AEGIS LOGISTICS - BUY

 

 

Aegis Logistics is one of the largest private sector chemical,gas and oil logistics company operating in India.Currently company having two liquid terminals in operation at Mumbai and one at Cochin and it is also starting  one more at Pipavav. Recently company started the civil works for its Pipavav facility and on completion of this the total liquid terminal capacity will reach close to 500000 KL.Under the Gas division ,company offering gas transportation for third parties,running Auto Gas retailing Stations and supplying  commercial LPG Cylinders.Aegis having a capacity to handle 750000 Mt of LPG per annum in its facilities. Presently company operating more than 90 auto gas filling stations ( Aegis Autogas)  across 7 states and planning to add another 30 in near future.Aegis already established direct pipeline connectivity with its major industrial customers and its year long experience in this field is very crucial and positive factor in an  industry like this where lot of procedures and formalities are required to get permission from government authorities to start with.In 2012 company started bunker fuels to ships and planning to introduce the same facility at more locations.For the past few quarters company’s financial performance negatively affected by hedging loss which is expected to end by the new financial year.Moreover , government's decision to restrict the supply of subsidised gas will boost the prospects of its various business divisions. Company having an uninterrupted dividend paying record for the past 10 years and reporting decent numbers. I believe .company’s decisions to expand its  capacity adding new offerings in its portfolio and changing government policies will auger well for Aegis once there is some improvement in the over all revival in our economy. Recommending a BUY on Aegis in a staggered manner with a long term view at  CMP or in any dip below CMP of Rs.125. 

Link to company website HERE

Link to latest AR HERE  

Disc : I have vested interest in A.L.L.

MARKSANS PHARMA - ON THE COMEBACK TRAIL ?

 

Our economy and stock market is going through a rough patch  for the past many months ( not the indices) .Reasons may vary from weak government,policy paralysis,higher inflation,current account deficit ,crisis in power supply,mining ban ,additional supply of PSU shares ..etc.etc.In mid and small caps space a real carnage is going on where stock prices of many companies ruling around life time or multi year lows.In addition to the above mentioned reasons , I believe one of the major factors affecting the sentiment in small/mid caps is the uncertainty created by the latest SEBI decision to change the trading method for illiquid stock.( not the method but the criteria for fixing the eligibility is the real reason for concern).It seems all market participants including stock exchange authorities,brokers and investors are in full of dark and no clue about the impact of this method on volume and price .I think ,this uncertainty is a major reason for the sharp fall in small/mid caps in past few weeks .There is no takers and hence no market depth for midcaps .Many of the investors are in a wait and watch mood and not ready to take any new commitments before some clarity emerges even they know the fact that many good companies are trading at attractive valuations.This is the feeling many of my friends shared in recent weeks .Some investors even selling their holdings and shifting their positions to other stocks which may excluded from new method based on the declared criteria. I believe ,SEBI is actually ‘burning the house to kill a rat’ .Let us wait one more week and see its implications.

This week’s recommendation is a low priced scrip which is not an illiquid stock under  new criteria !! .Reason  is not this alone but some more  positive developments happening in this company after a long period.MARKSANS PHARMA  is owned by Mr Mark Saldhana , the younger brother of the MD of Glenmark Pharma .Actually the name GLENMARK derived from the name of two brothers GLEN Saldhana and MARK Saldhana.In 2003 Glenmark Pharma’s wholly-owned subsidiary Glenmark Laboratories de-merged from it and later in 2005 this division merged with another listed company  Tasc Pharma .Then its name changed to the present one MARKSANS PHARMA and Mark Saldhana took charge of this company.Company’s performance was satisfactory till 2008 and thereafter  derailed due to different reasons.It raised FCCB for overseas buyouts and  took over some foregin companies in UK and Australia which did not perform initially, as expected.FCCB holders not converted their bonds  due to lower stock price and the repayment of the same ends as a huge burden on the company. As in the case of many other company’s issed FCCB’s during that period ,Indian currency’s diminishing valuation added fuel to fire.

