Dropped Catch

Are ecommerce companies in India really sustainable?

2012-01-08T22:37:00.000-08:00

We all know that ecommerce in India is growing at a rapid pace (around 40-50% a year) and presently valued at $10 billion. So everything seems to be on a very positive side as far as ecommerce is concerned in India. As a result, hundreds of new players are entering into this market every year. Some estimates claim that there are around more than 3,000 ecommerce companies in India.

So, how these companies manage themselves to differentiate their products and services from competition? There are many things that are common among all the ecommerce companies. viz cash on delivery, free shipping, security, new payment options like cash cards, EMI plans linked with credit cards, etc. But when it comes to differentiating factors there are very few things and that are captured only by very few companies. For example, some companies provide a great user experience and simple buying process. Another differentiating factor could be 'product offerings' i.e offering niche segment of products like kidswear, diamonds and other luxury items, etc.

So what's making these companies to mushroom in number? Well, everybody is competing for a share pie in this one of the fastest growing markets in the world. But all these companies tend to forget one main thing for any business to survival i.e profitability and scaling up (in terms of number of customers and revenues). There are few cases that has made many of these start-ups to revise their strategy. Recently, Taggle.com, an online electronics retailer, has announced to close its business due to increase in losses and the reason is it couldn't survive the intense 'price-war' that's going on among these so-called ecommerce companies.

So now the issue is about 'sustainability' in this space for the Indian ecommerce companies!

One good thing for customers though - great deals at an all time low prices!

Falling Rupee and how it affects you?

2011-11-24T06:42:00.001-08:00

Rupee fell for eighth day consecutively on Wednesday to finish at 52.36 against USD. So there's been hype in the market on falling Rupee against USD. We can't blame anybody for this. This is a massive outcome of various things like Eurozone crisis, instability in global equity markets, etc.Investors are looking for safe investment horizons like government bonds that could shield them against any financial vulnerability.

India's central bank, RBI, is closely watching the situation is expected to issue rupee denominated corporate bonds to overseas investors to boost the ailing rupee. Also it plans to buy around Rs. 100 billion worth government bonds to ease the pain on Rupee.The Rupee has lost around 8% against USD since April.

Though the US economy is in a bad condition, factors like Europe's failure to bail-out the countries which are in financial trouble, make the investors' confidence to ruin on Euro. All these factors pushing up the USD value against many currencies (good or bad, it's USD getting the hit!).So one could expect the Rupee to gain in Q1 2012 as the European economy is expected to get some sort of bail-outs from the governments. Once the global confidence among investors roll back, then we could say that Rupee might be back on track against USD (in the range of 45-47).

Decrease in value of the Rupee is good for the people who are working abroad and sends money to their families here. Also, the imports get dearer. There might be increase in price of goods like mobile phones, laptops, TVs, etc in coming months as the import prices would be higher. Energy companies (like oil importers) would also bear the brunt by paying more on importing oil (no surprises if the fuel prices go up!). Exports would be less valuable now and companies that export goods to abroad could expect their top line revenues to come down. Many Indian IT companies that weren't prepared for this free fall of rupee would certainly face the heat in this quarter.

Will Kingfisher Airlines survive?

2011-11-15T20:38:00.000-08:00

Everybody is talking about the financial position of Kingfisher Airlines, the second largest carrier in India with a market share of around 20%. Speaking only based on the financial numbers, yes, Kingfisher is in a dire situation. But before arriving at any conclusion, let's review about its recent quarterly results (three months ended Sep 30, 2011).

