Some Good Steals...

Hi Amit,

I am back with another question. Hope you dont mind me pestering you with a few every now and then.

I picked up a small quantity of KEI at 256 in mid January. Its now quoting at about 308 (a cool 20% profit). For the last 3 weeks its been trading in the 305-315 price band. Seems like there's some good consolidation going on, but the volumes are not very impressive.

Is this a good time to pick some more. With the budget round the corner and power sector expecting some push, how good will be KEI.

Please do analyse the attached chart and share your comments. Also if this turns out to be the right time to pick up some shares , should i pick up a big lot or play safe and add a quantity similar to my previous holding.

Hoping for a quick reply with lots of TA insight,

- Partha

Attached Images

KEIIND_line.JPG (74.2 KB, 8 views)

Hi Amit and all senior members..
I have been following your discussion for last couple of weeks.
I am new member in this bull market..
Can you guys give give me some stock names to start tradign in the market...

Hi Partha, yes a spell of quiet consolidation underway here as you've noted. Trading above the 200-50-20 day moving average does nothing to negate the strength.
Narrow sideways price action on flat volume can generally denote a period when a stock is being accumulated without disturbing the price.
The sector is good to be in around and beyond the budget, and if you are in for another quarter or two, buying more at declines would be the way to go I'd say.
It is trading around all time high, and positive news for the sector could push it further, but how much further is not known. It's come up from 190 levels in December to 310 now.
Watch it close for volume increase and some volatility in price over the next couple of days. If you are keen, go in with a small lot if it looks like crossing 316 area and ride it out as long as it goes, with 302-306 stop loss. If it clearly takes out 323-329 it may go further, and if so, we qould assess later.
On declines, for your existing position as of today, supports are at 302-395-288-274 levels, where at evidence of firmness, more could be added. On the other hand, if it slips below 295-288, you may want to exit to keep the profits, and to buy back above those levels or 302. I am suggesting this as there has been no retracement since the climb from 162 end October except sideways consolidation, and somewhere along the line some pullback may happen, though cannot be said with certainty. It's just good to be prepared for movement on either side.
All the best Partha, and do get back when you like. It's no bother at all.

Hi Amit,

Thanks for the reply, I will take your advice. It's wait and watch for KEI. In fact i am keeping a wait and watch strategy for the overall market. I haven't added much to my portfolio since last month.

I have bigger investments in :
ITC
EIDParry
Triveni Engineering

Smaller ones in :
KEI Industries
Paramount Communications
Havells

What do you think of my portfolio ? Any one worth adding to or any one in the danger zone. Just one liners will do.

By the way, i have 50% of my portfolio in cash . Should i wait or take the plunge.

Last question
Your top 3 stocks that can ke picked next week. Holding time 6 months.
I have about 50% of my portfolio in cash.

Phew .. thats it.
Cheers

-Partha

Hello Amit,

Hope you are having a nice weekend.Great going on Kernex, have taken a small position will add on once it get stabilized at 248.Have attached below the jain irrigation report.

Regards

Roneeth

Jain Irrigation:

Jain Irrigation Systems Ltd (JISL) is a diverse play in the agri-related sector. The company is set to enter into a high-growth trajectory on the back of increased government thrust on agriculture, its leadership position, a well-diversified portfolio and a de-risked business model. The company is expected to sustain its growth going forward with revenues and profits likely to grow at a CAGR of over 20%.

Company Background

Incorporated in December 1986, JISL is a one-stop integrated agricultural equipment manufacturer. The company manufactures and supplies micro-irrigation systems (MIS) that encompass irrigation through strip tubing, emitters, jets and mini-sprinklers. The company also makes polyethylene (PE) and polyvinyl chloride (PVC) pipes and sheets and is scaling up its business in a big way. The company has two main divisions -- agri input product division which consists of products such as drip irrigation and sprinkler irrigation systems, PVC pipes, biotech tissue culture plant materials and other agri inputs. The other division mainly manufactures PVC sheets, polycarbonate sheets and PE pipes. It is also involved in fruit processing, onion and vegetable dehydration.
Industry Outlook

The company operates in diverse, but integrated segments of the agri equipment business. In each segment, the company competes in the domestic and export markets with global players. While India accounts for 16% of world population, it has only 2.4% of land area and 4% of global water resources. The country has to manage growth in the agricultural sector through these scarce resources. The economy is poised to grow at around 8% going forward and agricultural sector is likely to provide impetus for this growth. Use of modern irrigation equipment to increase productivity will be the only way to achieve robust growth in the agriculture sector. The total domestic industry size for drip and sprinkler irrigation is more than Rs 200 crore, out of which the company has more than 50% market share. Projected investments in the agricultural sector during the 10th and the 11th plan stand at Rs 6200 crore, and most of this investment is beginning to reach the implementation phase, which would propel revenue growth for companies operating in the agricultural sector. This implies a positive business outlook for the industry in the short and long-term.

