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Sunday, October 4, 2009

DCM Shriram Consolidated ltd and Indage Vintners Ltd:Future growth prospects and outlook,buy/sell?

1)Scripscan:DCM Shriram Consolidated Ltd

Story:Diversified companies is a category of stocks that fund managers don’t like. DCM Shriram Consolidated Limited has interests in sugar, fertilisers, chemicals, hybrid seeds, building systems and cement. All of these segments are doing well. Its agribusiness comprises fertiliser, sugar and seeds and contributes to over 50% of the turnover. It also has a rural business centre – Hariyali Kissan Bazaar with 301 outlets throughout the country. Agro-input business produces urea and markets other brands of fertilisers and pesticides. The company has started procuring gas from Krishna-Godavari Basin for its urea production. It has four sugar plants with crushing capacity of 33,000 tonnes per day (tpd) and a power generation capacity of 70.5MW. All the sugar plants are self-sufficient in meeting their power requirement from the captive plants.The chemical division (contributes 23% to the turnover) manufactures chlor-alkali and related chemicals like caustic soda lye and flakes, liquid and gaseous chlorine, hydrochloric acid and stable bleaching powder. The manufacturing facility is in Kota (Rajasthan) and Bharuch (Gujarat). It has completed the chlor-alkali expansion from 200tpd to 440tpd at its Bharuch facility along with commissioning of the 48MW coal-based power plant. It manufactures multiple grades of PVC resins. The total capacity is 70,000tpa. It uses the calcium carbide route to manufacture PVC resins, whereas all other manufacturers use the ethylene route. The surplus calcium carbide produced in its plant is sold to chemicals and steel industries after its own requirements are met. It manufactures unplasticised PVC windows and doors. DCM is into building systems too; Fenesta has become a leading brand. DCM is a turnaround story in a year that has been tough for many companies. For 2008-2009, its turnover was up 36% and operating profits have been accelerating. In the March 2009 quarter alone, operating profit and net profit were Rs120 crore and Rs81 crore, respectively. Given the growth momentum, DCM Shriram Consolidated can end FY09-10 with a profit of Rs180 crore which will mean an EPS of Rs11. At the current price of around Rs51, the stock is available at five times its estimated profit for this year. Its market-cap to sales is 0.25 times and operating profit to market-cap is 2.44 times. Even if the valuation remains the same, the stock could go up by 60%-70%, thanks to possible profit growth. Buy the stock at Rs40.

2)Scripscan:Indage Vintners Ltd

Story:This is India’s only listed wine company and has pioneered wine-drinking in India. But investors, whoever has been with the company, have had to wait for years to see some profits partly because it takes more than a decade to set up the complete infrastructure -- from planting vines to getting the wine right to setting up a marketing network. Indage Vintners (earlier Champagne India) has been at that long-drawn process since the 1980s. By the time shareholders could reap the benefits in 2007, the promoters planned a massive expansion, including buying wineries overseas. In 2007, the stock price had touched Rs981 fuelled by the high hopes of investors and the ambitious plans of promoters. But, as happens, the timing was wrong. Most of the world plunged into a recession, cost of debt soared to Rs21 crore and local demand slackened. Indage’s shareholders were in a mess again. The amazing success of Shamrao Chougule in making a success of wine growing in India against all odds and the uniqueness of the business has attracted an interesting set of investors to the company. Among the prominent holders are Arisaig Partners Asia (10%), Anil Ambani’s Sonata Investments (5%), high net worth investor Rakesh Jhunjhunwala (3%) and Merrill Lynch Capital Markets (4%). Indage is in a restructuring mode. It is paring down its debt and may either drop or go slow on expansion plans and is cutting costs. Meanwhile, the core Indian operations are doing alright. For the first nine months of 2008-09, Indage reported an operating profit of Rs45 crore and a net profit of Rs18 crore translating into a nine-month annualised EPS of Rs16. It has not yet declared the results for Q4. However, EPS for trailing 12 months is 20. For the kind of company it is, Indage will be able to attract investors to fund its temporary setback. Viewed in this light, the stock price is reasonable. Besides, the market is not factoring in some 2,000 acres of land it owns for growing grapes. Buy the stock at its current price

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