 When we analyse in detail,it is clear that the two major reasons for huge loss in past many years  and complete erosion of net worth of this company is FCCB obligation and loss of its API division. Last year company exited from API and sold out this loss making unit.In a surprising announcement ( Read it HERE) ,in this month , company informed BSE  that it  has entered into a Settlement Agreement with the holders of Foreign Currency Convertible Bonds.Even the nature and means of this settlement not explained,MD's open market purchase of shares in the past few days indicating they have reached in a favorable settlement terms for  the company and some clear ideas in mind.Last year promoters subscribed preferential issue and hiked their stake to 51% from 48% .

After selling out its API division, company  now concentrating in Formulations,CRAMS and Bio pharmaceuticals . Oncology, Gastroenterology, Antidiabetic, Cardiovascular, Pain Management, and Gynecology  are selected as key areas of interest.Of late company’s Australian Subsidiary( Link HERE) is also started to perform . Since company’s foreign operations are bigger than Indian business ,true picture is not reflecting in its stand alone result.Its consolidated Sales was Rs.357 Cr where sales from India was just Rs.156 Cr in FY 2012. In the just preceding  two quarters,both Indian and foreign operations are showing significant improvement.

                   

                                                                                           This low priced scrip selected mainly because of four  reasons – Pedigree of promoter,Fair chance for a Settlement of FCCB with favorable and practical terms and conditions , Improved financial performance,promoter’s effort to increase stake through preferential issue and open market purchase.We know last year’ fantastic turn around of another big pharma company started only after a similar settlement of FCCB obligation.Let us wait and see what will happen for this one.Those willing to take extreme risk and enough patience may try it around CMP Rs.4/- .Stock listed both in NSE and BSE.

Link to company's old website (new one is  under construction) - HERE 

Link to Company's UK Subsidiary HERE

Link to Company's Australian  Subsidiary HERE

Link to latest Annual Report HERE

 

Disc: I have vested interest in MPL

AVANTI FEEDS - BUY

I have recommended a BUY on AVANTI FEEDS  @ Rs.68 on September13,2011.(Old Posting HERE) .Subsequently recommended to book profit from  it @ 203 for a re-entry below Rs.150 ( Link HERE) .Now stock corrected substantially and currently trading around Rs.109 . Requesting to re-enter now and HOLD the same for long term

ENGINEERING / CAPITAL GOODS STOCKS - A GOOD OPPORTUNITY

Even if it is exhibiting the tendency of cyclical nature,Engineering and Capital goods industry is the back bone of any growing economy . In our country most of the companies operating in this sector is currently facing serious challenges due to lower order book position and delay in execution .Reasons are many like slowness in implementing government  policies,intervention of courts,shortage of power,higher interest rate ..etc ..etc.Even in the past, this industry faces these type hiccups many times and later came out of such bad situations.Most of the listed companies from this space  are long existing in the same industry and the management of such companies already experienced many such ups and downs.Share price of many companies are now ruling at attractive valuations for genuine long term investors.Negative sentiment is surrounding this industry and everyone is in a hurry to dispose even quality stocks from this sector at throw away price, thinking there is no tomorrow .Considering the volatility and panic gripped in the mid/small caps one can't say they will not go down further .But in practical it is very difficult to catch everything at bottom and no meaning in waiting for that .One strategy we can adopt in such a situation is - accumulating small lots of quality stocks in a phased manner and thus keep our average at reasonable level.Such a method will help us to reap the benefits when the industry starts its come back and at the same time avoid the possibility of sleeplessness during testing times.Waiting with patience may be longer but the reward will be equally big.
TRF @ Rs.167,TIL @ Rs.160,InternationalCombustion @ Rs.167 ,Tecpro Systems @ Rs.109 ,CMI FPE @ Rs.475,Eimco Elecon @ Rs.153 ,Ingersoll Rand @ Rs.400 ..etc are some stocks falling in this category. One thing is very important- no meaning in looking at the trading screen from the very next day onwards after the purchasing these stocks .I believe it is the time to become greedy in this sector and not fearful.

