SCORECARI enters canaequatst Ne way Be fa tt x a % Sy a we “reopen Gok_A Meteo ghee) ge yd Dy Re EB Da STOO Pere ee ee ee ee 9) Si ROM HB ON TD BI MG 1H MA OD GH DOAN mT SA oO AT OD m2 3 M5 D2 16 tum We we 6s SS ASST RMD rc eT ee eee a ) was wei A} SA 2 WT OMI 52ST ST SE MOOT TE I MBE SESS yes 07 wa BI TR 6m sl 16 BIW BT ua BT me BI ws m2 GI BF as HH 35 IH may my of7 7 Smt 6am 6ST MS Seth 2218 el sé m2 M2 2 20 Ls) Ay BS me we MS MT RO MD MO A) MO 7 SS Ww 35 1H 108 me 3 uk OSs OO aT ak a 300% 2 MS OR OM mW MS 7 a9 47 OD OBS ME GT WA aS Da miss wat 6 3 3 a7 2 5h aa rv ee ee ee ee ne 1 OD) 7 32 32 2 UH 4S 7 I BO MS 96 KI MS ME Me US mA LD Bow md as tA m2 USI aR THB MT HDA MDH MD TD WE MEWS 2a A ima vad_us?_22 15m 5a 29M 09 m2 my BD ws wT Sanwa ee ee en ee DEO SM TOF a3 Ok HTS Oka mT 360 mg 1A S HK ONE DUH MT -NP SMS SKS RD MIDE BE TH OE 426583 61 UB asm son 66 RTS BD S99) ve G1 Re a S so Mw 4] Ml WW? 1S M3 RAB) GS U6 MR ME OS Be OM 1S 3K twa 97S 6) DAH GP LT 22 4 TMS STMT WS SMASH 7D 27 BO BI GBT GAG AT m7 US MO HP HO OI I BI MS SS 6 A mY SO aM I m7 43 95 B19 HO MA mT THM OMS BE BS MT KARP te 163 187 78 LT low TA M2 «WGA 313 @) MS BO 09 NB MS Be M2 OS MH UM IR wa 5 I 72 Imm MAS Te DE G2 US st) BS MA BI BO BA MS MA MI SMD WH ST Wn) ved AY MA AR MM TUM 47 MS HR ETP om mI OME mA STH I a6 TO 195s WRT RT BI_KI_IO_AS HT We WT wT AS TA BA mS 97 et G6 OM Ob «OG ORS) WE MSS SAT DOS HS MY MD OF OM OH SB m2 78 6h 75 2M uD GH 4d KI wD OM MDW mM BW MS wow Us wm os 8 aT if i % n 8 a 2) 83 NS 78 AT BOG 7H BS I 2 U9 ME ey 7k 8s 3% 8 oh 6 OS 87 BH WTO AR ST HRY ME EASA tas oR 8 a) 7 82 GQ) 6 10 3M O2 i RO DI MS MO MS MS MS 2 MS mS 3 189 MAD TAD 1 2M RL SHE SSA ky GHB DD ETL a ee ee ee ee R43 te a0 ow 8 oF Re OB ww oe moo oo Ms mu ee ae BF eM me | Oe mM ww was mE 73 UAT MT 3) S8 TTS 78m a2 ms 42 72 Md tH IMD DH Sh Tt ZA MEEBO os 6 ws SM OG ww MM mF Os He wan ws Ie 1) aR Tw we 88M Se kk OW tk 89 Sew DO wD a ee ee ee vw wow Ce Ce) re ee ee ee ee a6 uO mas ws _an ue mo 18743 tm Me ew D2 MOD a 2 & 2 Ss mS 9 @ AN oe au 2S BTW a wo Me OS uo a vown anwary 24 Wealth Insight 17UTE BALMER LAWRIE & COMPANY Riding on diversity Seven different and unrelated businesses can be a recipe for disaster, however, the case for diversification is well exemplified by this company ‘Stock price movement ” ° a PE trend i eae eso a a a a a a a ‘data eon Ot 16,2013, Fiore gue arin F ome, Peiamanc ues are ns ep F/B, Pan PS almer Lawrie is a trans- the government establishments. national diversified ‘The company is one of the largest | Pree oer eae conglomerate with travel agencies in India affiliated 304. 61.8 presence in both _—_to IATA with organisations like | © 0% mannfacturing and service Indian Railways, ONGC, 10C, sectors. The company is a market SAIL, BHEL, and ISRO. However, | Business driver leader in stool barrels, industrial the exposure and dependence to a _| A captive business to service the Breases and specialty lubricants, single large client has its perils, __} Needs of the government in incustrist Packaging, tours and travel, logistics corporate travel and logistics which was last seen when the | PASkaging. tours and travel, services. It also has significant Government went into an presence in most other businesses, austerity drive in EY08, restricting [Tap ated ands with vestments like performance chemicals, _ executive travel by employees. UW cRTS &1 logistics infrastructure and others. ‘The Logisties Infrastructure In its long history of 146 years, the _ vertical accounts for 17 per cent of company has been successfully the company’s top line and brings Established in 1867 as a partner. responding to the demands of an 55 per cent of Balmer Lawrie’s ‘ship firm, Balmer Lawrie became a ever-changing: environment, total Ebit. The company operates government of india company in leveraging every change as an container freight services (CFS) at at alte tes Seven ete opportunity to innovate. Navi Mumbai, Chennai and ini toc: ingusviel Package Kolkata and warehousing and | Sreeses& Lubrans,Pevtormance Strength distribution services, Infrastructure, Logistics Services and Travel and tourism accounts for Being a diversified company has | fetinny Otters Souene Ws close to half of the company's _itsadvantages, Balmer Lavirie does | tiniratna Category - company. revenues, being the travel agent to not need hoavy capex investinent, [| 18 | Wealth Insight January 2014OTSA 7. the share ofthe topline that comes from the logites infrastructure vertical ig he third highest contributor 150. ‘the incoasein profits under the refinery & oiled services business unit with a 10 per continerease In turnover in 2012-13, PE comparodte the ten year median of 75Ki5 atracthe, even the diversified ratueof the ‘company’s businesses its wort considering Financials DeSeRInON TMA _Mant2 Mansi Movi0_ WiOa MarO8 MarO7 et08 Maso Munetssp 67367888 erat oo sis eso 1440 380 1200 S87 98 Tatbgenne 2447 2998 3528 1960 Le 3380 90706 ey Performance mos Tid_or13_Mubs2_ M14 MoraO MOO MACS _wacoT_M0O MorOD Mero Oncoingnange 857 90 876 938 995 st Se 903 77 Gat B40 mt “per eee ste S75 GON Ge sea sie 387 283 ton Tomoncapta| = 3394 saa9 s7z7 sage sa92 M3 ALS Dwiendvod S18 S08 625 8D 388 si G56 32518 Phoswoaring $92 806 629128 829377 8 20a ns 902 Picetsveot ‘140<226~«140~—468 28 090 266 25045195 08 ‘Take Balmer Lawrie's gross block for instance. The company has doubled its fixed investments only in the last 10 years for sales to go up by more than 36 _ times, Diversification has also helped the company post a positive cash flow from operations in each of the last ten years and the debtequity ratio stands at a manageable 0.21%. ‘The performance of chemicals SBU which is into manufacturing and marketing syntans and synthetic fat liquor in the leather industry has been growing and can contribute