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Issue No : 131

August 2011 Just have patience and make sure youre confident about the margin of safety in each investment. -Peter Cundill

MARKET WATCH
Major Indices S&P CNX Nifty S&P CNX 500 BSE Sensex BSE 200 NASDAQ DOW FTSE NIKKEI Other Indicators FOREX (Rs/$) GOLD (Rs/10Gms) Himadri Chemical Aptech Future Capital Amtek India Anant Raj Inds Top LOSERS - BSE 500 Crompton Greaves Lanco Infratech KGN Inds. Orchid Chemicals GTL BSE Sectoral Indices 29/07/11 CD FMCG REALTY HC AUTO PSU BANKEX IT OIL & GAS POWER CG METAL Institution FII MF 6,755.67 4,093.12 2,041.40 6,420.74 8,758.83 8,307.52 12,447.83 5,835.44 8,799.49 2,455.87 12,995.81 14,016.72 Buy 54,077.70 10,969.30 29/07/11 5,482.00 4,424.05 18,197.20 2,256.48 2756.38 12143.20 5815.19 9833.03 29/07/11 44.19 23,185.00 30/06/11 % VAR 5,647.40 4,522.95 18,845.87 2,314.65 2,773.52 12414.30 5945.71 9,816.09 44.70 111.68 21,965.00 56.65 139.10 186.10 115.65 81.65 169.2 17.95 50.45 206.35 74.85 6,653.72 4,045.42 2,019.84 6,397.96 8,798.48 8,542.74 12,821.05 6,100.30 9,208.26 2,612.01 13,905.62 15,061.89 Sell -2.93 -2.19 -3.44 -2.51

19,200 19,000 18,800 18,600 18,400 18,200 18,000

Sensex - July, 2011

-0.62
17,800

-2.18 -2.20 0.17 1.14 4.59 5.55 51.27 51.20 38.11 37.60 31.91 -34.81 -26.43 -24.42 -22.76 -21.75 1.53 1.18 1.07 0.36 -0.45 -2.75 -2.91 -4.34 -4.44 -5.98 -6.54 -6.94 Net

17,600

1st Week

2nd Week

3rd Week

4th Week

5th Week

MARKET REVIEW
The month of July saw Indian markets dragged lower by disappointing global as well as domestic cues though the only respite was the persistent FII inflows. By the end of the month, Nifty pruned about 2.9% or 165 points to settle at 5482, while Sensex lost around 3.4% or 649 points to close at 18197. The market started the month on a weak note on the back of slower growth in six core infrastructure industries (growth of 5.3% in May as against previous 7.4%) and CBI raids on ex-DGH following the CAG reports of inflated costs in RILs exploration activity. However, robust monthly auto sales data, incessant FII inflows and easing concerns on Greeces debt helped the market to move up and Nifty touched its 11week high of 5740. Approval of new Mining Bill, continued fears over the spread of euro-zone debt crisis, weak set of Q1-FY12 results from the IT major Infosys, less-than-anticipated May 2011s IIP numbers (5.6%), disappointing European banks stress test results and Mumbai blasts fuelled the downward movement. But the downside was capped on back of lower-than-anticipated Junes WPI inflation (9.44%), 30% increase in domestic indirect tax collections in the April-June quarter and EUs Greek bailout plan. RBIs decision to hike the repo rates by more than expected (50 bps), stalemate in US over raising the $14.3 trillion borrowing limit, worries that Euro-zone debt crisis would worsen after rating downgrades of Greece & Spain and disappointing Q1 results from Indian corporates fizzled out all signs of upward movement. FIIs continued to be net buyers of Indian equities for second consecutive month and net bought Rs.8030 crore during the month. Mutual Funds were yet again net buyers to the tune of Rs.544 crore in equities. During the month Rupee continued its northward journey to settle at Rs.44.19/$ on the back of continuous FII inflows and weak dollar. Crude oil prices surged 4.6% to settle at $116.81/barrel, on account of weakening dollar against basket of currencies and interest rate hikes. Yellow metal prices continued their upward journey on account of safe haven buying and weak dollar. By the end of the month, Gold zoomed 5.6% to settle at Rs.23185/10gms. During the month, Metal counters were the biggest losers in view of the higher royalty prescribed in the new mining bill and the multi-crore illegal mining scam in Karnataka. Capital Goods space witnessed selling pressure on account of lower IIP data and poor results by the companies in the sector. Consumer Durables space was the top gainer on account of robust Q1 FY-12 results from index majors. Defensive FMCG continued to witness buying interest amid higher volatility in the market during the month.

