HBJ Newsletter

8/8/2019 HBJ Newsletter

1/8

Market Wave:

The previous month witnessed the nextphase of the bull markets in the Indian equitymarkets. The S&P Nifty benchmark indexsurged more than four percent in the past monthtrading sessions. These markets were supported

by better than expected quarterly performance bythe Indian corporate sector as whole and positivesentiments in the global equity domain. The stel-lar results by the sectorial leaders and industrybehemoths added to the bullish momentum in themarket. The positive policy rate announcementby the Central bank also brought some cheers tothe streets. All looks stable on the economic ho-rizon of the country with respite from the highinflationary pressure as well as better growthprospectus in RBIs quarterly review of the In-

dian economy.So what should be the approach of anIndian investor in the present scenario? The tech-nical's are giving signals of strength present inthe benchmark. The Top Down approach will

be to buy on dips, in filtered sectors and selectedindividual counters. These would be the best timeto increase the exposure towards equity as decentreturns could be expected from these levels. Thebenchmark could be susceptible to profit bookingbut the trend still remains bullish on intermediatetime frame. Nifty Index would be supported near

the Short term moving average (20-EMA) which currently trading at the 5400 mark, an inflectionpoint for the buyers to go long. The floor of themarket is fixed near the Medium term moving av-erage (50-EMA) at the 5300 mark in case marketsgo for a correction. Technically speaking, sectorssuch as Sugar and Tea would be the space to watcfor in the immediate near term. The upside in Niftlooks to be capped near the 5500 levels but with alimited downside possible. Picking up fundamen-tally sound stocks with promising future growthprospectus would be enough to generate stupen-dous returns & beating the indexes by a margin.-- Akash Singh ([email protected])

August 2010 VOL 1 ISSUE 1

Youre neither right nor wrong because other people agree with you. Youre right because your facts are right and your reasoning is right-and thats the only thing that mak

you right.

-Warren Buffett, the worlds most successful inve

Editor:Subhash LalwaniHBJ Capital Services Pvt. Ltd.#912, 1st F Main Road,

Girinagar 2nd Phase, BSK 3rd stage,

Bangalore - 85

Phone: +91 80 65681134 / +91 98867 36791

E-mail: [email protected]

With HBJ Capital you can explore the world of opportunities and investment options

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SHARING KNOWLEDGE TO EMPOWER YOU


2/8

The average long-term experience in investing is never surprising, but the short termexperience is always surprising. We now know to focus not on rate of return, but on th

informed management of risk.-Ellis, Charles.

QIP mistimed?Edserv flagged off its QIP issue last month to raise about

130 Crore. The company has placed the base price for the fundraising at 205 rupees per share. It has been already close to amonth that the QIP is open and the market participants are wor-ried on the lack of closure news. The stock price has been movingbetween 200 and 220 ranges with the lack of direction from theQIP. The information inside is that the issue is not getting enoughtakers at the currently set base price. The information adds thatthe takers were not enthusiastic even after offering a discount of10% from the set base price.

The market meter puts it that while there is nothing

wrong with the company, the liquidity in the local markets andwith the domestic institutions have dried up. It has also added thatany QIP for quite some time is expected to fall short.

SKS shines on Manappuram and SEILManappuram has seen a sharp run up in the recent times.

The counter has come up by more than 50% in less than 20 days.The interesting thing is that the counter has been on fire in spite ofa lesser than expected earnings from the company. On the otherhand, SEIL rose by as much as 40% in less than 10 days beforesettling down currently at around 62 levels. The grapevine has itthat the SKS IPO is working its magic on these counters. The ex-pectation is that these two counters will start raising once again

close to the listing of SKS Microfinance on Aug 16th 2010. Anddepending on the listing gains and further movement of SKSshares, these two counters are also expected to move. The linkageis that SEIL is the closely related listed peer to SKS and Manap-puram is also an NBFC providing small ticket loons to the poor.