ABBOTT INDIA - BUY

Abbot India - a 75 % subsidiary of Illinois based   Abbott Laboratories -operating in pharmaceutical, nutritional and diagnostic segments in India.Company is one of the best MNC pharma company currently available at attractive valuation. In past few years ,parent company is very aggressive in India to expand its business.As part of its global integration in 2012 Abbot India merged Solvay India with itself.Abbot group operating in India through three units viz  Abbott India, Abbott Healthcare and Abbott True Care.In these days , many MNC pharma companies are keen only to develop their unlisted arms and ignoring the listed units .But Abbot is an exception and the parent is taking equal efforts to grow all of its units .The listed  units concentrating in  pain management, gastroenterology, thyroid and anesthesiology and  Its main brands includes  Brufen, Digene , Forane..etc. For FY 2012 Company reported a turnover of Rs.1652 cr ( Rs.1477 Cr in previous year) and a net profit of Rs.145 Cr ( Rs.120 Cr) .EPS was Rs.68 and declared a dividend of Rs.17. A good stock for investment @ CMP Rs.1360 for long term investors. .

Link to Company website HERE

EPC INDUSTRIE' LTD - REVIEW

This stock initially recommended ( HERE)  during August 2010 around Rs.61.At that time  I mentioned EPC as a potential take over target. As expected, one of India’s largest business group – Mahindra  and Mahindra (M&M) later took over this company  in February 2011.It is two year now and let us re look at the initiatives taken by the new management and its  future prospects.

                                                                            First of all , it was  two bad years for micro irrigation companies due to delay in releasing subsidies by various state governments.This resulted in serious working capital issues to companies operating in this sector.Mounting debt was the end result and due to this reason market cap of Industry leader Jain Irrigation nosedives.Earlier most of the  companies in this sector was following a business model which put the burden and responsibility of collecting subsidies from governments on the shoulders of companies itself and not on the farmers . They realized the risk of this business model  only after frequent cases of delay in the releasing  of subsidies in recent times.Now it is a transformation phase of this business model and company’s are now only helping the farmers and it is their responsibility to collect subsidy from the state governments.Normally ,as a result  of this change in strategy  ,sales  growth of  MIS shows lower growth during this transformation phase .Now most of the companies including Jain Irrigation is adopting this new  model and expecting significant improvement in business in another few quarters once this shift completes.

                                                                                         Being a pioneer in farming related business ,Mahindra’s took a careful step and begin with a prudent decision to start with the new model.Initially  ,to strengthen the capital base and support working capital requirements M&M infused further funds into EPC through a rights issue priced  @ Rs.40. Through this rights they hiked their stake from 38 % to 55 % ( M&M subscribed the unsubscribed portion of Schroder Credit Renaissance Fund ,as part of take over agreement)

                                                            Then ,M&M formed a new board and appointed well experienced executives to lead the company .Mr Ashok Sharma appointed as the ED and CEO of EPC .He is also serving as Chief Executive -Agri and Allied Business of M&M,Mr Subhash Modak as COO ( Vice president  M&M) and Mr Pavan Deolia as Head Sales & Marketing (General Manager- M&M ltd)

                                                               Under this new leadership ,company get a new direction and started  fresh initiatives to become a leader in agri space.First of all ,EPC amended  its object clause of Memorandum of Association to enable it to diversify into other agri related areas like seeds, fertilizers, pesticides, agri chemicals, tractors implements, pumps, greenhouses, power, fruits and vegetables, meat and poultry, dairy, aquaculture, marine culture, grains and fast moving consumer goods..etc.

                                                                                       Further the company increased its offering by adding new products in its portfolio including  pumps and new models of micro irrigation systems.This will help EPC to become a one stop shop for all MIS needs .Company started strengthening  its marketing network by adding dealers in un represented areas.

One drawback of this company during the erstwhile management was its inability to offer complete solutions rather than just selling MIS products.But company now started Agronomy Support Services  including Educating farmers in the areas of Introduction of new crops,Crop selection,pest and weed management ..etc. Agri Helpline is another new initiative by EPC for farmers .Farmers can call or mail for clearing any agri related doubts .If necessary, company’s expert will personally visit the farm and give advices free of cost. All these efforts will ensure a close relation with farming community and increase the brand value of EPC as a complete farming solutions provider.

New Initiatives

EPC recently started an agri show room ( a  one stop shop for all agro products and solutions ) in Buldhana district of Maharashtra.I believe it is only a first step of a long journey and company will start many such shops at various parts of India once they started own production of other items like Seeds,agri chemicals,green house accessories..etc.

