SPEL - Electrifying Performance

SPEL Semiconductor Net Jumps 295 %

SPEL Semiconductor, India's first and only semiconductor IC assembly and test company, has reported a 295% rise in net profit at Rs. 5.8 crore in the financial year ended March 31, 2006 against Rs. 1.47 crore in 2004-05. Turnover of the 100% EOU firm increased by 27% to Rs. 46.28 crore (Rs.36.36 crore). SPEL said in a statement the revenue growth is expected to continue in the current year also. The company, now in the growth path, is currently installing the state of the art LMP packages. It also proposes to introduce two other new package lines. It has chalked out a $250 million expansion plan over the next five years to support its growth. This includes increasing the capacity of the existing assembly and test facilities, setting up a second facility in India, supporting the overseas acquisition. SPEL ICs are used globally in consumer electronic applications such as cell phones, PDAs, desktop PCs, notebook computers, automobiles and digital cameras.

Simplex Infra - Bags Reliance Order

Simplex Infra - Bags Reliance Order For Jamnagar Refinery

Simplex Infrastructure has bagged a Rs 210 crore contract for Reliance's new refinery project at Jamnagar. The contract consists of carrying various civil, structural, electro-mechanical jobs at various plants of Reliance Refinery and Petrochemicals. Speaking to Business Standard, Amitabh Mundhra, director of the company, said, "Our association with Reliance is an old one and we have been one of their biggest contractor in the last few decades." He further said, "The company's order book is around Rs 3,800 crore which includes projects from high-profile clients like Vedanta Alumina in Orissa, a power plant for Jindal Power in Raigad and an integrated steel plant for Bhushan Steel in Orissa." Mundhra also said that the company was now planning to venture into turnkey and Engineering, Procurement & Construction (EPC) projects in industrial, power and oil and gas fields as well as tap the market in the Persian Gulf and the Commonwealth of Independent States (CIS) countries aggressively.

Mundhra said, "From the present turnover of around Rs 100 crore per year, we want to turn into a $1 billion company in the next six years, and for this, we have identified some areas such as marine construction, power (thermal and nuclear) and steel." He said, "We are eyeing 50 per cent turnover from exports next year against around 10 per cent now." He further said, "Currently, the outlook for the company is very optimistic with various infrastructure projects in road, power, airports and ports being announced and I am confidant that the domestic construction industry will grow from around $50 billion to around $180 billion in a short span of time." Simplex, which is in the field of construction since the last eight decades, has some of the country's best known landmarks such as Howrah bridge and Suprme Court building to its credit.

Pantaloon - Buys Food Company

Pantaloon - Buys 33% In Capital Foods

Indivision Capital, a private equity fund belonging to Pantaloon Retail’s arm, Future Capital — the latter is the holding company for Pantaloon’s private equity funds — has picked up 33% stake in processed foods company, Capital Foods, makers of brands like Smith & Jones and Ching’s Secret and a leading private label supplier to several big retailers abroad like Target, Tesco. The company is also a major supplier to traditional formats although most of the growth is driven by organised retail. Ajay Gupta, the managing director, confirmed the move. “It will help us grow faster. Currently, we are growing at more than 40% every year and want to reach the Rs 100 crore mark in a few months time,” he said.

The promoters of the company will hold 67% after the transaction and the remaining 33% will be owned by Indivision. Currently, the company has a turnover of around Rs 40 crore. The company has a manufacturing facility to make ready to eat meals plant at Kandla for products like ketchup, chutney and cooking pastes.

Mumbai-based Capital Foods focuses primarily on the convenience and impulse foods market. The convenience foods market is growing at a hefty 35-40%, both in the urban markets and smaller cities. The strategy of Indivision is to pick up stake in small and medium sized companies as a strategic investor and help them scale up to a national level. “We are the first food processing company in Asia and the ninth in the world to get an ISO 22,000 certification and also have a British Retail Consortium (BRC) audit. Apart from the technology, quality is a critical aspect to cater to global consumers in the exports market,” Mr Gupta said.

Adlabs - Unlocking Value

Adlabs - Announces Demerger Of FM Radio Business

Just think about the valuation of Entertainment Network (Radio Mirchi) and try to evaluate what will be the value of FM Radio business of Adlabs since it has maiximum nuber of licenses. I feel that sum of part valuation will be much higher and standalone business of FM Radio will provide good return to investors over long term.

Anil Ambani controlled Adlab's radio business would be hived off and listed as a separate entity, where each shareholder of the parent company would get two free shares of the new company for every share held by them. The issue came up for discussion at the Board meeting of Reliance Capital, which had last year acquired Adlabs, an RCL release said here.

Stating that the FM radio business would be de-merged into a wholly owned subsidiary (SPV), the company said the scheme envisaged issue of pro-rata shares by the SPV to all shareholders of Adlabs in the ratio of two free shares of the SPV for every one held by them. Further, Reliance Land Pvt Ltd, an affiliate company of Reliance Capital Ltd (RCL) will receive 4,12,00,000 shares of the SPV pursuant to the proposed demerger, it added. The shares of SPV received by RLL are proposed to be distributed free of charge, pro-rata to all shareholders of RCL in the ratio of one share for every six held in RCL, it said. All shareholders of Reliance Capital Venture Ltd (RCVL) presently under the process of merger with RCL, will also receive free shares similarly of the SPV in line with their shareholdings in RCL, it added.