Karuturis PE buzz Karuturi Global has been very active for a while and it

has actually doubled since June 2010. Karuturi has been showingstrength even though the recent June quarter results were not goodwhen compared to the Mar 2010 and June 2009 results. However,the talking on the streets have that the company is in touch with aset of Private Equity players and investors to raise more than 125

million USD to fuel its expansion plans in Ethiopia.The expectation is that the company is close to clinching

a deal on a higher valuation for the company. The bulky market

men have it that the stock price can be taken to 35 levels on theexpected deal closure.

Popcorn on Fire


To Lead an Investment Game One Need Not Have a Bi

Name:Chronological belief of investors that only large-

Blue Chip companies deliver outstanding returns in compari

to Indian benchmarks, would be tested by the current bullish bualtogether range bound markets.

The time is ripe for the Small Cap stocks to go for next ride in these bullish conditions and outperform the indicesmultiple times. Investors too are aware of the fact that better turns could be expected from undervalued stocks and in case mket awards reasonable valuations to these companies, investcould expect multiple times return in a relatively small time fram

In retrospect, the BSE Small Cap has outperformed BSE SENSEX by more than 40%. This is the best time to increexposure to carefully selected fundamentally rich stocks rather thgoing for "safety" in the Heavy weight counters. We expect portlios containing Small Caps, popping exponentially by significmargins than the large cap companies in the intermediate future.

Somya Dixit ([email protected])

RBI Impact:The Central Bank, in the first quarterly review of

monetary policy, hiked the repo rate and reverse repo rates by 2550 basis points to 5.75% & 4.50% respectively. If we look it w

different angle then it has basically narrowed down the gap.RBI is trying to take out the unproductive liquidity fr

the system. The interest rate would feel the minimal buoyancy to these hikes in the policy rates. Further increase in rates will gimpact on the home loans & which will in turn can be a troublethe reality sector.

Keeping in mind the moderate approach of the cenbank, the guidance given in respect to the Indian economy presea bullish picture for the coming quarter. The scale of the increasthe policy rates depicts that current times has no possibility of o-heating and 8.5% economic growth rate for 2010-11 fiscal year

The effect on the rate sensitive sectors viz. AutomobiReal Estate & Banking would have moderate impact in the com

future. The announcement would result in curbing the speculatdemand present and would help in bringing down the already hinflation to moderate levels. The announcement was on the emated lines with the equity as well as the bond markets reactpositively to it.

Subhash Lalwani([email protected]


3/8

Investors must keep in mind that theres a difference between a good company and good stock. After all, you can buy a good car but pay too much for it .

-Richard Thale

Venkys India ltd currently trading at Rs. 693 andit was shared with our esteemed customers at Rs. 144. Toreach out for a definition of small wonder we cant get better

than this. Venkys India was recommended in the month of

September 2009 and the stock is rallying upwards sincethen. Calls by HBJ Capital are given after intensive researchand have always proved themselves by giving more thanexpected. There are various examples which have proved tobe a small wonder in the recent times viz.

Venkys India Ltd reco at Rs. 144 and CMP is Rs. 693.

Parekh Aluminex Ltd reco at Rs.105 and CMP isRs.290

Sumeet Industries Ltd reco at Rs. 11 and CMP is Rs.31.5

To talk about current situation of these stocks, allare doing well in their respective sectors but the most emerg-ing and valuable Small Wonder is Venkys India ltd, occu-

pied in poultry breeding, producing eggs and hatching layerand broiler chicks and is one of the most integrated poultryplayers in the country. It is also involved in rearing of pureline breeds, grandparent and parent stock, sale of commer-cial day old chicks (DOCs), processed chicken, as well asrelated requirements of the sector such as poultry feed,medicines and health products.

There is a correlation of this industry with Inflation

rate, so one needs to be aware of the monetary policy of theeconomy. Current hike in repo rate will definitely cut downthe money supply and it is expected that the food inflationwill reduce. This will hamper the margins for the food indus-try but the companies who are operating at good marginswont feel the heat. Established players like Venkys will not

have an impact of this. So there is no concerns for the inves-tors, they should not take a U turn from here. The results

are also reflecting growth and immediate future for this com-pany is great.

