1 SYNOPSIS We initiated coverage of Swan Energy Ltd & set a target price of Rs.390.00 for Medium term to Long term Investment. Swan Energy Limited (SEL), a 100 year old company listed on Mumbai Stock Exchange with a market capitalisation of ~Rs 11.29bn. Owned and managed by Dave and Merchant families who took over the company from J.P Goenka Group in 1990. SEL, originally in textile business had discontinued Textile Operations in 2002 as a strategic move to convert all its premises into Lucrative Real Estate projects considering their prime location in the heart of Mumbai City. SEL with large area of land available, ventured into property development in 2005. To futher diversify its operations, SEL has ventured into Energy sector and is setting up a 3 MMTPA LNG Floating Storage & Regasification unit (FSRU) and has plans to increase the capacity to 10 MMTPA in a phased manner. Stock Data: Sector: Construction & Energy Face Value Rs. 2.00 52 wk. High/Low (Rs.) 119.40/56.00 Volume (2 wk. Avg.) 314000 BSE Code 503310 Reuters Code SWAN.BO Bloomberg Code SWAN:IN Market Cap (Rs.In mn) 11290.75 Share Holding Pattern 1 Year Comparative Graph BSE SENSEX Swan Energy Ltd C.M.P: Rs. 118.85 Target Price: Rs. 390.00 Date: April 3 rd , 2012 BUY Swan Energy Ltd Detailed Research Report
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1
SYNOPSIS
We initiated coverage of Swan Energy Ltd & set a target price of Rs.390.00 for Medium term to Long term Investment.
Swan Energy Limited (SEL), a 100 year old company listed on Mumbai Stock Exchange with a market capitalisation of ~Rs 11.29bn.
Owned and managed by Dave and Merchant families who took over the company from J.P Goenka Group in 1990.
SEL, originally in textile business had discontinued Textile Operations in 2002 as a strategic move to convert all its premises into Lucrative Real Estate projects considering their prime location in the heart of Mumbai City.
SEL with large area of land available, ventured into property development in 2005.
To futher diversify its operations, SEL
has ventured into Energy sector and is
setting up a 3 MMTPA LNG Floating
Storage & Regasification unit (FSRU)
and has plans to increase the capacity
to 10 MMTPA in a phased manner.
Stock Data:
Sector: Construction &
Energy Face Value Rs. 2.00 52 wk. High/Low (Rs.) 119.40/56.00 Volume (2 wk. Avg.) 314000 BSE Code 503310 Reuters Code SWAN.BO Bloomberg Code SWAN:IN Market Cap (Rs.In mn) 11290.75 Share Holding Pattern
Particulars (Rs.in.mn) FY10 FY11 FY12E FY13E Equity share capital 190.00 190.00 190.00 190.00 Reserves & Surplus 1041.76 1457.85 1930.04 4242.17 Net worth 1231.76 1647.85 2120.04 4432.17 Secured loans 2381.95 1738.43 1624.74 1159.68 LIC Loan 1000.00 1500.00 J&K Loan 1500.00 Loan funds 2381.95 1738.43 2624.74 2659.68 Project Advances 1570.84 1125.30 3387.30 Net Deferred Tax Liability 2.44 18.34 18.34 18.34 Total Liabilities 5186.99 4529.92 8150.42 8610.19 Gross block 338.07 1050.41 2455.67 2901.21 Less: Depreciation 15.27 29.96 72.05 116.25 Net Block 322.80 1020.45 2383.62 2784.96 Capital work in Progress 397.87 0.00 2148.10 906.50 Investments 2132.06 1373.11 1820.61 1003.11 Net Current Assets Current Assets, Loans & Advances 4368.19 2775.87 3012.57 4033.62 Less: Current Liabilities & Provisions 2033.93 639.51 1214.48 118.00 Net Current assets 2334.26 2136.36 1798.09 3915.62 Total Assets 5186.99 4529.92 8150.42 8610.19
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Charts:
Net Operating Revenue & PAT
P/E Ratio(x)
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EV/EBITDA(x)
Debt Equity Ratio
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P/BV
COMPANY BACKGROUND
Swan Energy Ltd. originally incorporated in 1909 as Swan Mills Ltd a manufacturer and
marketer of cotton and polyester textile products in India was taken over by the Dave &
Merchant family from the J.P.Goenka group in 1990 and changed its name to Swan
Energy Ltd (SEL) in December, 2008.
SEL is a diversified player with interests in Energy, Real Estate & Textile sector. The
company's core business includes trading of fabric & development of properties. The textile
manufacturing business was completely stopped in 2002 and the company with its large
area of land available in the heart of Mumbai had ventured into property development in
2004 with a tie up agreement with Peninsula Land Ltd for various real estate activities
including development of its mill land in Mumbai.
SEL is currently developing 2 property projects in Mumbai with total saleable area of 1.78
mn sqft in Kurla (IT park) and Sewri (residential complex) in alliance with Piramal Group
Piramal Holdings), now known as Peninsula Land Ltd.
