GRASIM SAMRUDDHI DEMERGER: A COMPLICATION, A CONFUSION.

Grasim has declared the demerger of Samruddhi cements, its ratios and demerger process has become some what complicated and confusing for any common shareholder, here I have tried to elaborate some of its key points –

The demerger scheme says every shareholder of Grasim will get 1 share of Samruddhi. Now, Samruddhi has 26 cr shares, with the Face Value of Rs.5.00, Book Value of Rs.250. Grasim will transfer Rs.2100 cr of debts to Samruddhi.

Grasim will hold 65% in Samruddhi & 35% of Grasim shareholders will hold 35% in Samruddhi.

Samruddhi will be listed in stock exchanges hence, providing exit option to its shareholders, further it will be merged with Ultra Tech Cement.

The record date for this merger has been set as 1st October 2009,

So, a share holder of Grasim will get 1 Samruddhi for every 1 Grasim held,

And he will get 4 Ultra Tech Cement shares for every 7 Samruddhi he holds as on record date declared by Ultra Tech Cements. So the price of Samruddhi will depend on the last closing price of Ultra Tech Cements.

On 10th March 2010, A block deal of 100000 shares of ULTRA TECH CEMENTS at Rs.1103/share was done.

Grasim Industries Ltd

I expect the Cement Sector to add around 76mtpa of capacity over FY2010-12E. Such a large capacity addition is expected to eventually create over supply in the market, as demand is not expected to catch up with supply in the short term. Nonetheless, on a positive note, a stable government at the Centre is expected to boost infrastructure spending in the country and, along with the ongoing recovery being witnessed in Real Estate activities, concerns on the demand front appear to have reduced considerably. However, All-India capacity utilisation is expected to drop to 78% in FY2010 from around 85% in FY2009. In the case of Grasim, it is currently in the process of increasing its cement capacity by 4.5mtpa at Kotputli and by 4.4mtpa at Shambhupura, by 3QFY2010E, taking its total standalone capacity to 25.8mtpa in FY2010E. Along with the capacity expansions of 4.9mtpa at Ultratech, the total capacity of the merged entity will touch 48.9mtpa by end-FY2011E. Grasim is India’s sole player in the VSF business and exports a substantial portion of its output. The division, after going through a lean patch over the past one year, due to the overall economic slowdown, has begun to show signs of revival in the current quarter. The company recorded its highest-ever quarterly sales for this division during 2QFY2010, while also achieving the highest-ever operating profit, on account of a substantial reduction in the prices of raw materials such as pulp and caustic soda. The company plans to set up an 80,000MT Greenfield project, at a cost of Rs1,000cr, to meet the growing demand. Going ahead, the volume outlook for this division looks positive, both in the domestic and the international market, although there is little scope for any further price increases, due to a growing price differential between other textile fibers, such as polyester and cotton. We have derived the value of Grasim on an SOTP basis.

I have valued the company’s 65% stake in Samruddhi at an average of an EV/tonne of US $100/Tonne and an EV/EBITDA of 6x FY2011E, based on the de-merger plan. I have arrived at a value of Rs725/share for Grasim’s direct holding in Samruddhi. The value attributable to the 35% stake of Grasim’s shareholders in Samruddhi stands at Rs434/share. We have valued the VSF business at 5x EV/EBITDA, implying a P/BV of 1.75x on an FY2011E basis. I have assigned the valuation multiple based on the VSF business’s superior RoCE as compared to its global peers (which are trading at 3x P/BV, based on CY2010E book value). I have valued the company’s 54.8% stake in Ultratech by assigning a holding company discount of 20%. Hence, our SOTP Fair Value for Grasim works out to Rs2, 548. I upgrade the stock to buy.

SUZLON ENERGY Q3 FY2009-10 RESULT INSIGHTS

NET DEBT REDUCTION- Q3 FY 10
-Consolidated net debt as on 31st March 2009 - Rs. 11800 cr.
-Consolidated net debt as on 31st December 2009 - Rs. 10488 cr.
-Net consolidated debt reduced by Rs. 1312 cr.
-Profit from the Sale of 35.22% OF HANSEN TRANSMISSION Rs. 252 cr.
-GROSS REDUCTION OF DEBT BY APPROX. 15% OR USD 350 MILLION.
-Acquition loan of USD 780 million PAID-OFF.
-HANSEN STAKE NOW AT 26.06%. (174632079 voting rights)
-REpower Systems AG stake now at 90.71%.