The financial year 2008-09, industrial productiongrowth came down as compared to the previous year. Whilemost of the industries showed a decline, the poultry industrymanaged to withstand the impact of global meltdown as theindustry in India is primarily domestic demand driven, thecompany has justified its position in the industry by improv-ing its sales by 20% from 2009 to 2010. The companys

margin has also improved from 3% to 7% starting from theyear 2006 to 2010. The June quarter has already shown good

$mall WondersVenkys India Ltd


signs with 13% NPM and 213 crores revenue. In year 2009,PAT was 54 crore and the company has booked 28 crores inthe June 2010 quarter itself.

Compared to June 2009 the profit has increased by154%. This indicates the ability of the management to workefficiently and improvement is being witnessed QOQ & YOY.

PAT increased by 161% from 2008-09 to 2009-10.

EPS increased by 171% from the previous financial year.

Decrease in Interest payment from 8 crores to 5 crores.

PAT is increased by 30% for the June Quarter in compari-son to March 2010 Quarter.

As per the earnings of last year i.e. 54 crore & Mar-ket cap of 648 crores, the P/E is 12. Taking into account theJun'10 results and annualized forward earnings for FY 11, thecompany should well be able to record a net profit in excess ofRs 100 crores. Looking at the valuations being commanded bythe peers, we feel there's a good upside to the stock from thecurrent levels.

Venkys India is a fundamentally rich stock to invest,

people who are already having this gem in their kitty dont

need to quit at current levels. Stick to the basic rule of growth.People who say you cant make money in Stock Market defi-

nitely would like to change their view now on. So, keep smil-ing & growing along with this SMALL WONDER which is

proving its value for your crown.

Subhash Lalwani ([email protected])


4/8

It is the part or wise man to keep himself today for tomorrow, and not venture all hieggs in one basket,

-Miguel de Carvan

Stone India Ltd is a long-standing company,roughly more than 7 decades. The company is basedout of Kolkata and is a part of a Duncan Goenka group.Considering the number of years of existence, the per-formance of the company has been disappointing be-cause even after 70 long years of existence, Stone Indiais still a Rs 48 crore market capitalization company.However, things look set to change for the better.

Until now, the company was a principal sup-plier of safety products like Locomotive Brake systems,

alternators and rectifier regulators, pantographs to In-dian Railways; however they are now looking at ex-panding their portfolio of products which could proveto be a game changer, if executed well. Basically we aretalking about the company's tie up with US CompanyRail runner for manufacturing, operating, distributingand selling Rail runner products in India.

A brief insight into the tie up:Rail Runner, developer of a container-based

intermodal transport system, signed a 10-year agree-ment under which its products will be manufactured,operated, distributed and sold in India by Stone India.Stone has already received commercial and operating

clearance from Indian Railways, and on completion oftechnical clearance, the company will enter into anagreement with Indian Railways for train operation

with Rail Runners container-carrying intermodal cars. Through the introduction of Rail runnersfreight cars, the freight trains will run at mail/expresstrain speed and permit sophisticated, fragile productsto be transported through rail. As per the management,the Gross weight to fare weight ratio of the system will

be as high as 4.5 against 2.5 to 3. Also, against a stan-dard train of 45 flat freight cars, the new system willpermit 50 flat cars per train. So, there could be goodamount of cost saving due to dead weight reduction

and higher number of cars per train. Stone will be in-vesting Rs 150 crore in the project in two phases. Thefirst phase investment will be through internal funding;the facilities for manufacturing are being set up inStones current location with a capacity to build 25 Rail

Rising Stars

of the Street


Runner freight cars per month. In Phase II of the project,the company will set up a green-field manufacturingplant with a capacity to build 500 Rail Runner freightcars per month.

This was all about the tie up where we feel thescope is immense considering the existing system andfreight cars in place. India really needs to upgrade to the

international standards in the cargo movement and thelogistics space and the move by Stone India could be oneof those initial steps in the right direction.

