals. The company manufactures the entire range of hardware

products, ranging from PCs to main frame computers. It has entered into collaborations with Fujitsu,

Japan, and Genicom, US, to manufacture line printers. The company tied up with Sun Micro Systems, the

world leader in Unix workstations and servers.

In 1988, ICL entered into an agreement with RPG Enterprises to jointly manage the company. RPG

Enterprises provides management support to ICIM. It has changed the name of its subsidiary companies,

International Computer (india), ICIM International Inc & ICIL Singapore Pte to Zenstar Technologies ,

Zenstar Technologies Inc & Zenstar Technologies (Singapore).

In 1999, the company sold SES business to Accel Ltd, for a total purchase consideration of Rs 11.34 cr &

also has taken over the liabilities under various leasing agreement relating to equipment rented out to

customers.

In Mar. 2001, the Board of Directors of Fujitsu ICIM and Zensar Technologies have approved the merger

of the two companies at a share swap ratio of 1:1, which translates into one share of Zensar

Technologies for each share held in Fujitsu ICIM. Hence, the name of the company was changed to

'Zensar Technologies Ltd.' As the Chinese economy is gearing up and the business opportunities are

growing more and more the company has decided to enter into a JV with New Jade Tech Ltd a subsidiary

of Asia Logistics Ltd a Hongkong SE listed company. The joint venture will operate from the Software

Technology Park of Zhuhai near Hongkong. The company is also planning to set up a branch in Finland to

cater to customers in the Scandinavian region. The process is underway and is expected to be completed

shortly.

The company has signed a share purchase agreement on December 12 2005, for acquiring entire equity

stake of OBT Global, a Hyderabad based company. Further Zensar Technologies Inc., the company's

wholly owned US subisidiary, would be acquiring the entire common stock of OBT Global Inc USA, an

affiliate of OBT Global,in an all cash transaction. The newly acquired companies are engaged in SAP

solutions specifically focused on the Indian industry verticals of textile, healthcare and pharmacy.

Key Financial Ratios

Key Ratios Mar-10 Mar-09 Mar-08 Mar-07 Mar-06Debt-Equity Ratio 0 0 0.04 0.09 0.11Long Term Debt-Equity Ratio 0 0 0.04 0.09 0.11Current Ratio 2.97 2.55 2.44 2.65 2.92Turnover RatiosFixed Assets 2.57 2.74 2.89 2.83 2.59Inventory 0 0 0 0 0Debtors 5.7 5.38 4.15 3.99 4.39Interest Cover Ratio 158.42 124.48 44.46 29.7 19.99PBIDTM (%) 22.54 21.22 19.48 18.54 18.48PBITM (%) 17.53 15.93 14.82 13.34 11.96PBDTM (%) 22.43 21.09 19.14 18.09 17.88CPM (%) 21.94 19.62 18.16 17.37 17.49APATM (%) 16.93 14.33 13.51 12.17 10.97ROCE (%) 31.78 29.26 25.5 21.7 18.65RONW (%) 30.69 26.32 24.14 21.64 19

DuPont Model


PBIDT/Sales(%) 22.54 21.22 19.48 18.54 18.48

Sales/Net Assets 1.69 1.66 1.64 1.5 1.46

PBDIT/Net Assets 0.38 0.35 0.32 0.28 0.27

PAT/PBIDT(%) 75.09 67.56 69.37 65.62 59.34

Net Assets/Net Worth 1 1 1 1.09 1.11

ROE(%) 30.69 26.32 24.14 21.64 19

Highlights:

Company is a zero debt company which it has a good debt capacity which it can utilise in future

which would push its current ROE(%), ROCE(%) and profits higher.

Its interest coverage ratio has improved to 158.42 from 20.

Company has maintained a steady growth in After Tax profit margins which is averaging at

11.5% for the last 5 years.

Company has maintained a steady growth in ROCE(%) which is averaging at 14.2% for the last 5

years.

Company has maintained a steady growth in RONW (%) which is averaging at 12.7% for the last

5 years.

Company has constantly improving PBIT/Sales(%), ROE(%).

Competitor Analysis

Competitors of Zensar Technologies Ltd. considered on the basis of companies being in the same

industry and similar sales as that of Zensar. We have assumed companies in the same industry and of

similar size will be in a similar risk class.

Sector Aggregate

Zensar Tech.

Persistent Sys

Sonata Inf.Tech

NIIT Tech. Geodesic

Key RatiosDebt-Equity Ratio 0.23 0 0 0.6 0 1.09Long Term Debt-Equity Ratio 0.16 0 0 0.34 0 1.09Current Ratio 2.15 2.97 2.43 1.26 1.18 9.85

Turnover RatiosFixed Assets 1.89 2.57 1.45 155.2 2.01 3.25Inventory 39.13 0 0 94.84 0 32,919.33Debtors 3.29 5.7 5.4 5.06 4.94 2.45Interest Cover Ratio 11.82 158.42 0 5.37 230.07 5.58PBIDTM (%) 22.74 22.54 31.04 2.87 25.48 51.97PBITM (%) 16.1 17.53 24.6 2.81 20.51 45.6PBDTM (%) 21.38 22.43 31.04 2.35 25.39 43.8CPM (%) 19.7 21.94 29.65 1.57 24.24 40.6APATM (%) 13.05 16.93 23.21 1.51 19.27 34.23ROCE (%) 13.72 31.78 23.82 27.76 26.06 20.69RONW (%) 13.78 30.69 22.57 23.93 24.54 32.03