SALES FIGURES- Q3 FY 10
-India contributed 140 Mw v/s 168 Mw in Q3 FY 2008-09.
-Internationally, volumes were 264 Mw v/s 511 Mw in Q3 FY 2008-09.
-Total Mw Sales (Suzlon Wind) - 404 Mw v/s 679 Mw.

ORDER BOOK – Q3FY 10
-As on 30th January 2010 – 1484 Mw.
-Order book value as on 30th January 2010 – Rs. 8128 cr.
-Average realisation of Order Book -
INDIA – Rs. 5.43 cr/Mw.
INTERNATIONAL – Rs. 5.49 cr/Mw.

REVENUE - Q3 FY 10
-Suzlon Wind Business Revenue – Rs. 2453 cr.
-Consolidated Revenue – Rs. 5590 cr.
-Income from operation & maintance activities-
India – Rs. 196 cr
International – Rs. 83 cr.
-Karnataka wind energy tariff Rs. 3.70/Kwh from Rs. 3.40.
-Gujarat wind energy tariff Rs. 3.56/Kwh from Rs. 3.50/Kwh.
-Global Market Share – Suzlon – 9%; RE power - 3.3%; GE wind – 18.6%; Vestas – 19.8%; Siemens – 6.9% as on 31st December 2008.

OTHER FINANCIAL DETAILS -
-Net operating working capital as on 31st December 2009 – Rs. 5179 cr.
-Absolute reduction of working capital of Rs. 974 cr from March 2009 levels.
-Acquition Loans – Rs. 2159 cr.
-FCCBs – Rs. 2229 cr.
-Capex Loans – Rs. 1077 cr.
-Working Capital & Other Loans – Rs. 5009 cr.
-Gross External Debt – Rs. 10474 cr
-Loans from Promoter group – Rs.1175 cr.
-Cash Holdings – Rs.1041 cr.
-NET DEBT – Rs. 10608 cr.
-NET EXTERNAL DEBT – Rs.9433 cr.
-Gross Profit/Mw - 9m FY 2009-10 – Rs. 2.03 cr v/s Rs. 2.07 cr in 9m FY 08-09.

DEBT MANAGEMENT EXERCISE –
- DEBT REDUCTION –
- Monetized 35.22 % stake in Hansen Transmission, realized GBP 224 millions through placement of 236 million Depository interest at a price of 95 pence per depository interest, proceeds used to repay part of acquisition loans.
- Refinancing of loans in Rupee-denomination from SBI.
- Holiday of 2 years in principal payments done.
- Issue of GDRs for USD 108 million (Q2 FY 2009-10)
- Cash infusion of USD 94 million through additional Convertible Bonds issue (Q2 FY 2009-10)

CAPACITY & EXPANSION PLANS –

SUZLON (GDR- SUEL:LI Suzlon Energy Ltd)
CURRENT CAPACITY- 4200 Mw
EXPANSION PLANNED- 1500 Mw
TOTAL POST EXPANSION- 5700 Mw

RE POWER SYSTEMS AG - RPW:GR
CURRENT CAPACITY- 1250 Mw
EXPANSION PLANNED- 450 Mw
TOTAL POST EXPANSION- 1700 Mw

HANSEN Transmissions International NV - HSN:LN
CURRENT CAPACITY- 7300 Mw (Gearbox)
EXPANSION PLANNED- 8000 Mw (Gearbox)
TOTAL POST EXPANSION- 14300 Mw (Gearbox)

RESULTS- Suzlon Energy Posts Profits for Q3 FY10

SUZLON ENERGY has announced its Q3 results of FY10. It has reported Consolidated Net Profit of Rs 14.1 crs as against loss of Rs 34.9 crs, QoQ, boosted by profit on stake sale of Hansen booked Rs 251.96 cr.

Consolidated Total Revenues declined to Rs 5,608 crs from Rs 6,943 crs. Income from Operations slipped to Rs 5,590 crs from Rs 6,920 crs.

Suzlon's Net Debt stood at Rs 10,488 crs as on December 31, 2009.