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The construction work at Kurla & Sewri for Residential & Commercial projects are about
to end in the current fiscal, while it has acquired land in Goa for further development.
The company has formulated plans to deploy the cash flows that are generated from its
real estate activities into energy based projects.
SEL has re-started its textile manufacturing activity, with the vision leveraging on its
successful brand image, to cater to the booming demand of Indian textiles from global
players by setting up a textile unit at Ahmedabad in Gujarat.
Mr. Navinbhai Dave is the non executive chairman of the company. The board comprises
of 9 members, of which 5 are the non executive independent directors. Mr. Nikhil
Merchant, the Managing Director and Mr. Paresh Merchant, the executive director, have
been associated with the company for more than 16 years. The majority of other directors
have experience of more than 30 years in varied fields.
BOARD OF DIRECTORS & KEY MANAGEMENT PERSONNEL:
Name Designation Profile
Navinbhai Dave Chairman • First Indian to be conferred with ‘Coat of Arms’ by British Queen Elizabeth II in ’94.
• Conferred with Distinguished Honorary Alumni of the University of South Carolina Aiken in 2000.
Nikhil V Merchant Managing
Director
• Widespread experience in several sectors of the Indian economy.
• BS in Textile Engineering from the Philadelphia College of Textiles and Science; and completed Management Education Programme from IIM Ahmedabad.
Paresh V Merchant Executive
Director
• Associated with SEL for last 16 years and responsible for its operations and the business activities of the group companies
• Commerce Graduate and certified with Management Education Programme from IIM Ahmedabad
Shobhan Diwanji Director • Over 30 years of rich experience in financing and structuring.
• B.A in Economics from the university of Mumbai and MBA in Finance from University of Rochester,
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NY, USA. • Associated as Director, Capital Market Group,
Lazard India and as Senior Consultant with Tata Economic Consultancy services.
P. S. Teckchandani Director • Over 45 years of experience in the Oil & Gas industry.
• Worked with Indian Oil Corporation (IOC) for 30 years and then with Essar Oil as the CEO of the refinery project at Jamnagar and whole time Director of Essar.
P. Suvaganam Director • Over 36 years of experience in the Oil industry • Was associated with IOC for 33 years, involved in
international financing, reporting, risk identification and management of JV and subsidiary companies.
R.K.Sukhdevsinhji Director • Over 50 years of rich experience in all functional areas related to the Oil and Gas Sector.
• Graduate in Economics. • Ex- Chairman & MD of BPCL, EX-MD of Essar oil
Limited.
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Business Overview:
The traditional business of the company includes trading of fabric and has recently
forayed into the energy sector. The company is developing LNG regasification unit in
Pipavav, Gujarat with a capacity of 4.5 mmtpa and it has also acquired 99.98% interest in
Cardinal Energy & Infrastructure Pvt. Ltd.
Energy:
Swan Energy Ltd (SEL) is an emerging energy company committed to following a
sustainable growth path. Led by a powerful vision, the company continues to look beyond
traditional power sources for a lower carbon energy future. SEL has in place a strong
pipeline of innovative energy projects offering exposure to vast growth opportunities in the
Indian energy sector.
Earlier known as Swan Mills Ltd, it has changed its name to Swan Energy Ltd in order to
focus itself towards Indian energy sector.
LNG Floating Storage & Regasification Unit (FSRU):
SEL is investing in a Floating storage cum regasification unit (FSRU) to leverage
opportunity in the LNG business segment.
• The Company is developing LNG regasification unit in Pipavav, Gujarat with a
capacity of 3 MMTPA of LNG imports to ensure adequate availability of gas in
required time frame.
• The unit would provide regasification facilities at a cost which is competitive to
current cost being charged at existing terminal of Petronet.
• The detailed project report (DPR) has been submitted for approval and the company
is planning to invite EPC bids for planned port facilities.
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• Term sheets / MOU’s have been signed with off takers/major oil companies.
• Agreements / Contracts with LNG suppliers are under finalization. Detailed
discussions are in process with all potential FSRU suppliers.
Floating Storage & Regasification Unit (FSRU) Project Parameters:
Subsidiary Company: In January 2010, the Company had acquired 99.98% interest in
Cardinal Energy & Infrastructure Pvt. Ltd.
Risk Associated
Real Estate Segment
• Availability of credit is the most important factor for the companies engaged in Real
Estate sector. The restriction on availability of credit would paralyze the companies
ongoing projects or their future growth plans.
Textile Segment
• Textile sector plays an important role in contribution of GDP to the tune of 14%,
where a part of the revenues are collected from export earnings too. Hence any
slowdown in the Global economy & changes in the regulations by the Government
would impact the overall scenario of the sector.
• High competition from unorganized sector.
• Duty concessions to importers.
