The Infrastructure Play
India needs new roads, ports, airports, railway lines and huge amounts of power. Apart from steel and cement, there are several ancillary plays as well. For instance, warehouse network will be needed along the roads and near ports. As more small towns get connected to big cities through roads, vehicle sales will benefit.

Strategy: Not good for paying school fees; great for college education kitty.

Blue Star: Two decades to reach Rs. 1,000 crore in sales; two years to reach Rs. 2,000 crore in 2008. Non-core businesses are gone and 90 percent of revenues come from refrigeration and cooling products. It’s almost debt-free with an ROCE of over 50 percent. Growing demand for cold storage, outsourcing outfits and other commercial offices in Tier II cities put the estimated non-residential demand for air conditioning at Rs. 38,000 crore.

BHEL: For 2009-10, the company is increasing its capacity from 10 GW to 15 GW. Capacity additions are ahead of schedule. The slowdown in the global economy has brought down input costs significantly. The company has also taken control of its salary costs that were eroding its profit margins. BHEL will be among the top beneficiaries as India begins to add 20,000 MW of generation capacity each year for the next five years.
Power Finance Corporation: At about 25 percent, the company’s net profit margin is close to what the best software companies earn at half their price-to-earnings ratio. This public sector company also enjoys the preferred lender status for all the mega power projects in the country. Its employee expenses are just 1 percent of sales.

Mahindra & Mahindra: Rural India is earning well because of infrastructure boom. M&M’s SUVs are selling briskly and its market share in the SUV space has gone from 51 percent to 57 percent in the last two years. A week after Xylo was launched, M&M received 9,000 bookings, or one-fifth of its annual SUV sales. The stock may be fully priced now but the upshot comes from prosperity in the hinterland that better infrastructure will bring.

Allcargo Global Logistics: This stock was one of the earliest to recover after it fell dramatically in October. It has already recovered all the lost ground as the company managed to keep its net profits margin above 15 percent. The stock is available at a P/E of 17 on trailing earnings, just as expensive as the broad market. Allcargo, a complete logistics provider, is positioned well to exploit the projected 17 percent in port traffic and the increasing trend of outsourcing of logistics by manufacturing companies.

Risk: Long payback periods are par for the course in infrastructure. As a result, earnings in the near term could be depressed, often in proportion to the borrowed funds. If costs of funds go up, returns could diminish. In some cases, regulatory glitches can also slow down the process as is the case with mega power plants coming up in Uttar Pradesh.

Source : Forbes India

Stock – Mahindra & Mahindra Ltd.
CMP – 675.00
BSE Code – 500520
52 Week H/L – 700 – 235.50

Summary: Last week the company announced its quarterly results. The results were profits surges 89% jump in its net profit at Rs 418.07 crore for the quarter ended March 31, 2009.
Net profit of the company year ago was 221.10 crore in the March quarter of FY’08.
The total income increased 17.02 per cent at Rs 3,715.88 crore during the quarter as against Rs 3,175.45 crore in the corresponding period the previous fiscal.
M&M had merged Punjab Tractors Ltd with itself and the consolidated figures of the firm include the profits of PTL (Punjab tractor Ltd.)

The Dividend Trail : The board has declared a dividend of 100 per cent at the rate of Rs 10 a piece, on shares of the face value of Rs 10 each, for the financial year ended March 31, 2009.

Why is M&M a short term buy ?
When Auto makers in US an Japan are struggling to survive this Indian brand which manufactures Tractors and various other SUV has managed to become a out performer during the time of crisis.

It made a new 52 weeks high of 700 on this Friday. The trend is basically positive for this stock.
Buying the stock at current levels for targets of 740 – 750 within a month.

Long term investors should rather buy this stock at lower levels.

Scrip – Apollo Tyres Ltd.
CMP – Rs 29.55
BSE Code – 500877
Market Cap – 1489.32 Crores.