EBIDTA (earning before interest, depreciation, tax and amortisation) was down to Rs 274.6 crs from Rs 724.7 crs.

Adjusted losses without extraordinary was at Rs 221.1 crs v/s loss of Rs 340 crs, QoQ.

Interest expenses were still steady at Rs 289.5 crs v/s Rs 233.85 crore.

Highlights

-Sale of 404 MW v/s expectations of 470-480 MW

-Better sales QoQ at 404 MW v/s 283 MW

-Low volumes hit margins to make operating loss in standalone in wind business

-Operating loss of Rs 74 crs v/s Rs 149 crs

-Order book inflow still weak; added 399 MW in Q3 with only 68 MW from international markets

-No orders from the Chinese and European markets during the quarter

-Order backlog flat QoQ at 1484 MW

-Net debt reduced by Rs 3274 crs from Rs 13,762 crs to Rs 10488 cr by end December.

-Rupee refinancing progressing well; nearly 80% tied-up and full closure expected by end-February 2010

Management says

-Strong revival seen in Indian wind market; 

-New policy initiatives support long-term growth; 

-Order wins from PSUs and large corporates: ACC, GACL, GAIL, ITC, RSMML, among others

HANSEN

-Revenues down 12.1% to Euro 137 million; margins at 9.8% vs 12.9% YoY; QoQ better with improvement from cost control

-Reduction in scheduled deliveries of both industrial and wind turbine gearboxes

-Company says: customers are continuing to defer deliveries of the gearboxes with stricter control of inventories in line with the current operating and credit environment

-Scaled down FY10 guidance implies 40% decline in Q4 revenues

-Upswing in market is expected from July-Sept Quarter

REPOWER

-Flat revenues of Euro315 million v/s Euro 312 million 

-EBIT at Euro 25 million v/s Euro 15 million 

-Margins at 7.9% v/s 4.9%

-Final numbers on February 12, 2010

MY STOCK PICK: GILLETTE INDIA

As we all know that India is enjoying the demographic dividend, as more than 40% of Indian population is between the age group of 20 – 40 years, and with the population of 1.18 billion in India a 40% means nearly 47.2 cr people are young and if we assume that from this young population minus females needs shaving kit every morning then for next 20-30 years the consumption & sales of these products would be growing Right!! and the company would be delivering consistent performance.But this is just an assumption..what product am I talking about….. It’s GILLETTE!!BSE CODE - 507815

Gillette India is an NSE BSE listed company jointly promoted by House of Poddar Enterprise and Gillette Company, U.S.A. (Gillette). A company engaged in manufacturing shaving blades (7 O’clock, Ejtek shaving brush, Gillette Mach- 3, Mach 3 turbo).Just look at the details and you will understand

Details as on 21-Jan-2010

Share price- Rs.1,359.00;

Market Cap- Rs.4,464.50 cr;

52 Week- H- Rs.1,450.00; L- Rs.575.25;

P/E- 33.97; EPS- Rs.40.33;

Book value – Rs.150.65;

Dividend – Rs.12.50; Fv- Rs.10;

Total Debt- 0.00;

Reserves- Rs.458.30;

Total Share Issued- 3,25,85,217 shares;

Public Shareholding – 36,73,368 shares; Public Shareholding in %- 11.27%;

Promoter’s holding- 2,89,11,849 shares; Promoter’s holding in %- 88.74%;

Procter & Gamble India holds 41.02 % stake in Gillette India, even one of the most smart investor is into it. R.S. Damani holds 1.06 % in Gillette India. Gillette India,have its competitors like HUL,Dabur,Colgate,Godrej in personal care segment but non of these can compete Gillette in male personal care segment, (you can survey it by your self)

Gillette India is a best buy at Rs.1100- 1250, and should accumulate on further dips.

Pass on the legacy to your future generation. A DEBT FREE COMPANY at price of Rs.1100 is definitely a best buy. I bought at Rs.1080 on Diwali, Gillette India have given 1:1 bonus in 1989, A VERY STRONG CANDIDATE FOR THE BONUS ISSUE

I am not giving the price target as I believe this stock is meant for long term holding and not for short term gains. Yes it will not give you instant gains,it is a lazy kind of stock but with an extremely promising fundamentals.Daily vol is around 4169 shs from which 3321 shs -79.66 % is on delivery basis.