Business Standard – Revealing the 100X strategy: ultimate wealth creation

December 18, 2024December 18, 2024Leave a comment

I came across an excellent article on Business Standard.

This is very useful for investors new to Equity. Several important concepts are covered here.

Do Read –

https://www.business-standard.com/economy/analysis/revealing-the-100x-strategy-the-ultimate-instrument-of-wealth-creation-124121701224_1.html

Warm regards

Punit Jain

The JainMatrix Investments Outlook – June 2017

June 22, 2017

A short market note

When demonetization happened in Nov-Dec 2016, there was high uncertainty and markets fell sharply. By end Dec however, the Indices bottomed out. The cash shortage was being overcome and other fears receded. Since then, the key indices recovered smartly by about 21%. We feel that the event is behind us and even the worst affected firms are now nursing back to pre-demon health.
The budget in Feb and the 5 state elections after this strengthened the positivity and good feel factor. Markets appear to be resuming the broad multi-year bull-run.
The next major event is the imminent GST implementation which is bringing many changes, many good and some bad:
- As GST rates are being declared, companies are reacting to them eg. Gems and Jewellery firms rose sharply on 5th June, reacting to the 3% GST on gold, which was positive.
- Sectors like Logistics, Transportation and FMCG are beneficiaries of GST and they have appreciated in the last 6 months on GST news.
- However, the destocking and restocking by dealers /wholesalers to deal with GST and compliance requirements and changes to systems and processes at all levels will take a quarter to settle. Incremental tax fears may see weak June orders but a strong July may cover up.
- Unorganized sector and MSME may see a net increase in taxes as GST compliance covers all, and this may affect profits and competitiveness.
Round UP of other factors:
- The INR remains stable in the Rs 63-68 zone with a strengthening bias in light of lowered inflation, good forex reserves and exports looking robust.
- In Indian markets, liquidity flow is strong from retail and FII investors into Indian markets. This reflects in the IPO markets, which look strong with the CDSL IPO subscribed 170 times, a new record. GoI too is planning a number of disinvestments.
- The 3rd Fed rate hike happened and it did not appear to affect Indian markets. Fear around inflation looks unfounded, and a bad monsoon in 2017 looks unlikely.
The risks or negatives that we see now are – 1) bank NPAs need resolution, the GoI is focused on this and there needs to be some progress here 2) along with some clarity around PSBs restructuring 3) cross border and terrorism issues 4) The Q4FY17 results were fair, and the market is in ‘above average’ valuations zones. However current levels are not excessive. Mid and small caps continue to do well.
Stay positive on the markets !!

Happy investing,

Punit Jain,

JainMatrix Investments

JAINMATRIX KNOWLEDGE BASE

See other useful reports:

Visit and Like JainMatrix FB or Follow on JainMatrix Twitter for reports
Check back on the website jainmatrix.com for updates.

DO YOU FIND THIS SITE USEFUL?

Visit the Investment Service page to find how you can get more. Or Click LINK
Register Now to get our Free reports and much more, on the top right of this page, or by filling this Signup Form CLICK.

DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Adviser. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

Bharat Forge – the Forging Giant Returns

August 15, 2011February 9, 2012Leave a comment

CMP: 291 Date: 12-08- 2011 Advice: Invest in SIP fashion

Till 2006 Bharat Forge (BF) was primarily an auto components firm. A number of mergers and acquisitions in the 2004-07 periods saw BF also enter in several new geographies. Manufacturing is in 11 locations and 5 countries: India (4), Germany (3), China (2), Sweden (1) and USA (1).
In the last 3 years, BF has executed a de-risking plan and enter into new verticals. For BF the focus in the Non-Auto business is on growing sectors like Power Plants, Marine, Construction & Mining, Oil & Gas, Energy, Aerospace and Railways, and Import substitution for BHEL. JVs are with respected partners, like NTPC for power, Alsthom for Thermal/ Nuclear turbine/ generation sets and UK based David Brown for gear box manufacturer

Change in Revenue Segments

Fig 1 – Business Segments in 2011 (click chart to expand)

