Sugar Matrix – UP mills have still not commenced crushing

Friends,

Sugar mills is UP have still not commenced crushing and are fighting the govt against raising of cane price to 140/- per qtl. An un-named executive of ‘Bajajhind’ says that it will add Rs 350 to 390 crs to the costs this year but he also confirms that the profitability can still be there due to higher sugar prices this year. Sugar production is estimated to be 22 M/Ts against 26.5 M/Ts last year.

At 9 pc recovery the sugar will cost mills at around Rs 1600/qtl (Rs 300 to 325 per qtl cost is recovered by sale of press-mud,molasses and co-generation power. All leading mills have distilleries and co-generation facilities. Maharashtra does not face cane pricing problems because there sugar co-operatives and farmers are owning the mills as members of Co-operative societies.

Softening of interest rates will be of benefit to sugar industry as it has to carry stock till sold through the monthly releases by govt. The levy portion is just 10 pc now and the mills make huge profits in years of high sugar prices. This happens to be such year only. The world sugar prices are sideways but costly dollar is good defence. Last year India exported 4.5 M/T sugar.

If the inflation would not have come down, the govt would have been very concerned about the rising sugar prices but this situation is narrowly saved for industry. Sugar industry profitability is complex due to volatility of sugar prices and interest rates and production variation adds further dimension to it. Mills do not have capacity to vary production because the cane in their procurement area has to be crushed by them. Every aspect of it can be made manageable but the politicians do not allow it and keep powers with them while a sugar board representing all sides who have interest may easily do the job and in a more amicable manner.

Sugar is a capital intensive industry. It has to be operating at the most optimum level of operation. Courts are already having to intervene in sugar related cases.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Fall of US market by 36 pc and UK market by 39 pc over the year

Friends,

In the aftermath of the second week of bad performance by all world markets, there is loss of thinking power to some extent for the logic is being defied by the fear psychosis in the thinking space of mind. Let us recount some of the facts of the day.

The UP govt has declared SAP (state advised price) for sugar cane for this season as 140 rupees/qtl (up Rs 15). This should be digestible rate for the mills because the sugar rates this season are pretty high and would remain so because the sugarcane production this year is going to be only 120 m/t against 160 m/t in previous year. The unorganised sector is already offering price of cane purchase nearly at the level of SAP or more. There are 132 sugar mills in UP which were operational last year. There will be fierce fighting amongst some of the leading ones to have greater share of cane-crop although there are some rules specifying the area for each mill. The industry would be back in black, and there is no doubt. You should buy your sugar scrip before its too late (please refer to my earlier posts).

Those involved in the accident seem to be hurt less than the bystanders otherwise how would one justify fall of US market by 36 pc and UK market by 39 pc over the year while Japan losing 48 pc and emerging Asian markets losing close to 55 pc. The reverse is going to happen, today or tomorrow. Asian stock will out perform the other markets. I told you earlier and say it again with supporting numbers.

Asian markets performed poorly (26 pc) over the last week while the UK and US markets went up by 3 pc and 4 pc. Shouldn’t therefore markets in India be better this week after losing more than 50 pc from peak. The RBI will have a formal occasion to bring back cheap money policy because loss of jobs and lower economic activity are worse than some extra dose of inflation. As I have been telling time and again, it is utmost necessary to let unearned incomes go down in value but the earned income can not be given a worse treatment. The pensioners too can only share, in whatever proportion, when there is going to be production. The whole economic tension the world over is on account of this factor. Those who follow this site would recall that this analogy was put forth long back and is finding endorsement all this while.

Asian markets have been mixed this morning, may be India performs with some strong opinion favouring bulls.

The latest week did confirm that value buying is emerging as BSE Bankex went up by 4 pc and FMCG,Healthcare and Realty did not lose any further ground in the week gone by.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Good picks in Sugar,Cement and Steel sector

Friends,

Please have a look at the financial position of the following companies:

Bajajhind: 52 W High Rs 399 Low Rs 82

Capital Rs 14.14 crs Reserve Rs 1420 crs

Sales 07-08 Rs 1743 crs PAT Rs 45 crs
Sales 06-07 Rs 1486 crs PAT Rs 191 crs
Sales 05-06 Rs 900 crs PAT Rs 140 crs

Crushing capacity 100000 tonnes/per day (this will require Rs3500 crs
to put up today.)