The company, however, said the proposal the scheme was subject to regulatory and shareholders approvals. The demerged company is proposed to be separately listed on the BSE and NSE to provide liquidity to all the shareholders, it added.

Do U Agree With This Article

Coming Soon: A Longer Correction
J Mulraj

The week gone by was an eventful one. The Sensex hit another 1,000 runs, taking only 16 sessions to climb the 12,000 mark. The Reliance Petroleum IPO was oversubscribed some 50 times, garnering some Rs 1,30,000 crore in terms of application money, which must be some sort of a global record. Reliance Industries reportedly struck oil in the KG basin, with reserves estimated at 1 billion barrels, enough to give it an additional revenue stream of $ 1.5 billion a year for the next 15 years! Gold prices hit a record high, as did real estate in Mumbai, with more liquidity (both foreign and domestic) chasing assets.

Bank deposit rates being so low, they act as a disincentive to savers after taking into account the fact that they are taxed (dividends are not) and after accounting for inflation. So, as and when deposits mature, investors are seeking other avenues such as stocks, bullion and real estate.

This has added a few furrows to the Reserve Bank governor's brow, and, in his credit policy announced last week, he hiked the risk weightage for higher value home loans, loans to builders and loan against shares. He left interest rates alone.

The week ended with the Sensex at 12,030 for a weekly gain of 793 points. Reliance contributed 160 points and Infosys 98. In the coming fortnight, it is likely to give one spurt before peaking out in the medium term. The next downswing ought to be longer in duration than extent; in other words it will test the patience of investors who get adrenalin rushes through daily action. The intervening rally ought to be taken as an opportunity to get much lighter and wait patiently for the correction which, one feels, will be an extended one.

Good corporate results also spurred investor sentiment, especially from the IT companies. Infosys, TCS, Satyam, HCL Technologies and Wipro declared good results, with the first three also giving a 1: 1 bonus issue. This indicates that they are all confident of future earnings growth. They are adding employee strength at a furious pace.

Good results were also declared by non-IT firms, including ONGC, Gujarat Ambuja, UTI Bank, Varun Shipping, JSW Steel and Marico. ONGC made the highest profit for any corporation in India, at Rs 14,175 crore, but that was after it suffered from underpricing (forced by government) of crude, which it estimates at another Rs 11,900 crore!

It is, in fact, this expertise of our politicians in ruining a perfectly good party that is the biggest risk factor and will probably contribute to the extended correction that is likely. In a bid to hide the mess to its trousers caused by fiscal diarrhea, the government seeks to pass this on to others, such as public sector oil companies. It later compensates them by issuing bonds, which is funny because if it is going to bear the burden anyway, why do so in a roundabout way? The balance-sheets of Indian Oil, HPCL and BPCL, which the government deemed as navratnas (nine jewels), are swimming in red, impairing their ability to undertake projects.

S&P has improved the outlook for India's rating, whilst keeping it below investment grade. The concerns are the same, viz. the poor performance of several public sector units, despite some having excellent managers, because of constant intervention by the majority holder, the government, and the lack of infrastructure. CalPERS, one of the largest pension funds in the world, rates emerging markets for investment opportunities and India has dropped from 9th to 18th place out of 27 markets which it says are worthy of investment. The low scores emanate from poor political stability, inflexibility in labour laws and capital market openness. One is surprised at the last named, for India is one of the most efficient and well-managed of markets.

In fact, few markets have achieved a T+3 settlement cycle as India has. The domestic market has enormous depth in terms of both number of listed stocks as well as number of investors and the market cap-GDP ratio has now hit 100%.

The market is likely to correct, albeit after a rally, in the coming fortnight. The rally should be taken as an opportunity to get lighter in preparation for the next downward correction which could be a long duration one.

DNA

Aftek - All Set To Digitise New-Age Home

Aftek Infosys - Building Homes For Gadget Freaks

If you are likely to miss your favorite soap opera as you are away from home, simply instruct your computer to record it for you so that you watch it at leisure. If your kids don't return home in time for the evening, click a button and check on the close circuit TV in which part of the society compound they are playing. What sounds like science fiction is now about to reach your doorstep as the wave of digital homes is about to sweep you. Even as the country's fully digitalised housing complex is nearing completion, the demand for technology enabled "Intelligent" homes is already picking up.

According to Chandrashekhar Raje, vice-president (technology solutions), at Aftek Infosys Limited the solution developed by his company to offer to the construction industry proved successful, it is now ready to go national. Aftek has introduced the concept product in housing projects in Pune, and will be operational in a couple of months. "We have integrated security, safety, control, automation, communication and entertainment to make homes fully digital," Raje said. Aftek has developed the technology necessary to integrate the functions of different devices and gadgets to make them user friendly. "There are people who offer security solutions or safety mechanism or digital entertainment, but we have harnessed all these features in one technology, to create intelligent homes" Raje said. And, predictably the tech savvy gen-next has lapped up the 100 homes. "We are also fully booked the second phase," says promoter Manoj Agarwal.

Confirming the increasing buyer interest in the concept of intelligent homes, Rohit Gera, Director of Gera Developments Pvt Ltd, said one has to be cautious when understanding what is intelligent. "The features obtainable in intelligent homes have been offered in bits and pieces, as we have sensor for passage lighting, door phones or automated safety doors or garage entrances," he pointed out. The key lies in integrating these individual devices, he stresses. According to Raje, the technology, to be made affordable, has to be used where there are a certain number of homes are being built. About 100 units seems to be a workable number," he explains. Of course there is a cost angle to the digitalised homes concept.

