Steely
At its three plants at Durgapur, Bengaluru and Nashik, Graphite India (GIL) makes products which are used by ferrous, non-ferrous and process industries. It also happens to be India’s largest manufacturer of electrodes. Graphite India is also producing calcined petroleum coke and carbon electrode paste (CEP) for ferro-alloys and carbide industry and large diameter glass-fibre reinforced plastic pipes. In its impervious graphite equipment division, it produces chemical equipment, graphite heat exchangers, thermometer pockets, etc.

GIL is a globally competitive company. About 70% of its graphite electrode production is exported. Graphite electrodes are used mainly in the electric-arc furnaces (EAF) of steel companies. Major steel producers in India and abroad have announced big plans to expand their capacity and, as a percentage of total steel production, steel manufacture through the EAF route is rising. With growing global and local steel production and high consumption levels, the demand for graphite electrodes is expected to be good – unless there is a prolonged economic slowdown.

As for the domestic sales, since steel output is expected to continue to grow (by about 4.9% a year up to 2010), and the National Steel Policy has set a target of 124 million tonnes of steel by 2011 from 53 million tonnes, GIL is expecting a steady growth. Sensing the opportunity, GIL has decided to expand its graphite electrodes capacity by 10,500 tonnes at a cost of Rs187.50 crore at its Durgapur plant which is expected to be completed within the next 18-24 months, funded mainly by internal accruals and short-term debt. Currently, it has a total electrode capacity of 78,000 tonnes of which 60,000 tonnes is in the country and 18,000 tonnes in Germany. With a pipeline of orders, higher margin and depreciating rupee, the expansion makes sense. Conscious of the rising cost of energy, GIL has tried to reduce this cost by investing in a hydel power plant of 18MW capacity in Karnataka and a 25,000MT petroleum coke calcining facility.

Financially, GIL has had a superb March quarter. Operating profit rocketed by 118% and sales jumped by 42% compared with the same period of the previous year. Annual growth of operating profit and sales was a superb 44% and 29%, respectively, over 2006-07. At the current stock price of Rs68.75, the market-cap is 3.49 times its operating profit and 0.80 times its sales, based on the March quarter results. It represents excellent growth at low value. But, of course, the assumption here is that global economic growth does not slow down significantly. If that happens, GIL, as a supplier of industrial intermediates and a mid-cap stock, will be badly hit.

Weak Pricing
Shree Cement’s expansion came at the wrong time

Shree Cement has four cement plants located at Beawar and Ras in Rajasthan besides grinding and clinker units. It would have a fifth unit (clinker) by June 2008. Its current installed capacity of about 8.3 million tonnes per annum would reach 10 million tonnes with the addition of the fifth unit. This is certainly not the best time to add capacity because cement companies are hit by controls and higher costs. More importantly, those in north India are in a particularly tight spot because of over-capacity and, therefore, a pressure on prices. Shree Cement’s market is spread across the northern states – Rajasthan, Delhi, Punjab, Haryana, western UP, Uttaranchal, Gujarat and MP. A few months ago, the company talked about hiking the capacity to about 20 million tonnes per annum by 2012, with a six million tonnes cement plant in Katni, Madhya Pradesh. But this must surely be postponed for now.

Shree Cement’s new capacity will also come at a time when other cement companies are on a capacity-addition spree and the government has banned cement exports – although this has been lifted now.

All this dulls Shree Cement’s terrific financial performance, which happens to be among the best in the industry. Its sales have increased in every quarter of 2007-08; this was topped by a 68% rise in sales and 72% jump in operating profit and sales over the March quarter of 2006-07. For the year as a whole, operating profit and sales were up by 46% and 51%, respectively. The stock has come down 52% from its peak of Rs1695 in January this year to Rs813 now. At that market price, the market-cap is 2.95 times the operating profit and 1.15 times its sales of the March quarter. The stock is exceptionally cheap but only if the demand and pricing power hold up. There is no clarity about this just now. The stock is not showing any kind of price strength at all either. But, since the sector is shunned right now, a price uptrend would be the first buy signal.