The Financials:The Company had a consistent run in terms of

revenue and profitability from FY 05 to FY 09; howeverthe company succumbed under the inflationary pressureduring the entire FY 09 and reported a net loss of Rs 8.61crore. The company had entered into the fixed price con-tracts with the Indian Railways and therefore could notre-negotiate and recover the losses by way of price incre-ment. During FY 10, the company reported an increaseof 17% in its revenue at Rs 94 crore. The margins havestill not reached the pre FY 09 levels and stood low at

just 4.67% NPM for FY 10, however there's a gradualimprovement in margins QOQ with the company report-ing a NPM of 6.40% for the Jun'10 quarter. The goodthing about the company is the fact that they have beengenerating positive cash flow from operations for the last3 years including FY 09.

On the forward annualized earnings per share ofRs 7.80 the company is currently trading at a PE multi-ple of 8 while on the valuation metric of EV/EBITDA it istrading at a multiple of 5.5.

Stone India Ltd could be a very good long termpick based on its valuations and its business plans (the

company can turn out to be a multibagger, if they exe-cute their business plans properly).

Ekansh Mittal ([email protected])


5/8

Design a portfolio you are not likely to trade akin to premarital counseling advice; tto build a portfolio that you can live with for a long, long time.

-Robert D. Arnott, President, First Quadrant C

Just to introduce myself, I am a 72 years youngand energetic professor, born & brought up in a suburbcalled 'Kuju' in the state of Jharkhand. I worked as aprofessor at one of the most reputed management col-lege in India. My association with HBJ Capital startedway back in 2009, I was suppose to provide them stra-tegic guideline and help them grow in this competitiveworld. I have been watching their activities day to dayand one thing what I can say is, this is the organizationwhich is built & driven by passionate team with com-plete freedom of thought & has larger than life mission/

vision.What I like here is their thought process which

is un-conventional. While whole world looks for anMBA or Ph D qualification for their associates, HBJCapital is always in search of passion & integrity (onlythese two qualities) in their new joiner. While most ofthe financial companies are focused on large capstocks, HBJ Capital started their operation focusing onsmall/mid cap zone, a less competitive territory. Whilemost of the financial advisory firm do PMS or WealthManagement, HBJ Capital has cut down these monop-oly and provided the power of portfolio management in

the hand of investors thru their offline PMS calledTMP The Millionaire Portfolio. While top financialfirms get their major revenue serving institutional cli-ents, advising them for various deals in private or pub-lic sector, HBJ Capital has gone ahead and startedHBJ Ace Ventures LLP* which will be in-line withBuffett early stage partnership firm, for the purpose ofinvestment. It looks like they are developing an inte-grated business model where at one end they have in-house strong equity research desk and at the other endthey are starting an investment firm.

What I strongly believe is: if there is in-

efficiency in the system, there is an opportunity. Let megive you an example, why most of the people in Indiaopt for fixed deposit, PF, NSC etc? Because they do nothave any other options or avenues for getting betterreturn with lowest risk?

Professor Harry Speaks:--Differentiate or Die...


There are many people who opt for MutualFunds or Insurance (which are not bought but sold)mainly for tax saving purpose or most of the time agentconvinced them in order to get a good commissions fromthe deal. There are other set of people who opt for PMSor Wealth Management Services, and you know verywell what is the state of these services provide as on to-day. All these are in-efficiencies in the system which arenothing but an opportunity to be tapped by someone,may be HBJ Capital. This company by virtue of its smartpeople has always thought different, un-conventional &unique. Hope one day, HBJ Capital can be in the homeof every Indias so that they can sleep peacefully with nofinancial burden.