News You Can Use

JK Paper - Goldman Sachs Has Invested $17 million (about Rs 76 crore)

JK Paper last month concluded a $12 million gross depository receipts (GDR) issue and $5 million foreign currency convertible bonds (FCCBs) to part finance its Rs 335 crore expansion plan, said Harsh Pati Singhania, managing director of the company. Nearly 7.7 million GDRs were placed at a price of Rs 69 per share, representing a premium of 16 per cent over the Bombay Stock Exchange (BSE) closing price on the date of issue. The FCCBs with a coupon of 1.25 per cent and due in 2011 have a conversion price of Rs 95 per share, representing a premium of 60 per cent over the BSE closing price. “After IFC Washington’s Rs 50-crore investment at Rs 65 per share and Goldman Sachs’ Rs 76-crore investment, the company has concluded its equity raising programme for current expansion,” Singhania added.

Emami - Sinks Its Teeth Into Oral Care

Emami, the Kolkata-based personal care and cosmetics major, is marking its foray into the oral care segment by launching a toothpowder called Nirog. "We are making investments of Rs 6 crore for marketing and R&D for the tooth powder and two other products in the wellness segment -- a blood purification syrup and a uterine tonic," said Aditya Aggarwal, MD, Emami group. The market size of the toothpowder category is Rs 250 crore approximately, of which, Emami is targeting a 10 percent market share in three years. It plans to grow its presence in this category to Rs 5 crore in the first year of launch. If successful with the test launch of the tooth powder -- priced between Rs 12 and Rs 15 for a 50-gm pack -- the company will introduce a tooth paste in the next 2-3 months. "All three categories (tooth powder, blood purification syrup and uterine tonic) are not very big, but with marketing initiatives, we plan to grow the categories along with our brands," said Mr Aggarwal.

Emami's other brands include Boroplus antiseptic cream, Navratna oil, Fair and Handsome and Sona Chandi Chyawanprash. "The company has been growing steadily in its personal care category and faces competition from multi-national as well as domestic players. Its foray into the oral care category will help it to grow, provided the products are marketed in the right way," said an FMCG analyst.

Biocon's - Cancer Drug By Year End

The Bangalore-headquartered biotech major Biocon has made a filing with the Drug Controller General of India seeking okay for its latest anti-cancer drug Biomab EGFR, which is a monoclonal anti-body for the treatment of cancer in head and neck. Talking to mediapersons here on Monday, Biocon CMD Kiran Mazumdar-Shaw said that the drug had already entered into the drug development stage having already undergone clinical trials at three places in Karnataka. The approval for the new drug is expected to be completed in 3-4 months and it will have to undergo another round of trials.

The drug is expected to be developed by the end of ‘06. Ms Shaw said that it’s looking to add revenues of Rs 500 crore when this drug is launched in the market by ‘10. The molecule and the research for the drug was done by the Centre of Molecular Immunology, Cuba. Monoclonal antibody is becoming a fast-growing segment, especially in oncology and auto-immune diseases like rheumatoid arthritis, psoriasis, etc. In India, there are about 3m cancer patients and about 7 lakh new cases added each year, of which 2.3 lakh are tobacco related.

Ms Shaw said that it will also be looking at marketing this drug in Europe and the US through alliance partners. There are about 18 monoclonal antibodies approved globally for therapeutic use with a market size of $15bn, and is expected to double by ‘10.

3i Infotech - Acquires Bangalore’s Datacons

3i Infotech (earlier ICICI Infotech), has acquired Bangalore-based Datacons, a software products company with annual revenues of $5 million. The company did not reveal how much it paid for the acquisition. The mid-sized 3i Infotech provides technology solutions to over 500 customers in more than 45 countries. Datacons, which offers niche products for the mutual funds segment in the banking financial sector and insurance space, has 250 employees and with a global client base and offices across the globe.

V Srinivasan, MD and CEO, 3i Infotech said, “The acquisition will further enhance our BFSI offering and bridge the current gap in our product portfolio by addressing the needs of the mutual funds, which is a high growth segment.” While industry biggies chase the US and UK markets for business, 3i Infotech has already made a stronghold in non-traditional markets like Kazakhstan, Indonesia, Malaysia, Thailand and Singapore), UAE, Saudi Arabia and Bahrain.

3i Infotech has recently forayed into the surveillance and fraud detection software market with Amlock, an anti-money laundering and fraud detection software tailored for insurance, banking and capital market intermediaries like brokerages, mutual funds and registrars. The software is capable of providing round-the-clock transaction monitoring across the organisation, besides a wide array of predictive and early warning alerts by using artificial intelligence techniques. The company has won six deals for the bank alert software through Hyderabad-based SDG Software Technologies, which it acquired in November 2005. UTI Bank (India & Singapore), Karnataka Bank, Bank Dhofar (Sultanate of Oman), Alliance Housing Bank (Sultanate of Oman), Abu Dhabi Islamic Bank (UAE) and Permata Bank (Indonesia) would be deploying it.

TV 18 - To Raise Rs 250 cr For Acquisitions

Television Eighteen (TV 18) has decided to raise Rs 250 crore for investment in new ventures and potential acquisitions. The majority of these projects are intended to be in the television, internet and triple convergence areas. While some of these investments will create greenfield projects, others are likely to be acquisitions of companies, according to a notice sent by the company to the stock exchanges. The company also stated that a significant amount of the investment would be raised by the sale of strategic stakes in some of the downstream subsidiary companies to globally reputed investors.