30/06/11 % VAR

BRENT CRUDE ($/Barrel) 116.81 Top GAINERS - BSE 500

CMP % VAR

CMP % VAR

30/06/11 % VAR

Institutional Activity - July 2011 (Rs. Cr.)

Inside the issue...


Market Review - July 2011 ....................... 1 Market Outlook for August 2011 ............... 2 Rising interest rates and its impact .......... 2 Economics of Gold .................................. 3-4 SIP - How it works .................................... 4 Focus Stocks ................................................. 5-6 Stock List .......................................................... 7 EV/EBIDTA Ratio ............................................... 7 Zen Money Services ......................................... 8

46,047.60 8030.10 10,425.50 543.80

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Market Outlook for August 2011


Market Outlook for August 2011
In the month of August, the performance of the global markets would largely dictate the domestic market movement. If the issues related to the US debt ceiling remain unresolved and the lingering Euro zone debt crisis deteriorates then the market could witness a further correction. The subdued global economic conditions are also expected to put pressure on crude oil prices. On the domestic front, the earning season is well underway and the results have been mixed so far. While majority of companies witnessed growth in their top line, margins were under pressure due to higher operating costs and rising interest rates. The markets would keenly track the rest of the result season to gauge the earnings guidance for the next few quarters considering the recent interest rates hikes. In the short term, stock-specific action based on the earnings announcement is expected to continue. Further, the trends in FII fund flows are also expected to play a major role in determining the direction of the market movement. The outcome of the ongoing investigations by CBI and other investigating agencies on various scams is likely to trigger stock specific action if any corporate names surface during the investigations. Markets would closely watch the developments in the monsoon parliamentary session that begins from 1st August, 2011. Monthly data of Auto sales, Telecom subscriptions, Cement dispatches would trickle in during the first week of August and sector specific action could be witnessed based on it. Markets would closely watch the Weekly food article inflation data that is scheduled to be released in the first week of August. The Food article inflation has witnessed a slowdown during third week of July. Continuation of this trend due to higher base effect coupled with improved food supplies as a result of good monsoon, would boost investor confidence.

Rising interest rates and its impact


RBI has increased the repo rate by 50 basis points (bps) to 8% in July 2011, which is 325 bps higher than the repo rate in the beginning of 2010. As the repo rate is directly related to the lending and borrowing rates of banks it will have a pass through effect on all the floating interest rates on all the loans for retail as well as corporate sector. This in-turn will have an impact on consumer spending as well as on corporate earnings growth. RBI is under immense pressure to devise a monetary policy that strikes a balance between managing economic growth and controlling the spiraling inflation. But in the last few months it has taken the anti-inflationary stance even at the expense of a little slowdown in economic growth. Its action of increasing the key policy rates reflects its discomfort towards the near double digit inflation even after a series of key policy rate hikes. A few market participants however wonder, how monetary policy alone will control the inflation triggered by inadequate supply response to the broad based demand at gross levels; this is because rising interest rates will fuel further price hikes leading to a spiraling effect. Overall, the reality is, market participants are staring at stubborn inflation and high interest rates, which could slowdown the consumer demand as well as capex plans. While some sectors would be affected directly by the rising interest rates some other sectors will be affected due to slowdown in the economic growth which in-turn is a result of the rising interest rates. Other sectors will be affected as a result of shrinking margins due to rising interest rates because of an increase in the interest expense. At this juncture a look at the sectors' sensitivity to interest rates will help investors make informed investment decisions. The rising interest rates will have direct impact on the consumers who have taken loans for housing and automobiles, which will inturn moderate demand in Automobiles, Housing Developers and Banks & Housing finance companies. Any slowdown in growth in Auto sector could have a cascading effect on Auto components, Tyres, Automotive Battery and other forging companies. As the real estate / infrastructure developers have to borrow at higher interest rates houses / infra projects become costlier. Realestate, construction and Infrastructure sector's growth could have an impact on cement, steel, aluminium, glass, Ply boards, Ceramics and Sanitary ware sectors. This will also decrease the demand for white goods. Capital goods sector growth is affected by rising interest rates, as corporates are likely to go slow on their capex plans in anticipation of slowdown in demand. BFSI sector is affected by rising interest rates as the credit growth will be slower and also there would be pressure on the net interest margins. The rising interest rates could also increase the risk of NPAs in the banking system. Sectors like, FMCG, Pharma & Health care, Telecom, IT services, Oil & Gas, Media are in general not directly impacted by the rising interest rates. Even though, one can factor the broad trend of the sector's sensitivity to interest rates in general; Company specific factors like the total debt on its books (domestic as well as foreign loans component) and the company's operating efficiency play a major role in the rising interest rates scenario. Clearly, in a rising domestic interest rate scenario where policy makers are cautioning about further rate hikes till the inflation comes within the comfort zone, investors will be better placed if they move away temporarily from highly leveraged companies to companies with low debt, irrespective of the sector, especially if they have higher exposure to domestic borrowings. Also it pays to enter into those stocks where the expansion plans are supported more by internal accruals and by demand from end consumers.
RBI Repo Rate (%)