Introduction:
Apollo Tyres Ltd. (ATD) is engaged in the global tire industry. It launched Regal brand of radials for truck and bus commercial vehicles. Its products include truck/bus radial, Off-The-Road (OTR) tires, retreading and allied automotive services. It EnduRace, a truck-bus radial is undergoing road tests. Its light truck product range includes LT3+ and SP Endura. ATD’s retreaded tire, Apollo DuraTyre was launched in May 2007. As of March 31, 2008, the Company had launched its two retail stores: National Tyres in Patiala, Punjab and Lal Tyre Centre, Chennai, Tamil Nadu.

Snap Shot of the Key Business :
The company is engaged in production of tyres from rubber.
It is from Tyre and Tubes Industry. Its key competitors are JK Tyres, MRF , Etc.

Key Financial :
Net Profit if compared to March 08 and March 09.
Sept 2008 – 918.87 Cr.
March 2009 – 1110.56 Cr.

The financial are looking strong as Turn over and net profit is always increasing.

Key Risks:
The rubber has been volatile since past 4-5 months. There has been a 20% increase in the price of rubber. This has lead to increase in the rice of Raw Material as the inventory stored is of maximum of 7 days or so.
Rubber is the basic component in the manufacture of tyres so increase in the price of rubber = less of profits.

Vredestein Banden:
Recently the company acquired a Dutch Company Vredestein Banden , which can result in the company to increase its profits and way to global expansion.The deal is expected to be for a consideration of around $300 million.
Vredestein is a premium tier I tyre manufacturer with a portfolio of high-end, high speed rated passenger car tyres going up to a speed of 300 kilometers per hour.

Best price to buy Apollo Tyres:
Due to current stock market political rise the stock rose fro 14 levels to 28 levels. So technically speaking the support of the stock 22 is the best price to buy this stock.

All saw a sudden boom in RIIL (Reliance Industrial Infrastructure.) The stock which made the people crazy giving 150% + returns in a couple of weeks.
At present RIIL’s CMP is 737. It had touched Rs 920 odd levels from 35o odd levels.

The main reasons why the stock rose – (The two main reasons)

• There were rumors in markets that RIIL is merging with RIL.
• RIL is planning to make RIIL as a gas carrier & distribution company. Reliance Gas Transportation Infrastructure Ltd. (RGTIL)

RGTIL is a closely held company of Mukesh Ambani, which had put up 1,400 kms., 48 inches diameter pipeline from Kakinada to Bharuch, capable to transport 120 mmscmd of gas , having set at a project cost of Rs. 15,000 crores.

It is learnt that the Group is contemplating to bring all this pipeline network and business into RIIL, with a view to attain leadership in the sector.
This move could benefit the stock in long term on the basis of Market Cap.
The current Market Cap is 1,114 Rs Crores and the pipeline project is worth over Rs 15,000 crore. If RIIL and RGTIL are merged the market cap of RIIL would be over Rs 17,000 Crores.

This would benefit the share holders.

Considering the current market price (CMP) of 737.35 the price seems to be over valued due to speculation.
The fair price may lie below 600 levels.

Here are few short term Support and Resistance for RIIL
Spot Price – 750
Support – 610, 670 , 702
Resistance – 794, 851 , 908

PS – What we learn from this is that don’t go according to rumors!

Happy Investing.

Marico’s stock has been an underperformer in the FMCG pack despite the market preference for defensive stocks over the past year.

The better growth rates managed by larger FMCG rivals over the past three quarters and muted performance from Marico, due to higher raw material prices, have weighed on the stock. But with price hikes in the FMCG space tapering off and input prices for the company correcting from their peaks, Marico may deliver better growth in the year ahead.

An expanding international business, a promising new product pipeline and brands positioned strongly on the beauty and wellness plank, suggest that the business is well placed to weather any moderation in consumer spending. Investors can buy the stock, currently trading at a PE of about 16 times its estimated 2009-10 earnings; at a discount to larger rivals such as Hindustan Unilever, Nestle and Dabur India.