Strength in Diversity
Nava Bharat has three growth businesses

Nava Bharat Ventures is a diversified company, which is fortunate to find all its businesses doing extremely well. These are power generation, metals, sugar (and downstream products) and infrastructure projects. Merchant sales of power, sugar and ferro-alloys each contributes a third of revenues. Its ferro-alloy plant in Andhra Pradesh produces ferro-manganese and silico-manganese. A lot of it is exported through the Vishakapatnam port. Its second ferro-alloy plant in Orissa, produces ferro-chrome which is sold to stainless steel manufacturers. For both these products, Nava Bharat has a strong clientele such as Tata Steel, Essar Steel, Mukand, JSW Steel, SAIL, Nippon Steel Corporation and Glencore International.

The other business is a 3,500 tcd (tonnes of cane per day) sugar plant located at Samalkot in the sugarcane rich belt of coastal Andhra Pradesh. The distillery attached to the sugar plant produces six million bulk litres of rectified spirit per annum, which is processed into ethanol and extra neutral alcohol.

For the metals business, power is a key input and for the sugar business, it is a by-product. Nava Bharat has exploited these linkages fully. It has set up coal-based thermal power plants in Andhra Pradesh (114MW) and Orissa (94MW), which supply the power required by its ferro-alloy smelters and also sell surplus power to utilities. For its sugar plants, 9MW power is generated using bagasse, a waste generated from sugar crushing. Future plans include a 1050MW coal-fired power plant in Orissa under Nava Bharat Power. The group is also planning to set up a special economic zone (SEZ) near Hyderabad. But these plans depend on the interest cost, inflation and a host of other macro-economic factors which are now threatening to go out of hand. It is also bidding to acquire Zambia’s largest coal producer, the State-run Maamba Collieries Ltd.

Thanks to merchant sales of power at lucrative rates and shooting prices of ferro-alloys (average price up by 80%), Nava Bharat’s financial performance has been fantastic. Operating profit rose by 150% and sales by 64% for the year 2007-08. For the March quarter, operating profit was up by an eye-popping 235% and sales by 96%. At the current market price of Rs280, the market-cap is just 3.51 times and 1.63 times March quarter’s operating profit and sales, respectively. It is cheap, but it all depends on whether we are headed for an economic slowdown or not.

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Mehekti Khushboo
Ideally, a musical biography will send you back to familiar recordings, to rehear them with fresh knowledge and insight. Such was definitely the case with me after I read Bollywood Melodies – A History of the Hindi Film Song by Ganesh Anantharaman. As a connoisseur of Hindi music I thought I had heard and read it all, over the years, as far as Bollywood music was concerned – right from listening to recordings of Mortal Men, Immortal Memories and reading of Yesterday’s Melodies, Today’s Memories. But this book was a revelation. The author has delved deep into the very evolution of the Hindi film song. His knowledge of Indian classical ragas has positioned him better to relate many of the songs to the correct raga, which was of great interest to me.
There are many fascinating details on quite a few of the great personalities that made interesting reading. Like Madan Mohan’s addiction to sophistication making him lose track of the appropriateness of the score he was composing for the film. This made his songs seem out-of-sync with the film’s storyline, though for sheer melody, they were a class apart. For instance, the song ‘Dil Jalta Hai’, sung by Mukesh, was not approved by the producer of the film Pehli Nazar. It was the singer who pleaded that if the audience rejected the song, he (the producer) could scrap it. The song created history and Mukesh emerged the winner after four years of struggle. Or for that matter Gulzar’s unusual lines that raised many a literary eyebrow when he wrote the song ‘Humne dekhi hai un aankhon ki mehekti khushboo’ in Khamoshi, a film that launched him as a lyricist. Dekhi hai…khushboo made little sense. Many more of such anecdotes are scattered in the book which make very interesting reading.
The author is in awe of most of his subjects and it shows. There are some interesting interviews with Dev Anand, Pyarelal, Gulzar, Lata and Manna Dey; the last named is characteristically blunt when he says that RD Burman was a more versatile and original composer and that many songs credited to SD were actually composed by RD. At most points, I was so elated reading it that I had a smile on my face. Overall, a must read and an extremely useful book as a reference. – Anand Desai
(The author is an investment banker who learnt the tabla for many years and is a great aficionado of Hindi film music.)