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Economics of Gold
Economics of Gold
India's traditional love for gold is well known. According to World Gold Council estimates, India owns over 18,000 tons of above the ground gold stocks worth about $800 billion, which represents 11% of global stock. India is the largest consumer of gold in tonnage terms, followed by China. During the four quarters ending Sept 2010, India's gold demand accounted for nearly 22% of global gold demand. Demand- Supply Economics: Mine production and above ground stocks (includes official sector sales & recycled gold) are two sources of supply for gold into the market. Above the ground stocks are estimated to be around 150,000 tons. The demand for gold comes in the form of fabrication (jewelry and industrial uses) & investments. In 2010,fabrication accounted for 2483 tons (63%)and investments accounted for 1487 tons (37%). 2006 Total Supply (in tons) Mine Supply Official Sector Sales Recycled Gold Total Demand (in tons) Fabrication (Jewelry&Industry) Total Bar &Coin Demand ETF's and similar OTC Invest. & Stock flows London PM fix (US$/oz)
Source: World Gold Council.

2007 3488 2026 485 977 3526 2861 411 254 695.39

2008 3469 2044 279 1146 3658 2568 769 321 871.96

2009 4083 2354 34 1695 4081 2223 778 617 463 972.30

2010 4156 2586 -76 1646 4155 2483 1149 338 185 1224.50

% Change (09-10) 2.90 9.80 -1.10 1.80 11.70 47.70 -45.20 -60.00 25.90

3575 2076 370 1129 3409 2744 405 260 603.77

Gold demand in Fabrication (Jewelry & Industrial Uses): The demand for gold in the form of jewelry is mainly driven by India and China. India is the largest market for gold jewelry in the world. Jewelry accounted for 75% of total Indian gold demand in 2010. On the other hand, China is the fastest growing market for gold jewelry. Jewelry accounted for 64% of total gold demand in China. Demand has more than doubled in the last 7 years, from 224.1 tons in 2004 to 451.8 tons in 2010. In many respects China and India share a similar gold culture and heritage. The high thermal and electrical conductivity along with outstanding resistance to corrosion are the key features that generate demand for gold in electrical component industry. Gold's resistance to bacterial colonization and corrosion create demand for the metal in various biomedical applications too. Gold demand in Investments: Investing in gold centers on the role it can play as a portfolio diversifier, vehicle for risk management and as a store of value. Investors have access to invest in gold through Exchange Traded Funds (ETFs), Coin & Bar purchases and through OTC markets. During 2010, USD 58 billion came into investment category, up 34% compared to 2009 and 74% compared to 2008. This growth in demand on the back of 25% year on year increase in prices proves the safe haven theory of gold and increasing appetite of investors to trade in various gold trading instruments at their disposal. (in $ Mill) Investments (I+II) I. Total Bar and Coin (a+b+c) a. Physical bar demand b. Official Coin c. Medals/Imitation Coin II. ETF & similar products
Source: World Gold Council.

2008 (in $ Mill) 33638 24642 17436 5252 1955 8996

2009 2010 (in $ Mill) 2009 vs 2010 43604 58559 24312 45250 15318 33619 7153 8155 1841 3477 19291 13308

%change 34% 86% -

Investment in gold through Exchange Traded Funds (ETF) has seen a pickup in recent years as an alternative to buying physical gold. Investments in ETF had gone up from USD 8.99 billion during 2008 to USD 19.29 billion, an increase of 114%. While the size of these holdings is miniscule compared to the gold consumption in India, the rate of growth seems to show a pattern of heightened interest of retail investors in using gold ETF as an investment tool. During 2010 the demand for physical gold as a investment tool has gone up by 86%. This might be because of the weakening dollar and the debt crisis taking center stage in the US and Europe. Investment demand is also generated by the needs of Central banks of various countries to hold gold reserves for managing risks in their macro-economic environment and enhancing liquidity in their respective markets. Central banks and multinational organizations (such as the IMF) currently hold just under one-fifth of global above-ground stocks of gold as reserve assets (amounting to around 30,500 tons). Over the past decade, the key trend has been the growth in Identifiable Investments, which has increased from 370 tons (2001) to 1,514 tons (2010). In 2010, it accounted for approximately 38% of world gold demand. Also investment in physical gold bars has increased by 22%.
(Contd. Page 4)

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SIP - How it works


Economics of Gold (Contd. from Page 3)