Bharat Forge has successfully diversified from Auto into other verticals, de-risking their overall business profile

Current Business Outlook

The fall in auto demand in 2007-09 saw cost cutting measures rolled out to lower the break even for manufacturing facilities. Capacity utilization improved from 53% in 2009, to 70% for standalone and 45% for international entities in 2010. Additional improvements have contributed significantly to profits. All overseas subsidiaries, including its JV in China, FAW Bharat Forge, have see a turnaround and have started contributing to the bottom line, a year ahead of the 2012 target.
The auto market began to revive in 2009, and BF was best placed to take advantage of this trend.
In June 2011, Bharat Forge quarterly revenues surged to 857 crores, an all time high.
The Business environment and demand situation has now become very positive. BF is able to take advantage of surging demand due to spare capacities, low cost production, global presence and nimble design capabilities. Also a series of well timed entries into new non-automotive markets.

Quarterly sales and Net Profits

Fig 2 – Quarterly revenues have surged (click chart to expand)

Business is surging, in both Auto and non-Auto segments. Profit growth follows in a phased manner, as investments in new businesses break even

Valuations are low, growth is high

The stock price peaked in 2006 and has not touched those levels since. But BF has seen a dramatic business recovery in the last two years in terms of Earnings per share – EPS, which has already risen to all time highs.
While the BF stock has given investors only 11% CAGR returns over a 7-year period, the aggressive nature of this firm means that the initial period of rapid gain was followed by a period of restructuring and consolidation. The expectation now is another period of rapid gain on all parameters.

Adjusted EPS has seen a recovery post ‘09 and is now into all time high territory
Debt-equity is 0.74 as of Mar’11 (down from 1.21 in ‘10). This is comfortable, and safe.
ROCE and RONW are in 15-17% range indicating healthy returns.
PE has fallen to reasonable levels (compared to historical) indicating safety in investments at this level.
PEG is in the range of 0.3, indicating indicates high safety and undervalued status

Fig 3 - EPS and Cash Flow

Fig 4 - Price and PE

Fig 4 – PE has fallen to attractive levels, and combined with robust business performance gives us a very good entry point for long term investments – (click chart to expand)

Fig 5 - Price and EPS

Fig 5 – Adjusted EPS has retraced rapidly and is into all time high territory

Projection

Bharat Forge has been in a period of consolidation, and will see a break out soon
EPS has moved to all time highs. With a suitable lag, this will be followed by stock price also moving into new highs. The stock will appreciate to Market Price of 700 in 12-14 months. This is based on an expected PE of 30 range and continued EPS growth seen since the bottom of June 2009.
This is an excellent entry point for this stock as it is currently underpriced and ‘out of favour’. The current market weakness has dragged down the market price of the stock. With overall Sensex / market recovery expected in 6-9 months, this share price is expected to recover rapidly.

Risks

Auto sector demand in India has been tapering off in recent months. It is expected to have lower growth for 2-3 quarters before recovering. Auto Exports however from India are accelerating.
Headwinds, such as Higher raw-material costs like steel and power may restrict margin expansion and EPS growth. The rising commodity costs have hit manufacturers like Bharat Forge.
In recent months the increase in interest rates and slowdown in the economy has slowed the growth of the auto industry, particularly in India.
However, both these events appear to have played out/peaked, and will stabilise/ reduce in the near future.
Business complexity has increased due to addition of a number of new verticals. However, BF is already seeing exciting success from the new ventures.
An increase in working Capital in the firm in 2011 saw the Cash Flow fall this year. This stems from investments in new businesses as well as new investments in the Auto business to increase capacity and de-bottlenecking.
External factors like stock market sentiments. However our current view is that this will revert to a positive state over the next 9-12 months.

Check back on the website www.jainmatrix.com for updates.
Like my post on Facebook
Do you find this site useful? Please comment below. You can also subscribe for my posts by filling the ‘Sign me up’ box on top right of this page.