to revenues in future. “The sum total of Balmer Lawrie’s operations come together to form a company with returns on capital in ‘excess of 25 per cent in the past five years. Not many companies can boast of such high returns operating such diverse businesses. Moreover, the company has reported an earnings growth of 11 vertical is also under threat because per cent in the past five years, which _it is highly sensitive to economic vwere also one of the most difficult activity, which is passing through a years for corporate India, tough patch. In the period between FYO7-11, when the world was reeling Concem from financial recession and Of concern is the future of travel businesses suffered across the agencies. The proliferation of board, logistics grew by a meagre 3 online booking of tickets is slowly per cent. The growth in the CFS but surely creeping up. Alongside space has also been stagnant in that, various Government agencies _recent years. too are looking at cutting costs. ‘The industrial packaging is the Valuations company's second largest vertical, Balmer Lawrie is trading at five however, this industry is_times its earnings as compared to characterised by low entry barriers its ten-year median of 7.5x. Given and surplus capacities. Likewise, the diversified nature of the the tea business is also posing company, Balmer Lawrie can be challenges as the company does not considered as an investment. have its own tea gardens. The Tea However, do not expect phenomenal ‘SBU has been incurring losses and growth fast. This is a slow and is hardly in a position to generate steady cluster of businesses that positively in the near future. shall continue to grow steadily. For ‘The logistics infrastructure _patient investors only WI Jarry 2014 Wealth insight | 19els BHARAT ELECTRONICS Strong defence This electronics company has the advantage of being a niche player with a captive market in the indian defence sector to cater m0 Stock price movement 1880 10 PE trend 1 ° age a ll Median alll, fn iy, ” a | 7004 © 200820082007 2009002208 Acts son Dee 16, 2013, Francia gues een ® ee Pedrmanc gas an ne P/8, PE ar PS eon hharat Electronics (BEL) BBL also does not have any logiam Manufactures electronic issues, with its infrastructure well | Pr) a, products for the Indian stacked with the capacity to l 010 7. 5 9 defence sector. The —_generate €10,000 crore revenue per ° 7% company operates under the annum. Further, the expenditure on Ministry of Defence and has defence sector as budgeted by the | Business aver become an expert in designing and government has risen over the | An expert dasign and developer of develop iss acapiras anal : crore specialised weapons and advanced eloping specialised weapor years to %6,714 crore and is | Speelaleed weapons and advan advanced electronic products not expected to further grow. Uhamed forsee uind tay ete a only for Indian armed forces but Where the company scores is also products for civil uses, with its vast knowledge and R&D [75 Ratea funds wth ivestnents BEL, with its wide productrange, division which boasts of numerous _| icici Prudential Tax Plan arid also caters to overseas defence patents that makes itastrong player _| ICICI Prugental Discovery needs and its exports include in a niche field. BEL has coastal surveillance system, radar continuously focused on its R&D _| BEL was established in 1984 under warning receiver, radar fnger and incurred around 85 per cent of | the MoD to manufacture electronic printing system, fitted up and bare _the revenue on the same in FY.18. ‘equipment fr Indian defence servic shelters and electronic voting Technology —tieps with _| & The compary also makes elec- machines, among others institutions like the DRDO, ISRO, _| tonle components for TV, broadcast, TH, telecom, simputer and electron SIR, CDAC, CDOT give it an | OM" ’ ing machines n association Strengths exclusive positioning. The company | Kayne Dmoo "thas Genoese The company has no dearth of also utilises young talent from vehicles to the Indian Army and is orders, with its omer book touching eading institutions Ike the TITs, | categorised aso Navratna compan. 24,734 crore as on October 1, 2018. _NiTsand IISc for thedevelopment of 20 | Woalth insight January 2014HOTTEST 9 3n makes this a value stock, but the value unoci Ingotthe same neawlyGepends upon gover ‘ment’ continued interest defence as prionty 1.29 the peo to books at 60 percent discount to its 10-year average of 3.16 which stengthens the anda of hs debt ee company 176. ‘The long wating perio forthe company to reals its igh receivables into cash is af ‘concern and impacts ts working capital Financials DESCREMON TOA Moet ax? Moet Mae10 wate oe) oss 6106 5768 5585 580 160 Aeon 380 1g 122 1200 ets 1902 sam 6820 8373887 178 wo m0 ale aay aoe MoT Mars MarO5_ Mave ‘9486 12008 98m 5322 3.962 “ee 5697 5003 4346 3407 3733 25s 2040 1890 12462 Soe ft 4 fF ww 702 500 141 1905 tatoo 198 ese 7462 2083 1888 1989 Last Performance TM MocL3 Maps eet sto na Mai 4s3 M26 1627 = 875 fo9_ 294 = ase as60 1849 08 amegpersne 10837 1129 10078 10788 9031 aa 1s aT 128068 Mreetpeanigs 032 1055 1488 Pree obok 1a 2a 268 403 ied Ma-08_MavO7 Miro MaECG_ Mok aa 90 179 we a8 oss sear an “au 198 1m Luo gar a2 36m the ta ae 46 sie new products and improving existing portfolio. This way its own R&D division bas developed ‘technologies and indigenised their operation and saved itself from depending on costly technical know- how or outsourcing. ‘The company is a strong exporter, especially in the radar and communication segment which has wide demand in the overseas market. Its total exports in FY13 stood at $82.78 million. And, to cater to the international market the company is enhancing its capacity and conducting new tests and the resource for the same is not a problem