AGROTECH FOODS - UPDATE

PROMOTERS OF AGROTECH FOODS - CAG TECH MAURITIUS LIMITED - A HOLDING COMPANY OF CON AGRA FOODS USA  PURCHASED 893465 SHARES OF AGROTECH FROM ITC GROUP AT A PRICE OF RS.580/- SHARE THROUGH OFF MARKET .NOW CON AGRA'S HOLDING IN THEIR INDIAN SUBSIDIARY REACHED 51.77 % .

For the old Posting on  Agro Tech Foods , Click HERE

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SUNDARAM BRAKE LININGS LTD- SOMETHING SPECIAL

Sundaram Brake Linings is a major producer of friction material, consisting of brake linings, blocks, disc pads and clutch facings that are used in automobiles.Ashok Leyland and Tata Motors are the major customers of this chennai based TVS group company.SBL is also exporting its products to various countries and almost 40 % of its income is from exports.Enthused by the increasing demand,recently company started a new production facility in SEZ, Mahindra World City ,Tamilnadu.Now company's all   manufacturing plants  are producing ASBESTOS-FREE products which will help to increase its exports.

                                           Sundaram Brake Linings was an outperformer from TVS Group till 2008.Its share price never came down below Rs.400 Mark during 2005-2007 period.But it crashed from a level of Rs.440 to just Rs.98/- in 2008 alone .These type of crashes in share price are common today because of share pledging by promoters or various type of frauds.But nobody is expecting such actions from one of the most conservative group from South India - the TVS Group .There was nothing wrong with the Sales and profitability of this company but a special reason for this poor performance of stock price.SBL is a victim of mis-selling of complex derivative products by banks which came to light  during 2008.Many other companies like Rajshree Sugar,Precot Meridian..etc are also in news related with such transactions during the mentioned period.Anyway , their efforts to protect from  foreign exchange fluctuation ends in huge losses for SBL.Then the company filed cases against these banks and at last it ends in an out of court settlement.As per the terms company is liable to pay only one tenth of the actual loss .Now, company is making provisions in each quarter for this payment and the said amount is mentioned as extraordinary item in the published results.An amount of Rs.5.60 Cr provided last year under this head .After this provision company made a net profit of Rs.6.30 Cr in 2010-11.EPS for last year including special provision is Rs.16 and that excluding this provision is more than Rs.30/-.Even in a tough time for auto parts makers, last quarter company improved its performance.This special provisioning will end in next 18 months starts from September 2011 onwards (in March 2013). The true picture of this company's earnings will reflect in its financial result only thereafter.Company having very small equity base of just Rs. 3.93 Cr and consistently paying dividend of 40 % or more for the past many years. Actually it was more than 125% each before 2008 incident .Considering the Cyclical nature of auto and auto ancillary business and the trend in interest rate , 2013 may be a good year for this sector.After the end of this provisioning , I feels the market will realize the true picture of this company and it will go back to its past glory.At current market price of Rs.155/- it is even quoting very below its book value of Rs.250/-.Company 's debt equity ratio is just 0.38 and not even a single share is pledged by the promoters. Those who are willing to show some patience , this is one of the best bet from this sector @ Rs.155/-

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The Farmer and The Calf: An Investment Story

Courtesy : The Unknown Author


This story is about a farmer who received a calf from a rich man. Hopeful that the calf will be able to help him have a better life, the farmer did his best to take care of it. But as the calf grew, so did the farmer’s expenses.One day, he said to himself, “I don’t want to wait anymore for this calf to become an ox. I’ll just sell it and buy several sheep which are easier and much cheaper to take care of.”And so he did just that.After several months, he realized that breeding sheep were not as easy as he thought. And so he said to himself, “It takes too long for these sheep to give birth. I better just sell them and buy myself several hens which can lay eggs for me everyday.”And so he did just that.The plan worked very well, he was earning good from selling all the eggs. Life improved for the farmer. But after several months, the hens started to lay less and less eggs until one day, the hens couldn’t produce anymore.The farmer was devastated. In his anger, he cooked all the hens and had himself a feast.Later that week, he remembered the single calf that started it all and realized that after all his hard work, nothing had changed in his life.

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WEBSOL ENERGY - BOOK LOSS

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GODREJ INDUSTRIES Ltd - BUY ( REPEAT)

For many of us , Godrej Industries  Ltd (GIL) may be a chemical company.But it is more than that .Its stake in Godrej Agrovet(75%),Godrej Consumer products (22 %),Godrej Hershey (43%),Godrej properties(70%) and Natures Basket(100%) makes it an interesting company..Godrej Agrovet is mainly in animal feeds and agri inputs ( mainly herbicides).Company also owns 37000 hectare oil palm plantation in various states like Andhra,Tamilnadu,Goa..etc.Godrej Agrovet also having a joint venture with ' Tyson' in poultry business which is selling processed poultry products under the brand name "Real Good" and value added ready to eat products under the brand name "YUMMIEZ" Company is now planning to expand the operations of this division to many more cities which is limited till now.'NATURE'S BASKET' is a subsidiary of GIL which is operating around 13 stores currently for selling organic fruits and vegetables,beverages,dairy products..etc.Company's this division is expected to brake even shortly and new shop additions are planned. The agri centric business of GIL through Godrej Agrovet having huge potential in India ,and company's latest financials is a reflection of this fact. FMCG  business of Godrej CP  is also growing rapidly For the Second  quarter of this financial year  GIL posted a turnover of Rs.1413 Cr  over last year same period  and a net profit of Rs.82 Cr  . EPS for firstSecond  is Rs.2.92.This professionally managed company having huge expansion plans it its various businesses and it is expected to show decent growth going forward.GIL can be included in your portfolio at CMP of Rs.186/-

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India Inc's MTM losses may worsen next year if rules are not changed

Courtesy : ET


Few things in recent times have foxed companies and rattled investors like the mark-to-market (MTM) losses caused by a surging dollar.