Category

I. Jewelry Consumption II. Industrial & Dental III. Identifiable Investment (a+b+c+d) a. Physical Bar Investment b. Investment in ETF & Related Products c. Official Coin d. Medals & Imitation Coin Total (I+II+III) Source: World Gold Council. Factors to watch going forward: US fiscal policies & depreciating US dollar. Euro-zone sovereign debt crisis Middle East turmoil and oil production India and China's growing appetite for gold, their emerging economies & inflation expectations. Growing popularity of gold ETF, making gold more accessible to more investors. Safe haven value. To conclude: Strong support is provided to gold prices because of growing jewelry demand from emerging economies like India and China. In addition, global factors such as the weakening dollar, sovereign debt crisis in Europe and inflation will certainty boost demand for physical gold as a safe haven investment. It is encouraging to see that the demand for physical gold as an investment tool has increased many fold over the last decade in spite of increasing prices. Gold as an investment tool is expected to grow as the activity in ETF remains robust and continues to offer alternative strategies for investors. For the short term, as gold has run up very fast, technical correction might be on the horizon. This correction would provide a good buying opportunity for the long term.

2001 % of Total Demand 2001 Tons 3,009 80 363 10 370 10 259 83 29 3,742 100

2010 % of Total Demand2011 % Change 2001-2010 Tons 2,017 50 -33 466 12 28 1,514 38 309 880 338 207 88 3,997 100 -

For investing in Gold ETF / Futures please visit the nearest branch or call our helpdesk @ 040 - 44232323 or email us at helpdesk@zenmoney.com

SIP - How it works


What is SIP? A Systematic investment plan (SIP) is an effective method of investment strategy for wealth creation over a long period of time. In a SIP, small sums of money are invested regularly say monthly or quarterly for a long period of time. It is similar to a recurring deposit in a bank or the post office wherein we put a small amount every month or quarter or year. SIP could be started with an amount of as little as Rs. 100. SIP gives you a combination of two powerful investment strategies i.e. compounding and rupee cost averaging. Currently SIP route can be done in the case of equity and fixed income funds. How is SIP different from one time investment? One-time investment is better only when there is a high degree of certainty that the market is going to go through a rising trend, but predicting the market is very difficult. Also for most investors, one-time investment may not be feasible due to a lack of resources. In case of SIP, it is not necessary for the investor to accumulate a huge amount at one go before making an investment as he can accumulate small amounts and invest regularly thus maximizing returns in the long run. Example of SIP: Supposing Investor X invested a fixed sum of Rs. 1000/month for 16 years in HDFC Equity Fund, His investments would have grown to Rs.29.93 lakh at the end of June 2011 How does SIP works? A SIP enables an investor to invest a pre set amount in a scheme every month/quarter based on the NAV on the date chosen. One can give either a post dated cheque or opt for the Electronic Clearance Service (ECS) from their bank and units will be credited to the account depending on the applicable NAV on that day. While the sum invested remains same, the units allotted during bearish market will be more compared to the units allotted during the bullish Total period 198 months (Jan 1995-June 2011) market, thus lowering the average cost of purchase. Monthly Invested Rs. 1000 Benefits of SIP Reduces Risk: Fixed investments every month makes Total Sum Invested Rs. 1,98,000 volatility in the market irrelevant. Value of Investment as on 30th June,2011 Rs. 29.93 lakh Disciplined Savings: More disciplined in one's savings Annual Rate of Return 28.54% as one is habituated to save & invest regularly. Power of Compounding: The concept of compounding investment earns higher returns on investments. Rupee Cost Averaging: SIP is an effective way of investing as rupee cost averaging, lowers the risk of losses in the long run. Income Tax Benefits: By investing in SIP-ELSS, one can avail tax benefit on upto a maximum of Rs.100,000/- under section 80 C. SIPELSS has the shortest lock-in period as compared to other tax-saving instruments. Capital Gains Tax: Long-term capital gains earned on Mutual Funds/SIP are taxed at zero on holdings for a period of more than 12 months. While, short-term capital gains are taxed at 15% on holdings for a period of less than 12 months. Investing through SIP at early age makes your investments earn faster Flexibility to redeem units (except ELSS, which have a lock in period of 3 years) at any time or make changes in monthly/quarterly investment amounts. Finally: SIP is one of the best investment strategies for long term investors during these volatile market times when timing the markets becomes next to impossible. It is ideal for small investors who don't have lump-sum to invest or the time to track their investments. To get maximum returns from SIP, investors will have to select the best plan suited to them based on their investment objectives, amount to be invested and time frame (monthly, quarterly).