Disclaimer:

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com Also see: https://jainmatrix.wordpress.com/disclaimer/

Future Ventures IPO note – April 2011

April 23, 2011December 19, 20173 Comments

Update on April 29th

Future Ventures has got a dull response till today. The overall subscription is 1.52 times the offer.
QIB section is oversubscribed 0.26 times, HNI is (strangely) 7.8 times and Retail 0.6 times.
Poor response may be not just because of poor reviews (see my IPO note below) but also concurrent investments in Muthoot Finance IPO as well as the falling Sensex over the last few days.
Good luck with your investments !!

IPO Note – Published on: Apr 23, 2011

Future Group – Promoter

Future Ventures is a part of Future Group, which owns companies like Pantaloon Retail India (Big Bazaar, Food Bazaar), Future Value Retail and NBFC Future Capital Holdings, Future Generali Insurance, Futurebazaar India, etc.
The core business of the Future Group is Retail, but subsidiaries are present in consumer finance, capital, insurance, leisure and entertainment, consumer brands, retail real estate development and retail media and logistics. The key promoter is the well-known Mr. Kishore Biyani.
Two of these group companies are listed entities, Pantaloon Retail India and Future Capital Holdings.
These two have not exactly outperformed in the last few years in the market.

Pantaloon Retail – Financial snapshot

A 5-year view of the share price of Pantaloon Retail. (click on graphic to enlarge)

Chart 1: Pantaloon Retail Share Price

A view of financials of Pantaloon Retail. (click on graphic to enlarge)

Chart 2: Pantaloon Retail financials

While revenues are high/have grown fast, there have not been corresponding EPS growth (due to dilutions), and the P/E still remains very high
Current market cap – 6000 crores

Future Capital Holdings

Had IPO in Feb 2008
The stock has suffered an average 40% fall in share price annually in the last 3 years

Chart 3: Future Cap Shares

A view of financials of Future Capital. (click on graphic to enlarge)

Chart 4: Future Cap Financials

Sales have not increased steadily; Profits have increased, but P/E still remains very high
Current Market cap – 1060 crores

The short profiles of group companies show that while the ‘BigBazaar’ brand is very good, and revenue growth high, the group has not been able to translate it’s ambitious plans into profitable businesses, and benefit shareholders.

Future Ventures – Business Profile

Future Ventures is like a holding company, that invest in and operates businesses in ‘consumption-led’ sectors in India, sectors which will grow as the purchasing power of Indian consumers increases, and caters to their changing tastes, lifestyle and spending habits.
Future Ventures has so far invested around Rs 450 crore in apparel makers, and Rs 250 crore in processed foods and consumer goods space.
The Company has 14 companies in its portfolio, and owns brands in fashion, FMCG, food processing and home products.

Category	Company	Products/ Market	Remarks
Retail distribution	1. Aadhaar Retailing Limited	Rural and semi-urban retail distribution of agricultural and consumer products	Majority stake
FMCG	2. Future Consumer Enterprise Ltd.	Brands such as Tasty Treat, Clean Mate, Care Mate, Premium Harvest and Fresh and Pure, being marketed through Big Bazaar and Food Bazaar.	Majority stake
FMCG	3. Future Consumer Products Ltd	Brand ―Sach.	Majority stake
Fashion	4. Indus League Clothing Limited	Ready-made garments under brands like Indigo Nation, John Miller, Scullers and Urban Yoga	Majority stake
Home Products	5. Indus Tree Crafts Private Limited	Domestic retailing and distribution of a wide range of environmentally and socially sustainable products.	Majority stake
Fashion	6. Lee Cooper India Limited	A manufacturer and retailer of denims, trousers, jackets, shirts and shoes under the Lee Cooper brand.	Majority stake
Fashion	7. Biba Apparel,	Holds 17.3% stake in Biba, which will be upped to 28% soon
Food Processing	8. Capital Foods	A food processing company with brands like Chings Secret, Smith & Jones, Raji, Mama Marie and Kaeng Thai.
Consumer	9. Amar Chitra Katha	Stake to increase to 26% from 13.7% presently
Fashion	10. AND Designs India Ltd; Global Desi	Luxury clothing brands
Fashion	11. Holii Accessories Private Ltd	A joint venture with Hidesign India Private Limited for leather handbags and wallets
Fashion	12. Celio Future Fashions Ltd	A JV with a French brand of men‘s apparel and accessories
Fashion	13. Turtle Limited	Manufacturer, distributor, exporter and retailer of men‘s wear products.
Retail	14. SSIPL Retail Ltd	A retailer of Nike branded products, wholesaler of footwear, sportswear and apparel, and a manufacturer and distributor of footwear.

