Call from Analysts

[Sarveshk]

Taj GVK Hotels
CMP: Rs 215, Target: Rs. 300

Taj GVK Hotels is a good stock in the booming hospitality space; it can touch Rs 300. Taj GVK Hotels is a good stock to look at in the hospitality industry. There is a tremendous boom in the hotel industry and the company can leverage on this.



The company has a strong presence in Hyderabad, where it has 2 properties. It is developing 1 property in Chandigarh & plans to implement a property in Chennai. The stock can go up to Rs 300.



Disclosure: This stock may be part of some of the portfolios managed by Investment Advisor PN Vijay.

 

[Sarveshk]

Aptech



Aptech may be turning around after poor results for several quarters. The stock is owned by a few large well known investors who have an excellent track record in their investments. Aptech is into computer education and after poor results for several quarters the company may be turning around. Last quarters results for 30 June 2006 were more encouraging.



The stock is owned by a few large well known investors who have an excellent track record in their investments. Stock was first recommended by JVCS at Rs 50 last year and we maintain a HOLD/BUY on it at current levels. Current price is Rs 121. The short term target is Rs 150 (3-6 months). Long term target is Rs 200+. Short term traders can keep a stop loss at Rs 115 levels and look to take profits above Rs 150.

 

[Sarveshk]

Sasken Communication


The company is uniquely positioned in the niche telecom software vertical. We believe that current stock valuation is cheap considering company's expected consistent growth prospects for next 3 years at a CAGR of 60%.



Sasken Communication and Technologies is uniquely positioned in the niche telecom software vertical, wherein it provides product-based as well as service-based solutions to network equipment manufacturers, semiconductor vendors and mobile terminal vendors.



The company recently acquired Finland-based Botnia Hightech (BH) and will be consolidating its revenue from October 2006 onwards. BH's revenue in FY06 (April closing) was 17.7 mn Euros (approx Rs. 103 crore) with PAT of 2.9 mn Euros (approx. Rs. 17 crore). This acquisition will draw strong synergies between both the companies as BH has a strong product portfolio and SCTL has global market access.



SCTL's revenues from its product division has fallen from 43% in FY03 to 4% in FY06. This dismal performance is history, as the company has strongly forayed into Integrated Solutions, wherein it will be designing solutions for 3G handsets and earning revenues in form of royalty for every handset shipped. In December 2005, SCTL signed a royalty-based deal with a major Japanese manufacturer for 3G handsets. In all, the company has 5 active partnerships with semiconductor manufacturers for its two designs. Of these, the company will generate revenues from only 3 partnerships in FY07. The shipment of the handsets of one of the company's design will start in December 2006.



At the current price of Rs 360, the stock is trading at a forward PE of 19x and 11x on FY07 and FY08 earnings. We believe that current stock valuation is cheap considering company's expected consistent growth prospects for next 3 years at a CAGR of 60%. The stock at current price looks a good value buy with a price target of Rs. 480 over the next 12 months.



Credits: Mehraboon Irani, Darashaw and Company

 

[Sarveshk]

Investment Ideas: NIIT Technologies

A good order-book, balanced geographic spread and the recent
acquisition of Room Solutions lends confidence to the stock.

At Rs 198, the NIIT Technologies stock is a good choice for investors
with a one/two-year horizon. The stock trades at a multiple of 11
times its trailing consolidated four-quarter per-share earnings.
Investors can use any weakness linked to the broad market to step up
exposure.

The company's focus on select key verticals such as BFSI (banking,
financial services and insurance) and transportation, a strong
order-book position, the balanced geographic mix and the recent
acquisition of the UK-based Room Solutions is encouraging. The risks
to our recommendation are the integration issues surrounding Room
Solutions, any sharp rupee appreciation vis-a-vis the dollar and
supply-side manpower-related issues affecting mid-size companies.

Financial contours


In the quarter ended June 30, the company reported a 15 per cent
sequential (quarter-on-quarter) growth in revenues to Rs 191 crore.
This, however, includes the revenue contribution from its acquisition,
Room Solutions, from May. If we ignore that, the sequential growth
works out to 4.3 per cent.

Over the past four quarters, the sequential organic growth has been
declining, which is not so healthy, but the operating profit margin
has remained stable in the 19-20 per cent bracket.