Company

Name Sales NP

APTAM

(%) P/E P/BV

Geodesic 487.24 167.81 34.44% 5.5 1.19

NIIT Tech. 493.58 94.84 19.21% 12.2 2.28

Zensar Tech. 497.08 84.09 16.92% 8.8 2.46

Sonata

Inf.Tech 503.61 7.62 1.51% 0 0

Persistent Sys 504.41 116.93 23.18% 15.9 2.86

Highlights

Zensar has a lower than average (zero in comparison to 0.23) debt-equity ratio.

It has highest ROCE (%) among its peers.

It has second highest RONW (%) among its peers.

It has moderately good P/E ratio at 8.8.

Call on Zensar Technologies Ltd.

We give a ‘BUY’ recommendation for Zensar Technologies Ltd.


Zensars’s constantly improving efficiency which is reflected by RONW (%), ROCE (%), APTAM (%)

and PBITDM (%).


Reasonably good P/E ratio.

Capital generation capability seen from a high interest coverage ratio

Bibliography

Database used:

www.capitaline.com

www.ICICIdirect.com

CMIE Prowess Database

www.equitymaster.com/

www.moneycontrol.com

http://www.moneycontrol.com/

http://www.ICICIdirect.com/

http://www.capitaline.com/

Book referred:

Dean LeBaron's Treasury of Investment Wisdom: 30 Great Investing Minds. Dean LeBaron, Romesh

Vaitilingam

Investments by Zvi Bodie, Alex Kane, Alan Marcus, Pitabas Mohanty

Corporate finance 8th edition byu Stephen Ross, Randolph westerfield, Jeffery Jaffe, ram Kumar Kakani

Research paper referred:

Momentum Strategies by Louis K.C. Chan, Narasimhan Jagadeesh, Josef lakonishok; The Journal of

Finance, Volume 51, Issue 5 ( Dec., 1996)

Web sites referred:

1.) www. lichousing .com

2.) www.deal4loans.com

3.) www.apnaloan.com/know-your-bank/ lic -hf.html

4.) www. patelairtemp .com/

5.) money.rediff.com/companies/patels-airtemp/17020179

6.) www.business-standard.com/stockpage/stock_details.php ?

7.) money.sulekha.com/patels-airtemp-india

8.) www. hawkinscookers .com

9.) investing.businessweek.com/.../snapshot.asp?ticker=HAWK:IN

10.) en.wikipedia.org/wiki/Hawkins_Cookers_Limited

11.) connect.in.com/hawkins-cooker/profile-295413.html

12.) www. ajantapharma .com/products.html

13.) money.rediff.com/companies/ajanta-pharma-ltd/12540406

14.) www.poulvet.com/bulk_drugs/company_profile.php?addrid=19

http://www.poulvet.com/bulk_drugs/company_profile.php?addrid=19

http://www.ajantapharma.com/products.html

http://www.hawkinscookers.com/

http://www.business-standard.com/stockpage/stock_details.php

http://www.patelairtemp.com/

http://www.apnaloan.com/know-your-bank/lic-hf.html

http://www.deal4loans.com/

http://www.lichousing.com/

15.) myiris.com/shares/company/snapShotShow.php?icode

16.) company.monsterindia.com/ajantapin/

17.) www. zensar .com/

18.) en.wikipedia.org/wiki/Zensar_Technologies

19.) www.linkedin.com/companies/ zensar - technologies

20.) www.ibef.org/download/ zensar -tech_23oct.pdf

21.) money.rediff.com/companies/zensar-technologies/13010004

22.) www. sancotrans .com/

23.) myiris.com/shares/.../snapShotShow.php?icode=SANTRANS

24.) economictimes.indiatimes.com/stocks.cms?companyid=12780

25.) money.rediff.com/companies/sanco-trans/16590002

26.) sify.com/finance/stockpricequote/Sanco_Trans_Ltd-SNC.html

27.) www.indiainfoline.com/Markets/Company/ Sanco - Trans - Ltd /523116

http://www.indiainfoline.com/Markets/Company/Sanco-Trans-Ltd/523116

http://www.sancotrans.com/

http://www.ibef.org/download/zensar-tech_23oct.pdf

http://www.linkedin.com/companies/zensar-technologies

http://www.zensar.com/

Result comparison with Sensex

Company name Closing Price on Nov 1, 2010 Closing Price on May 17, 2012 ReturnZensar Technologies Ltd 156.15 200.05 28.11%LIC Housing Finance Ltd 268.72 241.8 -10.02%Ajanta Pharma Ltd 239.85 567.4 136.56%Patels Airtemp (India) Ltd 97.1 40.2 -58.60%Sanco Trans Ltd 310.35 208.05 -32.96%Hawkins Cooker Ltd 990.15 1539.55 55.49%

Average return (assuming equal investment was made in all companies) 19.76%Sensex 20356 16119 -20.81%

40.5% GREATER RETURNS THAN SENSEX

Long term investment strategy (not named yet)

Economy & Finance