swan energy ltd
Post on 18-Apr-2015
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1
SYNOPSIS
We initiated coverage of Swan Energy Ltd & set a target price of Rs.390.00 for Medium term to Long term Investment.
Swan Energy Limited (SEL), a 100 year old company listed on Mumbai Stock Exchange with a market capitalisation of ~Rs 11.29bn.
Owned and managed by Dave and Merchant families who took over the company from J.P Goenka Group in 1990.
SEL, originally in textile business had discontinued Textile Operations in 2002 as a strategic move to convert all its premises into Lucrative Real Estate projects considering their prime location in the heart of Mumbai City.
SEL with large area of land available, ventured into property development in 2005.
To futher diversify its operations, SEL
has ventured into Energy sector and is
setting up a 3 MMTPA LNG Floating
Storage & Regasification unit (FSRU)
and has plans to increase the capacity
to 10 MMTPA in a phased manner.
Stock Data:
Sector: Construction &
Energy Face Value Rs. 2.00 52 wk. High/Low (Rs.) 119.40/56.00 Volume (2 wk. Avg.) 314000 BSE Code 503310 Reuters Code SWAN.BO Bloomberg Code SWAN:IN Market Cap (Rs.In mn) 11290.75 Share Holding Pattern
1 Year Comparative Graph
BSE SENSEX Swan Energy Ltd
C.M.P: Rs. 118.85 Target Price: Rs. 390.00 Date: April 3rd, 2012 BUY
Swan Energy Ltd Detailed Research Report
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SYNOPSIS
SEL is currently engaged in developing real estate projects in prime locations of
Mumbai, with total saleable area of 1.78 mn sq. ft in Kurla (IT park) and Sewri
(residential complex) in alliance with Piramal Group (Piramal Holdings), now known as
Peninsula Land Ltd.
Cash flows from Real Estate Development planned to be used for new business of FSRU projects and Infrastructure.
SEL has plans to use gas based power generation owned by it for merchant sale by
leveraging gas availability from FSRU.
The company has plans to develop more FSRU projects at different locations along
coastline.
The company wants to leverage FSRU gas availability and strategic relationships with
GSPC, BPCL and HPCL to develop gas market for automotive applications.
The company has set up a state-of-art-textile Process House at Ahmedabad, Gujarat.
The plant has been built on a 4 acre plot with an installed production capacity of 1.25
lakhs meters per day. The company has imported state-of-art machineries for the
plant from Germany, Belgium, Italy and Austria.
SEL has initiated the process for ISO 9001: 2008, Oekotex 100 and GOTS certification
for textile business.
During the quarter ended 31st December 2011, the company posted robust growth in
Net Operating Revenue and the same is increased by 50.33% to Rs. 275.07 million.
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Investment Highlights
Sustainable ENERGY for growth:
Real estate business – Company’s Turnaround Factor:
Swan Energy (SEL) would see a terrific upmove in growth trajectory of its revenues and
earnings on the back of revenue generation from Real estate business, which is at
inflection point with the impending completion of its major real estate projects in the
near term to generate strong cash flows in FY13.
SEL has mills located at Sewri and Kurla, where the company has under taken real
estate development. The company’s two projects , namely Ashoka Gardens ( residential
project) and Peninsula Technopark (commercial property) are nearing completion
having total saleable area of 1.78mn sq. ft.The company has appointed reputed
developer M/s Peninsula Land as the project manager for both the projects.
A commercial IT park ‘Peninsula Technopark’ at Kurla consisting of 4 buildings with
0.88mn sq. ft. of saleable area. The construction work of 3 buildings have been
completed and for remaining 1 building it is at the advanced stage and is expected to
be completed by June 12.
A residential complex ‘Ashok Gardens’ at Sewri consisting of 2 towers of 23 floors, each
housing 3 wings with 0.90 mn sq. ft. of saleable area, have nearly been completed and
is ready for possession.