1. Revenues decreased by 19% Q-o-Q, may be an overall effect in the industry
2. Fuel expenses went up to a new level of 53% of revenues
3. Employee costs also went up by 5% Q-o-Q, constituting around 12% of revenues
4. Both Fuel and Employee expenses accounted for 65% of total revenues in this quarter, should really be a concern for Kingfisher
5. Cash at bank was about $44M at the end of the quarter, around more than 21% of short term loans payable within a year (as of March 31, 2011)
6. Total secured and unsecured loans as of March 31 ~ $1.4 billion
7. Kingfisher announced in its earnings call that it may require only around $100-$150M to meet short term needs (working capital)
8. There are some flip side as well -

- passenger load factor was down to 77%, compared to 82% in the same period last year
- reported a EBITDAR loss of around $25M, since two years
- reported a net loss of around $94M

Interesting to note is that around 75% of revenues were from domestic operations. So, increase in fuel costs in India would obviously have its impact on the margins of Kingfisher. Jet fuel costs are surcharged at a higher rate than many other countries, it's around 50-60%, which made the airliners to shed more money on fuels in India. This was the biggest cause for this financial mess at Kingfisher, followed by the increasing staff costs.

Fuel expenses were 'higher' in the previous quarter (Q1 2012), which Kingfisher was able to overcome due to its increase in revenues in that quarter. There were factors that made Kingfisher hard times this quarter - increasing fuel costs, employee costs and decreasing value of rupee against dollar.

Though the company is making all measures to cut costs like shutting operations in few loss making routes, Kingfisher has no other option.

All the company needs is an infusion of around $100-150M to save its day-to-day operations running. I think it can made it easily by various measures like selling more equities or converting debts to equities to sell stakes to the creditors, etc. Also the talks have already been through with various banks in India.

All the airliners in India are running in losses and this mounting debt may not be a 'significant' problem for Kingfisher and I hope the company would come up from the crisis and this would be a lesson for all the operators in India to tackle their working capital efficiently in order to maintain day-to-day business operations without any financial hitches.

Gold Vs Sensex

2009-11-04T07:39:00.001-08:00

This is one of the most sought after season for aggressive short term investors. Investors are trying to buy as much of gold,, which is soaring for the record heights recently to nearly $1100 an ounce.

Investors are now trying to make very short term profits from stock markets and trying to reinvest in high returns commodities such as gold.

Hence today's 500 points up in the Sensex doesn't mean that positive factor is back in the market. Investors who are really interested in long term investments (1-2 years) should enter the market now. But this is not a good time for entering for real aggressive short term investors!

Sensex will stay in the range of 16000-17000 till Q1 2010. Higher volatility may affect the market sentiments in short term (say 3-6 months).

Bharti Airtel - Buy

2009-10-31T09:23:00.000-07:00

Bharti Airtel recently announced its Q2 results with good numbers, but not upto the expectation.

Revenues increased by 9% to Rs.98.45 billion Y-o-Y and net profit up by 15% to Rs.23.7 billion Y-o-Y. Net margin was at 24%, relatively higher than a year before.

Here are some positive notes:

1. Customer based increased to more than 110 million as on Sep'09. This is up by 42% from last year same period.
2. Net debt came down to Rs.42 billion, lowest in last five consecutive quarters
3. Return on equity (RoE) is consistently above 30% for the past five quarters (though it was down from 36% in Sep'08)
4. Net debt-to-EBITDA was at 0.26, lowest in last five consecutive quarters. This is due to the decrease in net debt.
5. Interest coverage at 56, highest in last five quarters

Here are some concerns:

1. Average revenue per user (ARPU) came down to Rs.252, from Rs.331 in Sep'08.
2. Market share in mobile services fell to 23.5% from 24.6% a year earlier.
3. Operating expenses increase over last five quarters (though slightly less than previous quarter)
4. Return on capital employed (RoCE) was at 26%, compared to 36% in Sep'08.
5. Capital productivity (annualized revenue/capex) was down at 64% from 73% during last Sep'08.

Share price is at Rs.292, approaching its 52 weeks low, Rs.290. The stock touched Rs.495 (its 52 weeks high) and hence the stock is currently trading at deep discount. Moreover the trading volume is at around 6.5 million.

Considering its positive fundamentals and free-falling stock price, Bharti Airtel is a 'GOOD' pick now. Investors considering long term investments with 1-2 years investment horizon, can make a call now.

