REPORTS

18TH JAN, 2015

NIIT Technologies

Buy

Reco Price

                                                                                                                Rs. 515

Price Target (1Months)                                                                                    Rs. 650

Q3FY16 Result Update - Soft revenue; Beat on margins

NIIT Technologies (NIIT Tech) Q3FY16 revenue was below our expectation However, there was a strong beat on margins and EPS front. Revenues were soft due to seasonality and completion of projects in travel & transportation vertical. Company expects revenue growth to recover from Q1FY17, led by ramp up of deals. Management has guided for FY16 revenue at lower end of industry average and expects to grow at industry average in FY17. Company expects further margin improvement in Q4FY16 and YoY margin improvement in FY17, driven largely by better business mix. A strong order intake of $123m (+54% QoQ) was a positive. Retain our “BUY” rating.

Revenue miss; Beat on margins: NIIT Tech reported an overall revenue decline of 1.3% QoQ in USD terms to US$103.4m (PLe: US$104.8m, Cons.: US$105.4m), and a growth of 0.1% QoQ in INR terms to Rs6,787m (PLe: Rs6,898m, Cons: Rs6,938m). In CC terms, revenue growth was flat QoQ. EBITDA margins expanded by 58bps QoQ at 18.2% (PLe: 18.0%, Cons: 17.5%), mainly due to reduced G&A expenses. This is the highest margin the company has reported since Q1FY12. Adj. EPS for the quarter grew by 9.8% QoQ to Rs12.3 (PLe: Rs11.4, Cons: Rs11.6), aided by high Other income and lower tax rate.

Order intake strong: Fresh Order intake for NIIT Tech was strong at $123m (+54% QoQ) driven by 2 wins each from EMEA and RoW. This includes the £23mn Ofcom (UK telecom regulator) deal which will contribute to revenues from Q1FY17. The order executable over next 12 months, however, remained constant at $301mn, as the proportion of digital business increased which are primarily short term deals. The pipeline continues to be strong. Of the 3 large deals talked about last quarter, one has been closed and one is still in pipeline.

Valuation & Recommendation – Retain “BUY”, with revised TP of Rs650 (Earlier: Rs660) based on 12x Dec-17 EPS:We expect further margin improvement in FY16 and revenue recovery in FY17. Return to industry growth can drive multiple expansions in FY17.

Adam Capital Financial Services

Devision of Investment and Research

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Marksans Pharma

Rating

Buy

Reco Price

Rs. 95

Price Target (1Months)

Rs. 140

The company has bought out Time Cap Laboratories Inc, a New York-based company, which manufactures tablets, capsules, pellets and caplets.

Time Cap is a zero debt company having EBITDA of over USD 4 million. "We will be utilising its manufacturing capabilities,” Saldanha said, adding that “ the acquisition will be earnings per share (EPS) accretive for the company.”

Marksans an ideal platform to expand its operations in the US and it is pretty much a strategic acquisition, which helps the company to expand its manufacturing capabilities and product portfolio and penetration into the US on all fronts. It is a timely acquisition. It does help us on multi-folds and helps us to strengthen our presence into the US. With this, we will be able to integrate and penetrate the market better.

Our expectation is big, because obviously of its capabilities both in terms of distribution, manufacturing and brand equity that it enjoys in the market. Our expectation is great. In terms of actual numbers, I would try to avoid giving any forward looking statements, but there is a great synergy between Time-Cap and Marksans. We are looking at some aggressive forward looking growth out there.

Last year, our total consolidated revenue was about Rs 800 crore with an EBITDA of Rs 188 crore. We clocked a profit after tax (PAT) of Rs 108 crore. Our US revenue contributed nearly 65 percent means that US revenue grew by 65 percen. This helps us to penetrate the US market in a much more stronger presence.

The EBITDA is about 13 percent, but they do not have any debt. It translates directly into profit, but that said and done, obviously this is where value addition will come into play, the product mix that we are working on, the required minimum distribution (RMD) and synergy is what we can add value on.