with huge cash pile up of %4,500 crore. Rising crime and regulator compulsions have increased the demand for security systems, especially in the civil segment, which could become a major growth driver. It is also a strong player in the smart cards. Concerns ‘The company has high working capital, which is because of the high debtor and inventory level. As on March 31, 2013, the debtors, inventory and advances for purchases add up to %8,912 crore which is short funded by creditors and advances received from clients of 27479 crore, A model of low credit time to pay the creditors by way of 17 payable days with high receivable of 176 days has increased the time It takes to convert its operation into cash. Although the high receivable days can partially be attributed to higher sales in the last quarter of FY13 which anyhow will be realised in the next financial year, for its good, the company needs to bring down the working capital and improve its receivable days by reducing it. ‘Another area of concern Is unattractive margins. This is a constant concern for the company which has the government as its ‘major client. Moreover, the payment ‘model adopted by the government is, very conservative when it comes to paying the companies that it owns, Also, the company needs to brace up to the challenge of private players gaining entry into the sector. Valuations At current price the stock is trading a price to earnings multiple of 9.3 and price to book of 1.29 which is 60 per cent discount to its 10-year average of 3.16. A debt free and cash rich company, BEL is a Value stock, but value unlocking heavily depends upon government's continued interest in defence. WI enuary 2014 Wealth Insight | 21UTS BHARAT HEAVY ELECTRICALS Engineering growth Powering its way in an otherwise unimpressive economic cycle, the engineering behemoth has come out unscathed every time oo Stock price movement saat PE trend ll. ws 2008 = 200520082007 2008) 2009 amt 20k 2 2018 ‘doa on De 16, 2013, Fania as awn ® re Peformance ae nap 9/8, PE and 2 HEL primarlly operates in Strengths : has ttoing two segments, namely BHEL’s biggest strength is derived a power and industry which from the fact thal it is a profit ] ss) 67 1 ‘includes transmission, making company from 1971-72. As | ob % transportation, telecommunication on March 31,2013, BHEL’s and renewable energy. BHEL outstanding order book stood at | Business ver started manufacturing power %31,650 crore. Engheerng nea astess he equipments way back in 1982, The company is strong on ee Ein tacaboee ronan catering to a whole host of sectors research and development and filed _| Somstucton, transmis that included transmission, for 985 patents and copyrights transportation and oil and gas raising the intellectual capital of [Top pasa nda win meamens among others. Today, BHEL is a BHEL to 2,17). With the objective of | icici Prudentil Discovery and behemoth with a share of 59 per becoming an innovative developer | Canara Robeco infrasvucture cont in the country's total installed of ‘clean, efficient, reliable and generating capacity that produces affordable products, BHEL invested | Established in 1964 , BHELs an © per cent of the total power €1.252 crore in R&D to further its | Integrated power plant equipment generated by utility sets. strengths, ‘The company is | manufacturer. The power segment ‘The company’s operations are not diversifying with its Mot with | ineludes thermal, gas, hydro and restricted to India alone and it has Indian Railways for setting up 2 | Clear ower plants, Inne business interests in 75 countries green field coach factory for | Musi sogment produces, where the cumulative overseas Mainline Electric Multiple Unit at | fahng'seck compressors, indus installed capacity of |BHEL- Bhilwara, Rajasthan. ‘motors and akernators. The ‘manufactured power plants exceeds ‘Moreover, the Odisha and Tamil | company is a Maharatna, 8,000 MW. Nadu UMPPs of 4GW are likely to 22 Wealth insight Jeary 2014HOE 43. Increase in orders over 2011-12, which adds upto 31,650 crore received by the company thisyear 29, the share nthe county's tata installed _Eenorating capaci that produces 69 por cent ‘ofthe total power generated by uty sets Od fied bythe company, takings intellectual Financial DEScRIMON TIM Mac13.Mori2 Matt MartO Mando Moros WoroT_MaL06 Minos YocoH Meaty as26 agate «10 ‘eines agate 47,78 «2007 9260 25658 19589 TaD S50 6713 BLN TwaiBsendee 97,701 40234 28,665 24325 Pe er yas2 $214 x 2 aan 3136 2809 2418 16 ae Opwntngpot 747 OSH ISH 9408 tt mm om 80 6309790 10315 sae Sa00 41m 378 2.00 Performance aos TW Mart Masi? Mart? o-10_ Maro Maro Maca NarOD. Ma0S Maro cpwategeega 1089 20g8 2230 A482 2044 1826 2180 7120 1938 3785 1674 eesurge 8213 M4NB 1290 MM 109] MO 12s HE reunoncaped 58s A899 A547 40M 4523 A846 987 Feumorsstvorh 2870 3083 3353 tan Ze07 2022 3002 2820 oo oe om 0m om oo oot 08 et oemay ‘roa 2476 2458 Ws ee Le Dhitedved 348 206 249s IS ety neconpany kings eet ate TW) a a 4M mm ne ma ua wm Al tm ‘back of strong Research & Development prcetouom —«4a2,=«142 248 «SOL SeD 9a 63078332280 further spur growth. UMPPs are acquisitions, environment Valuation money making opportunities for the clearances, highly —_ leveraged The last couple of months sector with each UMPP having a potential business of %24,000 crore. Additionally, the boiler, turbine and generator (BTG) equipments for these UMPPs have to be sourced from domestic manufacturers. BHEL being one of the biggest players in the sector has a good chance of winning at least one of these two UMPPs. Concems Order inflow is a worry, which plagues the whole sector. Moreover, coal shortage is still an excruciating issue for power plants with Coal India not improving despatches fast ‘enough. Even the private sector that accounted for 50 per cent of