In the latest quarter, the OPM has fallen marginally to 19 per cent
largely on account of Room Solutions (with higher onsite revenues)
from 20 per cent on a sequential basis.
Despite a 17-per cent hike in offshore salaries and 5-6 per cent
onsite, the company has managed to maintain its operating margins.

This has been aided to some extent by a reduction in SG&A (selling,
general and administrative) expenses.

NIIT Technologies can use multiple levers such as an improvement in
BPO margins, enhanced contribution from offshore, and better control
over SG&A to shore up margins. At present, the BPO segment contributes
only about 6 per cent of revenues, with the balance coming from
software services.

The company has $90 million worth firm orders executable over the next
12 months. In the latest quarter, the company won new business worth
$38 million, including a $20-million order from an existing client in
the transport space.

This highlights the cross-selling opportunities and mining the
potential of NIIT Technologies' top five or top ten clients.

The acquisition pep


In early May, the company acquired 51 per cent in Room Solutions, a
UK-based IT solutions firm (with intellectual property) focussed on
the insurance space.

Through this acquisition that focuses on the property and casualty
space, NIIT is trying to plug a gap in its insurance portfolio. With
revenues of $25 million, NIIT Technologies will be acquiring Room
Solutions for about one times revenues.

This is also likely to complement the company's presence in life and
pension space. Since Room Solutions has a large client base in the
property and casualty space evenly spread out, it opens up
cross-selling possibilities, the impact of which will be felt over the
next one year.

According to NIIT Technologies, there will be near-term margin
pressures on account of integration and transition costs of Room
Solutions, but that will be recovered over the next couple of
quarters.

Apart from building its offerings around an integrated IT and BPO
platform, the company also recently forayed into the emerging area of
remote infrastructure management and managed services.

It announced last week that it has set up a 50:50 joint venture with
the Switzerland-based Adecco, a global major in HR services.

Source: Business Line

 

[Sarveshk]

Investment Ideas: Dishman Pharma


Investments can be considered in the stock of Dishman Pharma, which
currently trades at Rs 206. Since its initial public offer a couple of
years ago, the stock has had a stellar run, rising almost six-fold
since. Dishman's business profile is getting more diversified and the
business mix is poised to get better.

Investors could buy the stock in small lots and look to step up
exposures on any declines linked to the overall market movement. At
the current price, the stock trades at a shade over 15 times its
expected per-share earnings (on a diluted basis, assuming full
conversion of FCCBs) for FY08, which, in our view, is not too
demanding in the context of growth prospects.

From an almost negligible contribution a few years ago, the contract
research and manufacturing services segment accounts for over half of
Dishman's revenues. We expect this segment to be the principal growth
driver over the next few years. Dishman's strategy of working with
innovator companies to supply inputs for molecules on patent is its
key differentiator; it also ensures better margins.

From catering to one client (Solvay), Dishman has expanded this roster
to include the likes of Merck and GSK, to name a couple. Approval of
its facility by the US Food and Drug Administration should trigger
supplies into that geography, a lucrative market. Importantly, a
widening customer base should also help allay investor apprehension
about the risks associated with an excessive dependence on a single
client.

Dishman's recent acquisitions are complementary in nature, as it plugs
gaps in its portfolio of offerings. The key would be the integration
of the Swiss-based Carbogen-Amcis, an outfit that is comparable with
Dishman in revenues. Though this may result in margins trending
marginally downwards, it should be more than compensated for by the
significant addition to topline.

Source: Business Line

In the marketable molecules business, which is a mature category, we
expect steady growth, with an improvement in operational metrics once
the benefits of Dishman's foray into China for setting up a
manufacturing unit kicks in.

 

[Sarveshk]

Capita Telepholio Gives you Short Term Recommendation

BUY : BASF India at Rs 215
BSE Code : 500042
NSE Symbol: BASF
Market Lot: 1

BASF India, which is a 52.7% subsidiary of BASF, Germany, focuses on agro chemicals, performance products and plastics & fibres.While buoyant economy and good monsoon will help accelerate the company's growth rate, sustained fall in oil prices will pave the way for major rerating of
the scrip.