Marico delivered a strong 27 per cent sales growth in the first nine months of 2008-09, driven by healthy growth in the Parachute and hair oils business, an expanding contribution from new products (now 15 per cent of sales) and strong growth in the international business.

Though Marico’s coconut oil brands saw spiralling raw material prices (copra), significant price increases taken over the year (thanks to a dominant market share) and a volume growth of 7-9 per cent, helped the business register reasonable growth. The edible oil brands faced substitution by cheaper rivals, but this was more than made up by a strong show from Marico’s overseas operations in Bangladesh, West Asia, Egypt and South Africa.

The strong sales, however, failed to trickle down to profits (12.5 per cent growth) due to the upward spiral in the prices of safflower seed and copra.

Signs of relief on input costs are now evident, with copra prices correcting by about 13 per cent and safflower prices by about 20 per cent from their levels in December. While the former promises to expand hair oil margins, the latter allows room to revive volume growth in the Saffola brand through price offs.

Re-launch of brands in the South African business and a favourable currency equation suggests that overseas operations may continue to chip in with good growth. The company’s presence in nascent product categories such as male grooming, hair creams and styling gels, as also new product prototypes – Saffola Zest – a healthy snack and low glycemic rice – hold considerable scope for scaling up in size. HBL

Investors with a long-term perspective can continue to hold the Hindalco (Rs 59) stock even if the company’s near-term earnings performance is lacklustre. Hindalco’s operations have delivered reasonable growth on a standalone basis, but muted profitability and high debt of the Novelis acquisition have brought down valuations in recent times. As a low cost and integrated producer of aluminium, Hindalco could capitalise on Novelis’ value-addition capability and diversified user base in the event of an economic recovery. The tilt towards user sectors such as beverages and infrastructure makes it less vulnerable to demand slowdown than many of its global peers.

At a PE multiple of 7 times its estimated 2008-09 earnings, the stock trades at a discount vis-a-vis its Indian and global competitors.

Aluminium: Main revenue generator

Aluminium and copper are Hindalco’s main business streams. On a standalone basis, aluminium contributes 37 per cent to Hindalco’s revenues, but its share in net profits is as high as 80 per cent. Extensive brownfield expansions and low-cost acquisitions implemented over the last five years have put Hindalco on the list of global low-cost aluminium manufacturers. The company concentrates on producing rolled aluminium, ingots, bars and foils. These finished goods are sought after by infrastructure companies, capital goods manufacturers and power transmission and distribution companies.

While the automobiles industry accounts for about one-fourth of Hindalco’s demand (on a consolidated basis), the improvement in domestic passenger vehicle sales offers some comfort. For the nine months ended December 2008, Hindalco’s net profits (on a standalone basis) from the aluminium segment rose by about 6 per cent and revenues by 10 per cent.

Hindalco acquired Novelis, maker of value-added products such as beverage cans and alloy wheels in May 2007 for $6 billion. Though this changed Hindalco’s business and geographic profile, the deal weakened its balance-sheet as Hindalco was forced to take on Novelis’ debt burden of $2.9 billion.

Novelis Acquisition

Born in early 2005 as a result of spin-off from its parent company Alcan, Novelis has a diversified clientele — Coke, Ford, General Motors, Audi, Lotte, Kodak and Tetra Pak. But in a bid to pump up its business, Novelis entered into fixed price supply contracts with some of its major customers.

Trouble began in 2005 when raw material prices spiralled sharply. Since Novelis was compelled to sell below cost due to contractual obligations it reported losses of $102 million from operations for the nine months ended December 2008. This swelled to $1.82 billion, after the company charged goodwill impairment and losses on derivative contracts.

