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Saturday, November 7, 2009

Federal-Mogul Goetze India Ltd and Riddhi Siddhi Gluco Biols Ltd:Future growth prospects and outlook,buy/hold/sell,latest result/analysis/recomendatio

1)Scripscan:Federal-Mogul Goetze India Ltd

Story:Goetze (India) Limited was established in 1954 as a joint venture with Goetze-Werke of Germany. Goetze-Werke of Germany is now owned by Federal-Mogul Corporation, a $6.3 billion global company and one of the leading manufacturers of automotive components in the world. In 2006, US-based Federal-Mogul acquired the Indian promoters’ stake, raising its holding to 50.11%, to take control of the company after which the name of the company changed to "Federal-Mogul Goetze (India) Limited"(FMG). Federal Mogul, one of the promoters of Goetze (India) and a US auto-parts major acquired 62,30,000 equity shares of the company at Rs 222.50 per share, constituting 24.64% of the equity share capital. There was rights issue in 2008 at Rs.56 per share, which did not get adequate response from the investors and promoters subscribed to the Shares and increased their holding to 74.98%. FMG has a paid-up equity capital Rs 55.63 cr. of which promoters hold 74.98%., FII/MF’s hold 12.42%, Bodies corporate hold 1.84% and Public holds 10.76%.FMG is the largest manufacturer of pistons and piston rings in India. The parent Federal-Mogul is a leading auto-ancillary company with a very strong presence in the diesel vehicles segment. FMG is involved in the manufacture of auto components like pistons, piston rings, sintered parts and cylinder liners covering a wide range of applications including two/three-wheelers, cars, SUVs, tractors, light commercial vehicles, heavy commercial vehicles, stationary engines and high output locomotive diesel engines. FMG has 4 manufacturing facilities at Bengaluru (Karnataka), Parwanoo (Himachal), Bhiwadi (Haryana) and Patiala (Punjab) and 22 pan India marketing offices. It makes the widest range of piston rings and pistons varying from 30mm to 300mm diameter. It also manufacturers sintered parts light metal castings and cylinder liners covering a wide range of applications including two/three-wheelers, cars, SUVs, tractors, light commercial vehicles, heavy commercial vehicles, stationary engines and high output locomotive diesel engines. It is market leaders both in OEM and aftermarket. Besides, about 10% of its business is from exports. Within the original equipment manufacturing (OEM) segment, FMG’s revenues are spread across all auto players including Tata Motors, M&M, Bajaj Auto and TVS. There are also expectations that the US based auto parts major parent may use FMG as an outsourcing hub.FMG reported net profit of Rs 23.68 cr. in the Q3 ended September 2009 as against net loss of Rs 2.86 cr. during the previous quarter ended September 2008. Sales rose 16.52% to Rs 204.42 cr. in the Q3 ended September 2009. For the half year ended June 2009, FMG has posted net sales of Rs 354.58 cr. and net profit of Rs 25.66 cr.. For the year ended December 2008, FMG had posted net sales of Rs 706.6 cr. and net loss of Rs 6.89 cr. The Indian automobile industry is on fast revival after tough period. 2-Wheelers and passenger cars sales are already in “Topgear”. With confidence returning in economy, CV and Capital goods sales are likely to see upward trend after almost 2 years of slow down. Increased focus on rural economy can boost tractors sales in a big way. Going forward, FMG is expanding its capacity, by installing a new plant at Chennai, which is likely to begin operations next year.In CY09, it is witnessing good performance and based on nine months results, FMG is likely to post an EPS of Rs.12-13 against loss in CY08. At CMP of Rs 120, it trades at forward PE of 9.6, which is attractive for a company that is the biggest player in its line of business. From Rs 449 on 5 January 2007, the FMG scrip tumbled to Rs 28 by 9 March 2009. In view of the improved results, strong parent and good medium term prospects, Investors can start accumulating the stock at current levels and add more on declines for decent returns of 40%-50% over the next 6-8 months.

2)Scripscan:Riddhi Siddhi Gluco Biols Ltd

Story:Riddhi Siddhi Gluco Biols Ltd (RSGB) is the largest manufacturer of various types of starch, liquid glucose, dextrose monohydrate and other derivatives, high maltose corn syrup and byproducts like corn gluten meal and enriched fibre, which are used in various applications such as chocolates, processed foods, glass and medicines, paper, glucose and textiles. RSGB controls about 17% of the total starch market. About 60-65% of its turnover comes from industry majors such as Nestle, Hindustan Unilever, Ranbaxy, Ballarpur, ITC, Grasim, Indian Rayon and Godrej. Catering to a sizeable market in India, RSGB has continuously tried to increase capacities and feed the growing industry demand, which is about 12-15% at present. Per capita consumption of corn starch in India is estimated to be about 1 kg as compared with 64 kg in US and the world average of 6 kg, which leaves room for a sustainable growth in the years to come. In 2006, RSGB, the largest corn wet milling company in the Indian subcontinent having the highest crushing capacity, had joined hands with France’s Roquette Freres, a leading player in this industry with a consolidated turnover exceeding $4.5 billion, to improve the yield parameters and develop new products.RSGB’s new capacities are already in place and for technical expertise; it has found a partner in Roquette Freres, France, which is the world’s fifth largest starch company. Roquette also has a 14.93% stake in RSGB. Roquette, which sells about 1,000 products, will help RSGB increase its current product offering of 40 to add more value added products in its portfolio by way of providing technology and know-how. These new value added products will be for nutrition, biotech and health and dextrose for sugar free goods. These value added products will also help RSGB in acquiring a larger pie of the existing market and enter new industries. Considering these developments, RSGB is targeting a market share of 25% in two years as compared with 17% now. RSGB currently generates about 65 per cent of its revenues from value added products. It is planning to increase this to 80% over the next two years. RSGB is also working closely with brand-enhancing food companies like Nestle, Heinz, Cadbury, Hindustan Unilever and Britannia and pharmaceutical companies like Ranbaxy, Wockhardt, Sun Pharma and Nicholas Piramal with repeat business and sustainable revenues.Net profit of RSGB rose 816.00% to Rs 9.16 cr. in the Q2 ended September 2009. Sales rose 30.49% to Rs 164.44 cr.. For the half year ended Sept. 2009, the co’s net profit stood at Rs 14.3 cr.(up 55%) on net sales of Rs 320.76 cr.(up 29%). For the year ended March 2009, RSGB had posted net sales of Rs 533.9 cr.(up 60%) and net profit of Rs 13.98 cr.(down 30%). The net profit was down mainly due to higher interest burden, forex losses and higher depreciation. On a equity of 11.13 cr.(Promoters’stake-43%), the EPS stood at Rs 12.5 and the dividend declared was 20%.With global economy showing signs of recovery, consumers’ willingness to spend more and demand picking up, demand for products like starch & glucose is also likely to pick up. Also, FMCG companies have continued to grow by volume and there by would in turn increase the demand for raw materials/inputs used in bakery & confectionery products. At the current market price of Rs 139, the stock is trading at a P/E multiple of 11 times its FY09 earnings and 8.4 times FY10E earnings (Rs 16-Rs 17). RSGB’ market cap stands at Rs 157 cr, against expected net sales of Rs 650 cr. for FY10. Considering that the company is the largest player in its sector, investors can expect good returns over the medium-long term. Investors can start accumulating the stock at current levels and add more on declines for decent returns of 40%-50% over the next 6-8 months.

Source:Sanjay Chhabria

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