To know more on how we can help you invest in Mutual Funds, please visit the nearest branch or call our helpdesk @ 040 - 44232323 or email us at mutual@zenmoney.com

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Focus Stocks
CMP: Rs. 145.40 Sundaram-Clayton Limited EPS (TTM): Rs. 9.83
Company Profile: Sundaram-Clayton Limited (SCL) was incorporated in 1962 and is a part of $4 billion TVS group company based in Chennai. SCL is a leading supplier of aluminium pressure die castings, gravity die-castings and low-pressure die-castings for heavy commercial vehicles, passenger cars and two wheelers. Some of its products are flywheel housing, gear housing, clutch housing, etc. The company has three plants in Tamil Nadu that are located at Ambattur, Hosur and Padi. Two of the plants are engaged in the production of aluminium die-castings. Its dealer network is spread across the country. In 2009, the Clayton Dewardie Holdings has sold its entire stake in the company and TVS group currently owns 80% of the stake in the company. Strengths: 50.00 Sundaram-Clayton Sensex At current price, the stock is trading at a significant discount to the combined 40.00 valuation of its operations and its 57% stake in TVS Motors, which it is holding 30.00 20.00 either directly or through its subsidiaries. 10.00 The scheme of arrangement could unlock value for shareholders. For every TWO 0.00 shares of Sundaram Clayton the existing shareholders will get, ONE share of -10.00 -20.00 Sundaram Clayton (SCL) which will be left with castings business and ONE share of Sundaram Investments (SIL) which owns majority stake in TVS Motors. The -30.00 listing of SCL and SIL is subject to statutory approvals.
04, Nov, 10 05 May, 11 19 May, 11 18 Nov, 10 02 Dec, 10 16 Dec, 10 30 Dec, 10 12 Aug, 10 26 Aug, 10 09 Sep, 10 23 Sep, 10 10 Feb, 11 24 Feb, 11 10 Mar, 11 24 Mar, 11 13 Jan ,11 27 Jan, 11 02 Jun, 11 16 Jun, 11 30 Jun, 11 07 Oct, 10 21 Oct, 10 07 Apr, 11 21 Apr, 11 29 Jul, 10 14 Jul, 11

Conservative Investor

FY 07 FY 08 FY 09 FY 10 FY 11 As a preferred vendor for Aluminium castings 4300.47 5006.01 4068.12 4484.26 5423.35 for major OEMs in India and abroad, SCL is likely to benefit from the higher capacity utilization as 10.46 8.16 4.99 3.93 5.50 well as recent capacity additions 145.45 85.28 -70.99 -177.14 -131.23 18.97 18.97 9.48 9.48 18.97 Concerns: 671.60 735.43 587.67 422.59 529.40 The company's revenues are dependent on user industries like automobiles which are prone to 891.37 1315.12 1558.43 1929.53 1536.42 economic downturns. 79.33 45.24 -37.44 -93.43 -34.59 Company is susceptible to the fluctuation in the 364.03 397.68 314.95 227.89 144.54 prices of raw materials. Any adverse movement 120.00 170.00 75.50 40.00 50.00 in prices of Aluminium could adversely affect 80.00 80.00 80.00 80.00 80.00 its profit margin. Outlook:The company is expected to unlock the value for its shareholders through the scheme of arrangement, which when implemented would result in listing of two entities each with core aluminium casting business and investments in TVS motors. Post this arrangement, the core business of the company i.e. Aluminium casting is expected to benefit from the higher capacity utilization as well as from the recent capacity additions, due to the company's strong relationship with the global as well as domestic OEMs. The listed investment entity could mirror image the performance of TVS Motors, thus creating value for shareholders.

Key Financials (Rs. Cr.) Total Income OPM (%) PAT Equity Reserves Total Debt EPS (Rs) Book Value (Rs) Dividend (%) Prom. Hold (%) Last 5 Quarters