Actual adjusted EPS for March 2005 : Rs 13.5
Actual adjusted EPS for March 2006 : Rs 15.5
Projected adjusted EPS for March 2007 : Rs 19.1

 

[Sarveshk]

VENUS REMEDIES
Present Price - Rs.385; Projected Price - Rs.430
This Chandigarh-based company has a WHO-GMP certified state-of-the-art plant for infusions and dry powder-filling injectibles. We expect Venus to grow at 50% for the next five years on the back of new product launches, additional strategic marketing tie-ups with domestic companies, and increased oncology product exports to CIS and other countries. The company's newly built Baddi manufacturing facilities were accredited with ISO certifications, ISO 9001:2000 and ISO 14001:2004, as well as the OHSAS 18001:1999. Venus has been aggressively expanding its marketing team by increasing the number of sales offices in various states. It aims to have around 500 sales offices across India by FY10 from the current 140 plus. The chart structure is looking extremely bullish and one should invest at current evels. Long term investors can expect higher returns

 

[Sarveshk]

Reliance Communication can be purchased on declines with a stop loss of Rs 274

Buy ICSA India with stop loss of Rs 703 for short term target of Rs 900

Buy Kesoram Industries below Rs 426 with a stop loss of Rs 420;This is
a day-trading recommendation

Buy Bharti Airtel (Rs 430.45) with a stop loss below Rs 423 for a
target of Rs 449

Buy Reliance Energy (Rs 488.10) with a stop loss below Rs 477 for a
target of Rs 516

 

[Sarveshk]

Crest Animation Studios

Crest Animation Studios, through Rich Crest Animation (RCA) USA, is one amongst the only five studios worldwide, involved in 3D animated feature films. The share can become a true multi bagger and can give rich returns. Share appears to be a safe bet at Rs 120 levels.

Background:

Crest Animation Studios, through Rich Crest Animation (RCA) USA, is one amongst the only five studios worldwide, involved in 3D animated feature films. The other four are - Pixar, Dreamworks, DNA and Bluesky. The Company has good skills, set-up and expertise in animation film. Crest is one of the first players in the Asian region servicing the mainstream entertainment industry demonstrating high quality, timely deliveries and competitive costs. The company had increased its CGI Manpower from 229 to 353 in FY05 as also had invested Rs 5.24 crore in its production facilities in that year.

Moving up the value chain: -

Continuing with its work for hire business, the company has ventured into co-production arrangement that entitles it to profit participation, and its first successful co-production has been through the production of 52 episodes of 'Pet Alien', which went on air in January 2005 on Cartoon Network, a leading US terrestrial network. The company also completed Project titled "Care Bears Movie 2".

The company has acquired 86.98% in Rich Crest Holdings Inc. (RCH) through its 100% subsidiary Crest Communication Holdings Ltd.

Production Costs:

The Production of a CG Animation film cost an average of US $ 75 million in US while the company / RCA produces at 40% of the US Costs, due to India advantage of lower manpower costs. So, one film can be produced in about US $ 30 million by the company, of which about 40% of the work in respect to back end development and production job is carried out by the company.

Industry Status:

Computer animation business is in the growth stage of its business cycle and now widely understood to be a profitable niche but a difficult business to build. Most large entertainment conglomerates perceives this business as a "must have' in their business portfolio.

Dreamwork's animation unit had raised US $ 812 million in 2004 through its IPO, which reflects rich valuation for the business as also bright, and sustaining future for the computer animation industry.

'Shrek 2' a movie released by Dreamworks has become the 6th highest grossing movie ever with a worldwide box office collection of US $ 918 million. 'Finding Nemo' and 'The Incredibles', the movies released by Pixar / Disney have become the 10th and 23rd highest grossing movies, with box office collection of US $ 864 million and US $ 631 respectively.

Movie Production: -

RCA located in Burbank, California has entered into an agreement to co-produce three full length 3-D animated feature films in a Joint Venture with Lions Gate Inc., a leading movie distribution company in the United States. The first of the three feature films, titled "Sylvester and the Magic Pebble" has a planned release in 2008. The second movie project titled 'Alpha and Omega' is currently in the development stage and is planned for release in 2009. The third film is on drawing board and at the planning stage. RCA and Lions Gate would equally share the cost of production as well as the profits.

The rights to the first film under the agreement. Sylvestor and the Magic Pebble based on the Caldecott medal-winning story by William Steig (the creator of blockbuster Shrek) have been acquired.

Shifting to new premises.

