Long term investment strategy (not named yet)

Long Term Investment Strategy
This 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

Average Growth Average Growth in Average Growth in
Company Name in PBITDM (%) APTAM(%) RONW (%)

Priya Ltd. 0.24 0.48 0.54
Jaysynth Dyestuff Turn Around Turn Around
(India) Ltd (NMF*) (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
Turn Around Turn Around
Globsyn Infotech Ltd 0.32 (NMF*) (NMF*)
Gini Silk Mills Ltd 0.15 (NMF*) (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 Turn Around Turn Around
Corporation Ltd 0.24 (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 (NMF*) (NMF*)

DFM Foods Ltd 0.10 0.09 0.40

Alka Securities Ltd 0.38 0.75 0.90
Compact Disc India Turn Around Turn Around
Ltd 0.55 (NMF*) (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

latest Industry
P/E latest P/E Industry
Company Name TTM P/BV TTM Industry Grouping
Solvent
Extraction -
BCL Industries & Infrastructures Ltd 7.87 0.49 15.32 Large Chemicals
Dyes-
Jaysynth Dyestuff (India) Ltd 2.69 0.51 8.92 Intermediaries Chemicals
Cloth, apparel
Bata India Ltd 25.31 6.7 18.25 Footwear and accessories
Cloth, apparel
Gini Silk Mills Ltd 4.77 1.65 11.29 Textiles and accessories
Cloth, apparel
Relaxo Footwears Ltd 13.7 4.51 18.25 Footwear 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
Domestic
Hawkins Cooker Ltd 14.07 13.67 17.66 appliances Domestic goods
Decorative
Jolly Board Ltd 8.39 2.05 16.28 wood based Domestic goods

Electrodes Engineering and
HEG Ltd 8.62 1.87 8.27 Graphite metal
Engineering and
Patels Airtemp (India) Ltd 5.49 1.62 18.51 Engineering metal
Casting Engineering and
Simplex Castings Ltd 5.11 1.08 12.19 Steel/Alloy metal

Compact Disc India Ltd 1.29 0.6 33.7 Entertainment Entertainment
Finance
Alka Securities Ltd 0 2 20.25 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

latest Industry
Company P/E latest P/E Industry
Name TTM P/BV TTM Industry Grouping
Zensar
Technologie
s 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 Engineering and
(India) Ltd 5.49 1.62 18.51 Engineering metal
Sanco Trans
Ltd 10.33 2.07 30.64 Misc. Misc.
Hawkins Domestic
Cooker Ltd 14.07 13.67 17.66 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 2005
No. Of
Companies 6 10 12 13 13 6
Key Ratios

Debt-Equity
Ratio 8.51 6.63 7.25 8.48 8.07 8.14
Long Term
Debt-Equity
Ratio 8.34 6.05 6.75 8.06 7.7 7.93
Current 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 1.47
PBIDTM (%) 88.48 94.56 88.91 90.4 88.24 87.78
PBITM (%) 88.13 94.39 88.71 90.13 87.86 87.41
PBDTM (%) 26.4 26.14 26.69 25.88 26.28 28.37
CPM (%) 20.94 18.03 19.2 20.15 20.77 20.78
APATM (%) 20.59 17.86 18.99 19.88 20.39 20.4
ROCE (%) 8.53 11.56 10.43 9.41 8.44 8.99
RONW (%) 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 LIC Housing HUDC ICICI Home
Housing Fin. O 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 8.34 5.84 10.67 10.45 3.51 7.21
Ratio

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-1 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0
0 9 8 7 6 5
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- Mar- Mar- Mar- Mar- Mar-
10 09 08 07 06 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

Lates
Year t 2009 2008 2007 2006 2005 2004 2003 2002 2001
No. Of Companies 15 6 10 11 13 10 11 12 12 11
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
-1.4
PBDTM (%) 5.14 8.22 7.47 6.21 7.05 3.97 3.84 2 0.78 2.78
-1.0
CPM (%) 4.07 6.04 6.09 4.86 4.99 3.78 3.38 3 0.89 1.96
-2.6 -0.8
APATM (%) 2.15 5.09 4.45 3.33 3.12 2.27 1.74 4 8 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 TTK Gorani Panasonic
Cookers Prestige Inds. Home
201003 201003 200903 200903

Key Ratios
Debt-Equity Ratio 1.46 0.32 0.11 1.61 0.13
Long Term Debt-Equity 0.75 0.32 0.03 1.37 0.13
Ratio
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:

0 9 8 7 6 5
Key Ratios
Current Ratio 1.44 1.35 1.28 1.22 1.23 1.24

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

DuPont Model

0 9 8 7 6 5
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 Analysis
Sanco 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

Long 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 4.72
Interest 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.

