Analysis of JSW Steel Ltd.

About The Company

The Company was incorporated on March 15 1994, and the Certificate of Commencement
of Business was received on July 8. The Company is engaged in the business of integrated steel.
It was promoted by the assisted sector by Jindal Iron & Steel Co. Ltd. and Karnataka State
Industrial Investment and Development Corporation Ltd.

Main Stories In the Company

1.FY11 seems to be a excellent year for the company. It expects to operate 11.390 Mw by 2015 from its current 995 Mw capacity.

2.In April 2010 the company invested Rs.382 crore to get a share in the South African Coal Mining Holdings I

3.It acquired 70% in another South Africa-based coal company, Indian Ocean Mining (IOM) from Osho Venture FZCO of Dubai.

4.Repayment of Rs.450 crore of debt will bring down interest costs and it expects annual average short-term prices of power to be range-bound between Rs.4.80 and Rs 5.25 a unit for FY 2011. Stay invested and accumulate for long term on every dip.

5.High fuel costs on account of imported coal is a concern but the company is trying to overcome this by acquiring coal mines and is scouting around for mines.

6.Its plant at Ratnagiri could run into trouble due to environmental issues. But on 30th June, the company has stated that this issue has not been sorted out and it expects to commission the first phase (300 mw) of its 1,200 mw Ratnagiri power plant in 15 days.

7.The ministry has asked the company to set up a flue gas desulfurisation (FGD) technology to keep the emissions of sulphur dioxide in check. JSW has to do so at a cost of Rs.527 crore.It was followed after objection raised by mango growers in the Ratnagiri area, who had expressed concerns that toxic gases emitted by the thermal power plant would hamper the production of Alphonso mangoes.

About The Stock

The company is no doubt a giant in steel sector and a promising stock for long term prospective.Every unit has to face problems but the management has the potential to overcome the same. We can expect a better return in long term. The stock could be bought in dips by average method. Any dips in the stock would be an opportunity for true investor.

Analysis of Walchandnagar Industries Limited

About The Company

Walchandnagar Industries Ltd is an ISO-9001 -2000 certified, multi product,multi discipline,high-tech, heavy engineering, Projects execution company catering to diverse Industries such as: Projects Include Steam & Power generation , Cement , Mineral processing & Sugar Plant Products Include Heavy duty gear boxes , Material Handling & Process equipments , Castings & precision instruments , & Production of customer designed equipment of National importance for Aerospace , Defence and nuclear power.

The company was incorporated on 25th November 1908 , at Mumbai with 2,500 No. of equity shares issued without
payment in cash.In 2008  the Company has issued Bonus Shares in the Ratio of 1:1 & has splits its face value
from Rs10/- to Rs2/-

About The Financials

For the second quarter ended 31st March 2010, the topline of the company remains flat, with a QoQ fall of 4% and 2% rise on a YoY. Net profit fell sharply on the back of mounting operating costs, down 52% QoQ and 61% on a YoY. NPM was its lowest at 1.5%.

Major News

• Walchandnanagr has signed a MoU with French naval shipbuilder DCNS, to manufacture critical
  equipment for Scorpene submarines to be used by the Indian Navy.

• It shortly expoected to have a second contract P75i project, advanced submarines with DCNS.

• India plans to source 70% of its defence requirement from indigenous sources by the end of this year.

My Recommendation

The company profile is satisfactory with a diverisified portfolio in the working field. The company has always rewarded its shareholder in form of bonus , split , dividend and hike in price of the stock. From long term prospective the stock is a good buy and could be bought on dips by averaging method.

Factors to consider before selcting an IPO for Investment

Get answers for the following questions to determine whether or not you should invest in a particular IPO ?

1. Is this an IPO or an FPO?

• In IPOs, initial public offers, company decides the price and the collective secondary market discovers the true price post-listing after more information inflows/analysis.
• In FPOs, follow on public offers, the price is already discovered; gains/losses can only be marginal; no new information for the market to analyze/process.

2.Is this a fixed-price or a book-building issue?