Despite this, Novelis’ business does offer long-term benefits to Hindalco. Facility to produce value-added products may aid Hindalco’s margins over the long term. The fixed price contractual obligations of Novelis end by January 1, 2010. Moreover, Novelis has embarked on cost savings and had undertaken a production cut. In addition, it is accounting for goodwill impairment which may help Hindalco benefit from the deal

Copper: Yet to shine

Hindalco’s copper business (where demand is mainly from the domestic market) has been facing margin pressures from declining realisations. While the segment’s contribution to revenues is 67 per cent, its high cost structure has limited its share in profits to as low as 20 per cent.

Copper cathodes and rods find use in high end industries such as electrification, housing and construction and infrastructure projects. Apart from US and Europe, Hindalco exports copper to the BRIC nations, which offset decline in demand from US and Europe in 2007-08. But with even the BRICs witnessing a slowdown in 2008, Hindalco’s revenues from copper slipped by 5 per cent for the nine months ended December 2008.

LME prices

Copper prices in the London Metal Exchange corrected sharply, by 62 per cent, between July and December 2008. They have since recovered 44 per cent. Easing warehouse stocks and signs of higher Chinese demand have raised hopes about an early recovery in the copper price cycle.

On the other hand, aluminium prices remain subdued, though they have risen 19 per cent from the February 2009 lows. LME inventories show some improvement in aluminium demand but the recovery is more tentative than for copper.

Financial overview

A strong commodity cycle saw Hindalco deliver sales growth of 24 per cent and operating profit growth of 25 per cent between 2003 and 2007.

In 2007-08, the company saw a manifold growth in consolidated sales from Rs 193 crore to Rs 600 crore (attributable to the acquisition of Novelis), while operating profits rose 50 per cent. But high interest costs from the Novelis acquisition led to a dip in net profits. From a consolidated debt service coverage ratio of 15 times in until 2006-07, it fell to three in 2007-08.

The bridge loan taken for the buyout (due in November 2008) has been fully repaid by the company, through rights issue proceeds amounting to $920 million. For the remaining debt, the company has again borrowed $982 million (at a rate of LIBOR + 80 bps) after liquidating its investments.

The financial year 2007-08 saw a sharp surge in crude oil prices, which had cascading effect on transportation costs and cost of alternative energy sources such as coal. Going forward, Hindalco’s margins are likely to benefit from the substantial correction in crude oil and coal prices.

Other concerns

The major constraint for the aluminium division is the threat of import substitution. With the government recently hiking import duties on the metal, this problem has been addressed adequately. The copper division continues to face raw material supply constraints, resulting in production capacities remaining unutilised.

Moreover, Hindalco faces margin pressures because of depressed treatment and refining charges, which determine conversion margins on copper and this is expected to persist in the near future also.

Investors can consider buying the stock of AIA Engineering, the world’s second largest manufacturer of high-chrome mill internals. Our recommendation stems from the steady demand for AIA’s products from cement companies, both domestic and global, as also the revival of enquiries from the mining sector. Production cuts taken by some of its potential clients in the mining sector had earlier limited AIA’s revenue opportunities.

AIA, with a dominant presence in the domestic and overseas markets, appears well-placed to leverage from the revival in demand from the mining sector. At the current market price of Rs 163, the stock trades at about 9 times its likely FY-10 per share earnings.

While valuations are at a premium to capital goods stocks, that AIA is the only listed player in this space justifies its premium. However, given the recent surge in the markets, investors may be better off phasing out their exposure to this stock over a period of time.

Demand boosters

AIA specialises in design, manufacture, installation and servicing of high-chrome mill internals (which find application in cement, mining and thermal power industries). The demand for AIA’s products stems primarily from the switch in the user industries’ preference to high-chrome mill internals against the conventional forged ones.

This leaves plenty of room for growth as the current share of high-chrome mill internals stands at only about 15 per cent of the total demand. High-chrome mill internals, which are used to grind clinker in cement mills; coal in thermal power plants and mineral ore in mines are likely to attract higher demand in the coming years as they offer higher productivity, greater control over grinding process, lower power consumption and lower wear rates.