Strategy

Future Ventures tries to exercise operational control or influence in the business ventures in which it invests
They pursue appropriate longer-term value creation strategies, which may include unlocking value in their business ventures through public market or private sales.
Future Ventures is also looking to invest in more ‘mature opportunities’ in companies which, it believes, have unrecognized growth potentials or are undervalued or in which it can identify hidden assets or recovery potential.

Financials

The company had consolidated net worth of Rs 738 crore as of December 31, 2010, with the value of investments pegged at Rs 112 crore.
For the nine-month period ended in Dec 2010, it had a total income of Rs 399 crore (primarily through retail sales of merchandise from its subsidiaries) with a net loss of Rs 14.67 crore.
Company officials claim that most of the companies that Future Ventures has invested in are breaking even at the EBITDA level and the results will improve going ahead. /This does seem like a tall claim :-).
The company is not expensive at around 1.1x post IPO book value (at upper band).
Market cap after successful listing would be about Rs 1800 crores

Negatives/ Challenges/ Concerns

For many portfolio companies, this is very early in the investment cycle. It is actually Private Equity companies that invest in such early stage, high risk businesses.
Most businesses are small and are many years and crores of rupees away from break-even volumes, a national recognized brand and profitability. Even with Pantaloon’s clout in distribution, it will take many years of investment to start making profits.
Intellectual Property – royalty payments to be made to Future Group for ‘Future’ trademark.
While there is a common ‘consumption‘ theme in the Portfolio companies, there are few synergies among them. Eg. A high-end fashion label from a well-known designer has little rub off on Amar Chitra Katha comics for kids or Chinese food sauces.
It’s possible that Pantaloon Retail may soon launch a number of Retail formats, but Future Ventures is a shaky ‘backward integration’ for Pantaloon Retail.
Maze of portfolio companies, difficult to value and project financials.

Offering

The IPO has been priced at Rs 10-11 a share. It is open for subscription from April 25-28 for Institutional investors and till April 29 for Retail.
The company will raise Rs 750 crore rupees through its initial public offering of shares, of which Rs 120-150 crore will be invested in existing businesses, while the remaining amount will be used for new acquisitions
Besides various privately held group firms of Kishore Biyani, Pantaloon Retail is the largest shareholder of Future Ventures with 18 per cent stake that will fall to 9.5-10 per cent post issue. Promoters’ combined holding will drop down to around 31-32 per cent post IPO while that of Bennett Coleman & Co Ltd (Times of India Group) will see its 12 per cent stake drop to around 6.5 per cent, according to industry estimates.
This is the second attempt by the company to raise money via an IPO. It had earlier filed for an IPO just when the financial crisis began, then cancelled it.

Investment Advice

Avoid the issue for the following reasons:

This is an investment vehicle in a clutch of firms that need heavy investments to grow in terms of brand and scale of business
There is a bad record of profitability in the current business
Poor track record of the promoter, of shareholder value creation in previously listed firms.

Watch subscription figures of IPO till April 28 to set expectations
Check back on the website www.jainmatrix.com for updates.
Do you find this site useful? Please comment below. You can also subscribe for my posts by filling the ‘Sign me up’ box on top right of this page.

Disclaimer:

Also see: https://jainmatrix.wordpress.com/disclaimer/

My investment rupee says Yes Bank

March 5, 2011December 19, 20171 Comment

Yes Bank is an aggressive high potential new generation bank. The recent fall in prices by 28% makes this an attractive entry point for long term investment.

There is an updated report of Yes Bank available at link The Brave Warrior of Indian Banks by JainMatrix Investments includes Q1FY13 results, news updates and FY15 projections.