capacity addition during the last three years has completely vanished. Other constraints involving land balance sheets of some of the biggest players of corporate India hhave led to cancellation or delays in new projects. Intense competition from Korean ‘and Chinese players in the capital goods and power plant equipment space is a new concern, which is a shift from erstwhile competition from ABB and Siemens, among others. With the Indian government agreeing to allow Chinese power erosion as the company executes sector players to open service — lowmargin orders taken in FYLL-12 centres in the country, the worst of but which are still lying BHEL's fears are coming true with unfinished. With the investment aggressive competitors on both cycle showing no signs of turning pricing and service. Further, the around and the recent run up in investment capex cycle of BHEL's the stock price, stay away from key client sectors - cement, steel, BHEL until such times as and refineries ete. continue tobe weak when the order intake and and could remain in the dumps for execution both start improving some time to come. For now, avoid. WI witnessed renewed interest in capital goods players at the bourses with BHEL gaining more than 50 per cent since August 2013, However; it is still down 32 per cent in calendar year 2013. The stock trades at 7.6 times its earnings-far from its 10-year median of 23.72x. But this low valuation may not signify value yet. BHEL could see further margin January 2014 Wath Insight | 23a ESO The heat is on The company’s exploration assets overseas can reduce its dependence on the domestic refining bi ‘Stock price movement “SH pe trend 2 e mr atau = 16 20s 20052008 PCL is India’s second largest ‘oil marketing company (OMC) and the third largest by sales with a turnover of €2,42,181 crore (FYI3), The company has a refining capacity of 12 MMTPA at its Mumbai facility and 9.5 MMTPA at Kochi, The company has a strong presence across the country with its network of 114 depots, 9,289 retail outlets and 2,452 LPG distributors, ‘Through its subsidiary Bharat Petro Resources, the company focuses on E&P of hydro carbon blocks and has 22.5 per cent stake in Indraprastha Gas and 125 per cent in Petronet LNG, Strengths PCL has ventured upstream into E&P The company has 17 discoveries with eight in Mozambique, six in Brazil and the remaining in India, Indonesia and 24 | Wealth Insight January 2014 usiness in the future das, Median? 2007 2008 Aida 3 0 Dee 16,2013, Franc ives a ie Fee. Pern pres a ett P/V. PE and ZFS 2009 Australia. BPCL’s and Videocon Industries’ 40 per cent joint interest recently made a discovery in Brazil. Barly estimates pog the block to hold more than one billion barrels of oil. BPCL even entered the more recent shale gas mania in Perth, Australia, ‘The ramp-up of the 11,400 crore Bina refinery in which BPCL has a 49 per cent stake is expected in the next couple of quarters. ‘This expansion will give Bina refinery a capacity of 6 mmtpa. Bina being a new higher complexity refinery has gross refining margin (GRM) of $11 per barrel which is significantly higher than BPCL's own GRM of $47 per barrel. Concerns ‘The biggest concern for all OMCs is political. OMCs and the entire oil and gas sector need reforms. But 2010 BHARAT PETROLEUM CORPORATION 8 on ie 8 2011 2012 2339 | 54.9, ‘The second biggest oll marketing ‘company’s operations include refinor les, retail, industrial and commercial lubricants, gas, LPG and aviation, “Top Rated funds with investments Religare Invesco Equity, Franklin Bulls India, ICICI Pru indo Asia Eq [BPCL was formed in 1928 and in 1952 it was incorporated as Burmah Shell Refineries. n 1978, tne govern. ment of India took over the Burmah ‘Shell Group to form Bharat Refineries and in the folowing year renamed it as BPCL. The company is into oll exploration end production (E&P) and LPG gas and is cate- gorised as a Navratna company.ee ee A.7 the average per barrel he gross refining mar in (GRMN, which i much wer than GRM of ‘$11 atthe new refinry in Bing 9.209 The pub iceman ie across india, hich vest the nacessary teach and wide presence (40 per live every month increase n dese price Is expected to reduce gross underecoveres, tayas much as 40 per cont oy YS Financials escUrmON Cowaingpem 13218 7.787 ‘ae 4286 ue oer 2a a er eC ae img a a on i mT Tse Geta ee ee ror ee ‘aces sa want maw Ba a aget_ cut tage sash 7a An i268 SOI T0444 NAME 1a) ih Performance rose ns ost ge ste Hl dh toon in on io) aw oa ‘nw ast ans as ons ua aa) 8 Dt ty 1a uae onongpw' sae 10408 365 1843 2138 Dieses 925 281 4ST 220 Posneaming: 225 1025 1828 1420 Prctabink 128 tes 470187 oat 171092 “as vaso. 1912 this is a sensitive area that has political ramifications that every party in power wants to avoid. ‘The Kirt Parikh committee recommendation, for instance, is still under review by the Oil Ministry. A lot hinges on the reforms and how much of the recommendations are adopted, BPCL incurred gross under. recoveries of 73,800 crore in the second quarter of the current financial, It received 24,190 crore from upstream companies and ‘%4,400 crore from the government, leading to a net underrecovery of 210 crore. As per the Kirit Partich report, the government and ‘upstream companies are to equally share the total under-recoveries, If this does indeed take place, BPCL ‘would not have to share any under. recovery in the coming years. Whichever political alliance comes to power after the general elections in 2014, diesel price reforms will remain an integral part of managing the twin deficits, After the deregulation of petrol prices, diesel is the biggest source of underrecoveries. Of the total lunder-recoveries of 260,907 crore in the first half of FY14, the share of diesel alone was 228,266 crore. Any pricing reform