Demand for AIA’s products may also derive strength from the fact that there has not been any major scaling down in capex plans by the cement majors.

While sustained capex may help keep the demand from the cement sector strong (the sector is the primary revenue contributor for AIA), a good part of the company’s overall business (nearly 70 per cent) comes from replacement demand. That, to an extent, insulates AIA’s revenues from any sharp slowdown in its user industry’s capital spending cycle.

Besides, AIA is also looking to increase the share of its revenues from the mining sector. This appears to hold promise, as the market potential in this sector is immense, while competition is limited. Besides, it also plans to tap global market in this space. Trends in order inflows from the mining sector, therefore, may bear a close watch in the coming quarters.

Going slow on expansion

While the company had earlier gone in for a large capacity expansion programme, it has in conformity with the current market scenario toned its capex plans considerably. The second phase of its capacity expansion plan (100,000 tonnes) is now under review. AIA now plans to incur limited capex that will entail only the de-bottlenecking its current capacity. This appears prudent, as it will help the company conserve its cash.

Earnings scorecard

For the quarter ended December 08, AIA managed to report a 45 per cent growth in consolidated revenues, helped primarily by the new capacities it had added last May as also an improvement in its realisations. In terms of sales break up, exports made up for 57 per cent of its revenues and domestic sales the rest.

The cement sector continued to be the lead contributor, making up a good 65 per cent of its total sales. Utilities and mining segment made up for 25 per cent and 10 per cent respectively. But revenues in the coming year may be more or less flat as the management expects realisations to drop, led by the correction in raw material prices, even as it expects an increase in sales volumes.

Operating margins for the quarter, however, dropped by about 2.2 percentage points to 25.5 per cent, driven by a high base effect (as the company had initiated price hikes last year) and then prevalent high raw material prices. Net profit growth was pegged at about 17 per cent. HBL

Investors with a high-risk appetite can consider accumulating the stock of Welspun Gujarat Stahl Rohren, a leading manufacturer of steel pipes. At the current market price of Rs 80, the stock trades at about five times its estimated FY10 per-share earnings. Besides attractive valuations, the company’s buoyant order book and well-entrenched relationship with global oil and gas players also makes it a good investment.

New business opportunities, in terms of setting up of pipe infrastructure network, driven by the commencement of the KG Basin gas supply by Reliance Industries and city gas distribution initiatives of the Government, also brighten prospects. Given the recent surge in the markets, phased accumulation is recommended for the stock.

Over the last few months, falling crude oil prices had sent the stock price of Welspun Gujarat into a downward spiral on concerns that this would eventually lead to a drastic decline in oil and gas capital expenditure. But despite the downturn, the company has managed to add significantly to its order book, which currently stands at about Rs 9,300 crore (2.4 times FY08 revenues). Not only does that reflect well on the company’s ability to procure business during tough times, it also provides revenue visibility that is higher than that enjoyed by peers.

As the bulk of these orders are with established global players, the risk of cancellations and postponements for its orders are lower. The company has also completed the commissioning of its helical pipe manufacturing facility in the US. Endowed with a capacity to produce 3 lakh tonnes of HSAW pipes, this facility has also received API accreditation.

News of order wins by both the domestic and the new site in the US may be the key triggers for the stock price in future.

For the quarter ended December 2008, even as the company managed to grow its revenues by over 40 per cent, it disappointed on both the margin and profits front. Led by writedown of inventories (Rs 38.5 crore) and forex losses (Rs 41.9 crore) due to re-alignment of creditors and ECBs, Welspun suffered a contraction in both operating and net profit margins.

