Jet gains after patch-up with Pilots, stocks up 5%

After nearly a weak long stand off between the protesting pilots and the management of Jet Airways which led to daily losses to the tune of $2.2 million, Monday was the time of revival with stocks rising by 5.05% during early morning trade. On 14 September, the Jet shares rose by 13 points or 5.05% to trade at 570.40 before settling close to 3% as of 11:40 a.m.



In addition to the returning of pilots to work after the strike, the company has offered as much as 50% in total fares for passengers traveling by economy class across all domestic flights. During the strike, about 250 domestic and international flights got cancelled leading to about 1,00,000 passengers getting stranded at various Airports all over the world.



Under the agreement reached between the pilots and the company board, a consultative body would be constituted which would include 5 pilots in addition to 2 members from the company’s Board of Directors. The purpose of setting up this group is to facilitate constant dialogue between the management of the company and the pilots in future.

BPCL plans to sell stake at Bina Refinery

Bharat Petroleum Corporation Ltd., a government run oil and gas company is looking for private equity investors to sell its stake in Bharat Oman Refinery which was set up in collaboration with Oman Oil Company. The plant in Bina in Madhya Pradesh is a joint venture between the BPCL and Oman Government’s company and has a capacity of producing six million tonnes per annum.



According to newspaper reports, in addition to private equity investors, the company is also looking towards its partner in the venture, Oman Oil Company to buy its 26% stake in the company for a sum of Rs. 1,200 crore. If this goes through, the company would be holding a total of 28% of the total equity from its current 2%.



The Bharat Oman Refinery was set up jointly by BPCL and OOC which invested Rs. 75 crore each. The rest of the funds for the venture came from Rs. 4,000 crore equity and Rs. 6,400 crore debt.



Meanwhile, the stocks of BPCL, which is listed on Bombay Stock Exchange rose by 20.2 points or 3.6% during the day to trade at 580.00. At the time of writing this report, the stocks were trading positive with a gain of 10.20 points or 1.82% at 570.00.

Oil India IPO hits markets today

The much awaited Initial Public Offer of 2.64 crore equity shares of face value Rs. 10 by Oil India Ltd., the second largest Oil and Gas Company in India will be open on Monday.



The shares of the company which come at a price band of Rs. 950 and Rs.1050 through 100% book building method is the second such occasion in recent times when a state run firm is going public. Earlier, the Initial Public Offer of shares of National Hydro Power Corporation received overwhelming response from the primary market with the issue getting oversubscribed 23 times. The OIL IPO would close on September 10.



Out of the 2.4 crore equity shares open for purchase, 24.0 lakh have been kept for subscription by the employees of the company who would be issued the share at issue price.



With this IPO, the company plans to raise between Rs. 4,507 crore and Rs. 4,982 crore. Out of this, the government is expected to earn between Rs. 1995 crore and Rs. 2,205 crore. Government would also sell the 10% of its total holdings in the company to several oil and gas majors such as Indian Oil, Bharat Petroleum and Hindustan Petroleum which would effectively bring down the government’s total holding from 98.13% to 78.5%.

I hate missing opportunities like these...

Back in 2007, when I started investing seriously, I began with the process of short-listing small-cap stocks - and one of the stocks I considered was Temptation Foods. However, I finally rejected this idea on liquidity and corporate governance concerns. Well, how I have rued that decision! For the last two years, the company has gone on to make significant brand acquisitions, strengthened its management and operations and the stock has made a journey from 1.5 to 80 to 320 and then down to a minimum of 20 in Mar 2009. It last closed at Rs. 33 Is it time to pick up this stock again?


THE COMPANY:
Temptation Foods is a food processing company with three main brands:

• Everfresh: Quick frozen packaged vegetables like peas, carrots, mixeg veggies, broccoli, beans etc. Temptation bought this brand from Chambal Fertilizers in Nov 2007.
• Karen's Gourmet Kitchen: Again acquired in 2007, the company sells sauces, conserves, dressings and spreads under this brand.
• Delika: This is a frozen fruit and vegetable brand for institutional customers.
• The company made an announcement in Dec 2008 that they have entered into an agreement with a South Indian company for export of marine food.