will have a direct impact on the fortunes of BPCL. ‘The company has a debt of 223,367 crore in its books (FY13), which translates toa debt to equity ratio of 2x, But BPCL has reeently managed to prune its debt to €16,894 crore as of September 2013. Around 90 per cont of the company's long term debt is foreign currency denominated. Despite these bleak figures, the company is afloat because of the government patronage. If it was @ non government concern, pruning the debt would be a priority: According to Motilal Oswal estimates, increasing the diesel price by %0.45 per litre every month is expected to reduce gross under-recoveries by as much as 40 per cent by FY1S. Valuations BPCL trades at 34 times its earnings. If there is any single reason to invest in BPCL, it is the company’s E&P activities in Mozambique and Brazil. Since these are early days for reserves to be accurately determined, the market may not be valuing them to thetr actual potential. Beyond the E&P valuation game, there is no fundamental reason yet to put your money in BPCL till the time that the company is allowed to function without political interference: an unlikely possibility. WI “January 2014 Wealth Insight | 25,eesvas COAL INDIA Riding on monopoly Globally, the largest producer of coal, has its share of inefficiencies in the way the business is run, which is its only weak link “0 Stock price movement 290 a0 as 2004 200520082007 200820082010 zou 201 2013 ‘dra a on Doe 18, 2018, Fen ges arn ® cree Peformance Fea in, cap F/B PE ana PS foal India is the largest caters to demand for coal from over coal producer in the 76percentof the country’s thermal | Pee Gescrmest btn world with reserves of power generating capacity: Spread 287 90 0 ‘around 18,862 million over 8 states of the country ares | Us tonne. Add to that measured — miningareas in which the company resources, indicated resources and operates 470 coal mines Business aver inferred resources, and Coal _—CIL’s biggest strength is its | Reserves of around 18,862 milion India’s total resources jump many pricing power, which comes rom its _| tonne of caal makes tthe largest times to over 64,218 million tonne, low cost of production, Take | Prosvee’ of coe. which powers so CIL has 17 coal beneficiation Indonesian Beocoal for instance. facilities consisting five non- Coal India's comparable G11 grade [Tap patoatunas wn mosinens coking and 12 coking beneficiation coal ischeaper than this Indonesian | (cic! Pru Dynamic, BNP Paribas Div facilities with designed feedstock competition by as much as 65-70 per __| Viel, 101 Pru Focusee Bluechip Ea capacity being 17.22MMT and 22.18 cent. The significant price ‘MMT respectively. differential enables CIL to Established in 1973-1974 as Coal undertake price hikes when it — | Mines Authority. The company sup- ‘Strengths needs, something that it has done _| plies its non-coking coal products to Coal India’s proven resources are twice since its IPO in 2010. ‘thermal power plants and cement pants; coking coal products to steet the largest of any coal mining _‘Thecompanyhas plans oexpand | F)2s: cond sal paves ‘company in the world. Further. the and has targeted to. increase ct : ‘companyhhas-caleandreach, which production from 4522 million tonne __| Dow®y Baus Same of is omer plod accounts for over 81 per cent of the in 2013 to§30 million tonne by FY5 | ed eau, rejects, coal fines, tar and country’s total annual coal and 570milliontonneby FYI6.Ithas | heavy ols and is a Maharatna production. CIL. single-handedly identified 126 new projects with an 26 | Wealth Insight denry 2014OSA 76. ofthe country’s power generating capacity is ‘met by CI which would benefit immensely ftom ay increase in the price of coal the postion held by Coa India wit its 18,862 ‘niin tonne onl reserves which makes tthe {argest col producerin the word 126 the number af new projets identified wth an ‘estimated capac of 438.04 milion tonne to ‘be taken up during the 12th Plan period ‘estimated capacity of 438,04 million tonnes (MT) to be taken up during the 12th Plan period. It has also plans to develop coal blocks acquired in Mozambique and comfortably sits on a whopping 80,000 crore cash, which is one- third its market cap. ‘The much needed and inevitable power sector reforms to ensure the survival of power distribution companies and State Electricity Boards will benefit Coal India, As Coal India alone meets over 7 per cent of the country’s power ‘generating capacity, any increase in price of coal will benefit the company directly Concems Lack of requisite infrastructure is Coal India’s primary weakness. For instance, implementation delays in three Key railway lines have Financial DeSCRERON Tawa 12 Mori Mie1O MarOO M08 07 MarOS Wor06 tot Maeteop smite T9570 eT ABAH eau S068 ASO $0902 S3A7 Aoest saOB 31583 306 ssso2 17986 14788 10857 tara waass saat 1858 act Twngbinassis = <8 089006 67M S865 35553 S103 saz yas ‘aes Gonormont 622M 6097 46019 39.07% 2905 IOseE 1Ha29 AGT Performance fais TW Haes9 mat? Mactt Mae10 Mer0® WorO8 MarOT_VaKDE_ Ma.09 MnO Opestngronie 9781 3040 2960 3037 2347 i8S7 7868 3323 mar 18 S08 1363 1808 1904 S160 Mai 7iss 2m ane OD 3887 4038 tho 2823 var 408 on a or 1908 Poet caine Pete ok stranded about 200 million tonne quarter, stood at 72,220 per tonne coal with no evacuation facilities. compared to the FSA realisation of ‘Though Coal India hastargeteda7.6 _%1,262 per tonne. per cent volume growth, the target ‘The recent 1,775 crore fine ‘appears difficult given thot recent imposed by the Competition growth has reduced from 45 per Commission of India (CCD on CTL. ‘cent in FY09-10 to around 3 per cent for misusing its position as, inFYis, ‘monopoly supplier is a matter of Coal India has been mandated to grave concern. Any such fines in the sign fuel supply agreement (FSAs) future will impact the operating ‘with power plants that are expected profits, and raise a ag. to be commissioned by March 2016. Up until June 2013, Coal India had Valuation signed PSAs for a total quantity of Coal India trades at 11 times its around 181 million tonne per earnings. The company has to annum, With incremental overcome various infrastructure productionnotcatching up fast.that bottlenecks before production can means the major part of the leap forward. This is an investment company’s ineremental production candidate for those that do not like ‘would go towards feeding power excessive risk, those that would plants at a predetermined price, enjoy an attractive dividend yield of Jeavinglitlefor ittoauction-amore 48 per cent and those that find profitable avenue. Realisations fore- comfort in the company’s excessive auction for instance, in the latest cash hoard. WL January 204 Wealth Insight | 27eOGSs@ CONTAINER CORPORATION OF INDIA Customer satisfaction With its operations spread in all aspects of logistics, the company is one of the leading players in the field of multi-modal logistics stock price movement i : etrend sso Heal Be aan ror ss ee aerate eam ‘A dats 28 on Oe 16.2013, Fran ees rn co Parana ee exept / 81, PE an EPS ONCOR serves as a in FY13, Ithelps to be the preferred multimodal logistic __choice for the large scale EXIM and een nia oe solutions, which operates domestic logistics because of its pan 7 17 63. l under the Railways, It India presence and strategic | © LG started its business by taking over command over Railways’ routes, seven Inland Container Depot (ICD) With operations based on cash, Business driver networks from Indian Railways and. the realisations are good, which is Perceived the first, last and the best now handles container freight evident in the net profits, which alternative for ail customers looking : fora ceatie felatie an et Services through agreements matches the eash from operating | 8 edible refabe a ‘The company serves the EXIM activities in all its financial years. o (Export Import) and domestle This aspect leaves the company | opanganmaam mamas trades’ logistics needs through its from any worries over working | Canara Robeca intra, Quantum Long wide network of 8 regional offices. capital requirements. ‘erm Eauty lr Bscoery CONCOR also provides hub and ‘The company has negligible spoke serviees that involve the deb, is cash rich with €3.00 erore | Eseishea 1968, onainer linking of road or short lead rail and has a healthy net worth. The | €aporeton of ind {CONCOR) ope. shuttle services within defined financial strength helps CONCOR: ates in three distinct areas: an catcnentateas tolongiatpont- go ahead with its planed capt | Mend atine ent (CD) pe ‘fopoint train services expenditure towards upcoming | #68 end conn reign expansion and upgrade plans. Stn [oF operate: a Strength The company has focused on | Soha air carpocomeewes nod ‘The company handles 75 per centof growing its business through tie | SreetCage complnes, rad the total container cargo movement ups with government and 8 Miniratna Category - | company. in India, carrying 31 million tonne industrial bodies. It has entered 28 | Wealth Insight January 2014OTE 14.7, is marginally loner than 10-year motion of 15,6 and 40 per cent to average pice to ook vaive of 3.35, 6 2 serve a the infastucture base for inland ‘wansportation wih 18 fthem excise tor AM, and 14 exctusvel for domestic teminals 3 | million tonne of cargo thatthe company fenied accounting for 75 per cet ofthe tata ‘container argo movement i India in FY3 Financials sH6TON TM MS Was? Mara Mario 640s Apel 3835 3,706 3308 Saar 208 Totiven oben coh begat 2ew 2751 2208 1900 Performance aos Tm Mart) Most? art Naet0 ore ee ee necnaiga 19802130 Ruumonciptat 204072337273 2487 Ttumontanh 1582 3689 AL SOD may - sl 38s iso zo} ea Lee eo9 Mart MaeOT M06 wac05 ts! Bair 3340 2087 2A26 1995 L708 2ase bass 29668 1796 L367 1250 Moog waros Manor meO® Neos Mavs a ais sist 3105 ae aT vee mast 22a 2015 m247 7002 M67 2148 2098 vase a 337 3038 nm Ba we 7 m8 966 — = em om Eamiegperstae 4881 4821 4503 4493 4035 4058 SBS 300 2097 2190 1886 Owtendved M9 17015, 14251307 Presoeumings 1470 Prostomo 287 213219 ass tor is aaa a a8 17 Ma 62 se ID 268 aay 38942 449 308338 into a JV with Punjab and Uttarakhand. Further, to broaden its reach and to cover other aspects of logistics the company has formed CONCOR Air to exploit the air cargo segment. Plans are on the anvil to undertake the design, development and operations of the air cargo terminal at Santa Cruz airport in Mumbai, Moreover, 10 provide single window facility, the company is setting up Multi Modal Logistics Parks (MMLPs), As part of development, the company has started 7,200 high ‘speed container flats (BLC wagons) ‘which are capable of running at 100 kmph. CONCOR is gradually replacing the outdated wagons with its plans to further add to the fleet every year: Moreover, the company has purchased 7,200 flat wagons from the Indian Railways to strengthen its existing fleet. ‘This strategy will reduce tho transit time and will bring In growth in volume of non durable products. In the future, the major growth driver for the company will be the dedicated freight corridor (DFC) being developed between Mumbai and Delhi, which is expected to be operational in FYIT. Concems ‘The economic slowdown shows no immediate signs of a turnaround. This has not only affected the EXIM logistic __ segment, witnessing a decline of 1 per cent in the port traffic in FY13, but also the domestic operations which went through very moderate growth. The other major looming threat is the introduction of the Private Freight Policy (ET) introduced by the Ministry of Railways in FY11, The policy seeks to increase the participation of the private