While operating profit margins dropped seven percentage points to 10.2 per cent, its earnings nearly halved as compared with the corresponding quarter last year. Had it not been for these provisions, the company would have seen a mild increase in profits. In this context, the recent relaxation of mark-to-market norms may boost the reported numbers. The risk to realisations and to the outstanding loan amounts due to rupee fluctuations, however, remain. – HBL

Investments with a two-year horizon can be considered in the shares of CMC, in the light of the stock’s reasonable valuations. The company is an integrated IT systems player and has managed a fruitful margin expansion drive through a change of its business mix.

A roster of domestic and international clients, especially government clientele where large deals continue to be won, and improving prospects for its education and training divisions promise broad-based growth for CMC.

The synergies that accrue from its association with TCS (of which it is a subsidiary) have also resulted in domestic as well as overseas deal wins for CMC.

At Rs 352, the share trades at five-six times its likely 2009-10 earnings. This is at a slight premium to HCL Infosystems. But CMC enjoys a much higher EBITDA margin of close to 15 per cent and a net profit margin of over 11 per cent, which justifies this premium.

The stock has fallen over 55 per cent in the past year, largely on concerns about a global slowdown in hardware demand and currency fluctuations impacting profitability.

But the decline in revenues in the last couple of quarters appears attributable to a conscious decision to reduce focus on its low-margin hardware-equipment, sales-intensive customer services business. From 60 per cent of overall revenues, this proportion has, over the last three quarters, declined to less than 40 per cent.

The company is looking at tapping deals that involve a higher service component which it hopes to deliver through its high-margin system-integration offering. CMC derives 60 per cent of its revenues from India and the rest mainly from US . This mix in a way nullifies the effect of dollar fluctuation against the rupee and acts as a natural hedge, lowering the forex risks to the company’s earnings.
Changing business mix

Equipment sales will still remain a key offering for CMC, but pursuing a strategy wherein equipment sales is followed up with a meaty services component may help improve margins over the long term. But it may be a few years’ time before equipment sales decline to a small part of the revenue and CMC becomes a complete IT solutions company.

The change in focus has meant that its ITES (IT Enabled Services) division which manages IT applications and is also involved in digitisation services has grown 20 per cent this fiscal. Also, system integration, that contributes 45 per cent of overall revenues, is now the main contributor to overall revenues. This is significant as systems integration is a high margin service (30 per cent PBIT margins).

This change in business alignment means that the company is now well-positioned to win deals overseas, especially from the US, where requirements go beyond mere equipment sales and implementation. The company has won two deals with local governments in two counties in the US for providing various citizen services.

The synergy from TCS is also quite pronounced as CMC is now able to participate and benefit from large infrastructure management deals that TCS wins and also expand margins by services delivery of its own.

TCS’ deal with the Ministry of External Affairs for passport issuance to citizens of India is one such example. The deal size is around Rs 1,000 crore, spread over six years. This deal follows an earlier one that TCS had won with the Department of Company Affairs in 2006, which was worth around Rs 345 crore.

CMC was also a beneficiary of the deal. The present deal would entail TCS digitising and enabling online filing of applications for passports. In most of these areas it is CMC that is expected to play a key role in the service delivery.

This apart, the company has been expanding client relationships in areas such as defence, e-governance, ports and transportation, all key drivers of domestic IT spend. CMC’s education and training division has grown 20 per cent in the December 2008 quarter over December 2007.

Apart from vocational and IT (Hardware, networking and software) training, the company also trains users at client’s location. For example, CMC would handle the IT infrastructure and management and provide education and training services to the client company’s personnel at these outlets. This means additional revenues for CMC.

For the nine months of FY09, the company has seen a decline of 16 per cent in its revenues, but net profits have grown by 10 per cent.

In terms of risks, competition from entrenched players such as HCL Infosystems and Wipro Infotech may create pricing pressure for CMC. – HBL

A steeper-than-expected downward revision in sugar output estimates has made the outlook for domestic prices quite bullish over the medium term.

Despite policy intervention to curb prices, sugar prices, over the next few quarters, are likely to respond to the extremely tight demand-supply situation.