Proposed development of plot in Goa and Mysore
SEL had acquired 104 acre plot in 2009 to develop an IT SEZ and had obtained
necessary permission from the state of Goa, but due to change in government policies
all SEZ projects have been de-notified. Since SEL had acquired the plot from a private
seller, the company now plans to develop the same in to a mix of residential and
hospitality projects.
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The possible developable area under this project is ~ 4.5 million square feet. Though
the project is at an nascent stage, we have not factored the same in our estimates, but
we believe that the project has strong potential owing to the locational advantage as
the plot is situated near to the proposed airport. SEL is also in negotiation to jointly
develop a residential project with 187 acre plot of land in Mysore. The company is
planning to jointly develop the Mysore plot in to residential bungalows.
Completion of scheduled real estate projects to generate strong cash flows
SEL’s is expected to see an accelerated growth in revenues and profitability in FY13 on
the back of completion of real estate projects. The improved financial performance
would generate strong cash flows in the near term which would enable SEL to fuel the
funding of its growth plans in existing real estate business and lucrative new business
segment of energy and ports.
Deployment of real estate cash flows into energy generation activities:
The company has formulated plans to deploy the cash flows that are generated from its
real estate activities into energy generation activities.
SEL’s foray into newer lucrative business segment of Floating storage cum
regasification unit (FSRU) and development of ports which would provide sustainable
revenue and earnings growth for the company going ahead.
Entry into FSRU and high margin port business with margin in the range of 65%-
70% would provide stability of revenues and fuel growth in profitability.
Investment in Floating storage cum regasification unit (FSRU) Project
SEL is investing in a Floating storage cum regasification unit (FSRU) to leverage
opportunity in the LNG business segment. The key objectives of the FSRU project are
to provide LNG import facilities in the quickest possible time and provide regasification
at competitive rates.
The FSRU project would provide a stable new revenue stream for SEL.
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The Beautiful Swan: Textile business to leverage on ‘Swan’ brand name:
SEL has set up a State of the Art – Fabric Processing Unit in Narol, Ahmedabad with a
capacity to process 1.25 lacs meters per day. A continuous processing plant set up
with the machines from Germany, Italy, Belgium and Austria. The project has been
sanctioned under Technology Upgradation Funds (TUFS), which would keep the cost of
debt at a relatively lower level owing to interest subsidy provided by the Government of
India. SEL commenced the processing unit in the year 2011-12.
The revenue and profitability growth are also expected to be strengthened from the
commissioning of its textile processing unit in Narol at Ahmedabad, which would
leverage on its strong brand image of ‘Swan’, which has been in existence since last
100 years.
“Swan” is a household name as its products catered to the needs of men, women and
children, namely Dhotis, Sarees, Dress Materials & Suitings/Shirtings of fine & Super-
fine qualities from natural & synthetic fibers, cotton, polyester, viscose, nylon etc.
With multiple triggers for growth, SEL is on the road to a sustainable growth in
revenue and earnings over the next five years.
Visibility of revenue from business streams other than real estate is going to be a
crucial key growth driver:
SEL is generating small amount of revenue from its textile trading business, and real
estate business is currently giving excellent cash flows. However, we believe this will
fetch cash flows only till the revenues from said real estate projects are accounted for.
Company’s investment in FSRU will fetch revenues in next 1-2 years once the project is
commissioned and fully operational.