sector players and ‘CONCOR faced ban on some of the terminals in this regard. Concern is also the rise in the haulage charges imposed by the Railways. Valuations: CONCOR is one of the few PSUs which is trading at a price higher than its highs of 2007 and has given good long term returns, which almost matches the Sensex, The share price is trading at price to earnings multiple of 147, ‘marginally lower than its 10year ‘median of 156. The eurrent P/BV is at 40 per cent discount to the 10-year average of 3.35. Amid slowdown in the FMCG sector and overall EXIM operations, the company will witness a surge with these factors reversing. Consider it with a long term porspective. WI anwary 2014 Wealth insight | 29CUEE@ ENGINEERS INDIA Emerging cracks Economic slowdown, especially in the refining and petrochemical sector has started hurting the company “ ate ee - : ve una sot eb tle eto Se {dats 25 on Da 18,2013 Fra gee orn coe Feamane ies eh ep 784 FE en ES jineers India is rev 6 nei IL) venues from the government. It satioliag one of the few players specialises in building ~ that has a government infrastructure for the oil and gas 168 80 4 mandate to build sector which accounts for about 95 | & “1% Infrastructure for the domestic oil per cont of the order book, Within and gas sector with highest quality this, the refining and petroleum ‘Business driver. and safety standards. BIL has two sector constitutes over T per cent | Reape engneeingconsutancy main verticals-the Consultancy of the order book, A peg: nee and “Engineering vertical A big advantage that IL enjoys | S@heete rocuement anc eon accounting 61.8 per cent of its is that over 90 per cent of the revenues (asof fist half FYH)and contracts it gets are. either [opanpanmarwmmeames the Lump som turnkey projects negotiated or nominated by the | plaints winimesinens CUSTIG vertical that accounts for Ministry of Petroleum and Natural | Eguy hernia 382 percent, With thestowdown in Gas. This ensures hat EL doesnot tho cconomy; the ump sum have to enter info. competitive | mowporsted 1968, Engreers turnkey projects vertical has bidding for a significant portion of India Ltd (EIL) provides engineering witnessed adip, resulting the share _its revenues, which in turn is the consultancy and EPC services princi- pally focused on the oll and gas and petrochemical industries. t has also diversified into sectors lke infra of consultancy in the company's reasons for the high margins that Ebit to go up from 80 per cent BLL has enjoyed historicall (HLEY19) t0 90 per cent (HIFY) ‘The company has a strong order | Sytnie qatar ant masts age book with 55 per cent constituted | tent solar and nuclear power oe) Strengths by the consultancy vertical. | fertigers ElLis 2 Minratna BIL is the government's engineer Moreover, the company is the | Category company as it receives majority of lowest bidder in orders worth 20 | Wealth insight Jonuary 2014eee Ao. the proportion of masket cap adding to £72,500 ore that the company holds as cash balance atthe ena ofthe fist al tls year 90). it sharetom the tmp sum tmkey project ‘veticalinthe fst nalfof P13, whichis up 10, er eet compared the previous year 90). ofthe contracts that EL ges are either nego- ‘ated or nominated bythe Ministry of Petroleum & Natura} Gas Financials vesemprou Tm Naps? $e S207 Sse 19221 wo ee = 2x6 20872267 cana egal Performance was 2563 8s 1870 ~ an wm 60 mn was 22820408108 ame 28531804 1551 20s 1480 8 roe 3987 W790 2430 «TOASTS 38 08 wan = Tne Woet3 May? act Moi0 MivO@ Wa: Moro? _WoL06 ward Wart wet 7699 2026 an ec an 2508 a0 2a 228 %3,000 crore which are likely to be awarded over the next two quarters. Strong cash balance is another plus with cash balance at ‘the end of the first half adding to 22,500 crore up from %2,390 crore at the end of FYIS. Concerns BIL's main source of revenue is building infrastructure for the hydrocarbon sector in India. ‘This is also its Achilles’ heel. The slowdown in the capex cycle in the government owned refining and petrochemical sector has hit the ‘company hard. Revenues from the Jump sum turnkey projects vertical saw a decline of 33 per cent in the first half of the current year. That on an order book that declined 52 per cent during the same period. Like other infrastructure players, the slowdown has now come to bite BIL. Its order book declined 26 per cent over the previous year. While lump sum order book was down 91 per cent in the September 2013 quarter, the consultancy vertical saw order book decline 31 per cent in the same period. Order inflows are down 22 per cent disproving any notion of a recovery in the sector. ‘Another blow comes from falling margins, which have traditionally been BIL’s strong point. Consultancy and Engineering vertical saw margins decline from 426 per cent to 37.6 per cent during the first half of the current year while margins in the lump sum turnkey projects vertical saw a decline from 9.5 per cent to 6.8 per cent, The main cause of this decline was falling revenue. A cause of worry is also the ROCE, which averaged 42.9 per cont in the past three years. Although this is the highest among its peers, it could go down this financial year as the slowdown starts hitting the bottomline. Valuation EIL trades at nine times its earnings. The immediate outlook for the company looks bleak if the recent results are anything to go by. ‘The company might face more headwinds ahead if the investment cycle doesn’t turn around quick. Yes BIL is still the proferred engineer for the government and it has sufficient cash balance to tide over the tough times. The high cash to market cap ratio makes it an attractive value buy. EIL is as high quality engineering company as you can get but any investment in this company will pay off only in the long ran. WI Janvary 2014 Wealth