I am a well wisher of HBJ Capital & hope youtoo are. If you want to join my hand in providing aguideline or suggestion/feedback to HBJ Capitals cur-rent & future plans, then just drop a mail [email protected] addressing me.* - In pipeline for FY11

Prof. Harry ([email protected])
mailto:[email protected]:[email protected]


6/8

Obvious prospects for physical growth in a business do not translate into obvious proits for investors

-Ben Graham in The Intelligent Investor

Golden time:

The speculative nature of the market par-

ticipants is the most predominant characteristic ofCommodity trading. The sole purpose of Com-modity market was to provide hedging opportu-

nity to traders and manufacturers using them. In

Indian perspective, the time has changed and sohas the investment approach.

One of the most beneficial tools while

trading in commodities is Leveraging. Thisamount of leveraging could be used judicially togenerate astronomical returns on the trading capi-tal. The Volatility in the commodities which has

become an intrinsic characteristic of these marketsis an added advantage for stupendous returns on ashorter time frame.

In the present scenario, Gold is referred asa long term safe haven for value preservation.From the central bank to Indian consumers bothdiversified their portfolio against weak currencies

and falling equities respectively.The diversification of Central banks

around the world which are shying away from theweakening Dollar & the capped upside potential inthe equity markets makes Gold as one of the bull-ish commodity for the time to come. But this vola-tility has its own advantage attached to it, whichrequires a religiously followed professional ap-proach. The future perspective of this commoditylooks bullish and should be accumulated at dips.For investors who are skeptic about the future of

the economy and their correlation with each othershould diversify in this metal & bring glitter intheir trading portfolio.

Commodity

Exchange


Crude :

The other commodity worth to talk about isCrude Oil. The economic activity revolves aroundthis highly liquid and volatile commodity and this

would be the trend in the forthcoming month also.With the current instability on the economic horizon,wont be prudent to take positional calls on Crude Oi

However the better approach would be to react accoring to the flow of economic data and global develop-ments and specifically in case of Crude Oil, theWeekly Inventory Data. The risk-reward ratio hasincreased significantly and thus trades should be donekeeping in mind the possible range bound movementevident on the charts. We expect Crude to trade in therange of $ 85-72 for the medium term with a strongsupport near the $ 70 mark. In case the global newsprovides positive impetus to investor sentiments, markets could witness a breakout above the $ 85 levels.

These levels would prove to be the inflection

points for the traders and should be traded in the samdirection afterwards. For the time being, the strategyshould be to play in the direction of volatility for abslutely small time frames and wait for the next pivotpoint to appear on the charts. Range bound markets aextremely difficult to trade but a religiously followedtrading system always provides highly probable profiable trades as well as handsome returns to the trader

Akash Singh ([email protected])


7/8

Most investors dont even stop to consider how much business a company does. Althey look at are earnings per share and net assets per share.

-Kenneth L Fisher, stock market guru.

In the fascinating world of stocks, crystal gazing does-nt work much. I dont mind parting with even 25% of my prof-

its if a crystal gazer assures me of 25% returns that I can earn inabout a months time by investing in a safe sort of company.

And why on earth should I part with 25 per cent of my returns?Thats because our giant PSU/Foreign/Private banks may give

me returns at best close to 10% per Annum, not per month.Against this backdrop, I had mustered the courage to recom-mend a stock that had already significantly at the time of postingmy write up on HBJ Capitals portal.

Those of you who were keeping a tab of postings madeon http://www.indianvalueinvestors.com/ would probably in-

stantly recall the stock that Im talking about. Yes, you got itrightits none other than Diamond Power Infrastructure.

In a very recent interview with CNBC-TV18, AmitBhatnagar, MD, Diamond Power Infrastructure spoke aboutthe fund raising plans of the company.We have raised totally Rs 114 crore through a QIP at Rs 203.80

per share. We have also done a preferential share allotment ofshares worth Rs 18 crore to Kotak Private Equity and anotherfund of Kotak. In total we have raised Rs 132 crore.The entire fund raising exercise is meant to strength our balance

sheet for deploying money on long term working capital andalso to look at inorganic opportunities if some good thing comesup we would like to look at it. So in short, it is to strengthen the

balance sheet and to use the money for long term working capi-tal. We have diluted around 62.5 lac shares which is approxi-mately 20% of the company. Strengthen the balance sheet doesnot always mean repaying debt. We are seeing a huge growthgoing forward and expecting almost 40 to 50% growth in thenext 2-3 years. So a stronger balance sheet helps you to growfaster in terms of accessing capital. In respect of inorganicgrowth we are in a sector which is very dynamic. A lot of goodopportunities keep on coming and when we are thinking of building vertically integrated EPC companies there are somesmall bits which we can still add to our product portfolio. Sobeing a progressive company we look at such opportunities.