US Stocks stumble

2009-10-30T09:22:00.000-07:00

US stock market witnessed another day of bolt as the markets crashed due to the disappointing numbers on consumer spending. US Commerce department released the consumer spending data for Sep'09, showing a decline of 0.5%, first time in five months.

Dow fell by more than 1.5% to 9800 (down by 160 points). S&P 500 also came down by 2% to 1044.

However this fall in US markets may not have greater impact on Indian market on Monday. Sensex is moving based on the selling pressure by the investors who have invested in emerging markets. Moreover the market fell by more than 1% on Oct 30, a day after US markets bounced back (official data showed that US is recovering from recession). However Sensex is expected to be highly volatile in coming week as global markets are tumbling.

Sensex continues to fall...!

2009-10-30T03:59:00.000-07:00

Sensex fell for consecutive fourth day to end below 16,000. The market closed lower by more than 1% to end at 15896 on Oct 30. This is led by telecom and oil sector companies.

Bharti Airel announced its Q2 results on Oct 30 in a positive note. But did not match the market expectation. The stock down by more than 6% to end at Rs.292. Airtel's lowest in a year was Rs.290. This shows that the stock is moving towards to break its lowest support next week.

Long term investors who can hold their investments for 1-2 years, can now consider investing in Bharti Airtel.

Sensex is expected to be in the range of 16000-17000 in coming weeks.

Bharti Airtel profit up, but lower than expected

2009-10-29T23:46:00.000-07:00

Bharti Airtel, India's largest telecom service provider, has announced that its net profit was up by 13.4% Y-o-Y, during the quarter ended Sep 30, 2009. Net profit was at Rs. 23.21 billion ($497 m).

Revenues increased by more than 9% to Rs.98.45 billion.

However these numbers are lower than many expected.

The Indian telecom market is now entering into a new phase, 3G and 2G. Many new foreign operators are entering into the market and announcing various pricing schemes to customers, making Indian companies to react as well. This pricing pressure may have an impact on operating results of telecom companies in next quarter, or even next year also.

Consolidation is the better way to handle the current situation in Indian telecom market. Many 2G licensed telecom companies are selling stakes in their companies to foreign entities, making the competition even bigger. Indian companies may consider in acquiring these smaller telecom companies who have granted licenses.

Sensex in November'09

2009-10-28T21:28:00.000-07:00

As the US and Europe markets are stumbling, Asian markets are also expected to be more volatile. However China and India may have a less volatile market movements in November'09.

This is supported by expected strong economic growth (around 6.7%) in 2009-10 and better turnaround results from India Inc.

Moreover, Sensex is expected to be in the range of 16500-17500 in Nov'09.

We can expect the market to be more volatile and touch record lows in recent days on 29 Oct'09. Again this is backed by the fall in Dow on previous day.

Anyway this will be a season for rational investors to get their picks!

Welspun Gujarat - Where the stock heads?

2009-10-23T04:17:00.000-07:00

Welspun Guajarat is one of the hottest stocks now in the mid-cap sector. The company is the seconda largest line pipe company in the world. The thing that keeps the stock rocking is its order book. The company recently announced that it had reached the landmark of Rs.10,000 cr in its order book. This ensures the better cash flow for Welspun in coming years, atleast throughout 2010.

The company's stock was at around Rs.50 in March/April this year, now trading at Rs.280.

Strong fundamentals such as impressing order book, strong financial results, good management, global presence,etc.

Welspun reported that its net profit has increased by more than 90% Year-on-Year to Rs.138 Cr for the quarter ended June 30, 2009.

EPS went up by more than 200% Y-o-Y to Rs.7.38 for the same quarter.

The company is expected to announce its results for the quarter ended Sep 30 with the same level of growth.

This is one of the best picks in the market. It has already reached its peak in the market, trading at Rs.380.

Anyone who wants to invest for atleast 1-2 years, this is the best pick!