Energy Segment:
• Huge capital expenditure
• Long gestation period for generating revenues
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Industry Overview
Energy Sector:
Energy is an essential building block of economic development. Other than power sector,
demand for natural gas is likely to be strong considering the advantages of natural gas
over other fuels.
Gas Market Drivers:
• Gas demand in India is known to be supply driven
• Growth in demand dependant on infrastructure in the form of gas pipelines and
LNG imports
• Gas pricing in India converging towards international pricing
• India’s commitment to reduce GHG emission intensity of its GDP by 25% by
year 2020
Demand for natural gas outstripping supply:
There continues to exist a yawning demand – supply gap in India’s natural gas sector.
Compared to approximately 223 mmscmd of demand in FY10, the Supply stood at
163mmscmd, which was catered by a combination of domestic supplies (127 mmscmd)
and imports as LNG (36MMSCMD). Power sector accounts for the maximum demand
(46%) followed by fertilizers (27%) and industries.
As domestic production is unlikely to keep pace with domestic demand, a significant
requirement for LNG imports is emerging. India has no option but to go in for large – scale
LNG imports if it is to guide its power sector toward a fundamental shift in fuel choice. The
2 existing LNG terminals in India, Petronet LNG and Shell Hazira are working at more
than 90% capacity utilization. Thus the Indian market offers the maximum potential in
terms of growth of natural gas demand across sectors and hence is an attractive
destination for LNG import.
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Real Estate:
The Indian economy has witnessed robust growth in the last few years and is expected to
be one of the fastest growing economies in the coming years. Demand for commercial
property is being driven by India's economic growth. Real estate in India contributes about
5 per cent to India's gross domestic product (GDP). The total revenue generated in 2010-11
stood at US$ 66.8 billion.
Demand is expected to grow at a compound annual growth rate (CAGR) of 19 per cent
between 2010 and 2014—Tier 1 metropolitan cities are projected to account for about 40
per cent of this. Growing requirements of space from sectors such as education,
healthcare and tourism provide opportunities in the real estate sector. FDI of more than
US$ 9 billion was infused in real estate in the last decade.
• The foreign direct investment (FDI) up to 100 per cent is allowed with Government's
permission for developing townships and settlements
• New home loan borrowers of up to Rs 1.5 million (US$ 30,477) will get Rs 14,865
(US$ 302) as interest subsidy from the Government, on the condition that the cost
of the house should not exceed Rs 2.5 million (US$ 50,798)
• Allowing 100 per cent FDI under the automatic route in development of Special
Economic Zones (SEZ), subject to the provisions of Special Economic Zones Act
2005 and the SEZ Policy of the Department of Commerce
Investments:
Real estate emerged as the popular sector for private equity funds who invested US$1,700
million in this sector during 2011. Private equity in real estate projects will fetch
considerable returns by next year-end or early 2013, as per KPMG. Real estate plays an
important role in the Indian economy. This sector happens to be the second largest
employer after agriculture and is expected to grow at the rate of 30 per cent over the next
decade. The size of the Indian real estate market is expected to touch US$ 180 billion by
2020.
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Textile Sector:
The Indian textile industry is one of the major sectors of Indian economy largely
contributing towards the growth of the country's industrial sector. Textiles sector
contributes to 14 per cent of industrial production, 4 per cent of National GDP and 10.63
per cent of country's export earnings. The opening up of the sector through liberalization
polices set up by the Indian Government have given the much-needed thrust to the Indian
textile industry, which has now successfully become one of the largest in the world.
The total foreign exchange earnings from the textile exports during the current financial
year (April-July 2011) was registered at US$ 10.32 billion against US$ 7.75 billion during
the corresponding period of financial year 2010-11.
India has the potential to increase its textile and apparel share in the world trade from the
current level of 4.5 per cent to 8 per cent and reach US$ 80 billion by the end of the year
2020.
Recent Developments:
• Along with the increasing export figures in the Indian Apparel sector in the country,
Bangladesh is planning to set up two Special Economic Zones (SEZ) for attracting
Indian companies, in view of the duty free trade between the two countries. The two
SEZs are intended to come up on 100-acre plots of land in Kishoreganj and
Chattak, in Bangladesh.
• Italian luxury major Canali has entered into a 51:49 joint venture with Genesis
Luxury Fashion, which currently has distribution rights of Canali-branded
products in India. The company will now sell Canali branded products in India
exclusively.
With the increase in investments in the Indian textile sector, the subsequent increase in
the industrial production, and the positivity observed by the Textile sector has resulted in
progress and development of the sector.
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The company’s reentrance into manufacturing directly by setting up of an art Process
House at Gujarat will help company to capture the market potential and would enable SEL
to leverage its textile business on the “brand image of SWAN”.
______________ ____ ___________________________ Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for any investment decision.
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Firstcall India Equity Research: Email – [email protected] C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods A. Rajesh Babu FMCG H.Lavanya Oil & Gas Ashish.Kushwaha Diversified A.Nagaraju Infrastructure & Real Estate
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