Insight | 34CUS GAIL (INDIA) Green pastures The natural gas player is energising everyday life with its wide network of pipelines across the country Stock prico movement my 200 PE trend \ ease a . oe RR y= - se oye om a a sts on 1.2058. gs Petre ets oa et BK Pon FS AIL undertakes income generator for the company, exploration, production, accounting for over half of its total ne Goverment holding wrocessing, transmission earnings 33 4, 57 3 and distribution of Currently. GAILissubsidy burden | & 0% natural gas. The company operates is capped at 21400 crove for FYI 2 natural gas pipeline network of With the company slated to pay | Busmessaver about 11,000 km and a LPG pipeline market price for natural gas, it is are ror petal ois Fr network of about 2,038 km. It very likely that GAIL will not be cessing and ae trasls mre than 1 MMISCMD required to pay ary subiéy tm | Ate owt 11.00} tare of gas through its pipelines and also FY15 onwards. Further, the produces liquid hydrocarbons such company has plans to invest 290,000 [Top pated nds wih vertnants aspropane and pentane, GAlLhasa crore on capacity expansion n the | (bhatt ivastnents market share of more than 70 per next four years, The expansion will | {Nel Progertel Bac cont in both gas transmission and result in a transmission capseity marketing increasing to over 15,000 km by | Established in 1964, GAIUS buses FY15, GAIL is also commissioning a activities include natural gas, LPG, Strengths new LNG terminal in Dabhol; | petrochemicals and tigidhycroca- ‘The government patronage extends expected to come online in the | b0ns. The company also has opera- a ieaea pats tions in LPG transmission, petro- Devon finance 4 smportaney ibaa chemicals, city gas distribution, E&P jn government approvals. GATL is Further, the recent government | Shemmeas Gt gas detibuton, very likely to remain the Key player directive allows gas companies to | 3904, thas seen nto ose county in the transmission of gas across fix their own marketing margins to _| [pg transmission pipeline Ris sate the country for many years tocome, _allconsumersbarringthoseon urea _| gorsed as a Navaratna company. Ges transmission is the primary manufacturing units and LPG ‘32 | Wealth Insight January 2014COVER STORY 70) the market share thatthe company has bath sg transmission ané marketing, whet rakes ita leader in as distnbuton 160) [MMSCHD of gas transmits by GAIL through its network of er 11,000 kr, highest fora natural gs processing and dstoution co. 9. Is what the stock ofthe company trades at ‘hich is about 30 percent cheaper than its five year median valuation of 12.02 Financials PON Taategertne 65705 41186 3468 27008 20 “2ate 4o4ns «7962 S804 GAN OOH 36927 2237 25915, ‘12 vse anaer s25sr 24996 TM tietS Mart? Mart Mie1O Haro® Wie MarO7 M06 mas Moe Misia 189% 208 3098 18008 16047 14459 983 13080 19982 0328 19848 oss 8878 Onna 6876 7234 G27 8S a1 382 3618 erp ese 356 ane 1984 3950 exert —aaaie 2,646 19289 16798 4770 14005 11993 9973 aE TANS = eas 400 2210 14m A200 1266 1308 eT ser 2039 i 69st gem 1gae0 14222 1355 “ava zany 4869 38071868 Performance os TM MaeI9 Mors? sat Marto wad Nav MorOT NerOE Moros Mure Comosegnoren 1825 in01 1528 183i 2089 s0a7 2425 218i 2688 20022949 et margin 09 35 ase logo 1237 1148 ‘400 WA2 1559 1385 1806, fe ‘pu00 2250 2672 2738 2028 2948 2140 M045 79.75 3287 sis8 780 1976 mis 71a a st mam as 0m 012 “oo aio 01 019 023028, sunt ost 1982 1AM 1540 1A tend ao 23 235 370 ae 37885 Ficswesning 1169 1007 4962 1688 1688 oS ina 937 tas 87 958 Pistobock «1634167290306 309 2102.78 196 270 208 az plants. This is a huge positive for GAIL as the earlier worries of capping of marketing margins had put the earnings for gas marketing companies like GAIL in a lumber A bigger business for GAIL is turning out to be gas trading. This, Tine of business now brings in a quarter of the company's Ebit with margins of 4 per cent. This is of importance, given the demand for gas outstripping supply resulting in gas imports and sale which can significantly boost earnings. ‘To secure natural gas supply, GAIL has entered a long-term LNG supply agreement for 2.5 MMTPA with Gazprom Marketing and ‘Trading, Singapore. It also entered into a long-term Liquefaction tolling capacity agreement for 23 MMTPA of LNG with Dominion Resources Inc. of the US. Further, the increasing LPG prices, currency depreciation by around 10 per cent and the 71,400 crore subsidy relief, according to Antique Stock Broking, could result {in EPS to rise by as much as 5257 per cent during the second half of the current financial Concems While ONGC and Oil India stand to gain from the gas price hike from $4.2/mmbtu to $84/mmbtu, GAIL stands to be negatively impacted as it uses ONGC’s gas feed for its LPG and petrochem sales. While the price hike aims to align domestic ‘gas to market prices, GAIL’s cost of procurement will double. Gas transmission volumes are not increasing. With KG Dé not ‘overcoming its problems, volumes for GAIL have remained stagnant for many quarters now. GAIL imporis LNG to counter the low gas production by ONGC and Dé. However, imported LNG is not cheap and costs about $13/mmbtu compared to the current $4.2/mmbtu for KG gas. Higher cost of input gas is likely to trouble GAIL in the near term. Valuation GAIL trades at 95 times its earnings, which is about 90 per cent cheaper than its five year median valuation. While the company's transmission segment could remain down for some time, GAILs trading business pould drive earnings up if it sustains the current momentum. ‘Noexpected subsidy sharingafter PYi4 and the government's latest decision to allow GAIL tofix its own marketing margins should help the company. But this is a long term play. Buy only with a horizon of five years or more. WI January 2014 Wealth insight | 33,