Another most important development in the history of EPC is its recent tie-up with State Bank of India( SBI) .Last week ,company entered into tie-up with SBI  to finance farmers for micro irrigation systems.Considering the vast network of SBI even in the nuck and corner of India ,clinching such an arrangement with India’s biggest bank  is a very important development for EPC .For financing farmers ,even some market leaders are forced to start financing facilities for their own  which need additional capital end extra struss in their balance sheet .I strongly believe such a an arrangement materialized only because of the goodwill and credibility of Mahindra Group.( Read more details about this event HERE) 

Financial Performance and Change in Share Holding 

Even after following a conservative business model ,company could improve its business.During the latest quarter ,EPC reported a Sales of Rs.50 Cr ( Rs.40 Cr in same period last year) and a net profit of Rs.2.70 Cr (Rs.1.98 Cr) .This may not be a big figure but we should realise it is just a beginning for the new management and the initiatives they are taking now will need some time to deliver in its full potential. Change in share holding during the last one year is another point to note. Earlier about 34 % stake was held by Credit Renaissance Fund. ( who took preferential allotment to pump money for working capital during the time of old management).Now they exited completely and these shares are mopped up by reputed Institutional and Individual investors including Morgan Stanley,Reliance Capital,SCIL Ventures..etc.This means, exit of 35 % stake by one stake holder not increased  the level of floating stock in market .Another  source of supply coming to the market is from the remaining stake held by the old promoters .I strongly feel ,their exit is part of the take over  agreement  with M&M .At the end of December quarter old promoters (  Trenton Investments Co Pvt Ltd ) holding  934985 shares .Tracking the trend of trading of this stock for the past many years , I believe they are selling around Rs.140 and this is the only source of major supply at this point . Their holding may  be reduced  further due to selling in January and February.

                                                                           As I mentioned above about 85 % of shares are held by promoters and institutions in this company .Management is taking careful steps to develop EPC as a full fledged farming solution provider.At present , sales of micro irrigation systems are promoted by producers and central  and various states and government .I believe this scenario will change in another few years and due to scarcity of water and introduction of modern farming techniques MIS will be a necessity for farming and farmers itself will demand it .If everything goes well ,with an experienced management  with vision and ability to tap opportunities  , I strongly feel EPC will evolve as a front runner in Indian Agri space and become  a feather in the cap of Mahindra Group in another few years.CMP of EPC Rs.143 /-

Stock is expected to move to another range once the supply from old promoters absorbed.Hence recommending to tightly HOLD it for long term .

LINK TO VIDEO PRESENTATION BY CEO HERE

LINK TO COMPANY’S  NEW  WEBSITE HERE

Trading in illiquid shares only thru periodic call auction: SEBI

Courtesy :Business Line

Effective April 1, illiquid stocks would be traded only through the periodic call auction mechanism on stock exchanges instead of the existing order-driven system in the normal market, said SEBI.

Market regulator’s decision was based on the recommendations of its Secondary Market Advisory Committee (SMAC).

Call auction in these stocks would be done every one hour starting 9.30 a.m. on each trading day, said SEBI.

Once this is implemented, trading in illiquid scrips would be done through three distinct activities. The first activity includes order entry, order modification and order cancellation of 45 minutes duration. The second activity is for order matching and trade confirmation and would last for eight minutes.

The final seven minutes would be a buffer period for closing the current session and facilitating the transition to next session taking the total time for the call auction session to one hour. The first session would be randomly closed during last one minute of order entry between the 44th and 45th minute. This would be system driven.

SEBI said stocks having an average daily trading volume of less than 10,000 shares with the average daily number of trades of less than 50 and classified as illiquid by all stock exchanges (where the scrip had been listed) as criteria for illiquidity.

Exchanges have to review illiquid criteria of scrips at the start of every quarter.

These scrips can exit from the call auction mechanism to the normal trading if they have remained in session for at least two quarters and are not illiquid.

SEBI has mandated a price band of 20 per cent for illiquid scrips.

All unmatched orders at the end of an auction session would be purged, and in case the market wide index circuit-breaker is triggered, the session would be cancelled and all orders purged, said SEBI.

If the lowest selling price entered is less than or equal to the maximum buy price entered into by the same entity results into a trade, the regulator will impose a penalty on a daily basis and credit the investor protection fund.

SEBI has also decided to implement the pre-open call auction session in all exchanges with active trading and to all liquid scrips.

For more details click HERE