We would like to maintain products being made at Time-Cap itself. What we are going to leverage on is the manufacturing capabilities to do niche products as well as their market penetration and their brand equity that they already have so, distribution also. It helps us in our packaging capabilities, which we would like to integrate. Our products being exported into the US could be packed over there. So, all these integration will help us to add value.

WOULD IT BE 20% PLUS

I think we will maintain our growth path in terms of what we did last year. Last year, we did about Rs 800 crore and that was 26 percent growth on a year-top-year. We plan to maintain those statistics.

On August 04, 2015, Marksans Pharma closed at Rs 103.20, up Rs 4.65, or 4.72 percent. The 52-week high of the share was Rs 107.15 and the 52-week low was Rs 31.05. The company's trailing 12-month (TTM) EPS was at Rs 1.64 per share as per the quarter ended March 2015. The stock's price-to-earnings (P/E) ratio was 62.93. The latest book value of the company is Rs 5.28 per share. At current value, the price-to-book value of the company is 19.55.

Marksans Pharma consolidated Mar '15 sales at Rs 173.76 crore

Marksans Pharma has reported a consolidated total income from operations of Rs 173.76 crore and a net profit of Rs 25.05 crore for the quarter ended Mar '15. For the quarter ended Mar 2014 the consolidated total income from operations was Rs 159.60 crore and net profit was Rs 10.63 crore. Marksans Pharma shares closed at 61.50 on June 02, 2015 (NSE)

Operating Profit & OPM

Operating Profit gives an indication of the current operational profitability of the business and allows a comparison of profitability between different companies after removing out expenses that can obscure how the company is really performing.

Interest cost depends on the management's choice of financing, tax can vary widely depending on acquisitions and losses in prior years, and depreciation and amortization policies may differ from company to company.

EBITDA, PBT & PAT

EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation, and Amortization. PBT stands for Profit Before Tax, and PAT stands for Profit After Tax.

The graph visually shows how the net profit of the company stand reduced due to the impact of Interest, Depreciation, and Tax.

Net Sales

Sales is the total amount of products or services sold by the company.

For Adam Capital Financial Services

Bangalore

WWW.ADAMCAPITALFINANCIAL.COM - +91 9743615104

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What is hedging in Commodities?

Commodity hedging is when an individual or company kickoffs the risks originating due to fluctuations in prices of raw-materials. When people hedge, they are actually ascertaining their investment against unforeseen events. This process is kind of an insurance method for traders, farmers, and producers to protect themselves against negative price fluctuations.

Hedging does not assure profits but helps in preventing or minimizing the possible losses at a future date. Most commodity traders, retail investors, companies, as well as governments make use of hedging in order to minimize the risk exposure.

How Does It Work?

Since the prices of commodities rise and fall constantly, traders cover themselves against the risk of upcoming fluctuations. For this reason, they buy or sell positions in the futures markets.

Say for instance, if a manufacturer expects the price of his commodity to rise in the next couple of months, he will buy a position at the prevailing rates to deal with the probable price rise. Similarly, if the prices are expected to fall, he sells them in the futures market at present rates against the actual goods he holds. When planning to hedge, it is; therefore, better to estimate at what rate you would like to hedge and the time for it.

Short Hedging & Long Hedging

Hedge investors have two basic alternatives - to either go short or go long. But, some may use strategies that involve both. 'Long hedging’ means buying early so as to sell later at a higher price. ‘Short Hedging’ means selling before one buys thereby expecting the futures prices to decline.

Let us understand this with an example. If a farmer expects the sugar prices to fall from Rs 80/kg to Rs 70/kg, he sells the positions in the futures market at the current price i.e. Rs 80/kg. So, even if the price falls, as expected, he will still get the benefit of Rs 80/kg as per the contract. This act of selling positions in order to prevent the risk of a loss is called ‘short hedging’.

On the other hand, if a farmer anticipates that the current price of wheat will go up in near future, he buys a position in the futures market at current price. So, even if the price goes up say for instance from Rs 50/kg to Rs 54/kg in the next month, he will benefit buying at the price of Rs 50/kg from the seller as per the contract. This act of buying positions to prevent upside risk is called ‘long hedging’.

Can Hedging be Risky?