TV 18 subsidiary companies are Moneycontrol.com - in which TV 18 holds over 90 per cent - CNN-IBN with a holding of 74 per cent and commoditiescontrol.com where the company has an 80 per cent stake. According to Raaghav Behl, managing director, TV 18, the company has a blueprint for a lot of new businesses and the offloading of stake may not necessarily be from TV 18’s existing companies, but could also be in future initiatives that the company invests in. Behl also said the expansion of TV 18 will be within the realms of its core business which is news and information. “We are currently in negotiations and one of two of the projects should be finalised in the near future.” He added that by the end of this calender year, all the four projects planned would be in various stages of implementation. TV 18 board also authorised the management to seek shareholder approval for raising Rs 300 crore in equity funds over a period of time. At present, the management is seeking only an enabling approval from its shareholders.

TV 18 recently picked up 50 per cent stake in of JobStreet.com India, a unit of the Malaysian online recruitment firm JobStreet Corporation, with an initial investment of Rs 90 crore.

News You Can Use

Gateway Distriparks - To Invest Rs 500 cr In Rail Logistics

Port-based logistics provider Gateway Distriparks is planning to invest Rs 500 crore in container rail logistics infrastructure in three years. The company will initially invest Rs 150 crore in acquiring rolling stock including axles, wheels and wagons. “We are expecting a final go-ahead from the Indian Railways to run container trains on routes such as Gurgaon-Pipavav and Gurgaon-Mundra. We will be initially running trains with Container Corporation of India (Concor),” said Capt C S Verma, chief executive officer, Gateway. Verma said the company is looking at running three trains a week on key routes in Gujarat. It is also looking at profitable and busy routes including Delhi-Nhava Sheva. Asked about the time frame for flagging off the first train, Verma said the final approval from the Indian Railways is expected soon and the company would be able to run container train along with Concor by early next month.

Gateway Distriparks is currently operating container freight stations (CFS) at Navi Mumbai, New Manali, Chennai and Visakhapatnam. It also operates an inland container depot (ICD) at Garhi Harsaru and had signed an agreement with Concor to work jointly for providing ICD and rail connectivity to various ports. On inorganic expansion plans, Verma said though the company has plans to grow via acquisitions, it is currently looking at growing organically. “Gateway Distriparks is keeping its option open towards inorganic growth too. When it comes to acquisition, we are looking at several CFS facilities in places such as Kochi and Navi Mumbai. We are looking at opportunities for cold chain storage facilities,” Verma said. The company is talking to various parties for acquiring land to construct CFS at Nhava Sheva near Jawaharlal Nehru Port Trust (JNPT). Verma said the company plans to become an end-to-end logistics solution company in the next five years which offers all transport solutions under one roof.

Ramco Systems - Signs Pacts With Foreign Airlines

Ramco Systems has announced signing of contracts with Jeju Air Co of South Korea and Air Methods Corporation of US for Ramco's aviation and MRO (maintenance, repair and overhaul) software suite. The signing of contracts was through the US-based Sabre Airline Solutions, Ramco's global partner. The company sees strong growth potential for its aviation solution software in India as the domestic carriers, which have placed orders for new aircraft, have to take care of basic maintenance works such as line maintenance, hangar maintenance and technical documents management though the new aircraft would be under warranty for some time. Targeted at start-up and low cost airlines and MRO service providers, Ramco’s aviation and MRO software has been designed to reduce overhead costs, manage inventory, increase airplane availability and improve overall business processes.

Addressing a press conference, Jim Fitzgerald, vice president - global aviation solutions, Ramco Systems Corporation, said that Ramco's end-to-end online MRO solutions would help enhance carriers enhance reliability, control and reduce operating costs and meet regulatory requirements. He added that the software would help create, incorporate and maintain an new business processes that help airlines change and adapt and run more efficiently The commercial aircraft MRO industry is expected to grow by 48 per cent in India and the annual MRO spending for IT is likely to be $700 million (Rs 3100 crore) in India, said M M T Nambi, general manager - aviation solutions, Ramco Systems.

The company is also planning to add over 50 professionals every year in its aviation solutions centre in Chennai, which currently employs about 230. The company has been offering solutions to aviation segment over the last seven years and has about 15 customers that include Virgin Atlantic, Indian Airlines, SpiceJet, Air New Zealand's Safe Air and ConAir aviation group among others. Aviation solution contributes 25 per cent to the total revenue of enterprise solutions segment of the company.

Elder Pharma - Now Into Medical Biosecurity

Elder Pharma - In Strategic Deal With UK Firm Medichem

Elder Pharmaceuticals has entered into a strategic alliance with UK’s Medichem International to develop, manufacture and market advanced medical biosecurity products in India. Medichem is a leader in advanced medical disinfection products. It sells in more than 40 countries. Through the alliance, Elder would initially market a disinfectant spray developed by Medichem International, used for precaution against the potential risk from H5N1 avian flu virus. Branded as Trigene, the new disinfectant is certified by the Department for Environment Food and Rural Affairs - the apex British government body for such products - as effective against bird flu viruses at normal user dilutions.

Medichem International, based at Kent in UK, develops, manufactures and markets advanced chemical biosecurity products. Since 1992, the company has been enhancing the infection control needs of many markets with a range of revolutionary products.