One can also gauge the investment community reaction

on this stock. For instance this is what one investor has to sayabout the company:Well Done, Amit Bhatnagar, The raising of 132

crores through ` QIP and PE by Kotak, shows that DiamondCables story is being trusted by some of the best financial brainsof the country.

Article of the Month

-Make Profits even as it rains


Well, you may say the overall bullish trend in the makets has driven the stock up but in that case this should be thrule rather than the exception. Now just take a quick look at thfollowing 3 stocks that have been smoothly sliding downhieven as the markets were in pretty good shape. Gayatri Projeclost 10%, Fresenius lost 14.97% & JK Cement lost 17.73% in

weeks. Please bear in mind that the above stocks are from thredistinct sectors though there being a correlation between cemeand infrastructure.

And lets divert for a while, the iPhone, iPad, iPod anMac computer maker has accumulated a cash pile that totanearly $46 billion, the biggest cash hoard among US tech compnies and equivalent to one-fifth of Apple's market capitalizationBut we shouldnt care less. What is important is that you, o

privileged reader and well wisher of HBJ Calls should maprofits and I mean big profits!Friends, let me assure you that the stock market is the only placwhere you get to make money throughout the year. The markeinvite you at times to hug the bear and at times it beckons you dare fight the bulls. Do not be afraid to pamper the bear when thmarkets correct neither refrain from running away from the bulljust go after the bull and feel free to take an about turn whe

your jobs done. Sounds Simple, isnt it. So go for it.Action is what matters. I have seen many investors wh

pray before Gods and Goddesses begging for the markets to corect so that they can say buy a SBI for Rs.500, L&T for saRs.400, Reliance at Rs.450 and perhaps they may wait and wato buy HBJs hits of Max at Rs.50, Parekh at Rs.75 etc but that

not happening and I doubt whether it will ever happen in the ne4-5 years. Thats because are country is on a strong growth tr jectory path and probably nothing in this world can slow dowthe growth except perhaps a World War! And the good news that nobody in the world has got time to fight a World War b

cause all parliamentarians are constantly busy fighting amongthemselves- for power or whatever! God bless all Politician

Keep Investing and Keep Smiling even as you kee

swiping your cars and cards!

Kishor S. Khot ([email protected])
http://www.indianvalueinvestors.com/http://www.moneycontrol.com/india/stockpricequote/cables-powerothers/diamond-power-infrastructure/DC05http://www.moneycontrol.com/india/stockpricequote/cables-powerothers/diamond-power-infrastructure/DC05http://www.moneycontrol.com/india/stockpricequote/cables-powerothers/diamond-power-infrastructure/DC05http://www.indianvalueinvestors.com/


8/8

HBJ Capital Services Pvt. Ltd.#912, 1st F Main Road,Girinagar 2nd Phase, BSK 3rd stage,Bangalore - 85Phone: +91 80 65681134 / +91 98867 36791E-mail: [email protected]

www.hbjcapital.com

www.hbjcapital.in

August 2010 VOL 1 ISSUE 1

Small is WonderfulWith HBJ Capital you can explore the world of

opportunities and investment options.

In todays world, everyone is

running for Success, however veryfew runs with passion and dedication.It is always said that Out of sight isout of mind . So, to get the visibility,this is the right platform.

Just write your articles to us([email protected]) and steptowards success. We will try to givevisibility to you by publishing yourthoughts and views, this will make

you known in the industry.

Your valuable contributions willbe highly appreciated.

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