CMP: Rs. 100.60

GNFC

EPS (TTM) : Rs. 17.15

Moderate Investor

Company Profile: GNFC, incorporated in 1976, is a joint sector company promoted by the Government of Gujarat and Gujarat State Fertilizers and Chemicals Limited. The company mainly operates in two segments namely, Fertilizers (53%) and Chemicals (46%). GNFC manufactures and distributes nitrogenous and phosphatic fertilizers, such as urea, ammonium nitro-phosphate (ANP) and calcium ammonium nitrate (CAN). The company is engaged in handling and importing Urea, Diammonium Phosphate (DAP) and Muriate of Potash (MOP). In addition, GNFC also handles traded fertilizers like Single Super Phosphate (SSP) DAP and Urea. It also manufactures chemicals such as Methanol, Formic Acid, Nitric Acid and Acetic Acid which are mainly used in rubber, textiles, tanneries and pharmaceuticals industry and are also being exported to international markets. The company has recently completed capex projects of around Rs. 2000 crore out of a total capex outlay of around Rs. 4000 crore planned to be completed by FY13. 30.00 Strengths: GNFC. Sensex 20.00 The Company has Long-Term/Annual Contracts for supplies of most of the critical 10.00 raw materials like Fuel Oil, Coal, Rock phosphate, Benzene, Toluene, Caustic Soda 0.00 Lye, Chlorine and packing materials etc. which are essential for continuous -10.00 production. -20.00 GNFC is the only manufacturer of Glacial Acetic Acid through the cutting-edge -30.00 Methanol route in India and it has a market share of 38% & 32% respectively in the Concentrated Nitric Acid & Weak Nitric Acid market.
04, Nov, 10 05 May, 11 19 May, 11 02 Dec, 10 16 Dec, 10 30 Dec, 10 18 Nov, 10 12 Aug, 10 26 Aug, 10 09 Sep, 10 23 Sep, 10 10 Feb, 11 24 Feb, 11 10 Mar, 11 24 Mar, 11 13 Jan ,11 27 Jan, 11 02 Jun, 11 16 Jun, 11 30 Jun, 11 07 Oct, 10 21 Oct, 10 07 Apr, 11 21 Apr, 11 29 Jul, 10 14 Jul, 11

FY 11 The Company regained its profitability as it re commissioned its operations in ammonia plant 2989.45 which was shutdown for most part of 2010. 17.42 Concerns: 266.53 Volatility in key chemicals like Nitric acid, 155.42 Formic acid, Methanol etc is adding pressures 2131.45 to the profit margins of the company. 1139.50 Higher interest expense and rising input costs 17.15 will affect the margins of the company. 147.14 Primary Marketing Zone, comprising of Gujarat, 32.50 Maharashtra, Madhya Pradesh and Rajasthan 41.18 are largely drought-prone areas. Outlook: GNFC's recent capacity expansion of Weak Nitric Acid (WNA II plant), commissioning of Ethyl Acetic, TDI plant and the ongoing feedstock conversion of FO (Fuel Oil) /LSHS (low sulphur high stock) urea units to natural gas (NG) units, are expected to result in higher revenues and profits for the company, in the coming years. The company's joint-ventures with GSFC and GACL in Dahej along with a favorable policy revision of increasing NBS subsidy augur well for the company in the long term. Key Financials (Rs. Cr.) Total Income OPM (%) PAT Equity Reserves Total Debt EPS (Rs) Book Value (Rs) Equity Dividend % Promoters Holding FY 07 2829.56 21.81 326.68 155.44 1415.19 351.58 21.02 101.04 42.50 41.18 FY 08 3479.37 20.14 373.48 155.44 1690.26 313.51 24.03 118.74 42.50 41.18 FY 09 2989.03 16.79 228.30 155.44 1858.68 355.90 14.69 129.58 32.50 41.18 FY 10 2603.53 13.92 128.37 155.42 1923.63 555.05 8.26 133.77 32.50 41.18