Sources in the company said that Trigene is effective in containing the spread of bird flu in hospitals, poultry farms, kennels, catteries and other animal habitats and has met with tremendous success since its launch last year, particularly in China. In view of responses received from a few hospitals in Mumbai, Elder is working out plans to manufacture this - and other similar products from Medichem - in India at its newly set up US FDA compliant Uttaranchal facility.

Alok Saxena, director, Elder Pharmaceuticals, said “Elder’s entry into the medical disinfection sector is a part of our strategy of focusing on emerging segments and manufacturing world class products in India through licenses with global majors.” He added that once it starts manufacturing these products, Elder plans to take them to the markets in the medical segment, which include the laboratories, veterinary, environmental, military and government segments within the country, in the current year.

Elder Pharmaceuticals is also setting up a drug manufacturing company in Nepal in partnership with Universal group of Kathmandu. The pharma company will be a 60:40 joint venture between Universal group and Elder in which the Indian company will initially invest Rs 10 crore. The Rs 300-crore Elder Pharma has been marketing some of its therapeutics in Nepal through its local network and it has a direct marketing team of about 30 people there. The joint venture company — Universal Elder Pharmaceuticals— will manufacture drug formulations keeping in view the nature of the local market. “Universal Elder Pharma will have two manufacturing units. The first unit would make beta-lactam antibiotics such as amoxycillin, ampicillin, cephalasporins etc, while the second unit would produce non-beta-lactam products such as pain killers, vitamins and cardiac products,” said the sources. “The Nepal venture is part of our global expansion strategy. Also , the company has recently started a direct sales and marketing subsidiary in Ghana,” said Alok Saxena, director -international business, Elder Pharma.

This will be Universal’s maiden entry in pharmaceutical market. The group plans to explore the opportunity the local pharmaceutical market offers which is currently pegged at Rs 500 crore. At the same time, the pharmaceutical industry in Nepal has lot of potential for foreign direct investment (FDI). At present, there are about 35 drug manufacturing companies in Nepal, which includes the state-owned Royal Drugs. However, most of these companies are producing non-patented drugs and form 27 per cent of the domestic market.

Jain Irrigation - An Agri Infra Play

Jain Irrigation - Raised $60 mn. Through FCCB

Jain Irrigation Systems Ltd has raised 60 million dollars from the international market through the issue of 60,000 Foreign Currency Convertible Bonds (FCCBs). The company has raised the amount by way of 60,000 FCCBs of $1,000 each, having a conversion price of Rs 345.50 per share, it informed the Bombay Stock Exchange. The bonds, to be listed on the Singapore Stock Exchange, have a yield to maturity of 6.75 per cent and a tenure of five years, it added. Also, the company would issue 77 lakh equity shares of Rs 10 each, if all the FCCBs are converted into equity shares. Jain Irrigation has signed a purchase agreement with the book running lead manager Morgan Stanley International, subject to necessary approvals.

Jain Irrigation Systems Ltd (JISL) is a diverse play in the agri-related sector. The company is set to enter into a high-growth trajectory on the back of increased government thrust on agriculture, its leadership position, a well-diversified portfolio and a de-risked business model. I expect the company to sustain its growth going forward with revenues and profits likely to grow at a CAGR of over 20%. Incorporated in December 1986, JISL is a one-stop integrated agricultural equipment manufacturer. The company manufactures and supplies micro-irrigation systems (MIS) that encompass irrigation through strip tubing, emitters, jets and mini-sprinklers. The company also makes polyethylene (PE) and polyvinyl chloride (PVC) pipes and sheets and is scaling up its business in a big way. The company has two main divisions -- agri input product division which consists of products such as drip irrigation and sprinkler irrigation systems, PVC pipes, biotech tissue culture plant materials and other agri inputs. The other division mainly manufactures PVC sheets, polycarbonate sheets and PE pipes. It is also involved in fruit processing, onion and vegetable dehydration.

The company operates in diverse, but integrated segments of the agri equipment business. In each segment, the company competes in the domestic and export markets with global players. While India accounts for 16% of world population, it has only 2.4% of land area and 4% of global water resources. The country has to manage growth in the agricultural sector through these scarce resources. The economy is poised to grow at around 8% going forward and agricultural sector is likely to provide impetus for this growth. Use of modern irrigation equipment to increase productivity will be the only way to achieve robust growth in the agriculture sector. The total domestic industry size for drip and sprinkler irrigation is more than Rs 200 crore, out of which the company has more than 50% market share. Projected investments in the agricultural sector during the 10th and the 11th plan stand at Rs 6200 crore, and most of this investment is beginning to reach the implementation phase, which would propel revenue growth for companies operating in the agricultural sector. This implies a positive business outlook for the industry in the short and long-term.

The contribution of the agricultural sector to overall GDP has drastically come down over the last 10 years. Although this is partly because of the rising share of the industrial and service sector, inefficiencies that plague the agricultural sector also play a role. Only about 1.2mn hectares in India is under the micro-irrigation program (MIP). The task force on micro irrigation has recommended covering 67mn hectares under MIP in a phased manner. Since investment in such equipment is huge for the average Indian farmer, the government has decided to subsidise it by 50%. The company's MIS segment, with a 50% market share, contributed 23.6% to revenue in Q3FY06 with EBIDTA margin of 25%. I expect this segment to be the growth driver for the company in years to come. Initiatives by the Andhra Pradesh and Gujarat state government are already under implementation, while other states are looking forward to implementing the same. The finance minister had announced a budgetary allocation of Rs 350 crore in the budget last year which was spent on subsidising the cost of drip and sprinkler irrigation systems. PE pipes are used in telecommunications, sprinkler irrigation systems, gas distribution and water conveyance. Since all these areas are likely to witness robust investment in the coming years, I believe this segment will contribute significantly to the topline. In Q3 FY06, this segment contributed 42% to the topline with EBIDTA margin of 11.5%.