Yes Bank – Description and Profile

Incorporated in 2003, Yes Bank received the only greenfield (Start up/New Bank) license awarded by the RBI in the last 15 years
Founded by bankers Rana Kapoor and Ashok Kapur, (combined stake 32.6%). Other shareholders are Rabobank 18.20%, AIF Capital (private equity), Orient Global (investment firm), Swiss Re, Khazanah Nasional (Malaysia Govt) all 3.5-5% each.
It has 185 Branches currently of which 14 were added in Q3 FY11.
Market cap is at Rs. 9,300 crores, putting it at #12-13 among all Indian banks, and #7 in private sector
The firm has about 4000 employees, including 970 hired already in FY11

Yes Bank has superior strategies

In spite of over a hundred banks as competition, Yes Bank stands out for the following reasons:

Seasoned, capable bankers as Management team
The firm is nimble and agile, and rapidly enters new high potential industries sectors for advisory, loan and banking services
Focus on Knowledge based approach to lending. Loans exposure is to sectors like Food and Agribusiness, Engineering, Infrastructure & Logistics, TMT (Technology, Media & Telecom) and Healthcare.
There are four business verticals in the bank: a) Corporate & Institutional Banking b) Commercial Banking c) Business Banking-SME d) Retail Banking.
The business focus was Corporate banking till now and on select sectors while providing the entire value chain in those niche sectors. Having achieved some scale, the bank is now widening focus into SMEs and Retail.
Aggressive Retail growth plans will help increase low cost CASA deposits, and increase margins. The RBI has granted license for 91 additional branches, so the total may increase to 250 by June ’11
Mistakes are made, but it learns from these, and exits fast (example – in 2007, there were a lot of complaints against complex foreign exchange derivative products sold to SMEs, that turned loss making. There were litigations against Yes Bank (and several other banks too). All these have been resolved.
Growth has been organic, and may remain as such. The executives believe that for Yes Bank, organic growth comes at a lower cost compared to available banking assets

Stock evaluation, performance and returns

It’s IPO in July 2005 was priced at Rs 45. It was 31 times oversubscribed. The maiden dividend was paid in 2010.
At CMP of Rs 277 today, the stock has shown a 33% annualized return over the last 6 years! (See Fig 1)
Income and Profit too have grown steadily (Fig 2)

Fig 1 – Yes Bank stock performance (click to enlarge) Source: JainMatrix graphics

Fig 2 – Quarterly income and Profit have grown steadily over the last 5 years Source: JainMatrix graphics

NII – the difference between Interest from Loans and Cost of loans – has grown at 41.5 % annually over the last 5 years. This is phenomenal, and indicates good margins
NII plus Other Income – Add to this income from fee based services like investment banking, advisory services, etc – have grown at 37%

Fig 3 – Price and PE Graph (click to enlarge) Source: JainMatrix graphics

After IPO, made at a high valuation, the PE stayed high for a few years (fig 3). The patient investor got rewarded in 2008-2011 period, where the share price rose rapidly.
There has been a recent fall, the PE now is low at 14.4 and this gives investors another opportunity to enter

Fig 4 – Price and EPS Graph Source: JainMatrix graphics

EPS (adjusted for equity dilutions) growth has been 36% CAGR over the last 5 years. The EPS quarterly graph (fig 4) shows an amazing parabolic rise. I would say it is a great company just achieving critical mass of size, brand and reach.
PEG is at 0.4 – indicates underpriced status, a very good investment opportunity
RoE is at around 20% – healthy statistic.
Price/Book is 3.08, this is fair for a mid sized fast growing bank.
Gross and Net NPAs are at 0.23% and 0.06%. This shows remarkable credit assessments and good processes
CASA ratio stands at mere 10.1% as on Q3FY11. This is low by general banking ratios, but this is being addressed aggressively.