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Key Financials:
Particulars FY10 FY11 FY12E FY13E Revenue 5372.91 4093.57 1963.97 10948.23 Rev.Growth (%) -23.81 -52.02 457.45 EBIDTA 568.01 794.56 1012.59 4415.34 EBITDA Margin (%) 10.57 19.41 51.56 40.33 Profit Before Tax 546.34 679.94 684.63 3462.19 PBT Margin (%) 10.17 16.61 34.86 31.62 Net Profit 389.01 438.17 472.19 2312.13 PAT Margin (%) 7.24 10.70 24.04 21.12 No. of Shares(in Millions) 95 95 95 95 EPS (INR) 4.09 4.61 4.97 24.34 EPS Growth (%) 22.97 12.64 7.76 389.66 P/E Ratio (x) 29.04 25.78 23.92 4.89 EV/Sales (x) 2.10 2.76 5.75 1.03 EV/EBITDA (x) 19.89 14.22 11.16 2.56 ROE (%) 31.58 26.59 22.27 52.17 ROCE (%) 7.50 9.67 5.79 26.85 Book Value (Rs.) 12.97 17.35 22.32 46.65 P/BV 9.17 6.85 5.33 2.55 Debt Equity Ratio (x) 3.21 1.74 2.84 0.94
(Unless stated otherwise all figures are in Rs. mn)
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Valuation Conclusion:
Income from real estate projects would lead to cashflow generation and stupendous jump
in revenues and earning in FY13. We have not factored earnings from the FSRU and port
segment as these businesses are at a nascent stage and post commissioning would provide
an upside to our estimates.
SEL’s FY13 earnings are expected to increase five-fold from an EPS of Rs 4.97 in FY12E to
Rs 24.34 in FY13E. With such strong earnings growth over the next financial year and
investments in sunrise business segments, we expect the stock to get re-rated as the
market has yet to factor the strong earnings growth and potential earnings from planned
investments.
SEL appears to be trading at very cheap valuations of 4.89x its FY13E earnings of Rs
24.34 and 1.03x on FY13 mcap/sales basis. We expect the stock to get re-rated and give a
valuation of the stock at 16x FY13E earnings with a target price of Rs 390 providing strong
upside to the current market price.
In a Nutshell:
We expect the EPS to rise five-fold from Rs 4.97 in FY12E to Rs 24.34 in FY13E.
Accelerated earnings growth in FY13 would lead to significant re-rating of the stock
as it appears to be trading at very attractive valuations of 4.89x FY13E earnings of
Rs 24.34.
On the basis of EV/Sales, the stock trades at 5.75 x for FY12E and 1.03 x for
FY13E.
On the basis of EV/EBITDA, the stock trades at 11.16 x for FY12E and 2.56 x for
FY13E.
Price to Book Value of the stock is expected to be at 5.33 x and 2.55 x respectively
for FY12E and FY13E.
We expect that the company will keep its growth story in the coming quarters also.
We recommend a strong ‘BUY’ in this particular scrip with a target price of Rs.390
for Medium term to Long term investment.
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Financial Update:
Nine Months Performance:
Nine Months Results Update as at Q3 FY12:
Swan Energy Ltd has reported net operating revenue of Rs 772.99 million for the nine
months ended on December 31, 2011 as against Rs 428.35 million in the same period last
year, a rise of 80.46%. It has reported net profit of Rs. 83.80 million for the nine months
ended on December 31, 2011 as against Rs. 66.25 million in the same period last year, an
increase of 26.49%. It reported earnings of Rs.0.88 per share.
Quarterly Results - (Rs in mn)
As At Q3FY12 9 months
Q3FY11 9 months
YoY %
change Net Operating Revenue 772.99 428.35 80.46
EBIDTA 170.29 69.95 143.45
PBT 83.80 66.25 26.49
PAT 83.80 66.25 26.49
Basic EPS 0.88 0.70 25.71
Segmental Revenue:
During the quarter, On YoY basis the textile revenues increased significantly from
Rs.377.56 mn in nine months ended at 31.12.2010 to Rs.420.87mn in the nine months
ended as at Q3 FY12, i.e., an increase of 10.29%, whereas the revenues from the
construction segment increased significantly by 85.58% to Rs.352.11 mn. During the year,
net capital employed in the textile segment and construction segment increased by 22.62%
and 36.70% respectively.