In the US home building market, PVC sheets are replacing lumber and the company has been placing itself in a prime position to benefit from this change. It is investing in product development and expanding distribution network, which is highly underdeveloped in the US. Further, it has acquired a controlling 51% stake in NuCedar Mills Inc, a US-based company, operating in the custom home building market to add momentum to its growth trajectory. This business contributed 19.5% of revenue in Q3FY06 with EBIDTA margin of 21.3%. I believe this division will see explosive growth going forward as demand from the US and UK is likely to increase over the coming years.

The company is also involved in onion dehydration and fruit processing activities that contributed 9.1% or Rs 19.96 crore to topline in Q3 FY06. The company's customers for the dehydrated onions include the soup, ketchup and fast foods manufacturers. In the fruit processing business, the company caters to Coke and Nestle among other manufacturers. The company plans to expand this business in the coming years with exports gaining more importance from a strategic point of view. EBIDTA margins were in the range of 12% for the combined business segment. The recent acquisition of the mango fruit processing plant of Parle will add to its strength in this segment going forward.

As the NuCedar Inc acquisition begins to contribute more to the bottom line, the company may look for more acquisitions in the domestic and overseas markets. Domestic acquisitions started two years back with buying of a fruit processing plant near Hyderabad and continued last year with the acquisition of Terra Agro Technology Ltd’s facilities near Coimbatore . As the company develops critical mass, it may look to gain market share quickly using the inorganic route.

REI Agro - A Staple Diet

Rei Agro - Eyes $30m Saudi Deal

Rei Agro, India's largest exporter of basmati rice, is in advanced talks to buy rice distribution firms in its main export market, Saudi Arabia, and could spend up to $30 million on deals in the next few months. Basmati, which in Hindi means 'the queen of fragrance', is among the most expensive rice in the world. The premium, long-grain rice is only grown on the Indian sub-continent. 'We are in advanced negotiations with some distribution companies in Saudi Arabia for buying stakes,' Rei Agro's vice-chairman and managing director Sundip Jhunjhunwaala said on the sidelines of a conference.

The Jhunjhunwaala family owns 45 per cent of Rei Agro, while foreign investors including US bank Goldman Sachs and Deutsche Asset Management own about 25 per cent. Jhunjhunwaala said distribution margins in Saudi Arabia, India's biggest export market for basmati rice, are high because of entry barriers. Rei Agro is not looking at other acquisitions. He said net profit would double to about 650 million rupees ($14.7 million) in the year ending March 2006, compared with 320 million rupees last year. He also forecast rising profits and sales for next year thanks to a new production plant that will help boost exports. 'For March 2007, we should have at least a 20 to 30 per cent jump from here on the top line.' He expects sales to reach 9 billion to 10 billion rupees in the year ending March 2006, up from 8.5 billion rupees last year.

The company produces 375,000 tonnes of rice a year, 100,000 tonnes of which it exports mainly to Saudi Arabia. Its exports are expected to double to 200,000 tonnes next year. Jhunjhunwaala said a new production facility for higher-value parboiled rice, which will be completed in April, would help the company capture strong demand for basmati rice.'Next year, about 30 percent of our revenue will come from parboiled rice. That gives me 10 per cent extra margin.'

Rei Agro plans to diversify its portfolio away from rice and is planning to boost its power generation business. Jhunjhunwaala said he expects to produce 100 megawatts by September 2006. It already produces 30 megawatts of wind power and plans to produce a total of 500 megawatts with a mix of wind and hydro power by March 2008.

The rice business is changing fundamentally from being a trading business to an industry where technology and branding is bringing in a major change. REI Agro with its attractive promotional offers and tie-ups with emerging big discount stores like Big Bazaar is on its path towards attaining leadership position in the sector.

REI Agro Limited (RAL), set up 11 years ago in Haryana, is a 600-crore basmati rice processing and marketing company. It is an integrated player and undertakes right from contract farming to procuring paddy to drying, de-husking, milling and polishing, colour sorting, grading, inspection, packing, branding, distribution and retailing. RAL has two processing units in North India, with an aggregate capacity of 302400 tonnes per annum. In addition it also operates a 7.5 MW windmill farm at Jaisalmar in Rajasthan. The company sells Basmati rice, in bulk, in the domestic wholesale market and also sells whole-grained Basmati rice under its brands, major being ‘Mr. Miller’ and ‘Al-Tahaan’, through a wide network of semi-wholesalers and distributors spread across the country. The company has witnessed a steady topline growth of 43% CAGR over the last three years and its profit margins are better than the industry's.