• The methodology, classes of investors and issue pricing are totally different.
• There is no book or price discovery in a fixed-price issue.
• There are no reservations for FIIs/HNIs in a fixed-price issue; 50% of the issue is reserved for small investors (in book building, it is 35%).
• Fixed-price issues are typically small.

Issues in 2004-05 (Rs in crore) Source: Prime Database
Issue Type	No. of Issues	Issue Amount	Average size of Issue
Fixed Price	10	378.82	37.88
Book Building	19	21,052.74	1,108.04

3. Is this a “good” promoter?

• Get to “know” the promoter – that’s the key.
• If the promoter is okay, almost all other factors will automatically get taken care of.
• If there is any foreign collaboration of repute, it helps.

4. What is the promoters’ background and experience?

• Experience in the same business/industry (promoting individuals/ promoting companies)

5. Is the promoter a liability or an asset?

• Are there any material defaults/ litigations against the company or its promoters?
• Persons/Companies that have not been compliant with laws of the land reflect a worrisome mindset.
• If you find too many defaults/litigations of a material nature or even one of a very serious nature, a the issue.
  – Criminal proceedings against the promoters.

6. What is the status of the issuing company?

• Holding company
• Main company

7. How has been the performance of the company?

• Number of years in the business
• Size of the company
• Growth rate
• Market share and growth

8. Are the financials, specially the recent ones, reliable?

• Many resort to window dressing; high sales often lie in sundry debtors, profits could be because of a very high “other income” or “unusual income”.
• Beware of bloated previous year’s financials; amazing how almost every company performs so exceedingly well in the year and quarter preceding the issue!
• Look at aging of sundry debtors (and earlier write-offs).
• Look for changes in accounting policies (depreciation etc.), in financial year.
• Look if there are any significant Notes to the Accounts.
• Look if there are any significant qualifications by the auditors.

9. What to look for in the Balance Sheet?

• Fixed assets
• Investments
• Loan and advances

10. What are the key financial parameters/ ratios to look at?

Earnings per share (EPS)

• EPS measures the earnings a company makes for each share in existence. It is calculated by taking a company’s net earnings and dividing them by the number of shares in issue.
• A higher EPS is regarded as better than a low EPS as it means investors are earning bigger profits for every share they own.
• Investors look not only at the current EPS but also at estimates of future EPS to get an idea of the profits they will earn in future years.

Price Earnings ratio (P/E)

• The ratio you will see mentioned more than any other is the Price Earnings Ratio, which you will often see represented as P/E.
• The P/E measures whether a company is cheap or expensive. It is calculated by dividing a company’s share price by its earnings per share (profits after tax divided by the number of shares in issue). As a rule, the higher the P/E, the faster its earnings are growing but if the P/E is high compared with other companies in the same sector, it could also mean the shares are overvalued.
• This ratio enables any business to be compared with another, although in reality investors tend to compare companies against those in the same industry sector or against the P/E on the entire market.
• Investors look not only at P/Es based on the past year’s earnings but also at estimates of future P/Es, also known as prospective P/Es. This gives investors an idea as to how fast a company’s earnings are expected to grow in the future and, therefore, whether their shares are worth buying or not.

PEG ratio

• If you are investing in growth companies it is worth looking at a company’s PEG ratio. This ratio, which shows a company’s P/E relative to its earnings growth rate, is worked out by taking the prospective P/E ratio and dividing this number by the prospective EPS growth.
• The lower the PEG ratio, the better value a company’s shares are.

Return on capital

• This ratio helps investors assess how hard a company is making its assets work. It is calculated by taking profits before interest and tax are removed and dividing this figure by the capital employed.
• Broadly speaking, the higher the return on capital, the more successful a company is.

EBITDA and EV

• EBITDA is a profit key ratio that looks at the Earnings Before Interest, Tax, Depreciation and Amortisation. It is used to assess the operative profitability of a company.
• You can use this ratio to analyse companies that reinvest heavily in their businesses by taking the Enterprise Value and dividing it by EBITDA.

11. How are the cash flows?

• Is it negative?