Businesses of all kinds are grappling with the phenomenon and looking for ways to soften the blow. Some were caught on the wrong side of the currency movement, with their forex loans bloating in rupee terms while for others, profits dipped even after taking a forward cover - an instrument that is meant to shield them from exchange rate swings.

Indeed, MTM losses on foreign loans will multiply from next year if book-keeping rules are not changed and the rupee fails to recover. On one hand, discussions are underway to make accounting rules more realistic and allow companies to spread out MTM losses on foreign loans in the coming years; on the other hand, many companies are slowly discovering the maze of hedge accounting - a subject that few CFOs took the trouble to grasp, but a complex process that can lower MTM losses.

The flexibility that companies have in amortising losses on foreign loans will end in March. At present, a 10-crore MTM loss on a five-year loan can be absorbed at 2 crore every year over the life of the loan - a practice that cushions the bottom line. If rules are not changed, then from next financial year, the remaining loss (of 8 crore) has to be booked at one go, which can severely impact profitability.

The Accounting Standards Board, a body of senior professionals that initiate changes in accounting norms, is taking a close look at the matter, along with another accounting treatment that artificially inflates fixed assets.

"We should come out with a clear rule so that MTM losses on loans don't have to be provided in one quarter in the times to come. This will lower panic and volatility," said S Santhanakrishnan, a senior chartered account and member of the board.

In preparing balance sheets, companies match the higher loan liability by increasing the value of fixed assets, which many feel is misleading, particularly to lenders, and should be corrected. "If your loan goes up by 10 crore, is there any justification for raising the value of your asset which was financed with the loan? ", said Santhanakrishnan. Perhaps, a more prudent way would be to lower a company's reserves in balancing a higher loan liability.

According to G Ramaswamy, president, The Institute of Chartered Accountants of India (ICAI), the issues are being debated. "No decision has been reached. This has also assumed significance because several companies have booked MTM losses." So far, 12 Nifty companies have booked 3,120 crore MTM losses this quarter against a gain of 2,225 crore in the year-ago period.

HOW MTM LOSSES ARISE

With the dollar at 50, there will be 10-crore MTM loss on an unhedged $10-million foreign loan taken when dollar was 40. Here are other cases where MTM losses can crop up:

1) A company entering into a forward contract in early August with a bank to sell its export receivables (that's expected in December) will have to book an MTM loss when it announces the results for September 30. If the rupee has dipped 4 between August and September 30, the MTM loss is 4 for every dollar as on September 30.

But this is a notional loss that reflects a lost opportunity for the company to sell at a more lucrative exchange rate. Even though there is no real hit, stock prices fall as soon as results are announced. But a company is not required to show the MTM loss if it pursues hedge accounting which only some large companies have adopted.

"One reason for this is the level of complexity involved and the awareness. Although hedge accounting can be complex, for simple transactions (like sale of export receivables), it can be simplified and implemented on a larger scale," feels Kumar Dasgupta, partner, Price Waterhouse.

2) Companies that have swapped their expensive rupee loans into cheaper dollar loans through currency derivative deals also lose out badly when dollar gains. In a sharp depreciation, the loss on account of a stronger dollar can more than offset the savings in interest outgo. There is MTM loss on the derivative (like the forward contract) at the quarter end.

3) Since commodity prices are closely linked to global prices, commodity companies often pursue a different strategy. For them, a rise in dollar (say, from 40 to 50) is actually a gain: if the global price is $700 a tonne, then the local price rises from 2,800 to 3,500 a tonne.

But many of these companies swap their rupee loans into dollars to offset the loss from a weakening dollar. They book MTM loss on the loan swap derivative. Also, when dollar appreciates sharply, the local price of the commodity corrects only after a month or two.

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TOKYO PLAST INTERNATIONAL - BUY (REPEAT)

Tokyo Plast International is the manufacturer of “PINNACLE ‘ brand Thermoware products. Company's main products are Thermo Containers,Insulated coolers,Beverages containers..etc. considering the increasing popularity of Pizza Consumption ,recently company introduced  single and double layered Pizza containers .Company having two manufacturing units – one located at Kandla and other at Daman. Company is concentrating in exports and earned an income of Rs.45 Crore (out of total sale of Rs.50 cr ) from exports last year  . Its total income tripled in last five years where sales improved from Rs.14 Cr to Rs.50 Cr and bottom line from just Rs.7 lac to Rs.4.3 Cr in the said period. In last few years promoters also hiked their stake marginally.  Chances are also there for expanding the business into the manufacturing of other related housewares in future  . Company is expected to close this full year with an EPS of Rs.6+  . At current market price Rs.15/-  it is trading at a P/E multiple of just  2.5  on the expected full year EPS of FY 2011-12 . Considering the steady growth of topline  it shows in the past many years and recent efforts to introduce value added new products – which is expected to improve the margins-  Tokyo plast is a suitable low priced scrip for investors with patience . Currently trading both in NSE and BSE at a price around Rs.15/-

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