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Market Outlook_Issue 19th June
For several issues now, this column has warned that the rally we had seen would be a false one. This has been the case. In the issue dated 5 June 2008, when the short-term decline commenced, we said that the Sensex would fall and probably take support at anywhere between 16,370 to 16,400. At the time of writing this article, the Sensex stands at 16,348. This column makes its forecasts based on weekly charts and the week is yet to end. The index could close the week near the current levels as there is a good previous support here. If it declines further, the next support levels are 15,340 and 14,994. These are the likely short-term scenarios, but the long-term trend is still up.

India Foils
Market Price: Rs19
Target Price: Rs330 to 340
Period: 2-3 years
In 1990, India Foils traded at around Rs100. Since then, right until early 2000, it declined steadily and touched its lowest point in the period between mid-2001 and early 2003 when it formed a base at about Rs4.80 on the monthly charts. Since then, the stock slowly emerged from its lean years to make a peak of Rs20.45 on the monthly charts at the end of August 2005. This level had acted as a resistance once before and as a support level in December 1998 and October 1999. From the high of Rs20.45 at the end of August 2005, the stock declined again and formed a base of about Rs eight between 2006 and 2007. Thereafter, it rose to touch Rs20.65 at the end of December 2007. Here is an instance of long-term resistance lines holding up after which the stock declined to about Rs14.70 at the end of March 2008. Since then, it has risen to its current level of Rs19.55 and is poised to cross the resistance of Rs20.65 even on the weekly charts. This is a long-term rounding bottom play. The key to trading these patterns successfully is to be patient. The stock may rise to its previous all-time high of Rs100 when the entire rounding bottom pattern is completed. But this may take as much as three years.

Coromandel Fertilisers
Market Price: Rs129
Target Price: Rs190
Period: 3 months
This is a short-term play. Coromandel Fertilisers stayed flat until about mid-2003 when it came out of its base level of Rs12.70 to reach a high of Rs33.73 at the end of December 2003. The stock then declined to around Rs21 at the end of March 2004, after which it resumed its rise to reach Rs96.80 at the end of April 2006. Subsequently, it declined to Rs59.80 at the end of July 2006 and rose again to Rs89.80 at the end of January 2007. Note that it did not cross its previous high of Rs96.80, indicating a weakening of the uptrend. It declined to Rs65 at the end of March 2007. Here again the stock did not touch or cross its previous low of Rs59.80, indicating that there was a distinct lack of downward momentum.
The stock rose once again; this time, it touched a high of Rs120.95 at the end of September 2007 convincingly crossing its all-time high of Rs96.80. Joining the highs of its two previous peaks of Rs96.80 and Rs89.80 and its two previous bottoms of Rs65.00 and Rs59.80, we get a triangle, out of which the stock broke through to Rs120.95. From there, the stock declined to Rs105.85 at the end of October 2007. It rose again, but the rise was terminated at Rs128 at the end of February 2008. After declining slightly to Rs117.40, the stock climbed to a high of Rs135.05. The earlier rally from around Rs65, the subsequent decline in January-February and the rise thereafter to Rs135.05 makes this a ‘two-step rise’. The stock is now poised to start another rally that will complete this two-step rise. The rally should end at Rs180-Rs190 levels in about three months. – Anirban Banerjee

(The author invites your comments. Please mail him at:[email protected])

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