The company has moved its registered office and production facilities from Worli, Mumbai. (Self-owned) to Ghatkopar, an eastern suburb of Mumbai of about 45,000 Sq.Ft. leased premises. Worli premises shall be disposed off which shall give good liquidity to the company to meet its fund requirements. It is also learnt that the company has booked a huge space in an SEZ being developed near Mumbai to set up its studio and production facilities.

Funding arrangement of US $ 40 Millions: -

The company has recently agreed in principle on an investment of US $ 40 million through several distrinct transactions by the D E Shaw Group. The company shall allot 33,85,518 equity shares of Rs 10 each on preferential basis, constituting 14.99% on Fully diluted basis, at a price not less than Rs 120 each, aggregating Rs 40.63 crore to D E Shaw Composite Fund LLC and D E Shaw Composite Holding LLC and their wholly owned affiliates. Allotment of Securities up to 26% in RCH for a consideration up to US $ 15.75 million shall also be made. This means, RCH has been valued at around US $ 60 million equivalent to Rs 280 crore. Also, company agreed to avail up to US $ 15.75 million as Guarantee Funding towards film financing for its three co-production CGI animated features with Lions Gate. This financing would be on the profit sharing basis without any interest cost. DE Group is headquartered in New York and is a specialized investment and technology development firm that comprises a number of entities with approx US $ 23 billion in aggregate capital.

This investment is proposed to fund the ongoing expansion and upgrade the company's 3D Animation facilities and to meet long-term working capital requirement. Investment in Subsidiary would be to fund the requirement of RCA, which is actively involved in 3D Animated Movie Business.

Ms. Seemha Ramanna Mg. Director of the company has said that "D.E.Shaw has deeply understood the potential of 3 D animation in India and the significant global opportunity for Crest.

Financial Performance :-

For FY06, the company had achieved a turnover of Rs 21.40 crore and made a net profit of Rs 6.0 crore on equity of Rs 19.20 crore. For Q1 of FY07, the total income was at Rs 1.90 crore while net loss was at Rs 3.30 crore. Due to shifting at new place, the working took a hit in the first quarter, which is likely to improve in the third and fourth quarters of FY 07. The equity of the company shall rise to Rs 22.58 crore after allotment to D E Shaw Group. In Q1 of FY07, the company has signed a deal with Marathon a French production house, for a 52-Episode TV Series with a project size of $ 18 million. Due to this, Crest has spread its wings from US and Canada to Europe.

Concerns :-

There have been 15 CG Films released from 1995 to 2005 with average film generating an average of US $ 400 million. in worldwide box office, against an average cost of US$ 75 million. Due to this success, 19 CG films are known to be scheduled for production and release over the next three yeaRs Hence, any overdose of CG Films would reduce the profitability of the industry in general and company in particular.

Conclusion :-

The company has been facing huge cash crunch for its capex and working capital. With a definite flow of Rs 113 crore and an arrangement for about Rs 72 crore, the company has adequately provided for, its fund requirements for the next 3-4 years. Also, commencement of films would give steady revenue to the company for its animation business.

A CG animated movie costs about $ 75 million and gives an average revenue of $ 400 million. Even if we consider half of this, each film can give profit of over Rs 700 crore, on release. With an effective share of company at about 30% in each film, profit could be over Rs 200 crore each film. Hence, from 2009 onwards this profit would flow in, into the company's kitty.

So, if one takes a long-term view of 1-2 years on the stock, the share can become a true multi bagger and can give rich returns. Share appears to be a safe bet at Rs 120 levels.

Credits: SP TULSIAN

 

[Sarveshk]

Short Term BUY Recommendations for Quick Gains


Rajat Bose:
Buy Bajaj Auto (Rs 2825.95) with a stop loss below Rs 2782 for a target of Rs 2940
Buy Jet Airways (Rs 679.90) with a stop loss below Rs 640 for a target of Rs 750-770

Ashwani Gujral:
Buy Indian Oil with a stop loss of Rs 500 for a target of Rs 590
Buy Kesoram Industries with a stop loss of Rs 400 for a target of Rs 520

E Mathew
Buy RPG Life Science on declines with stop loss of Rs 136 for a short term target of Rs 170
Buy Mercator Lines on declines with stop loss of Rs 39.30 for a short-term target of Rs 56