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(Rs in mn)
Segment wise Revenue
Segmental Revenue (9 months ended as at)
Capital Employed (9 months ended as at)
Segmental Revenue Q3 FY12
Q3 FY 11
% Growth
Q3 FY12
Q3 FY 11
% Growth
Textile 420.87 377.56 10.29
372.62 303.87 22.62
Construction 352.11 50.78 85.58
1359.03 994.14 36.70
• Break up of Expenditure(9months)
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Quarterly Performance:
• Q3 FY12 Results Update
Swan Energy Ltd has reported net operating revenue of Rs 275.07 million for the
quarter ended on December 31, 2011 as against Rs 182.98 million in the same quarter
last year, a rise of 50.33%. It has reported net profit of Rs. 25.17 million for the quarter
ended on December 31, 2011 as against Rs. 18.82 million in the same quarter last
year, an increase of 33.74%. It reported earnings of Rs.0.26 per share.
Quarterly Results - (Rs in mn)
As At Q3FY12 3 months
Q3FY11 3 months
YoY %
change Net Operating Revenue 275.07 182.98 50.33
EBIDTA 45.82 20.02 128.87
PBT 25.17 18.82 33.74
PAT 25.17 18.82 33.74
Basic EPS 0.26 0.20 30.00
• Segmental Revenue:
During the quarter, On YoY basis the textile revenues increased significantly from
Rs.149.20 mn in Q3 FY11 to Rs.168.61 mn in Q3 FY12, i.e., an increase of 11.51%,
whereas the revenues from the construction segment increased significantly by 68.28%
to Rs.106.45 mn. During the year, net capital employed in the textile segment and
construction segment increased by 22.62% and 36.70% respectively.
(Rs in mn)
Segment wise Revenue
Segmental Revenue
Capital Employed
Segmental Revenue Q3 FY12
Q3 FY 11
% Growth
Q3 FY12
Q3 FY 11
% Growth
Textile 168.61 149.2 11.51 372.62 303.87 22.62 Construction 106.45 33.77 68.28 1359.03 994.14 36.70
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• Break up of Expenditure
• Segment Revenue
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Profitability Projections (Rs in mn):
Financials FY10 FY11 FY12E FY13E Net Sales / Income from Operations 5348.04 4031.06 1902.26 10883.44 Other Operating Income 24.87 62.51 61.71 64.79 Revenues 5372.91 4093.57 1963.97 10948.23 Expenses 4804.90 3299.02 951.38 6532.89 EBIDTA 568.01 794.56 1012.59 4415.34 EBIDTA (%) 10.57 19.41 51.56 40.33 Interest 19.01 98.99 285.87 908.95 Depreciation 2.66 15.63 42.09 44.20 PBT 546.34 679.94 684.63 3462.19 Tax 157.33 241.77 212.44 1150.06 PAT 389.01 438.17 472.19 2312.13 Equity 190.00 190.00 190.00 190.00 F.V 2.00 2.00 2.00 2.00 EPS (INR) 4.09 4.61 4.97 24.34 CMP 118.90 118.90 PE 23.92 4.89
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Balance Sheet: (Rs in mn)
Particulars (Rs.in.mn) FY10 FY11 FY12E FY13E Equity share capital 190.00 190.00 190.00 190.00 Reserves & Surplus 1041.76 1457.85 1930.04 4242.17 Net worth 1231.76 1647.85 2120.04 4432.17 Secured loans 2381.95 1738.43 1624.74 1159.68 LIC Loan 1000.00 1500.00 J&K Loan 1500.00 Loan funds 2381.95 1738.43 2624.74 2659.68 Project Advances 1570.84 1125.30 3387.30 Net Deferred Tax Liability 2.44 18.34 18.34 18.34 Total Liabilities 5186.99 4529.92 8150.42 8610.19 Gross block 338.07 1050.41 2455.67 2901.21 Less: Depreciation 15.27 29.96 72.05 116.25 Net Block 322.80 1020.45 2383.62 2784.96 Capital work in Progress 397.87 0.00 2148.10 906.50 Investments 2132.06 1373.11 1820.61 1003.11 Net Current Assets Current Assets, Loans & Advances 4368.19 2775.87 3012.57 4033.62 Less: Current Liabilities & Provisions 2033.93 639.51 1214.48 118.00 Net Current assets 2334.26 2136.36 1798.09 3915.62 Total Assets 5186.99 4529.92 8150.42 8610.19
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Charts:
Net Operating Revenue & PAT
P/E Ratio(x)
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EV/EBITDA(x)
Debt Equity Ratio
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P/BV
COMPANY BACKGROUND
Swan Energy Ltd. originally incorporated in 1909 as Swan Mills Ltd a manufacturer and
marketer of cotton and polyester textile products in India was taken over by the Dave &
Merchant family from the J.P.Goenka group in 1990 and changed its name to Swan
Energy Ltd (SEL) in December, 2008.