Opinion, Outlook and Recommendation

India is an underbanked country. The RBI is actively encouraging new banks, and vast swathes of Rural India remain unbanked. The potential for Yes Bank to grow is large.
At the same time, competition in urban areas is high, due to presence of public sector, private as well as MNC banks.
RBI expects average industry growth rate to be 20% during FY11. Yes Bank is expected to grow at a far faster rate than industry. It has well-defined, sustainable growth strategies in place.
Yes Bank will grow at 35-45% in terms of Profits and NII + fee Income for the next 5 years. With this trajectory, Yes Bank will join the ranks of large well managed private banks like HDFC Bank and Axis Bank
The fall in share price by 28% from the Nov 2010 peak to date has made current valuations attractive
However a look at the graph of DMA of the stock (fig 5) shows that the stock stays for long periods of time above or below the 200 DMA. It recently went below the 200DMA, so my advice is to wait for the stock to go above this before investing.
However retail investors can start to Invest systematically.

Fig 5 – Price and DMA chart (click to enlarge) Source: JainMatrix graphics

Risks:

High competition
High interest rates and increased Costs – particularly employee costs
Execution risks in rapid bank branch growth
Current weakness may mean a period of falling prices before the appreciation resumes (fig 5)

Disclaimer:

Also see: https://jainmatrix.wordpress.com/disclaimer/

Steep Fall in Indices – Stay calm

February 14, 2011December 19, 20171 Comment

Here is a quick round up – of the bad news:

Sensex is 17% down from November 2010 peaks. Particularly second half of Jan onwards, fall has been steep
Sensex is below its 200 Day Moving Average – DMA
FIIs are withdrawing funds from India. After investing $28 billion plus in 2010 they have now taken off $1.5 billion in 2011
Sensex represents large caps. Mid caps and small caps have fallen harder
A series of scams and bad news has hit us recently.

- Telecom sector scam. Real estate loans scam. MFI sector bad news. Commonwealth Games scam.
- High inflation. Soaring agriculture prices. Rising oil prices. Even other commodities are costlier. Metals. Energy.
- Egypt and Tunisia have erupted and there is unrest here.

So what does an investor do? Calm down. And look at the good news.

India growth rate is as high as ever, at over 8% of GDP.
3^rd quarter corporate results show a steady growth in revenues, and a flat to positive profitability.
The US indices are up right now after a long time of poor performance. FIIs are happy to book some gains in India and invest in their own economy. Some short term money will definitely move away. Some of this money in fact is moving from Indian equity to Indian debt – to take advantage of higher returns.
Periodic scam news in India is only to be expected. Problems will be unearthed. SEBI and authorities will take action. Soon the issues should be ironed out. Whether it is Real estate loans or Telecom.
Definitely the government will not stand in the way of a going, successful business like telecom. But there needs to be a stable policy environment here. And interests of all – government, business and consumers need to be balanced out. A sector that today is 6-8% of the Indian economy in terms of direct & indirect revenues, definitely is important enough to be well regulated.
New sectors like MFI are grey areas where governments have been taken by surprise. Soon monitoring and governance frameworks will emerge, and the panic will be over.
Agriculture is seeing higher demand (and prices) and will respond in one or two seasons with higher outputs.
Very soon, somewhere the Indian Indices and market will find support and strength will emerge again.
A lot of domestic institutions and Indian investors are only waiting to re-enter the market at lower levels

Relook at the big picture

As an investor, you need to have faith in the Indian economy and confidence that these are boom years where India goes from a poor/ emerging to a mid income/ developing economy. This is a 15 year story not a 1-2 year flash in the plan
Given this, any dip in the market is an opportunity to accumulate. The market will surely rise. For you, it is an opportunity to buy cheaper.
Your current portfolio may appear to be losing value, but if you can wait for 6-12 months, the situation will inevitably reverse.
Relook at your portfolio, identify the strongest stocks/ MFs that you have most confidence in, and invest in them at these lower levels.
Invest systematically, with a plan to buy on a monthly basis, spending a comfortable sum of money

Disclaimer:

Petronet LNG – This stock beats an FD anyday !!

February 6, 2011December 19, 20171 Comment

This report on Petronet LNG was published in Feb 2011. An update is available at Link

Petronet LNG is a gem of a stock that has given equity investors safe and high returns for the last 7 years.

