| ont size="2">The company is expanding into the Indian market and has deployed the 3G platform for MTNL and launched the missed call alert for Aircel among other projects. While Tanla is debt free and sitting on a cash of about Rs 150 crore, its debtors at Rs 278 crore and an increase in debtor days to 119 days in Q3 are causes for concern. The management, however, believes that this will come down going ahead and EBDITA margins, which have dropped (768 bps q-o-q) to 38 per cent, should stabilize on higher transaction volumes and cost cutting efforts. The stock which has corrected substantially over the year and on the back of robust growth prospects should fetch returns of about 40 per cent over the next one year.
Tata Chemicals
Acquisitions of soda ash makers (UK-based Brunner Mond in FY06 for Rs 800 crore and US-based General Chemical Industrial Products in March 2008 for $1.05 billion) have placed Tata Chemicals in the big league. It has not only emerged as the world's second largest producer of soda ash (capacity of 5.5 million tonne), but it now has an enhanced presence in US, UK and Africa. Soda Ash forms a large part of the chemicals division (sodium bi-carbonate and edible salt are the other major contributors), while crop nutrition (urea, DAP; mainly domestic focus) accounts for the rest.
Notably, while the chemicals business accounts for 40 per cent of consolidated revenues, it enjoys higher EBDITA margins (about 20 per cent) giving it a 55 per cent share in profit. With the overall economic environment having turned weak - prime users of soda ash are glass, soap, detergent, paper and textile industries - realizations and volumes have been under pressure. However, analysts expect EBDITA margins to remain stable in FY10 helped by a sharp decline in input prices (coal and coke; locally) and better realizations in the US (new long-term contracts at higher prices). Notably, majority of Tata Chemicals' production is of low-cost 'natural' soda ash (balance is produced through 'synthetic' route) and is supported by reserves in the US and Kenya. In the edible salt business, the company has been gaining ground and is expected to sustain profitability and growth. The crop nutrition business was impacted by lower realization of DAP even as input prices were higher, which is also reflecting in its Q3 FY09 performance.
A shutdown at its Uttar Pradesh-based fertilizer plant to stabilize operations of the expanded capacity (up by 33 per cent to 1.16 million tonnes per annum) also impacted operations. Going ahead, lower input costs and higher capacity (and benefits of new urea policy) in the fertilizer business will mean better margins. Also, as the gas supply from Reliance Industries KG-basin is made available, margins should perk up in FY10.
With expansions scaled down, the cost will come down by 28 per cent to Rs 400 crore, which can be funded through annual cash generation of over Rs 1,000 crore. This should also help lower debt further. Operationally, although revenues are expected to decline in FY10 (due to lower realization), expansion in margins and lower debt should help sustain net profit at FY09 levels; in FY11, it should rise. Expect the stock to deliver good returns.
To a seasoned investor such phases present a great opportunity for value investing. It needs foresight and courage to invest in stock markets when everything seems gloomy and desperate. There are certain stories which are obvious and others which will unfold as time goes by and the sentiment of investors improves. One thing is certain that such opportunities to invest in stock come once every decade and people who have the courage and the capacity to invest and hold out sometime make a killing in stock market.
Some other stocks which make a good buy at the current level are Amtek India Barati Shipyard EMCO ICSA (India) Mah Lifespace Mcleod Russel MIC Electronics Nagarjuna Cons. Patel Engg. PTC India Rolta India Sanghvi Movers Sasken Comm. |