SEL is a diversified player with interests in Energy, Real Estate & Textile sector. The
company's core business includes trading of fabric & development of properties. The textile
manufacturing business was completely stopped in 2002 and the company with its large
area of land available in the heart of Mumbai had ventured into property development in
2004 with a tie up agreement with Peninsula Land Ltd for various real estate activities
including development of its mill land in Mumbai.
SEL is currently developing 2 property projects in Mumbai with total saleable area of 1.78
mn sqft in Kurla (IT park) and Sewri (residential complex) in alliance with Piramal Group
Piramal Holdings), now known as Peninsula Land Ltd.
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The construction work at Kurla & Sewri for Residential & Commercial projects are about
to end in the current fiscal, while it has acquired land in Goa for further development.
The company has formulated plans to deploy the cash flows that are generated from its
real estate activities into energy based projects.
SEL has re-started its textile manufacturing activity, with the vision leveraging on its
successful brand image, to cater to the booming demand of Indian textiles from global
players by setting up a textile unit at Ahmedabad in Gujarat.
Mr. Navinbhai Dave is the non executive chairman of the company. The board comprises
of 9 members, of which 5 are the non executive independent directors. Mr. Nikhil
Merchant, the Managing Director and Mr. Paresh Merchant, the executive director, have
been associated with the company for more than 16 years. The majority of other directors
have experience of more than 30 years in varied fields.
BOARD OF DIRECTORS & KEY MANAGEMENT PERSONNEL:
Name Designation Profile
Navinbhai Dave Chairman • First Indian to be conferred with ‘Coat of Arms’ by British Queen Elizabeth II in ’94.
• Conferred with Distinguished Honorary Alumni of the University of South Carolina Aiken in 2000.
Nikhil V Merchant Managing
Director
• Widespread experience in several sectors of the Indian economy.
• BS in Textile Engineering from the Philadelphia College of Textiles and Science; and completed Management Education Programme from IIM Ahmedabad.
Paresh V Merchant Executive
Director
• Associated with SEL for last 16 years and responsible for its operations and the business activities of the group companies
• Commerce Graduate and certified with Management Education Programme from IIM Ahmedabad
Shobhan Diwanji Director • Over 30 years of rich experience in financing and structuring.
• B.A in Economics from the university of Mumbai and MBA in Finance from University of Rochester,
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NY, USA. • Associated as Director, Capital Market Group,
Lazard India and as Senior Consultant with Tata Economic Consultancy services.
P. S. Teckchandani Director • Over 45 years of experience in the Oil & Gas industry.
• Worked with Indian Oil Corporation (IOC) for 30 years and then with Essar Oil as the CEO of the refinery project at Jamnagar and whole time Director of Essar.
P. Suvaganam Director • Over 36 years of experience in the Oil industry • Was associated with IOC for 33 years, involved in
international financing, reporting, risk identification and management of JV and subsidiary companies.
R.K.Sukhdevsinhji Director • Over 50 years of rich experience in all functional areas related to the Oil and Gas Sector.
• Graduate in Economics. • Ex- Chairman & MD of BPCL, EX-MD of Essar oil
Limited.
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Business Overview:
The traditional business of the company includes trading of fabric and has recently
forayed into the energy sector. The company is developing LNG regasification unit in
Pipavav, Gujarat with a capacity of 4.5 mmtpa and it has also acquired 99.98% interest in
Cardinal Energy & Infrastructure Pvt. Ltd.
