Jyothy Laboratories listing tomorrow...

Jyothy Laboratories, owner of brands like Ujala and Maxo recently came out with a public issue. The issue was primarily aimed to provide an exit route to its early investors, to that extent the issue was an offer for sale. The stock is listing on the bourses tomorrow.

theipoguru's listing strategy says:

Listing Call: Hold

Despite the current weakness in the market, we expect shares of Jyothi Laboratories to list at a healthy premium. At the upper end of the price band, the issue was priced in at a P/E of 21 times. Given that most of the FMCG companies are quoting P/Es of anywhere between 25-30 times, it will not be surprising if Jyothi Laboratories also lists at a similar multiple. With strong brand equity, wide distribution network, and well-distributed & tax-efficient production facilities, Jyothi Laboratories is a stock for the long haul.

The entire note can be accessed here.

Monsanto India - Great Stock, Cheap Valuations.

Monsanto India sells agro-chemicals (herbicides) and hybrid seeds in India. It's portfolio includes well-recognized brands such as - Leader (hived off recently), Machete, Roundup, & Fastmix (in the agro-chemicals segment) and Dekalb (corn/maize seed) and Bollgard Cotton (marketed through a JV with Mahyco).

Basic financials:

Sales (12M trailing) - Rs.338 crore
Net Profit (12M) - Rs.82.2 crore
3yr AVG RONW - 21%
P/E (TTM) - 16.6 times
Mcap - Rs.1,362 crore
Cash & Cash Equivalents (as of 31-Mar-07) - Rs.200 crore.
Approx Cash & CE (as of 30-Sep-07) - Rs.250 crore


Mcap_Net of Cash - Rs.1112 crore
P/E (net of Cash) - 13.5 times.

Listed peers Advanta and Kaveri Seeds are quoting at a P/E of over 25 times.


Investment Argument:

# BIG OPPORTUNITY - India is home to the world's largest tract of arable land, yet its farm's produce yields that are a fourth of the global average. This augurs well for companies offering agro-chemicals (especially herbicides) and hybrid seeds, which improve farm yields significantly.

# HIGHER DEMAND - Rising Consumption of Corn in India, thanks to increased consumption of western foods like Pizza, Sizzlers, and an increased usage of baby corn as a part of day-to-day cooking. Corn is also an important source of bio-diesel. Monsanto has a big winner in this category - 'Dekalb' (corn hybrid seeds). It is a global leader in corn seeds and has close to a 30% share in India.

# INCREASED AREA UNDER CULTIVATION - Higher crop prices, both in India and globally, and improving demand have resulted in a substantial shift from some of the other cash crops to corn. This year's Kharif crop pattern indicates this. Area under cultivation amounted to 74.6 lac hectares, as compared to the normal area of 62.2 lac hectares.

# STRONG PIPELINE - Monsanto India's parent company has a strong pipeline of new age hybrid seeds. R&D plays an important role in this industry with leaders such as Monsanto and Syngenta spending a significant amount of their revenues towards R&D.

# ROBUST RESERVOIR STATUS - Water levels in the 81 major reservoirs is healthy. They amounted to around 119% of the 10-yr average levels. Healthy water reservoir levels are an insurance against bad monsoons, and therefore render some predictability to the overall farming activity in India, which in turn determines the demand for farm inputs (such as herbicides and hybrid seeds, alongwith fertilizers).


At the current prices, the company can also be considered as a buy-back candidate. Infact, given that promoters hold close to 72.15% of the total equity, the cost of a buy-back will not be too high. Assuming, the company were to decide to undertake a buy-back, lets do some back of the envelope calculations -

Buyback price - Rs.3000 per share
Mcap at the aforesaid price - Rs. Rs.2,581 crore
Cost of the buy-back - Rs.718 crore (for a 27.8% share)
Current Cash & CE - Rs.250 crore
Actual cost of the buy-back - Rs.469 crore
Annual Cash Flow - Rs.92 crore
Pay-back period for the Company - 5.1 years. (Assuming 'NO' growth in cash flows, which is quite unlikely). Thus the pay-back period can be close to around 4-4.5 years.