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28 Jul, 11

28 Jul, 11

Focus Stocks
CMP: Rs. 238.00 Jyothy Laboratories EPS (TTM): Rs. 8.53
Company Profile: Jyothy Laboratories Limited (JLL), incorporated in 1992, is a leading FMCG manufacturer engaged in manufacturing and marketing of fabric whiteners, soaps, detergents, mosquito coils, incense sticks and personal care products. The company's well known flagship brand 'Ujala' is a market leader in its category with over 70% share. The company's key brands include Ujala, Maxo, Exo, Jeeva and Maya. JLL forayed into the laundry segment in 2009 through its subsidiary Jyothy Fabricare Services Limited under the brand name "FabricSpa". In addition to its own brands, Jyothy Labs has ventured into the business of coffee, tea and spiritual/astrological dhoops. The company recently bought Henkel AG's majority stake in its Indian subsidiary - Henkel India Ltd. (HIL) for Rs 617 crore. The deal includes Henkel's entire portfolio that includes Henko and Chek detergents, Pril dish cleaners and Fa deodorant. 30.00 Strengths: Jyothy Lab Sensex 20.00 The company continues to dominate the fabric whitener category with its flagship brand 'Ujala'. Its other brands -- Exo and Maxo, have also garnered significant 10.00 0.00 market share in the dish-wash and mosquito repellent segments respectively. -10.00 JLL's business model of targeting unexplored and untapped segments and its focus -20.00 on both rural and urban markets differentiates it from its peers. -30.00 The company's established brand equity with successful brand extensions, a strong distribution network of 3,500 distributors and direct reach to over 2.9 million retail outlets enables it to compete with leading FMCG companies. Concerns: Key Financials (Rs. Cr.) FY 07 FY 08 FY 09 FY 10 FY 11 The FMCG market is highly competitive leaving hardly any scope for price hikes, which puts Total Income 410.65 390.37 369.52 614.11 642.65 pressure on the margins. OPM (%) 15.96 19.27 15.25 17.85 14.87 The company's over dependence on its Ujala brand PAT 51.72 44.91 38.36 74.34 68.76 is a major concern as the fabric whitener market is Equity 7.26 7.26 7.26 7.26 8.06 already saturated; this leaves the company with Reserves 285.34 318.23 339.61 380.50 623.04 little growth prospects for the brand. Total Debt 0.78 0.52 0.52 13.05 69.06 Post acquisition of HIL, the interest cost burden of EPS (Rs) 7.12 6.19 5.28 10.24 8.53 JLL has increased putting pressure on its earnings. Book Value (Rs) 40.30 44.83 47.78 53.41 78.30 Outlook: The acquisition of HIL has enabled JLL Equity Dividend % 125.00 200.00 200.00 400.00 500.00 to become a sizeable player in the Indian FMCG Promotors Holding 70.13 63.12 63.12 63.16 63.75 sector and has provided it with an entry point to
04, Nov, 10 05 May, 11 19 May, 11 18 Nov, 10 02 Dec, 10 16 Dec, 10 30 Dec, 10 12 Aug, 10 26 Aug, 10 09 Sep, 10 23 Sep, 10 10 Feb, 11 24 Feb, 11 10 Mar, 11 24 Mar, 11 13 Jan ,11 27 Jan, 11 02 Jun, 11 16 Jun, 11 30 Jun, 11 07 Oct, 10 21 Oct, 10 07 Apr, 11 21 Apr, 11 29 Jul, 10 14 Jul, 11

Moderate Investor

the premium home care segment since most of Henkel's products are positioned at the premium end. The company's future earnings would depend on how well it is able to synergize the combined product line in the coming years. JLL has already started an aggressive turnaround strategy to revitalize HIL's business and is expecting positive results from the acquisition from 2012-13 onwards.

CMP: Rs. 169.50

Everest Industries Ltd.

EPS (TTM): Rs. 34.13

Company Profile: Everest Industries is one of the biggest building solutions company in India. The company's product line stretches across: Roofing, walls, ceiling, flooring, cladding, door and steel building. The company manufactures roofing sheets from its five manufacturing plants which have a combined manufacturing capacity of more than 5 Lakh MTPA. The company also has an installed capacity of 136,000 MT for manufacturing of Fiber cement boards. The company's steel buildings business has been growing very rapidly in the last few years and presently has 5% market share in the same. As a part of its sales network, the company has over 6000 retail points spread across the country, supported by 1285 highly qualified and experienced engineers, designers and technicians. Strengths: 30.00 Everest Ind. Sensex 20.00 The company has second highest market share of 14% in the fiber cement/ asbestos 10.00 cement sheet products segment in India. 0.00 -10.00 Everest's steel buildings division has clocked a growth of 51% (Y-o-Y) in Q1 of -20.00 FY12 and contributed 22% to the company's top-line in FY11. -30.00 -40.00 In the last three years company's top-line has grown at a CAGR of 32.33% and the -50.00 bottom line of the company at 68.22%. The Company is expected to clock a growth rate of above 20% (Y-o-Y) in top-line in FY12. Concerns: Key Financials (Rs. Cr.) FY 07 FY 08 FY 09 FY 10 FY 11 The demand for company's main product Total Income 314.54 308.46 542.91 670.07 748.73 Asbestos Cement sheets and other derived OPM (%) 9.36 10.50 9.90 10.45 10.35 products is significantly affected by monsoons PAT 11.69 7.34 13.53 30.03 35.50 and is restricted mostly to the rural areas. Equity 14.80 14.80 14.80 14.82 15.08 The margins in steel buildings business is Reserves 119.72 126.54 136.53 158.88 193.42 between 6 to 7 percent. Total Debt 71.35 135.22 189.20 128.18 122.69 The company's main raw materials, Cement, EPS (Rs) 7.90 4.96 9.14 20.26 23.54 Asbestos and Steel continue to be at very high levels thus affecting the profit margins. Book Value (Rs) 90.89 95.50 102.25 117.21 138.26 Equity Dividend % 40.00 40.00 25.00 45.00 45.00 Outlook: The company's new business venture Promoters Holding % 50.17 50.06 49.97 49.86 49.83 namely, Steel Buildings division is growing at a healthy rate (of 51% in Q1 FY12, Y-o-Y and 29.3% in FY11 Y-o-Y). Off-late the company's main business division namely, building products has also been maintaining a healthy growth rate. The company with its broad product portfolio is well placed to take advantage of emerging opportunities in the building solutions space.
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27 Jul, 11