Energy:
Swan Energy Ltd (SEL) is an emerging energy company committed to following a
sustainable growth path. Led by a powerful vision, the company continues to look beyond
traditional power sources for a lower carbon energy future. SEL has in place a strong
pipeline of innovative energy projects offering exposure to vast growth opportunities in the
Indian energy sector.
Earlier known as Swan Mills Ltd, it has changed its name to Swan Energy Ltd in order to
focus itself towards Indian energy sector.
LNG Floating Storage & Regasification Unit (FSRU):
SEL is investing in a Floating storage cum regasification unit (FSRU) to leverage
opportunity in the LNG business segment.
• The Company is developing LNG regasification unit in Pipavav, Gujarat with a
capacity of 3 MMTPA of LNG imports to ensure adequate availability of gas in
required time frame.
• The unit would provide regasification facilities at a cost which is competitive to
current cost being charged at existing terminal of Petronet.
• The detailed project report (DPR) has been submitted for approval and the company
is planning to invite EPC bids for planned port facilities.
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• Term sheets / MOU’s have been signed with off takers/major oil companies.
• Agreements / Contracts with LNG suppliers are under finalization. Detailed
discussions are in process with all potential FSRU suppliers.
Floating Storage & Regasification Unit (FSRU) Project Parameters:
SSrr.. PPaarraammeetteerr BBrrooaadd DDeettaaiillss
11 CCaappaacciittyy 33MMMMTTPPAA ooff LLNNGG.. EExxppaannssiioonn 1100MMMMTTPPAA
22 LLooccaattiioonn PPiippaavvaavv
33 GGaass sseenndd oouutt
rraattee
NNoorrmmaall--1111,,55MMMMSSCCMMDD
PPeeaakk--1133..55 MMMMSSCCMMDD
44 GGaass pprreessssuurree 9955 bbaarr
55 RReeggaass pprroocceessss CClloosseedd lloooopp wwaatteerr bbaasseedd iinntteeggrraatteedd wwiitthh GGPPPPCC
66 RReevveennuuee mmooddeell TToolllliinngg tteerrmmiinnaall
77 PPrroojjeecctt ccoosstt IINNRR 22880000 CCrroorreess
88 SScchheedduullee CCoommmmiissssiioonniinngg bbyy eenndd 22001144 oorr eeaarrllyy 22001155
Ports :
The company has also entered into a joint venture agreement with a leading company of
India to develop two ports in Gujarat. Generally companies in the port business have
operating margins in the range of 65%-70%. Entry into the port segment would lead to
improvement of operating margins going ahead.
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1. Real Estate Projects
• The company is currently developing its mill land situated in Sewri and Kurla in
Mumbai into residential and commercial properties respectively. The total saleable
area is 1.78 mn sq.ft.
• The development activities at Sewri & Kurla are under progress, where a Mega
Residential complex is under construction at Sewri under the name 'Ashok Garden',
comprising of two towers, where as Kurla, Commercial complex are under
construction, having four buildings under the name 'Peninsula Techno-park'.
Possession of three out of four buildings have been handed over on completion of
the construction. It expects completion of this both projects during the current
fiscal.
Particulars Project at Sewri Project at Kurla
Name of the Project Ashok Gardens Peninsula Technopark
Plot Area 48,927 sq. m. 44,781 sq. m.
Saleable Area 0.90 mn sq. ft. 0.88 mn sq. ft.
Schedule Completed – Except for the
upper most floors
remodeling work
Completion June 12
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Work Completed as on
28.02.12
Tower I & II
• Possession already given for the ready area which is 90 % of the total project.
• Balance work is scheduled to be completed before March 2012
• Peninsula Land Limited has been appointed as Project Manager for this project.
Building A – Completed
Building B – Completed
Building C – Completed
Building D – 4.24 lac sq. ft.
• Under construction. Work
complted up to 8th Floor in the 10 stories building. Expected completion by June 2012.
• Peninsula Land Limited has been appointed as Project Manager for this project.
• In addition to these, the company owns land in Goa & is considering for the
development of the same in short period.