Sensex - Short Term Outlook

2009-10-21T00:23:00.000-07:00

Global markets are back on track, thanks to the promising results by corporates. India Inc is showing a healthy start towards Q3. Sensex has been recovering well from its 16,000 levels towards 18,000. Hope this may be reached in this month!

I have some stock picks expected to deliver a really 'good' returns in next 6-12 months. Here is the list:

1. Welspun Gujarat
2. Tanla Solutions
3. Gayatri Projects
4. Crompton Greaves
5. SAIL
6. Essar Shipping
7. Sujana Towers
8. GVK Power

Sensex is expected to be in the range of 16,000-18,000 in next 3 months.

Strong Oil Demand Forecast and BOLT Technology

2009-09-12T00:43:00.000-07:00

BOLT Technology - FY 2009 Results

Top line revenues down by 21% to $48.9 million for the fiscal year ended June 30, 2009. This is mainly due to the decrease in sales in two main reporting segments: seismic energy sources and seismic energy source controllers. More than $11 million decrease in sales reported in seismic energy sources segment. This is followed by air gun replacement systems segment (decreased by more than $2 million) and seismic energy source controllers segment (decreased by $0.6 million).

Only segment that witnessed growth in sales was underwater cables and connectors. Sales from this segment went up by $1.4 million, from FY’08.

However gross profit margin increased to 49% for the year, compared to 46% in 2008. This is due to the higher price level and decrease in material costs.

BOLT uses high quality steel in its manufacturing process, hence any drastic increase or decrease in prices of steel could adversely affect the profit margin of the company. Cost of sales was 51%, lowest in last five years. This somewhat helped the company to achieve the highest net profit margin of about 22% in 2009.

40% of revenues from just three major customers

Top three customers (Schlumberger (16%), Compagnie Generale (15%) and Petroleum Geo-services (9%)) constitute 40% of sales in 2009. This is a real concern for any investors, though the company was able to book orders from other clients as well.

Risk Factors

- Oil price movements affect the sales of BOLT directly; Increase in oil prices improve the marine seismic activities, which in turn increases the sales
- Global economic conditions affect the demand for oil and gas products. This in turn will have an impact on BOLT’s top line revenues
- Dependency on few major customers for major portion of revenues
- 85% of sales from outside US

Relation between Oil Price and BOLT’s Sales

There’s a correlation of more than 0.5 between the oil price and sales. This however clearly do support that BOLT’s sales don’t rely wholly on oil price movements.

International Energy Agency (IEA) recently increased its demand forecast for global oil demand in 2009 & 2010 to 84.4 mb/d and 85.7 mb/d respectively. This is strongly supported by increasing demand in North America and non-OECD Asian countries. Hence BOLT could report an increase in sales in 2010 as the projections for oil demand and price seems to be optimistic.

Strong Fundamentals

BOLT’s average return on equity (RoE) in last five years stands at a healthy 18.5% and return on assets (RoA) at 16.1% for the same period.

2005-009
RoE 18.5%
RoA 16.1%
EBIT margin 26.2%
Net profit margin 19.0%
Sales/Share ($) 4.8

Cash and cash equivalents increased by 34% Y-o-Y to $25.69 million in 2009. Moreover the company does not hold any long term liabilities.

BOLT spends an average 1% of sales on research and development activities. This helps the company to use latest technology based products to clients and also improve its manufacturing processes efficiently.

Valuation

P/E 10.17
P/B 1.60
P/S 2.18
P/CF 10.94
Market Cap ($ million) 106.60
EV ($ million) 78.87
EV/Sales 1.61
EV/EBITDA 4.84

BOLT - Q3'09 Results Analysis & FY 2009 Sales Estimate

2009-08-03T02:20:00.000-07:00

Q3’09 Sales Review

Sales for the third quarter ended 31 March’09, was at $12.96 million, a dip of about 18% from a year earlier. However, the gross profit margin showed an upward trend of 32.8% for the quarter. This is mainly because of reduced cost of sales and selling and other expenses. Operating margin also witnessed an increase and stood at 34%.