India being the largest producer and exporter of basmati rice commands a premium over its traditional rivals in terms of price and quality. The total rice market in the country is estimated to be worth around Rs 1, 00,000 crore of which only 10 per cent of the rice is branded. The branded rice sales have taken off in recent years and have been growing at around 15 per cent in the domestic market compared to 5 per cent for unbranded rice. The branded rice sales growth is an impressive 25 per cent in the international market as compared to stagnant sales of unbranded rice. Added to this, of the Rs 3500 crore worth of basmati rice produced, only around Rs500 crore worth is sold in branded form. On the pricing front, Basmati rice prices are expected to increase by Rs 7-8 per kg due to steady export demand supported by lower crop. REI Agro is among the select few companies that have pan-India presence and are likely to reap the benefits of growing penetration of branded rice including basmati. The rice business in the country is altering fundamentally from being a trading business to an industry where technology and branding is bringing in a major change. The setting of fully integrated rice mills by RAL allows it to utilize the bran for rice bran oil and de-oiled cake. The husk finds usages in captive energy generation and manufacture of other value added products. The expansion of capacities and improving efficiencies is expected to have a beneficial impact on the profit margins of the company and would also beef up the bottomline.

Unlike its competitors who are positioning their brands like Kohinoor, Lal Qila, Dawaat, and Doon in the premium sector, RAL is focussing more in the lower and middle sector. The company has products for the entire price points of the market and had recently launched one-for-one free offer for its Mr. Miller brand, at price which is almost half the industry's rate. The company was able to generate good brand awareness for the same across various regions by ensuring product availability at major bargain stores and food exhibitions. In addition, the distribution cost was cut to the bare minimum by adopting a three-tiered distribution system ­company, distributor, and retailer. RAL further rolled out the basmati rice in tiny sachets 'magic pack' for Rs 5 to reach out to the masses, the response to which was overwhelming. The company would soon be launching the 'magic pack' to other cities soon with an eye on expanding markets horizontally.

RAL's profit margins are better than the industry's even after its buy-one-get-one-free offer. The emphasis on branding has enabled RAL to increase its share of branded products from 16% in 2002-03 to 27% in 2003-04, resulting in higher realization across the value chain. The company has adopted a two-pronged strategy, viz. moving up the value chain & emphasis on cost reduction. The company has appointed 15 specialized procurement managers at each mandis (markets) through which it not only gains direct access to price-sensitive information, but also gets help in cutting down intermediation costs. In addition, it has improved its performance owing to the doubling of production under contract farming on crop sharing basis and lower interest charges. The company’s net profit margins are set to improve to 6.50% in FY06E led by higher exports after the commissioning of new facility in January 2005 and jump in share of branded products.

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Quarterly Report Card

Its time to look back and see how my recommendations fared and I am happy to note that most of them have performed as per my analysis and I am very satisfied with the movements of my stocks. Please note that my list comprises mostly of Midcap Stocks and all the stocks survived in the turbulent time for Midcap Stocks. Out of 75 stocks recommended by me 5 stocks have given a return of more than 70 %, 4 stocks more than 50 %, 14 stocks more than 30 %, 16 stocks more than 15 % and 13 stocks more than 3 % on Quarterly basis. Only 23 stocks closed in Red and the maximum Loser was Aftek Infosys with a loss of 30.31 %.

Among gainers, IVRCL is on top of the list with a spectacular gain of 91.55 % followed by Vadilal Industries with a gain of 81.30 %. Some noticeable high flyers are Honeywell Automation, McDowell, Batliboi, TV 18, Jyoti Structures, Encore Software, Pokarna Ltd., Yes Bank, UB Holdings, Sterling Holiday, Tata Steel, Alphageo, ITC Ltd., Emami, Reliance Infra, Savita Chemicals, Patel Engineering, Raymond, Greenply, Simplex Infrastructure, Saregama India, Amara Raja Batteries, Shashun Chemicals, FCI OEN Connectors, Infomedia India, Ranbaxy Labs, Ratnamani Metal, TTK Prestige, Sangam India, Genus Overseas & Centurion Bank.

Among Losers, prominent was Aftek Infosys with a loss of 30.31 % followed by RS Software with a loss of 28.90 %.

In between I have also recommended Alps Industries @ 164.00, JK Paper @ 62.00, Zicom Electronics @ 145.00, Nelco Ltd. @ 140.00, Jain Irrigation @ 243.00, GHCL @ 140.00, Jagran Prakashan @ 253.00, Ramco Industries @ 1400.00, Rajshree Sugars @ 140.00, Hind Sanitary @ 105.00, Medicaps @ 92.00 and India Infoline @ 162.00. All fared well.

Besides, I am also tracking Jupiter Biosciences, SKF India, Gillete, Carol Info, NRB Bearings, Kilburn Chemicals, NIIT Tech, TVS Motors, Guj Flourochem, Macmillan, Aarvee Denim, Hikal Ltd., Igarashi Motors, JK Cement, Mount Everest, Nucleus Software, Reliance Energy and Voltas. These stocks can also be considered as my favourites, I am not recommending them at this point of time because I am not comfortable with the price at which they are trading. I sincerely urge all the visitors to do their homework thoroughly before buying any stock and if you feel comfortable then buy it. As I said earlier, I am not a good timer of market. Evereybody knows that a correction is eminent, but when it will happen, nobody knows. I lost several opportunities in above mentioned stocks because I was waiting for a correction. All I can say is that the stocks mentioned above are good companies in good businesses with good fundamentals. Its the entry price I am not sure about.

Those who want a complete assessment of my recommendations may download this MS Excel File - Quarterly Report Card.

News You Can Use

SPEL Semiconductors - More Tax Sops Likely For Semiconductor Units

In an attempt to encourage large investments in semiconductors, the government is planning to offer higher tax benefits to ventures that involve higher value-addition or are the first off the block. The idea was that tax benefits should be linked to value addition, investments and employment generated by such activity, a government official said. For instance, tax benefits for a wafer-testing or an assembly testing facility will be lower than the benefits for a semi-conductor facility since investment and employment in the latter are higher.