Description and Profile

Petronet LNG is a PSU created to import, process and sell LNG in the country
It is a JV between GAIL, ONGC, Indian Oil and BPCL. This helps in all inter company coordination issues
It owns and operates a LNG terminal at Dahej, Gujarat that imports 10.0 MMTPA (Million Metric Tonne Per Annum) of LNG. It also owns sea vessels that help transport LNG from sources
The capital/ investment plans of PLNG include:
- Capacity expansion at Dahej
- A new LNG terminal at Kochi, Kerala.
- Plan for forward integration into power plant construction at Dahej, which will use the imported LNG as fuel
- A longer term plan is for a power plant at Kochi, using LNG
Imported LNG is regassified and supplied to customers in pipelines – generally operated by GAIL
The varied customer base includes Power plants, household and commercial piped gas, fertilizer plants, Industrial boiler fuel, etc.
Turnover in 2010 was Rs 10,600 crores with PAT at 404 crores.
Sourcing of LNG is in the form of long term agreements with Australia and Qatar. In addition Petronet sources spot cargo of Natural Gas, to boost volumes and utilize capacity

Stock evaluation, performance and returns

This stock had it’s IPO in March 2004 priced at Rs 15.
Maiden dividend was paid in 2007. Thereafter dividend has shown a steady to increasing trend
At CMP of Rs 126 today, the stock has shown a 44% annualized return over the last 7 years!

Petronet LNG stock performance (click to enlarge)

Revenues have grown steadily.

Quarterly revenues have grown steadily over the last 6 years

Cash flow and EPS are showing a robust growth rate – see graph. Dip of EPS in 2010 is expected to recover substantially in 2011.

Cash Flow and EPS have grown substantially

Price and PE chart shows that PE is at upper end of 5 year range. Some expectations are priced in of capacity additions and likely revenue growth.

Price and PE graph

Price and EPS quarterly graph shows recent spike in price, rising to all time highs

Price and EPS graph

ROCE is between 15 – 25%
PEG is at 0.93 – indicates safety and undervalued status

Opinion, Outlook and Recommendation

India is an energy hungry country, and will remain so for decades
Gas is cleaner and preferred as fuel compared to coal and oil (polluting).
Petronet LNG will continue to dominate the gas infrastructure and imports sector due to its PSU and JV status and strong partnerships
Reliance Industries gas is at a physically distant source, and of insufficient quantity to challenge Petronet LNG as a supplier. In fact the two firms may work together in the future to service customers in respective regions
By investing in further capacities and downstream businesses, Petronet will be able to leverage it’s cash flows for growth and profitability in the future
My opinion is that Petronet will continue down the path of solid stock performance and dividends over the next decade
Invest now and systematically for long term outperformance

Risks:

A spike in Natural gas prices will be passed on to customers as most are on long term purchase contracts. Spot cargo volumes may be affected, though, and customers may not purchase these incremental volumes
Pipeline infrastructure from Dahej to customers is a constraint. However this is being aggressively addressed by GAIL
Current market weakness may take PLNG down temporarily, but expect recovery and solid performance

Disclaimer:

Punit Jain

Click and Share this post :

A short market note

JAINMATRIX KNOWLEDGE BASE

DO YOU FIND THIS SITE USEFUL?

DISCLAIMER

Click and Share this post :

CMP: 291 Date: 12-08- 2011 Advice: Invest in SIP fashion

Current Business Outlook

Valuations are low, growth is high

Projection

Risks

Disclaimer:

Click and Share this post :

Update on April 29th

IPO Note – Published on: Apr 23, 2011

Future Group – Promoter

Pantaloon Retail – Financial snapshot

Future Capital Holdings

Future Ventures – Business Profile

Financials

Negatives/ Challenges/ Concerns

Offering

Investment Advice

Disclaimer:

Yes Bank – Description and Profile

Yes Bank has superior strategies

Stock evaluation, performance and returns

Opinion, Outlook and Recommendation

Risks:

Disclaimer:

Click and Share this post :

Click and Share this post :

This report on Petronet LNG was published in Feb 2011. An update is available at Link

Petronet LNG is a gem of a stock that has given equity investors safe and high returns for the last 7 years.

Description and Profile

Stock evaluation, performance and returns

Opinion, Outlook and Recommendation

Risks:

Click and Share this post :