Net Income went down by about 12% to $3 million.

Analysis

The major contributor for the decline in sales was seismic energy systems, seismic energy controllers and air gun replacement parts, which went down by 29% in sales during the quarter.

This decrease in sales is partly offset by sales of underwater cables and connectors, which were up by 5% during the three months ended March 31, 2009.

Slowdown in global seismic exploration activity during the quarter was the reason behind the decrease in sales in seismic energy systems.

Strong Cash Position

BOLT has increased its cash and cash equivalents component by more than 100% in Q3’09. Cash and cash equivalents were at around $24 million.

The company also invested in other short term bank deposits, which helped in increasing the interest income by nearly 200% during the quarter ended March 31, 2009. Interest income during the period stood at $95,000.

R&D Expenses

The company is very keen in improving its products in the category of APG guns and SSMS. This can be inferred from the increase in R&D expenses during the quarter to $65,000, a 10% increase year-on-year.

Strong dependence on some major customers

About 62% of the company’s sales were represented by 5 major customers. This again shows the company’s strong dependence on some specified customers. Though the receivables reduced by almost 18%, dependency on some major customers is still to be considered as a ‘weak’ point for the company.

FY 2009 Sales Estimate

Based on the factors such as decreasing demand for the seismic exploration products, volatility in global oil market, decrease in number of global oil explorations (though BOLT’s positive outlook for its products and increase in R&D expenses), the sales for BOLT is expected to witness a decrease in FY 2009.

Estimate of the EPS for the fiscal year 2009 is around $1.49. Sales are expected to be in the range of $54.24 million.

Indian Stock Market - Back on track?

2009-07-23T00:24:00.000-07:00

Indian stock market benchmark index, Sensex, is doing better than most of the developed economies' stock markets. Sensex faced some sluggish movements after the budget, but now the market seems to be bouncing back.

There are lot of small and mid cap stocks in Sensex which are still undervalued. Here are some of the stocks that gave more than 100% returns in last six months:

1. Crompton Greaves

2. Essar Shipping

3. GVK Power

4. Ispat Industries

5. Jaiprakash Hydro

6. Steel Authority of India (SAIL)

7. Sujana Towers

8. Tanla Solutions

Stocks that are doubled or tripled in last six months:

1. Punj Lloyd (217% increase)

2. Wellspun Gujarat (311% increase)

Wellspun Gujarat - a value stock?

Wellspun Gujarat, a leading manufacturer of steel pipes in India, has announced a very attractive increase in net profit for the quarter ended June 30, 2009. Profit was up by 94% to Rs.138 crore.

Current stock price of Wellspun is around Rs.205.

Moreover Wellspun recently got an order worth Rs.960 crore. Backed by these strong fundamentals and healthy outlook for next financial year, Wellspun Gujarat' seems to be a good pick.

Sensex - Outlook

Supported by a strong Q1 results by most of the Indian companies and strong growth in FY2009-10, Sensex, is expected to be in the range of 16000-17000 in Q3 2009.

SaneBull World Market Watch

2009-07-14T21:08:00.001-07:00

stock market info

Sensex is bouncing back!

2009-07-14T01:59:00.000-07:00

After some post-budget trembling, the Sensex is bouncing back today. Index is already up by 406 points, expected to close above 13,800 points. This shows that investors again put in confidence in Indian budget and its aggressive growth plans. Well, if the economy grows at more than 7%, then India will be the second fastest growing economy in the world, after China.

I would like to mention few stocks every week in this blog which has some 'value'.

Here's are the stocks to watch for this week:

1. Page Industries
2. ITC (a good stock that gives nominal returns even in bad times)

BOLT Technology Corp - a Undervalued Stock?