THE FINANCIALS:
Summary of financials over last 3 years in crores:



* Based on quarterly results

Roughly 8.5% EBITDA margins is not so bad nor so great in this FMCG-like sector. But then the revenue growth is impressive and most importantly, zero debt (as per Mar 2008). The market cap as of 29-Apr-2009 was INR 83 cr - a P/E of 1.5 and an EV/EBITDA of 1.1.


THE RISKS:
Like in 2007, corporate governance is still an issue. Another controversy this February - Temptation had, since late 2008, been making disclosures of its increasing stake in another food procession company - Kohinoor Foods. In Feb 2009, SEBI asked the MD to stop making false disclosures. Kohinoor's register showed Temptation as holding only 2.28% of shares. The company, it seems, had pledged 7% of Kohinoor shares with an NBFC who had gone on to sell them. To me, the disclosure is less alarming than the pledging of shares for a company with close to zero debt.

Yes, there are issues with this company - but I would still lean on the long side for this stock. Temptation Foods is an emerging player in a high-growth, nascent industry. The strengths - strong brands, growing industry and export potential - far outweigh the risks at the current price. To discuss more about this stock, goto blogs on fourstocks.com

JP Hydro: Stable returns in an uneasy world?

In our quest for value, we look at stocks with varying risk-reward profiles, from the high-risk, high-return startup to the low-risk Govt bond. Power generation from natural sources (where the fuel does not cost) and power transmission fall on the latter end of this scale. Jai Prakash Hydro-Power Ltd (JPHYDRO) is one of the best assets in this sector, both in terms of asset demarkation (the most prominent asset in the company is a 300 MW commissioned hydro plant) and in terms of leadership (its the only private company with commissioned hydro assets of this scale).

THE BUSINESS: The company commissioned BASPA-II, a 300 MW hydro plant in Himachal Pradesh in the year 2003. 88% of the generated power is sold to HP State Electricity Board (HPSEB) at Rs. 2.74 per unit till 2043 as per PPA (Power Purchase Agreement). 12% is provided to the state for free.

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Suzlon - Blowing in the wind

A Rs. 8700 cr (USD 1.7bn) market cap wind turbine giant, with Rs. 15,000 cr (USD 3.0 bn) debt on balance sheet is struggling to raise Rs. 200 cr (USD 40 mn) for buying out the minority shareholding of another smaller wind turbine manufacturer in which it already owns 74% equity and 91% voting rights. Having exhausted traditional market fund-raising options, it is now knocking on the doors of obscure hedge funds and private equity players. Does that sound absurd? or does it? Suzlon Energy's troubles today are a result of some ill-timed ambitious expansion plans laid way back in 2005, mixed with some operational disasters in an industry with some very interesting peculiarities.

Wind energy does seem like a very simple business – manufacture turbines, blades and towers and sell them to wind-farm developers and utilities at a decent margin. When Suzlon was growing in India in 2000-2005, it was indeed that simple. The company had the technology to manufacture/source all components for machines upto 1.5MW. As wind energy was new in India, the company was quick to build land banks in wind-intensive states and sell wind farms to industrials interested in owning them. The company made a healthy 20 to 25% EBITDA margin and was further aided by two key factors - debt was cheap and technology requirements were not onerous (as the Indian peninsula is a low-wind regime area as opposed to sites in Europe, US and Australia).

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De-risking you portfolio in a bear market - II

In part I of this series, we looked at how we can hedge our portfolios using futures. In this part, we explore ways to hedge portfolios using another derivative instrument, options. Firstly, we want to emphasize that we will not provide an introduction on how options work. One can read a good primer at http://www.investopedia.com/university/options/option2.asp.

>HEDGING AGAINST MARKET RISK USING OPTIONS CONTRACTS:
The way to hedge for market risk is to buy put options for a percentage of the notional of the portfolio (how much, is based on one's market view). In India, the most traded and liquid option contracts are on the NIFTY...Click here to read full article.