Street Beat: Minda Industries and Atul

These companies have strong underlying economic growth prospects, they are off the radar of most analysts and their stock prices have not already run up 

  • Auto components maker Minda Industries is growing at a steady pace

Delhi-based Minda Industries (MIL), the flagship company of the Minda group, manufactures a range of automotive components and supplies to global original equipment manufacturers (OEMs). The group has an annual turnover of Rs930 crore.

MIL designs, develops and manufactures switches for two- and three-wheelers and utility vehicles. The company also manufactures batteries for two-, three- and four-wheelers and utility vehicles. It enjoys more than 70% market share in the two- and three-wheeler segment in India.

The Automotive Component Manufacturers Association of India (ACMA) expects that the Indian auto components industry will achieve an annual turnover of $110 billion by 2020, and towards this it is likely to make an investment of $35 billion. An estimated $80 billion of the turnover is expected to come from the domestic sector and the remainder from exports.

MIL is well-positioned in this growing market. The company has eight state-of the-art facilities. Its manufacturing plants are located in Gurgaon, Pune, Hosur (Tamil Nadu), Delhi, Aurangabad and Pantnagar (Uttarakhand).
Among its clients are Yamaha, Bajaj, Hero Honda, Mahindra & Mahindra, Toyota, Tata Motors, Ford, Honda, General Motors and John Deere.

With the revival in the auto sector, MIL has improved its performance too. The company's net profit rose 50.86% to Rs22.87 crore in the year ended March 2010, from Rs15.16 crore in the previous year. Total revenues rose 31.40% to Rs598.57 crore in the March 2010 period, from Rs455.54 crore in the previous year. Net profit in the June 2010 quarter also registered a 158.66% increase to Rs10.71 crore, from Rs4.14 crore in the previous corresponding quarter. Revenues also increased to Rs195.48 crore in the June 2010 quarter, up 62.23% from Rs120.73 crore in the year-ago period. 

Sales and operating profit grew 62% and 37%, respectively, in the June 2010 quarter over that in the year-ago period. The June 2010 quarter operating profit margin stood at 10%, which is not encouraging. Based on the June quarter annualised sales and annualised operating profit, market-cap to sales was 0.50 times and market-cap to operating profit was five times. Return on equity last year was 25%. Buy the stock at around Rs330.

  • Expansion plans to help Atul achieve higher turnover

Atul Ltd operates through six business divisions, namely, agrochemicals, aromatics, bulk chemicals and intermediates, colours, pharmaceuticals and intermediates and polymers. Its colours division is the largest supplier of dyestuffs in India and the company also exports 40% of its production to 40 countries. Atul's aromatic division is one of the world's largest manufacturers of p-cresol, p-anisic, aldehyde and p-anisic alcohol, which are mainly used by flavours and fragrance, personal-care and pharmaceutical industries.

Its crop protection division is among the world's leading manufacturers of 2-D, 4-D range of chlorophenoxy derivatives with a nearly 8% market share, while its bulk chemicals and intermediaries division is a market leader with a 36% market share.

Atul manufactures over 700 products at three units in India and at the facilities of four overseas subsidiaries. It has around 2,800 employees and over 1,000 distributors. Atul also has offices in the US, the UK, Germany, China and Vietnam, servicing international clients.

The company has also made a significant contribution in the development of infrastructure in villages in Gujarat. It has already built over 1,000 houses, two schools, a medical centre, a sports complex, an open-air theatre and a community centre.

Steady growth in revenues has been a catalyst for continuous expansion. In the year ended March 2009, Atul's crop protection capacity increased by 1,500mt (metric tonnes) or 14%, fragrance intermediates capacity increased by 2,400mt (40%), chemicals intermediates capacity increased by 1,000mt (71%) and composite intermediate capacity increased by 540mt (68%) over the previous fiscal.

The company is hoping to improve its manufacturing efficiencies and bring down costs in a bid to enhance its competitiveness. On 18 June 2010, Atul had announced that its polymer division has acquired Polygrip, the country's leading rubber and polyurethane (PU)-based adhesive brand, for Rs10 crore. The acquisition will give Atul access to the rubber and PU-based adhesives market. Atul has chalked out plans for manufacturing new products. It also proposes to expand the existing capacity of para-cresol and set up facilities for the manufacture of sunscreen chemicals and an aromatic product - para-toluene sulphonic acid. 

The outlay for the new projects is pegged at Rs150 crore. The International Finance Corporation (IFC) is likely to extend a corporate loan of $15 million (Rs67.5 crore). IFC had earlier extended a loan of $16.3 million for the company's expansion project. In the June 2010 quarter, Atul's sales and operating profit grew by 26% and 5% respectively. It paid a total dividend of 40% in fiscal 2009-10.

On the basis of the June quarter annualised sales and operating profit, Atul's market-cap to sales ratio was 0.32 times and market-cap to operating profit was 3.14 times. In a market where reasonably priced stocks are hard to find, Atul is attractively priced. Return on equity in 2009-10 was 172%. Buy the stock at around Rs120.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security).