Higher realisations on sugar are likely to reflect in improving profit margins and expanding earnings for select sugar producers which have access to adequate cane supplies over the next two years.

Bannari Amman Sugars, an integrated sugar producer with cane crushing capacities of 14,000 tcd spread over Tamil Nadu and Karnataka, appears a good investment bet in this scenario.

Lower cane prices in the southern markets, the company’s ability to weather deficit situations in the past and its integrated operations, suggest that it may be among the sugar players better placed to capitalise on the favourable turn in the sugar cycle.

At the current price of Rs 661, the stock trades at just six times its estimated earnings for 2008-09, at a discount to peers such as Balrampur Chini Mills and Bajaj Hindusthan.
Buoyant price outlook

Following three downward revisions in output in March alone, the current sugar season (October 2008 to September 2009) is expected to close with a domestic sugar output of 145 lakh tonnes, a 45 per decline from the 264 lakh tonnes produced last year.

After considering imports of 15 lakh tonnes, that is likely to leave closing inventories at just 12 lakh tonnes, a precariously low stock of just one month’s consumption. Even a higher output of 200 lakh tonnes for next year may just about balance supplies with demand.

These trends suggest that domestic sugar prices may remain upward bound over the next few quarters, even after the 30 per cent jump in prices since July 2008.

Given the political sensitivity of the issue, spiralling sugar prices have attracted policy curbs in the form of permission for duty-free raw sugar imports (under advance licences), stock holding limits on the sugar trade and higher free sale releases of sugar for this quarter.

But moves such as the imposition of stock holding limits and higher free sale releases may only give a short-term boost to supplies and are unlikely to have any lasting impact on prices.

Yes, duty-free raw sugar imports have the potential to impose a cap on any significant price rise in the domestic markets. However, imports are not an attractive proposition at current global price levels and prices will have to weaken substantially to make imports viable.

Even if raw sugar imports do become attractive later this year, players such as Bannari Amman Sugars are positioned to turn this into a revenue opportunity, given their sugar refining capacities (800 tcd post-expansion) that enable processing of raw sugar into white sugar for domestic sales.
Integration helps

Having steadily increased its crushing capacities over the past three years, Bannari Amman Sugars has also invested in forward integration projects, by adding to power cogeneration (currently 56 MW) and alcohol capacities. These have ramped up their contribution and helped the company remain profitable during the recent downturn in the sugar cycle.

Plans are on the anvil to expand the acquired (and relocated) 2,500 tcd Modhali sugar unit to 6,000 tcd, while setting up a 28.3 MW cogeneration plant. Regulatory approvals have also been obtained for a new 5,000 tcd integrated unit at Tiruvannamalai in Tamil Nadu.

Revenue contributions from these expansion projects may not flow in the near term, given the severe constraints in cane availability and higher competition for its procurement this year.

However, over a two-three year time-frame, as the company invests in cane development in the new command areas, these expansion projects may contribute not only to better volumes but also to a more diversified profile.

Escalation in cane prices and shortfalls in cane availability pose the key risks to the company’s earnings over this year and the next. However, cane prices in the southern states are still well below SAPs in States such as Uttar Pradesh.

Raw sugar imports and by-products such as power, alcohol and ethanol allow mills such as Bannari Amman to improve overall realisations. That may allow sufficient room for the company to earn a reasonable margin, even after shelling out higher cane prices this year.

Though crushing volumes are likely to be sharply lower than last year, it may be compensated by a sharp improvement in sugar realisations.

The first nine months of 2008-09 saw a sharp expansion in the company’s net sales (up 38 per cent to Rs 638 crore) and net profit (Rs 8.5 crore to Rs 84.6 crore), helped by liquidation of inventories and the sugar business’ return to profitability. The per share earnings stood at Rs 101 for the trailing 12-month period. Source – Hindu Busniess Line (HBL)