28 Jul, 11

Stock List
We have provided below a short list of companies which we feel are currently available at attractive valuations, particularly when viewed with a medium\long term perspective. The CMP and the Market Cap. are based on 29/07/2011

CONSERVATIVE INVESTOR (Low Risk Profile)


Sl. Company Name No.
1 2 3 4 5 Power Grid Bharat Electronics Piramal Healthcare Ltd. Sundaram - Clayton Ltd Noida Toll Bridge

Industry
Power Transmission Defense Pharmaceuticals Auto Parts & Equipment Roads & Highways

CMP(Rs.) (29/07/11)
104.90 1756.60 381.75 145.40 25.70

EPS* (Rs.)
6.19 107.68 25.00 9.83 2.09

BV* (Rs.)
44.12 623.21 706.15 74.26 24.48

FV Div (Rs.) (%)


10.00 2.00 5.00 10.00 10.00 156.00 600.00 50.00 0.00

Equity Market Cap Time (Rs.Cr) (Rs.Cr) Frame


48565.87 14052.80 6409.58 551.65 478.51 L M,L M,L M,L L 80.00 33.58 18.97 186.19

5.00 4629.73

MODERATE INVESTOR (Medium Risk Profile)


Sl. Company Name No.
1 2 3 4 5 Oil India Jyothy laboratories GNFC JB chemicals Venky's

Industry
Oil Drilling & Exploration Household Products Fertilizers & Chemicals Pharmaceuticals Packaged Foods

CMP(Rs.) (29/07/11)
1317.10 238.00 100.60 141.85 601.85

EPS* (Rs.)
134.59 8.53 17.15 13.96 77.77

BV* (Rs.)
684.20 79.30 147.14 84.41 292.00

FV Div (Rs.) (%)


10.00 375.00 1.00 10.00 2.00 10.00 500.00 32.50 100.00 50.00

Equity Market Cap Time (Rs.Cr) (Rs.Cr) Frame


240.45 8.06 155.42 16.90 9.39 31669.67 1918.28 1563.53 1198.63 565.14 M,L L L M,L L

AGGRESSIVE INVESTOR (High Risk Profile)


Sl. Company Name No.
1 2 3 4 5 GSFC OCL India Inox leisure Ashiana Housing Everest Inds

Industry
Fertilizers & Chemicals Cement & Refractories Film Exhibition Realty Building Solutions

CMP(Rs.) (29/07/11)
400.75 97.50 46.00 152.50 169.50

EPS* (Rs.)
98.24 20.11 0.81 23.28 34.13

BV* (Rs.)
372.84 155.33 50.97 94.01 155.64

FV Div (Rs.) (%)


10.00 2.00 10.00 10.00 10.00 70.00 200.00 0.00 17.50 45.00

Equity Market Cap Time (Rs.Cr) (Rs.Cr) Frame


79.70 11.39 61.90 18.61 15.08 3193.98 555.26 284.74 283.80 255.61 M,L L L L L

* Trailing 12 Months; M = Medium Term (3-12 Months); L = Long Term (12 Months and above)

EV/EBIDTA Ratio
EV/EBIDTA ratio is the Enterprise Multiple used to determine the value of a company. It is the ratio of the Enterprise Valuation of the company compared to the EBIDTA that the company generates. The enterprise multiple looks at a firm as a potential acquirer would, because it takes debt into account - an item not included in other multiples like P/E ratio. In EV/EBIDTA, EV refers to Market capitalization + Debt Cash & Equivalents while EBIDTA is the Earnings before interest, tax and depreciation. For Example, if EV of a company A is Rs. 50000 Cr and EBIDTA is Rs.5000 Cr, then EV/EBIDTA ratio is calculated as 50000/5000 = 10 A low ratio indicates that a company might be undervalued. Enterprise multiples can vary depending on the industry. Therefore, it's important to compare the multiple to other companies or to the industry in general.
Disclaimer This document was prepared by Zen Securities Ltd (ZSL), on the basis of publicly available information, internally developed data and other sources believed to be reliable. The material contained herein is for information only and under no circumstances should be deemed as an offer to sell or a solicitation to buy any security. ZSL or its employees, may, from time to time have positions in the stocks mentioned in this document. While all care has been taken to ensure that the facts are accurate and the opinions are reasonable, ZSL shall not be liable for any loss or damage howsoever arising as a result of any person acting or refraining from acting in reliance on any information contained therein.

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