Hedging, generally isn’t considered risky if it takes care of short-term requirements. However, if an individual anticipates or spots a wrong bet, then he is likely to put himself at risk.

Most often, people don’t hedge until the last minute. They don’t react until commodity prices have increased to such an extent that the people are unable to effectively hedge risk based on their own calculation. Had they been hedging the right way, they could have avoided the possible losses.

www.adamcapitalfinancial.com

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Should you opt for gold savings schemes floated by jewellers?

India is the second largest consumer of gold and ranks only next to China. Traditionally, gold jewellery has been popular with Indians and almost no Indian wedding is complete without gold jewellery. However, in the recent years, investment demand for gold has been rising. New modes of buying gold have emerged. Today, one can buy gold without holding it in physical form. With emergence of gold Exchange Traded Funds (ETFs) and gold fund of fund schemes, people are looking beyond buying gold in physical form. To generate more buying interest, many banks and Non-Banking Financial Companies (NBFCs) launched gold deposit schemes. These schemes are regulated by RBI. But it has been observed that there are hundreds of schemes in circulation which are launched by non-bank or non-NBFC promoters. Securities and Exchange Board of India (SEBI) is all set to clamp down on such schemes. 

Why SEBI is planning to take action? 

Any money pooling scheme that is launched to earn profits and has corpus of Rs100 crore and above is classified as a Collective Investment Scheme (CIS) qualifying for SEBI regulation. As reported by a reputed newspaper having daily circulation, there are atleast 100 such schemes which have pooled amounts in excess of Rs 100 crore. Moreover, there are many other schemes with lesser corpus, launched by non-bank promoters such as jewellers and other entities involved in gold bullion business. Usually they involve sale and purchase of gold but they are not regulated, which leaves a scope for fraud. Also, those gold-linked money pooling schemes involve issuance of bonds are security market transactions and thus need to be regulated. 

There have been several Public Interest Litigations (PILs) filed against jewellers offering gold linked schemes wherein a buyer pays monthly installments and gets some returns; usually in the form of discounts. More often, the jeweller would pay 1 or 2 installments from his pocket. The PILs challenge the legality of these schemes. The questions have been raised pertaining to accountability of jewellers towards buyers in case of liquidation. 

Curbing fraudulent money circulation schemes has been identified as one of the priorities of SEBI. To attain this objective, the regulator is said to be fortifying co-ordination and co-operation with other regulators such as RBI. Timely action by a regulator is imperative to preservation of investors' interest. 

Personal Finance is of the view that, investing in gold linked money pooling schemes is risky. If you are issued bonds against your investments; they suffer from risk of default. Moreover, if you are required to buy gold once you have paid all your installments, it is unlikely that you may buy gold bars or gold coins. Buying jewellery involves payment of making changes which may be as high as 25%-30% and erase gains you might have made by availing discounts. 

Therefore, PersonalFN is of the view that investors should be wary of such schemes. Yes, gold is an important asset to own and you should hold 10%-15% of your investment portfolio in gold. PersonalFN believes that, while investing in gold, you should stay with investment products that are strictly regulated and floated by a trusted promoter. Gold ETFs and gold fund of fund schemes should be preferred. If you are buying gold in physical form, you shouldn't forget to ensure purity of gold and check BIS hallmark. Getting lured by gold linked money pooling schemes is dangerous. Even though there are likely chances that SEBI may take tough action against fraudulent gold linked money pooling schemes; the risk remains.

Personal Finance a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer: 
The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of use of the web site.

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14^Th May, 2015

COMMODITY MARKET INSIGHT

BULLION

Bullions: Good economic data can further reduce the safe haven demand

In the month of April bullion counter traded on volatile path as on one side decreased safe haven demand amid surging global stock markets and rise in greenback kept the prices under pressure while on the other side physical demand at lower levels capped the downside. Overall gold traded in range of 26145-27279 in MCX and $1174.10-1224.50 in COMEX. Silver traded in range of $15.58-16.95 in COMEX and 35590-38588 in MCX.