IT Park at Bangalore:
• SEL has acquired through its subsidiary company, Cardinal Energy & Infrastructure
Pvt. Limited, a 3.5 lakh sq ft IT park building in Whitefield, Sadramangala Village,
EOIZ Industrial Area, Bangaluru which would generate a monthly lease income of Rs
1.25 crore per month from July 2012 onwards.
• This is a ready infrastructure building with a long term leasing arrangement with a
reputed MNC.
Software Tech Project at Hyderabad:
• SEL has also acquired through its subsidiary company, Cardinal Energy &
Infrastructure Pvt Ltd, a 4.8 lacs sq. ft. Software Technology Project building in
Guchibowli, Hyderabad.
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• This is a ready infrastructure building with a long term leasing arrangement with a
reputed company under negotiation. The lease income of Rs. 2.16 Cr per month will
commence w.e.f. October 2012.
2. Textile Business
SEL has re-started its textile manufacturing activity, with the vision leveraging on its
successful brand image, to cater to the booming demand of Indian textiles from global
players.
The entire textile sector globally was severally affected at the time of slowdown & fierce
price competition. With the turnaround in the Global Economy scenario, demand for
the textiles products from India has increased recently & is likely to deliver a
sustainable growth in the coming time.
The company has set up a state – of –art textile Process House in the heart of
Ahmedabad at Narol in Gujarat. The plant has been built on a 4 acre plot with an
installed capacity of 1.25 lakhs meters per day. The company has imported state –of-
art machineries for the plant from Germany, Belgium, Italy and Austria. The company
has also initiated the process for ISO 9001: 2008, Oekotex 100 and GOTS certification.
This facility comprises of continuous processing machines like:
• Sinigeing/Desizing – Bejimac, Belgium
• Continuous Scouring and Bleaching range – Karl menzel maschinenfabrik,
GMBH, Germany
• Chain cum chainless Mercerising range – Goller Textilemaschinen, GMBH,
Germany
• Continuous Dyeing and E control and Cold Pad batch from A. Monforts
Textilmaschinen GMBH & Co.KG, Germany
• 12 Colour Rotary Printing Machine – MHM Sebduckmachinen, Austria
• Peaching / Sueding /Emerizing – Xetma Vollenweider GMBH, Germany
• Calendar – Ramisch Gaurneri, Italy
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Subsidiary Company: In January 2010, the Company had acquired 99.98% interest in
Cardinal Energy & Infrastructure Pvt. Ltd.
Risk Associated
Real Estate Segment
• Availability of credit is the most important factor for the companies engaged in Real
Estate sector. The restriction on availability of credit would paralyze the companies
ongoing projects or their future growth plans.
Textile Segment
• Textile sector plays an important role in contribution of GDP to the tune of 14%,
where a part of the revenues are collected from export earnings too. Hence any
slowdown in the Global economy & changes in the regulations by the Government
would impact the overall scenario of the sector.
• High competition from unorganized sector.
• Duty concessions to importers.
Energy Segment:
• Huge capital expenditure
• Long gestation period for generating revenues
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Industry Overview
Energy Sector:
Energy is an essential building block of economic development. Other than power sector,
demand for natural gas is likely to be strong considering the advantages of natural gas
over other fuels.
Gas Market Drivers:
• Gas demand in India is known to be supply driven
• Growth in demand dependant on infrastructure in the form of gas pipelines and
LNG imports
• Gas pricing in India converging towards international pricing
• India’s commitment to reduce GHG emission intensity of its GDP by 25% by
year 2020
Demand for natural gas outstripping supply:
There continues to exist a yawning demand – supply gap in India’s natural gas sector.
Compared to approximately 223 mmscmd of demand in FY10, the Supply stood at
163mmscmd, which was catered by a combination of domestic supplies (127 mmscmd)
and imports as LNG (36MMSCMD). Power sector accounts for the maximum demand
(46%) followed by fertilizers (27%) and industries.