APTAM
Company Name Sales NP (%) 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 Sanco Urja Contract ETC COSCO
sector Trans Global Advt. Networks (India)

Key Ratios

Debt-Equity Ratio 1.11 0.65 0 0 0.25 1.52
Long Term Debt-Equity
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 2001
No.Of Companies 111 32 57 84 36 52 66 74 72 66
Key Ratios
Debt-Equity Ratio 1.32 1.25 0.91 0.79 0.86 0.78 0.82 1.19 1.75 1.73
Long Term Debt-
Equity Ratio 0.93 0.8 0.6 0.53 0.55 0.45 0.54 0.89 1.29 1.29

Current Ratio 1.25 1.32 1.37 1.32 1.31 1.26 1.15 1.18 1.34 1.38
Turnover 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 3.46
Interest Cover Ratio 2.87 2.25 3.52 4.97 5.2 4.74 2.86 2.02 0.6 0.49
PBIDTM (%) 13.02 13.14 14.15 13.65 13.11 11.39 11.15 10.94 6.94 6.06
PBITM (%) 10.8 10.43 11.87 11.7 11.49 9.73 8.51 7.81 3.75 2.94
PBDTM (%) 9.25 8.51 10.78 11.3 10.9 9.33 8.17 7.08 0.71 0
CPM (%) 6.6 6.3 7.55 8.2 8.27 7.46 5.59 4.38 -0.52 -1.57
APATM (%) 4.38 3.58 5.28 6.24 6.64 5.8 2.95 1.25 -3.71 -4.69
ROCE (%) 16.37 14.5 21.13 24.61 24.55 19.86 11.69 9.64 0 0
RONW (%) 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

Rolcon Patels GEI Electro Remi Fluid Pitti Cont.
Engg. Airtem Avte Indus therm(I Proc. oma Lamina Valve
Aggr Co. p c trial ) Plant t tion s
egat 20100 201 2009 2009 20040
YRC e 201003 3 003 03 200903 200903 03 200903 3
Key Ratios
Debt-Equity
Ratio 1.32 0.02 0.32 0.97 0.93 2.43 0.8 0.28 1.16 0.69
Long Term
Debt-Equity
Ratio 0.93 0.02 0 0.63 0.41 1.69 0.46 0.23 0.68 0.69
Current 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 0.48
Inventory 4.23 28.79 14.69 6.5 3.47 4.55 3.95 5.7 5.25 2.39
Debtors 4.6 7.63 3.26 4.56 3.84 6.64 4.78 3.79 6.76 3.92
Interest Cover
Ratio 2.87 17.38 10.9 2.4 2.14 1.67 4.57 8.89 1.7 0.33
13.0 16.9 14.2
PBIDTM (%) 2 10.39 20.42 5 5 14.35 16.09 17.6 10.29 6.12
13.4 15.6
PBITM (%) 10.8 7.2 19.26 8.98 9 11.3 14.37 5 8.22 2.04
13.2 15.8
PBDTM (%) 9.25 9.97 18.65 1 7.95 7.59 12.95 4 5.46 0
11.3 10.7
CPM (%) 6.6 7.78 12.61 8 5.12 6.11 8.55 5 4.36 0
APATM (%) 4.38 4.59 11.45 3.41 4.36 3.07 6.83 8.8 2.29 -4.08
16.3 10.5 28.5 31.0
ROCE (%) 7 23.01 41.86 7 1 13.62 18.79 9 17.87 0
18.3 23.4
RONW (%) 13.7 14.94 32.92 7.91 9 12.56 16.06 9 10.75 0
Highlights

• 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

0 9 8 7 6 5
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
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

0 9 8 7 6 5
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 9.81
Highlights

• 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.

Sharon
Industry Arvind Ajanta Plethico Bio- Twilight
Aggregate Remedies Pharma Pharma Med. Litaka

Key Ratios



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


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

APTAM
Company Name Sales NP (%) 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 2
OPM (%) 26 26.3
Operating Profits 8539 8476 1
Other Income 659 386 71
PBIDT 9198 8863 4
Interest 130 200 -35
PBDT 9068 8662 5
Depreciation 1042 1100 -5

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