Meanwhile movement of local currency rupee affected the prices on domestic bourses. Greece can scrape together enough cash to meet its payment obligations into June, euro zone and Greek officials stated recently , playing down fears of an imminent default even as hopes receded of a deal with creditors to release fresh aid. In the month of March China imported 46.4 tonnes of gold from Switzerland and India imported 72.5 tonnes. Chinese demand was stronger in March as business restocked their supplies after the Lunar New Year celebrations. 

At the same time Indian demand was strong in preparation for Akshaya Tritiya festival. According to the latest data from SPDR Gold Shares, the world's largest gold-backed exchange traded fund (ETF) has seen its gold reserves grow by 164,282 ounces to 23.87 million ounces. Better economic data have added to gold investors' worries that the U.S. economy is reaching the point where the Fed will be comfortable with raising interest rates for the first time since 2006.

In the month of May bullion counter can trade on volatile path as good economic data can further reduce the safe haven demand while global geopolitical tensions in Iraq and increase in physical demand along with worse economic data may give support to the prices.

On domestic bourses the movements of local currency rupee will be the key factor to watch out which can move in range of 62-65 in the month of May. Gold can trade in range of Rs 25800-28000 in MCX and $1110-1260 in COMEX. Silver can trade in range of 35000-41000 in MCX and $15.50-17.70 in COMEX. The gold/silver ratio can move in range of 70-75 in near term.

Following a two day meeting, the Federal Reserve pointed to weakness in the U.S. labor market and economy, a sign it is struggling with plans to raise interest rates this year. Although bullion got boost recently after a string of U.S. data weakened the dollar and pointed to slowing momentum in the world's

Largest Economy U.S. Gross domestic product expanded at an annual rate of only 0.2 percent, the weakest in a year and below expectations.

  

GOLD

Technically market is under fresh buying as market has witnessed gain in open interest by 10.66% to settled at 7193 while prices up 361 rupee, now Gold is getting support at 27196 and below same could see a test of 26865 level, And resistance is now likely to be seen at 27713, a move above could see prices testing 27899.

  

SILVER

Technically market is under fresh buying as market has witnessed gain in open interest by 7.77% to settled at 11094, now Silver is getting support at 38642 and below same could see a test of 37759 level, And resistance is now likely to be seen at 40019, a move above could see prices testing 40513.

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MCX GOLD MAY FALL IN SHORT TERM

The gold future contract traded on the mcx has tumbled over 3% in the4 past week. The strong us job data released on fridat triggered a sharp sell off in the global sopt gold at $1242.

The global spot gold has decisvely broken its 200 day moving agerge at $1251. It also has a key rasistance at $1260. So any bounce the price could be thewarted by these rasistance levels. A fall to $1200 looks likely in the short term. On the domestic front the mcx gold future contract has inches up and is trading near 26833/10gm. The contract lack momentum and is expected to remain under pressure . immediate rasistance is the 26960 and then at 27060 the 200 DMA levels. Rallies to these rasiatance could attract fresh selling interest. The outlook is bearish. A break below the immediate support 26780 can trigger a fall to 26600 or even 26000 in the coming days.

Traders with short term perspective can go short at current levels. The downside pressure will ease only if the mcx gold future contract record a strong break and close above 27500. But such a strong rise looks unlikely in the near term.

Brent crude oil advanced after OPEC cut its forcaste for us crude production this year as lower prices curb drilling. The organization of petrolium exporting countries said non OPEC supply growth in 2015 will be 850,000 barrels a day down 420000 barrels from the prevous forcaste led by a reduction of 130000 barrels a day in the us.

Copper fall on Tuesday as wories over china’s economic growth resufaced though losses were limited by supply disruptive. Three month copper on the LME traded down 1.6 % in oficia mid day rings to $5580 a tonne. On the mcx if copper is giving good demant  it could be be get the copper prices up and can be break the level of 357, then next rasistance would be at 361. Rest of metal on mcx is likely looking down as lead, nickel, alumunium, zinc are down in LME as also down in mcx market .

In the crude, still slow down , due this fall natural gas on mcx is still rising , on the day of 11^th feb, natural gas is trading around 173, while  upcoming rasistance is at 174, 177, so this is good time to buy natural gas for short term for the target of 185.