Thrust on agricultural sector to drive growth

The contribution of the agricultural sector to overall GDP has drastically come down over the last 10 years. Although this is partly because of the rising share of the industrial and service sector, inefficiencies that plague the agricultural sector also play a role. Only about 1.2mn hectares in India is under the micro-irrigation program (MIP). The task force on micro irrigation has recommended covering 67mn hectares under MIP in a phased manner. Since investment in such equipment is huge for the average Indian farmer, the government has decided to subsidise it by 50%. The company's MIS segment, with a 50% market share, contributed 23.6% to revenue in Q3FY06 with EBIDTA margin of 25%. We expect this segment to be the growth driver for the company in years to come. Initiatives by the Andhra Pradesh and Gujarat state government are already under implementation, while other states are looking forward to implementing the same. The finance minister had announced a budgetary allocation of Rs 350 crore in the budget last year which was spent on subsidising the cost of drip and sprinkler irrigation systems. The forthcoming budget is likely to provide more sops for the industry .Infrastructure development augurs well for PE & PVC pipes business

The thrust on the infrastructure sector will be a key initiative in the forthcoming budget. PE pipes are used in telecommunications, sprinkler irrigation systems, gas distribution and water conveyance. Since all these areas are likely to witness robust investment in the coming years. In Q3 FY06, this segment contributed 42% to the topline with EBIDTA margin of 11.5%.

Recent US acquisition topline accretive

In the US home building market, PVC sheets are replacing lumber and the company has been placing itself in a prime position to benefit from this change. It is investing in product development and expanding distribution network, which is highly underdeveloped in the US. Further, it has acquired a controlling 51% stake in NuCedar Mills Inc, a US-based company, operating in the custom home building market to add momentum to its growth trajectory. This business contributed 19.5% of revenue in Q3FY06 with EBIDTA margin of 21.3%. Will see explosive growth going forward as demand from the US and UK is likely to increase over the coming years.

Food processing outlook positive

The company is also involved in onion dehydration and fruit processing activities that contributed 9.1% or Rs 19.96 crore to topline in Q3 FY06. The company's customers for the dehydrated onions include the soup, ketchup and fast foods manufacturers. In the fruit processing business, the company caters to Coke and Nestle among other manufacturers. The company plans to expand this business in the coming years with exports gaining more importance from a strategic point of view. EBIDTA margins were in the range of 12% for the combined business segment. The recent acquisition of the mango fruit processing plant of Parle will add to its strength in this segment going forward.

Inorganic growth to enhance global presence

As the NuCedar Inc acquisition begins to contribute more to the bottom line, the company may look for more acquisitions in the domestic and overseas markets. Domestic acquisitions started two years back with buying of a fruit processing plant near Hyderabad and continued last year with the acquisition of Terra Agro Technology Ltd’s facilities near Coimbatore . As the company develops critical mass, it may look to gain market share quickly using the inorganic route.

Key Concerns

Dependence on the agricultural economy

The company's overall business prospects are dependent on the agricultural sector performance and the overall macro economic situation. Consequently, performance is subject to seasonality in the agricultural sector, which could be a dampener on one segment of the business. In addition, the company’s growth hinges to a large extent on governmental policies which leaves it open to risks arising out of changes in governmental policies.

High Fuel Costs

The company plans to expand capacity in its onion hydration and fruit processing businesses to address growing demand for these products. Dehydration is an energy-intensive industry. Furnace oil is used for heating the air required for drying. With rising global oil prices, the energy cost for dehydration is also bound to go up, which may impact margins.

Outlook

The company appears to be a on a good footing as far as growth is concerned over the next two years. Positives include thrust on the agricultural and infrastructure sector as well as more incremental revenues from new line of business. Expected PAT to grow at a clip of 20% CAGR over the next two years to Rs 1250 crore and Rs 100 crore in FY08E respectively.

Hi Partha, it would have helped to know your entry in the various scrips to determine what could be done with them in the near term.
As such they are good counters.

Whether, in the near term, one should take the plunge or stay out would depend (besides of course one’s trading style) on the coming budget. It’s the budget and the popular consensus on it that’s going to dominate the proceedings.
TA readings, indicators etc. get flung around amidst chaos and volatility. Take the case of a few counters discussed here recently like Jain Irrigation, Kernex Microsystems, Tractors India etc. They were all into firmly bearish readings on the charts and overnight turned around and went through the roof.
There’s nothing like good judgment and thinking from the guts when dealing with such times. They call it tuning in, don’t they.
There’ll be more than a few stocks flaring up as the news trickles in, and it’s been happening. Then on Tuesday while the FM grinds along in Parliament there’d be sporadic fireworks and euphoria, for good reason or mindlessness.
It’s not a great time to be playing the market, till a clear picture emerges. Let’s just take care of what we have till then. Once we are assured of what's going on we'll come up with some decent counters. The ones posted recently are all good too.
Regards.

Hi Roneeth...thanks for all the information, and yes Jain Irrigation is a good counter to be invested in.
As a matter of interest it has just formed somewhat of a Morning Star pattern looking at the the last few bars/candlesticks.
The Morning Star is a reversal pattern one bar ago which comprises of a long dark body shown as red, with a small white Star shown as green, followed by a bigger white candle shown as green. The last green bigger candle is the precursor of the reversal. The small green candlestick is so named because it signifies the morning before the sun rises, metaphorically. The next candle yet to be formed tomorrow should close above 225-227 for confirmation.
Thought this may interest you knowing you've been doing candlestick charting.
All the best.

Attached Images

Jain Irrigation.jpg (25.4 KB, 17 views)

Yep... Got into Jain Irrigation at 215 levels and Kernex at 231... Thanks Amit for your valuable suggestion (though as usual)...

Reliance Capital in the first target area now at 489 after 492 high.
Raise s/l to 473 if anyone in from the called levels.
Targets are intact.

Also, Reliance Capital Ventures trading around 24 is a strong counter to be invested in. No s/l levels as no data but 22 was the lowest it got at listing.

Amit,

GVK power and infrastructure listing was surprsing to say the least: Can you
take a look, I know its hard to say anything regarding new listings.

Kumar