Personal finance Friday

Bharti AXA Life Insurance unveils new brand positioning; Kotak Mahindra Bank revises base rate to 7.50% per annum; Axis, IDBI Bank up base rates HDFC Mutual Fund launches HDFC FMP 100D September 2010 (5)

Bharti AXA Life Insurance unveils new brand positioning

Bharti AXA Life Insurance has launched its new brand positioning. This is predicated on redefining the life insurance category through a set of tangible delivery propositions satisfying the customers' greatest needs.

The company's new brand positioning as encapsulated in the signature 'Jeevan Suraksha Ka Naya Nazariya' has customer centricity at its core and is about providing a series of tangible and distinct proof points that clearly answer to customer expectations. These proof points form the bedrock of the differentiation strategy for Bharti AXA Life.

The launch is spearheaded by the first proof point-a service guarantee of "Release of Fund Value within 48 hours" of receiving claim intimation. The insurance company is going a step further to back this guarantee with an additional payout of 1% of fund value for every day of delay.

Bharti AXA Life Insurance Company Ltd is a joint venture between Bharti Enterprises and AXA, world leader in financial protection and wealth management. The joint venture company has a 74% stake from Bharti Enterprises and 26% stake of AXA Asia Pacific Holdings Ltd.

Kotak Mahindra Bank revises base rate to 7.50% per annum

Kotak Mahindra Bank has revised its base rate upwards from 7.25% per annum to 7.50% per annum. All categories of loans (other than the exceptions permitted by Reserve Bank of India) will henceforth be priced with reference to the revised base rate. Changes in the base rate from the current level of 7.50% per annum will be conveyed from time to time, said the Bank in a statement. The Bank has also revised its benchmark prime lending rate (BPLR) upwards by 25 basis points.

Axis, IDBI Bank up base rates

Axis Bank has revised its base to 7.75% from 7.5% from 1 October 2010. IDBI Bank has also revised its base rate upward by 0.50% to 8.5% from 1st October. The increase in base rate is in response to increase in the cost of funds and keeping in view the current interest rate environment.

IDBI Bank has also increased its retail term deposit rates by 0.15-0.50% in different maturity buckets. Keeping in view the inflation and liquidity scenario, IDBI Bank has decided to increase the retail term deposit rates by 15-50 basis points (bps) in different maturity buckets.

The revised interest rates are effective from 1st October and with this revision, the highest interest on retail term deposits would be 8%. Interest rates on deposits of a tenor of 1,100 days, 5-7 years and 7-10 years has been increased to 8% from 7.75%.

HDFC Mutual Fund launches HDFC FMP 100D September 2010 (5)

HDFC Mutual Fund has launched HDFC FMP 100D September 2010 (5) under HDFC Fixed Maturity Plans-Series XIV. The Scheme is a close-ended income scheme. The investment objective of the Plan is to generate income through investments in debt/money-market instruments and government securities maturing on or before the maturity date of the Plan. The Plan will invest 60%-100% of assets in debt and money-market instruments and the remaining in government securities.

The Plan offers growth and dividend (payout) option. The tenure of Plan is 100 days from the date of allotment. The Plan opened on 30th September and closes on 14th October. During the new fund offer (NFO), the units will be offered at face value of Rs10 per unit. The minimum investment amount is Rs5,000. The minimum subscription amount is Rs1 crore. Bharat Pareek and Anand Laddha are fund managers. 


Herd on the Street: RPower and its Sasan water problems

The buzz around Reliance Power’s project and the problems it might face

Reliance Power: The word on the Street is that the reservoir allocated to Reliance Power's Sasan project has water only for 8 months in the year - therefore it would be difficult for the project to achieve 90%+ PLF as it claims. That the Sasan project has been facing water problems is known. The Central Electricity Authority had apparently expressed its apprehension about RPower commissioning the first 660MW unit by March 2012 at a high-level ministry meeting this year. NTPC had not accepted Sasan's petition to provide water from the open discharge channel of its Singrauli power station as an interim arrangement till its permanent water delivery system was constructed. RPower had not obtained permission from the Uttar Pradesh government's Jal Vidyut Nigam for the water pipeline which would have to pass through the Rehar reservoir.

Sasan Power was transferred to Reliance Power from Power Finance Corporation in 2007 and is now a fully-owned subsidiary. It is developing a 3,960MW coal-fired UMPP in Sasan, Madhya Pradesh, approximately 25km from three captive pithead coalmines. RPower was given the project after it bid at a levelised tariff of Rs1.2/kWh (very low). However, RPower claims 2 billion tonnes of domestic captive coal mines - with Tilaiya at 1.23 billion tonnes, Sasan at 700 million tonnes and Rampia at 113 million tonnes, which it believes will ensure lowest cost per kWh in India. The project is to have six 660MW coal-fired plants.

Brokerage firm Kotak believes that Sasan's boiler foundation work is close to completion and mine development has begun but land acquisition still remains a concern. A BoA-ML report talks about the success of its CSR acts at Sasan that helped its land acquisition without much 'noise'. I am assuming CSR means corporate social responsibility.

In a recent television interview chief executive officer JP Chalasani said that RPower's Sasan and Krishnapatnam projects are on track and will be completed by 2015.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).


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