12. What is the dividend track record?

• No relevance in the case of IPOs

13. What is the promoter’s attitude towards shareholder rewards, in case of listed group companies?

• Dividend policy
• Bonus issues
• Rights issues
• De-listing of group companies
• Past public issue pricing

14. How has been the performance of the group companies?

• Number of years in the business
• Size of the companies
• Growth rates
• Market shares and growth
• Financials

15. How significant are the related party transactions?

• Is it a family business?
• Do group companies constitute the main clientele?
• Is most raw materials sourced from group companies?
• Extent of related party financial transactions?
• Is there any conflict of interest among group companies?
• Are there companies in the group doing the same business?

16. Who is on the Board of Directors?

• Family-controlled or broad-based
• Independent directors
• Key directors-in terms of experience and “connections”
• Compliance of Clause 49 of the Listing Agreement on Corporate Governance

16. What are the products/ services of the company?

• Old economy/ new economy?
• Cyclical?
• “Flavour of the season”?
• Upstream/ downstream?
• Market outlook?
• Be concerned about your own exposure to a particular industry.

17. What about technology?

• Do not bother too much about this.

18. What about customers?

• Over dependence on one or a few customers?
• Too many fixed priced, long-term contracts etc?

19. What is the size of the issue?

• A large issue ensures better allotment as also better liquidity.

20. What will be the public float after the issue?

• This is critical as public float finally determines the liquidity.

21. What is the promoter’s holding after the issue?

• A small post-issue stake does not inspire much confidence

22. Is the price justified?

• Do not be guided by ‘par’ ‘premium’ parameters
• In “Justification of Issue Price”, look whether P/E has been calculated on recent period EPS or on weighted average of 2-3 years.
• Look at the peer group prices, but do not rely entirely on it.
• Industry low/ average/ high figures of P/E are deceptive; there are no two similar companies, each is unique.

23. What has been the capital build up?

• Previous public issues/rights issues/overseas issues/preferential issues.
• To whom, when, at what price?
• Is there any venture capital/private equity fund investment in the company?
• Who invested, when, at what price, for what stake?
• How does the offer price compare with price of allotments made to them?
• Are these now funds exiting fully or partially in this offer?
• Partial exit or no exit is more confidence building; VCs are expecting a higher secondary market exit price. In 2004-05, there were two such companies where VCs exited partially, NDTV and UTV.

24. What are the objects of the issue?

• Finance a new project (new/diversification)?
• Undertake expansion
• Augment working capital?
• Repay debt? (to promoters?)
• Do acquisitions?
• Fund subsidiaries?
• Open branches?
• For general corporate purposes?
• Exit to promoters/others (offer for sale); No fund inflows into the company?

25. What are the components of the project cost?

• Any oddities in the components of the project cost?
• Comparison of cost of projects of two “similar” companies difficult as there would rarely be two exactly similar projects.

26. What has been the utilisation of existing capacity?

• Is the present capacity fully/ substantially being used?

PSU Boom Study at a Glance

Recently, we have seen a major spurt in all PSU stocks , whether it's a listed company or not. There is great news of IPO & FPO of the PSU units in the stock market. The Govt. has recently announced the proposal of reducing the promoter stake to maximum of 75% of the total equity or else the public participation in any company has been settled to a minimum of 25%. This cowers not only private units but also all PSU stocks. Govt. has been carrying a fiscal deficit in budget due to prolonged carried forward balance and also due to waiver of farmer loan in last budget. The recovery of such deficit will be done by either making initial public offer of unlisted stock or by divesting the stake in already listed stocks to get reasonable amount of funds to settle the deficit.

Now we are expecting IPO of the following PSU stocks :- BSNL , VSNL , COAL INDIA , KUDREMUKH , SATLUJ JAL VIDYUT NIGAM.

We can expect divestment in those PSU stocks , where the govt. stake is reasonably high. Like wise NMDC , MMTC , STC , HINDUSTAN COPPER , REC , NTPC , NEYVELI LIGNITE , SAIL , ENGINEERS INDIA , RCF , HMT , ANDREW YULE ETC

NOTE :

All registered members are hereby informed that they may email me mentioning there date of registration with us to claim for the detail study of the divestment in public sector and the gem stock stock to be bought , the price level for best buy and target expectation.