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Monday, June 8, 2009

Puravankara Projects Ltd and Raymond Ltd:-Future growth prospects and outlook

1)Scripscan:Raymond Ltd
cmp:159
Traded in:Nse-bse

Story:Raymond"s near-term earnings will remain subdued with denim continuing to be a huge drag on overall performance. The management has indicated that it may reduce its involvement in the denim business - this can be a time-consuming process.Raymond''s 50:50 denim joint venture with Belgian denim major UCO NV continues to pile losses (Q1 ''09 loss Rs 40 crore, FY08 loss Rs 120 crore). Losses are driven by sub-optimal capacity utilisation in overseas facilities, continued poor denim market and rising cotton prices. Worsted capacity expansion by 7 million metres at Vapi is on track. This will take the total capacity to 38 million by june ''09 and can potentially help free up about 140 acres at Thane, where a part of its worsted capacity is currently located.A big global broekrage estimates that this land may be worth over Rs 200 per share. However, the Thane closure is unlikely to be taken up before elections next year. Worsted fabric performance is likely to improve in the current fiscal.I have assumed a 4% year-on-year (y-o-y) rise in realisations driven by price increases and a richer mix. This, together with slightly weaker wool prices, should drive EBIDTA margin expansion by 150 bps. FY10 will be a year of consolidation and streamlining of businesses. The management intends to entirely focus resources on 4-5 key brands. To this end, it aims to expand its retail network judiciously, with a larger proportion of stores through the franchise route in tier-III and IV towns. Raymond added 31 stores in Q1, to reach 518 stores.Much better bets are available in the market so one can switch from raymond at higher level to high growth orinted midcaps.

1)Scripscan:Puravankara Projects Ltd
cmp:109
Traded in:Nse-bse

Story:Its asset-light business model, strong balance sheet and good financial disclosures make Puravankara an excellent developer. However, high floor space index (FSI) on its landbank, coupled with over-concentration in the residential vertical and in Bangalore, are threats in the current environment of weakening demand and tight financial markets. Given its net worth, Puravankara has an asset-light model with a smaller land bank and at a lower cost (unlike peers). Furthermore, its land bank is largely paid for, implying less time and risk in securing clear land titles.The low gearing of 48% should enable it to replenish its land bank during cyclical slowdowns. I believe that financials will be driven by scaling-up operations, coupled with moving up the value chain. The high FSI (~3.1x vis-Ã -vis ~1.2x for peers) on its land bank in the current environment of strong headwind can make marketing a challenge. Though Puravankara has been around for nearly two decades, its completions to date are lower than its peers in Bangalore.Concentration in residential (~80% of land bank) and Bangalore (63%), which is seeing significant oversupply, are other concerns. The trading price of Rs 109 is at a 55% discount to discounted cash flow (DCF)-based NAV of Rs 236.Puravankara may participate in the real estate ralyy,if it happens at all but its a very risky bet meant for only high risk apetite investors.

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