Overall - At the current price, the Monsanto India scrip offers significant margin of safety with a healthy upside potential.

Points / Counter points ?????

Disclosure: Have a long position on this stock in the portfolios that I manage.

Nicco Corporation: Update (11-Dec-07)

Update (11-Dec-07):

A news release by Nicco Corporation to the BSE today stated this:

With reference to the earlier announcement dated July 30, 2007, relating to the signing of the term Sheet with Prysmian Cable Molding BV, Netherlands, Nicco Corporation Ltd (Nicco) has informed BSE that the Company has late last night entered into definitive agreements with Prysmian (Dutch) Holdings BV on the following basis:

1. Nicco and Prysmian (Dutch) Holdings BV belonging to the Prysmian group shall jointly participate in a new Company called Nicco Cables Ltd; where Prysmian (Dutch) Holdings BV shall become the majority shareholder (60%) with the Company holding 40%.

2. Prysmian Group is a world leader in the energy and telecommunications cables Industry with strong market position in higher-added value segments.

3. NICCO Cables Ltd, will acquire the Cable business from the Company pursuant to a Scheme of Arrangement and / or on slump sale basis, and shall be the Joint Venture Company. The common participation into the joint venture and the transfer of the business are subject to conditions precedent including approvals / consent of the Shareholders, lenders / CDR, Hon'ble High Court and other requisite parries / authorities as may be applicable.

- The Joint Venture will benefit from the combination of Prysmian's global knowledge and technology expertise and Nicco's business network and knowledge of local market and will be also well positioned to exploit the strong growth trends in Indian Cable market driven by substantial investments in infrastructure.

4. The main features of the contractual arrangement in relation to the Joint Venture Company are as under:

a) The Board of the Joint Venture Company shall consist of five Directors, three of them including the Managing Director to be appointed by Prysmian and two of them, including the Chairman, to be appointed by Nicco, Mr. Rajive Kaul, Chairman of Nicco shall be the Chairman of the JV Company. Prysmian will be responsible for managing the Joint Venture's operations.

b) Nicco shall receive a consideration in excess of Rs 130 crores, (subject to adjustments), for the transfer of its cables division. The transaction will also result in, inter-alia, the debt relating to the cables business getting transferred from the Company to the Joint Venture Company.

c) Nicco Corporation and Prysmian (Dutch) Holdings BV have agreed upon customary shareholder rights including board representation rights, quorum rights, affirmative rights, information rights, anti-dilution rights, share transfer restrictions such as a right of first offer, call / put option and other governance mechanisms including a deadlock resolution mechanism.

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what does this mean:

- Nicco Corpn will hive off its cable biz and the debt attached to it
- Nicco Corpn will receive an additional Rs.130 crore for this stake sale
- Investors will therefore (probably) receive shares in Nicco Cables (the new entity) and will continue to hold some stake in Nicco Corpn.


- The question now is, what will the new Nicco Corpn (minus its cable biz) do?????

- And, what will the management do with Rs.130 crore that the company will receive from Prysmiam???

I had written on this stock a couple of days ago.

NICCO Corporation: engineering / real estate play or wat?

NICCO Corporation is among the largest cable manufacturers in India. Consider the following details:

12M trailing sales - Rs.423 crore
12M trailing PBDIT - Rs.42 crore
Current Mcap - Rs.317 crore (at a CMP of Rs.35)

The company has two divisions - cables and project engineering. However, the cable division (that includes both telecom cables and power cables) accounts for close to 80% of the total sales. With both the telecom and the power sectors doing very well, demand for Nicco's wares is firmly in place. However, owing to operational and financial troubles, the company's networth almost turned negative in recent years.

Things seem to be improving according to this. The company's financial performance seems to be improving too.