2009-07-13T09:30:00.000-07:00

BOLT Technology Corp - a Undervalued Stock? (http://www.bolt-technology.com/)

- Low PE-G ratio 0.20 and PE multiple 4.03
- Strong fundamentals with good profit growth
- Market capitalization - $67.36 million (as of Dec 12) with no debts

Strong Fundamentals - Company’s growth

BOLT’s sales were up by almost 110% to $61.6 million in 2008 from the year 2006. Net income was $14.5 million in 2008, an increase of more than 200% for the same period.

The company has no debts, which shields BOLT from the global credit crunch. Moreover the cash & cash equivalents for the most recent quarter ended increased to $20.3 million and working capital increased to $41.5 million for the quarter ended Sep 30, 2008.

However the company reported a sales decrease of 21% in its sales for the most recent quarter ended Sep 30, 2008. This is due to decrease in sales of new air guns. The sales was dropped by 51% in this category for the period, mainly due to the uneven sales pattern for new air gun sales, which is expected to rebound in next quarters.

BOLT is optimistic about its fiscal year 2009 sales, though it believes that recent economic crisis and fall oil prices could affect the top line sales. Oil explorations by the companies may get affected due to the global economy slow down and decrease in oil demand by developed countries.

Profitability

A good Return on Equity at 26.2% for fiscal year 2008 shows the company’s good profitability. Net profit margin was 23.6% for the year 2008, a consecutive third year growth.

Valuation

The company is undervalued with a P-E multiple of 4.62 (for the market price of $7.85 on Dec 12), compared to the S&P’s 12.5. The P-B value is at 1.21 (whereas the S&P’s is at 2.8).

BOLT’s share was trading a little above the book value $6.47. The P-S ratio is at 1.09 (slightly above 1).

PE-G ratio is valued at 0.23 (much below 1), also clearly indicate that this stock is undervalued. (Assuming the earnings growth of 20.5%, average of last 3 years net earnings growth)

Factors for future growth

Global oil prices are expected to be back to the range of $50 per barrel in 2009[1]
According to World Geophysical News, the number of seismic crews in each region ranges between 11 and 68 (higher than the previous year). At least 18 new vessels are expected to be on stream during the period Q3 2007 - 2009[2]
As most of the developed economies are already declared into recession, the demand for oil from the US, UK and Japan are expected to come down in 2009-10. This could affect the sales for BOLT from these countries. However the crude oil demand from developing economies such as India and China are predicted to be robust. (BOLT’s sales from China and India were $4.3 million and $0.4 million respectively; almost 7% and 1% of total sales during the year 2008). Hence oil exploration companies may book more orders from these countries in 2009/10.
Moreover OPEC is already declared a production cut of 1.5 million barrels per day as a part of measure to help the oil prices to rebound. OPEC is expected to announce more production cuts in its December 17 meeting. This may help the oil prices to bounce back atleast in 2009. BOLT’s sales will improve once the oil prices are back at a decent level.
Countries like India and China are still expected to grow at 7-8% GDP in 2009. Global economy is also expected to stabilize in 2009/10, boosting more demand for crude oil.

Customers
A more than 50% of sales come from five major customers for BOLT. Two new customers have been added in 2008. All the major customers (such as Schlumberger Limited) are into the oil services industry. Hence once the oil prices bounce back, the top line revenues for BOLT is expected to improve drastically.
Profile
Bolt Technology is the leading energy source supplier to the marine seismic industry. The Company recently acquired A-G Geophysical Products (in 1999) and Real Time Systems (in 2007).
A-G Geophysical Products is the leading supplier of underwater cables, connectors, hydrophones and depth and pressure transducers to the marine seismic industry. Real-Time Systems develops, manufactures and sells controllers and synchronizers for air guns. The Company’s products are mostly used in offshore marine seismic surveys. BOLT started its operations in 1960.

[1] http://www.news.com.au/heraldsun/story/0,21985,24764335-664,00.html
[2] http://www.energycurrent.com/index.php?id=2&storyid=3506