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Sunday, August 22, 2010

Magnum Ventures Ltd:-Hidden gem

Scripscan:Magnum Ventures Ltd
Duration:4-6 months

Story:Promotedby Jain family, MVL has 2 divisions i.e. Paper and 5 Star Hotel in Ghaziabad.Company had come out with an IPO at a price of Rs 30 per share to part finance setting of the hotel project at Sahibabad which is the prime location of Delhi-Meerut National Highway NH-24 and upgradation of existing paper unit to the tune of Rs 53 cr.

Paper Division: This unit i ssituated at Sahibabad Industrial Area. Licensed capacity of this unit is 85000 tpa. In 2009, massive technology upgradation programme had taken place by way of Modernisation/Replacement of Plant & Machinery for Duplex Board Machine which includes chemicals, Fibre recovery section and recycling of back water system.Company has also started commercial operations of Precipitated Calcium Carbonate and it is being used for PVC Compounding, Rubber Compounding, Plastic Paints, Paper industry, Tooth Paste, Cosmetics etc.

Paper Products range:
White Duplex Board: End use for Carton Printing, Jobs such as Tea Pockets, Tooth paste and Note Book covers
White Back: End use for Readymade garmetn cartons, Book covers and Pharmaceutical boxes
White duplex Board HWC: For High-end printing jobs used for Carton printing for Tea, Toothpaste etc
White Cream Paper: Used in commercial printing business like Books, stationary etc
Map Litho Paper: All commercial printing publications like Diaries, Books and Stationaries
Hotel Division: IPO had been launched mainly to fund hotel project as company set up, initially a Four Star hotel with 216 rooms. Subsequently, Hotel has been upgraded to Five Star Grade. Hotel is known as COUNTRY Inn and Suites by CARLSON, USA. Hotel location is approx 35 km from Delhi airport, 20 km from Connaught Place. This is in vicinity of thickly populated posh colonies liek Kaushambi, Vaishali, Vasundhara, Indirapuram adn Ghaziabad.

Financial Performance: For 2009-10, MVL has reported sales of 132.50 crores and incurred loss of Rs 19.30 cr, after providing Rs 23 cr for depreciation. Thus, company made cash profit of Rs 4 crores. Equity is 37.60 crores. Losses are mainly due to high interest burden and higher depreciation.

Valuations:Its hotel has 216 rooms.For setting up a new hotel in place like Ghaziabad, total project should be more than Rs 4 cr per room. Even if we take valuation of MVL's hotel @ Rs 3 cr per room,. market value of its hotel division alone works out to Rs 648 crs. And from this, if we exclude total debt of Rs 300 cr (part of debt belongs to paper division as well), value of Hotel division alone is more than Rs 348 cr. Valuation of Paper division will be separate.Against this, Market cap of Magnum Ventures is just Rs 38-40 crs. Magnum should be in a position to report profits after 2 quarters.

Conclusion:At 10-11rs, Magnum Ventures appears a value buy (case of bottom fishing), worth taking the risk. In future if promoters decide to encash value of hotel division and sell it (there will be plenty of takers for this fully upgraded New property), Magnum can make huge profits.Downside from CMP is very very low and scrip can give good returns if management decide to sell the hotel division.
Source:hkg and guli

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