Sonata Investments' (Anil Ambani-Rel. Energy group co.) stake in this company is around 14.75%. The investment arm of the ADAG group is known to have made some smart investments in the past, e.g. TV Today, SAREGAMA, and a host of other media companies. So what could have interested the ADAG group to pick up a stake in this troubled company ?? As of now, I have no idea about the same.

However, there are some other interesting developments taking place at this counter -

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Prysmian signed a term sheet with Indian Nicco Corporation for a majority stake of a New JV Cable Company

Milan 31st July 2007. Prysmian Cables & Systems, a worldwide leading player in the cable industry, has signed a Term Sheet with Indian Nicco Corporation to become the majority shareholder of a new joint venture company that will encompass all Nicco Corporation's cable activities. The Board of Directors of Prysmian today approved in principle the entrance into the Term Sheet. The deal, subject to the finalization of a definitive agreement and further approval/consent of Nicco's corporate debt lenders and relevant local authorities, is expected to close during the first half of 2008. Nicco Corporation will remain as a minority shareholder of the new Joint Venture Company.

With net sales of 55.2 million Euro in Fiscal Year 2006-2007 Nicco Corporation's cable division has 2 manufacturing operations, 6 branch offices located in the country's most important urban areas and approximately 900 employees. Nicco Corporation's cable division is active in the production of a wide range of medium voltage and low voltage power cables and industrial cables for applications in several sectors (OEMs, Windmill, Infrastructure, Mining, Raylways, Defence, etc.).

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Now the question is, if the cables division will be hived off, what will Nicco Corporation do? Only Project Engineering? Whether the new cables company (in JV with Prysmian) will be a listed company? The management has provided no clarity on this.

Another interesting (both positive and negative) bits on the company include:

- Land & building on free hold basis - Rs.80 crore (on cost-basis) [any development possibility here]

- 25% Holding in Nicco Parks (mcap - Rs.41 crore, Nicco Corp's stake value - Rs.10 crore). Reports have it that Nicco Parks owns 40 acres of prime land in Kolkata (something I still need to confirm), which is valued at close to Rs.2000 crore, valuing Nicco Corp's stake in the company to Rs.500 crore (vis-a-vis its current mcap of Rs.317 crore).

- Steady decline in promoter's stake in the company, down from 17.4% to 16.9% (during Mar - Sep '07).


Conclusion: Something seems to be cooking up on this counter. What, is the question?

Disclosure: I own shares of Nicco Corp, bought at Rs.24 per share. The stock is fraught with high risk (thanks to the uncertainties mentioned above) and therefore forms a very small portion of my portfolio.

Back to Blogging & a New Investment Plan in Action

It's been more than 3 months since I last blogged. During this hiatus, I made a whole host of new investments and am currently working on a few more ideas. Will share each of these over the next few weeks. Have altered my approach towards money management too. The focus now will be to keep a well-balanced portfolio, that includes both growth investments and value stocks. The ratio I am comfortable with is around 60:40, in favour of growth stocks.

Growth stocks - Stocks that are currently under-researched or are still evolving but offer great promise in the long run. The two key factors here are - scalability of business (growth potential) and the management (growth engine).

Value Stocks - These are mis-priced stocks available at significant discount to their 'current' fair value. The key factors to look here are - P/E, P/B, [ lower the better] and Return ratios (RONW or ROCE) [higher the better]. Some of the investments in this category may include stocks that are currently undergoing some kind of a restructuring, which is likely to yield results at a later date.

The ratio 60:40, in favour of growth stocks, will primarily work in this way - profits out of value investments will be pumped into growth stocks, given that most of the growth investments take time to mature.

Further, instead of investing in lumps, I've started investing in a more systematic manner. The rule is 10% of my monthly basic salary is put into stocks.

I hope my new and fine-tuned (or so I think) investment plan works fine, it has done so far in the past few months, but then 3-4 months is too short a period to gauge any performance.

So here we go...