As domestic production is unlikely to keep pace with domestic demand, a significant
requirement for LNG imports is emerging. India has no option but to go in for large – scale
LNG imports if it is to guide its power sector toward a fundamental shift in fuel choice. The
2 existing LNG terminals in India, Petronet LNG and Shell Hazira are working at more
than 90% capacity utilization. Thus the Indian market offers the maximum potential in
terms of growth of natural gas demand across sectors and hence is an attractive
destination for LNG import.
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Real Estate:
The Indian economy has witnessed robust growth in the last few years and is expected to
be one of the fastest growing economies in the coming years. Demand for commercial
property is being driven by India's economic growth. Real estate in India contributes about
5 per cent to India's gross domestic product (GDP). The total revenue generated in 2010-11
stood at US$ 66.8 billion.
Demand is expected to grow at a compound annual growth rate (CAGR) of 19 per cent
between 2010 and 2014—Tier 1 metropolitan cities are projected to account for about 40
per cent of this. Growing requirements of space from sectors such as education,
healthcare and tourism provide opportunities in the real estate sector. FDI of more than
US$ 9 billion was infused in real estate in the last decade.
• The foreign direct investment (FDI) up to 100 per cent is allowed with Government's
permission for developing townships and settlements
• New home loan borrowers of up to Rs 1.5 million (US$ 30,477) will get Rs 14,865
(US$ 302) as interest subsidy from the Government, on the condition that the cost
of the house should not exceed Rs 2.5 million (US$ 50,798)
• Allowing 100 per cent FDI under the automatic route in development of Special
Economic Zones (SEZ), subject to the provisions of Special Economic Zones Act
2005 and the SEZ Policy of the Department of Commerce
Investments:
Real estate emerged as the popular sector for private equity funds who invested US$1,700
million in this sector during 2011. Private equity in real estate projects will fetch
considerable returns by next year-end or early 2013, as per KPMG. Real estate plays an
important role in the Indian economy. This sector happens to be the second largest
employer after agriculture and is expected to grow at the rate of 30 per cent over the next
decade. The size of the Indian real estate market is expected to touch US$ 180 billion by
2020.
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Textile Sector:
The Indian textile industry is one of the major sectors of Indian economy largely
contributing towards the growth of the country's industrial sector. Textiles sector
contributes to 14 per cent of industrial production, 4 per cent of National GDP and 10.63
per cent of country's export earnings. The opening up of the sector through liberalization
polices set up by the Indian Government have given the much-needed thrust to the Indian
textile industry, which has now successfully become one of the largest in the world.
The total foreign exchange earnings from the textile exports during the current financial
year (April-July 2011) was registered at US$ 10.32 billion against US$ 7.75 billion during
the corresponding period of financial year 2010-11.
India has the potential to increase its textile and apparel share in the world trade from the
current level of 4.5 per cent to 8 per cent and reach US$ 80 billion by the end of the year
2020.
Recent Developments:
• Along with the increasing export figures in the Indian Apparel sector in the country,
Bangladesh is planning to set up two Special Economic Zones (SEZ) for attracting
Indian companies, in view of the duty free trade between the two countries. The two
SEZs are intended to come up on 100-acre plots of land in Kishoreganj and
Chattak, in Bangladesh.
• Italian luxury major Canali has entered into a 51:49 joint venture with Genesis
Luxury Fashion, which currently has distribution rights of Canali-branded
products in India. The company will now sell Canali branded products in India
exclusively.
With the increase in investments in the Indian textile sector, the subsequent increase in
the industrial production, and the positivity observed by the Textile sector has resulted in
progress and development of the sector.
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The company’s reentrance into manufacturing directly by setting up of an art Process
House at Gujarat will help company to capture the market potential and would enable SEL
to leverage its textile business on the “brand image of SWAN”.
______________ ____ ___________________________ Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for any investment decision.
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Firstcall India Equity Research: Email – info@firstcallindia.com C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods A. Rajesh Babu FMCG H.Lavanya Oil & Gas Ashish.Kushwaha Diversified A.Nagaraju Infrastructure & Real Estate
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