The proposed policy for the manufacture of semi-conductors and information technology products is expected to be announced in three weeks. Another option being examined is to provide tax breaks to a pioneering unit. “There is a view that the first unit to be set up should be given the most benefits. Once a big unit is set up, several other firms will automatically come on account of backward linkages and spill-over effects,” the official said.

The finance ministry is examining a policy paper prepared by the department of information technology, and will soon take a final view regarding the nature of the tax breaks. Officials said the policy paper listed tax incentives for infrastructure, exemptions from tax for profits earned, and interest subsidy. Finance Minister P Chidambaram had, in the Budget, announced that companies setting up such facilities would be allowed to raise resources from existing vehicles of viability gap funding and from India Infrastructure Finance Company Ltd (IIFCL) for a three-year period.

Agro Tech Foods - Focusing On Food Service Sector

Agro Tech Foods Limited (ATFL), a subsidiary of global food major ConAgra, is currently focusing on food service sector in India. Following in the footsteps of its parent company, the Rs 1,260-crore ATFL, with a dominant market position in the edible oils and branded food sector in the country, has set up a separate business division for food service operations. Incidentally, ConAgra Foods Inc of USA grosses an annual turnover of $3.9 billion from food service operations.

According to ATFL vice-president (commodity sourcing and exports) Madhusudhan Manvi, Lamb Weston, another ConAgra company, will be assisting ATFL in food service operations. Lamb Weston, one of the world’s leading processors and suppliers of frozen potato products with a turnover of $1.5 billion, has already started test marketing of its products in India. ATFL is sourcing frozen potato products from Lamb Weston and is involved in its institutional sales across India to leading hotel chains, quick service restaurants, airways etc. Manvi told Business Standard that the booming IT and ITeS sector, and the growing hospitality and tourism industry in the country had driven ATFL to enter the food service sector. “In three years’ time, we are expecting to do a business of about Rs 50 crore in this segment,” he said, adding that the organised food service market in India was estimated to be around Rs 500 crore.

ATFL, which launched frozen green peas in the Indian market a fortnight ago, will be coming out with a range of tomato products in a month’s span. The tomato products would be marketed under the ‘Healthy World’ brand. In the past few years, ATFL has launched a host of packaged food products under the parent ConAgra’s well-known brand Act II (popcorn) and Healthy World. The company’s branded foods segment is also undertaking several new initiatives in the area of ready-to-eat snack foods and vending of popcorn. “We are focusing on the value-added segment, which would be profitable and sustainable in the long run,” Manvi said.

Shasun - To Invest Fresh $35 mn In Rhodia UK

Shasun Chemicals and Drugs, the leading bulk drugs and contract manufacturing company, which acquired the pharmaceutical custom synthesis business of Rhodia Pharma in UK in January this year, would invest a fresh $30-35 million in the UK company over the next two years. The new investment is to tap the research and production capabilities of the company and also take up its pipeline products to final stage as anticipated in the acquisition deal, said S Vimal Kumar, joint managing director, Shasun.

The Rhodia acquisition, which was completed last week, was done through Shasun’s UK-based wholly-owned subsidiary Shasun Pharma Solutions. The deal was funded through internal accruals and debts. The transaction includes all of Rhodia’s development and custom manufacturing services catering to innovator and emerging pharmaceutical clients in US, Europe and Asia. Rhodia posted $60 million revenues in the year ended December 31, 2005 and employs 349 people. The deal also includes acquisition of Rhodia’s UK manufacturing sites at Dudley in Northumberland, England and Annan in Scotland and also the current management team Rhodia and the existing employees. With the addition of Rhodia’s business, exclusively into the contract research and manufacturing service (CRAMS) area, Shasun is expecting turnover to the tune of Rs 750-800 crore in the fiscal 2007-08.

The company executives also said that it is open for few more acquisitions in Europe to enhance its presence in the CRAMS business. Shasun is also currently setting up another manufacturing facility at Visakhapatanam at an investment of about Rs 45 crore. This facility would also cater to the client-based API manufacturing business.

Zicom - Surveillance System For Mumbai

Next time you think of jumping the signal, think again. Your friendly neighbourhood traffic cop sitting at a distant control room may be watching you through a remotely managed video surveillance system. City-based electronic security systems manufacturer Zicom Electronic Security Systems has bagged an order for setting up Mumbai traffic surveillance system.

In its first phase this state-of-the-art surveillance system will include implementation of a remotely managed video surveillance at 100 identified locations (traffic intersections/junctions, critical locations) in Mumbai for aiding visual surveillance and incident detection and alarm system for selected location to facilitate better management of traffic control, law & order, special events like public gatherings, crime control & disaster response etc. The system will collect real time pictures from cameras and transmit them over leased lines with the help of fiber optical technology to the central control room and mobile vans where they will be digitally recorded, and displayed for immediate response.

According to Manohar Bidaye, chairman, Zicom, this is an important breakthrough for the company as with infrastructure in metros is developing fast, digital remote surveillance is fast becoming and absolute must for better civic life. When contacted S C Mathur, joint commissioner of police (traffic) said, the system costed Rs 7.5 crore and hoped to have it up and running in three months. With this Mumbai would become the first city in India to have a surveillance system on this large a scale. He further said, "This will reduce our response time in the eventuality of traffic jam or accident but with effective use of the system we expect that, we will be able to avert the possibility of traffic jam itself".