Blarampurchini: 52 W High 127 Low 58

Capital Rs 24.82 crs Reserves Rs839 crs

Sales 06-07 Rs 1401 crs PAT Rs (-)42 crs
05-06 Rs 1905 crs PAT Rs 291 crs (18 months)
04-05 Rs 816 crs PAT Rs 125 crs

Capacity 70000 tonnes/per day (present cost Rs 2300 crs )

(Sugar prices have improved to Rs18/kg in four month from Rs14/kg ,
new sugar season will commence in a month)
Prismcement: 52 W High 79 Low 21

Capital Rs 298 crs Reserves Rs 319 crs

Sales 07-08 Rs 892 crs PAT Rs 241 crs
06-07 Rs 771 crs PAT Rs 192 crs
05-06 Rs 573 crs PAT Rs 62 crs

Birlacorpn : 52 W High 385 Low 108

Capital Rs 77 crs Reserves 919 crs

Sales 07-08 Rs 1763 crs PAT Rs 393 crs
06-07 Rs 1593 crs PAT Rs 326 crs
05-06 Rs 1228 crs PAT Rs 125 crs

Ultratechcement : 52 W High 1165 Low 442

Capital Rs 124.49 crs Reserves Rs 2572 crs

Sales 07-08 Rs 5609 crs PAT Rs 1006 crs
06-07 Rs 4972 crs PAT Rs 1166 crs
05-06 Rs 3336 crs PAT Rs 229 crs

SAIL : 52 W High 293 Low 108

Capital Rs 4130 crs Reserves Rs 18933 crs

Sales 07-08 Rs 41517 crs PAT Rs 7536 crs
06-07 Rs 35865 crs PAT Rs 6202 crs
05-06 Rs 29311 crs PAT Rs 4012 crs

All these companies are old and established companies and are leaders in their field. They are highly traded and liquid companies, have FII holding, have good managements, good plant locations and are nearly at their low points due to aggressive FII liquidation. From these angles they should be recovering fast. Their product demand will never go down, they will not face competition from outside, new players will
have much higher cost of production, they have very less of borrowing and have increased capacities out of own generated funds and are low cost producer with assured raw-material sources.

I hope you will find above informative and convincing.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Sugar Matrix – Favourable developments have taken place in this sector

Friends,

There has been lot of frenzied selling in market and the slowdown fears have been weighing heavily in the minds of investors. The the herd like behaviour, so common in times of confusion and expectation of change in tide, some times gives opportunity of once in a decade. You may have noticed the sugar scrips loosing values as much as the general fall and in some cases more than the general fall. There are some in this sector which have fallen less than the general fall. Characteristically, sugar scrips have low volumes and small capital bases and concentrated holding pattern which make movement larger than they have to. Its representatives have small capital base, have large reserves, big assets, high interest out flow and fluctuating prices of end product ie sugar while the raw material cost moves steadily up only. So, in a way it is prone to oscillating between the high profit and loss making periods.

Its cyclically has to be thoroughly understood along with developments like power co-generation and allowance of ethanol mixing with petrol which will impart some stability. The political sensitivity of sugar price comes in way of reaping wind-fall profits when there is opportunity. One noteworthy thing for this sector is that its members have been continuously putting up new plants and raising capacities. Also this sector now has been eyed by FIIs lately. The investors here have to enter when there is last leg of fall and the fortunes of industry have turned for better.

When there is generally weaker time in market coinciding what I explained above makes it a time when you can even put all your eggs in one basket. So now prepare for the action with confidence.

Now, please note what favourable developments have taken place in sugar sector but have not reflected in share prices. Firstly, the sugar prices have improved by 30 odd percent during last three months and would have given a respite to companies carrying stocks which is must as per the govt guidelines of releasing quota for sales on month to month basis.

Secondly, the cane price matter has been in SC and there has been some policy affecting guidelines in SC judgement orders which will limit the scope of govts irrationally fixing the price for cane. This is a welcome development for UP based mills.

Thirdly, there would be no more fresh capacities coming up for a long long time as the cost for putting a standard 6000 TCD plant comes to between Rs 200 to 250 crs. This capacity plant would generate a turnover of between Rs180 to 200 crs. By this yard stick the asset value for ‘bajajhind’ would come to Rs 3000 crs approx. (for its one lac tonne crushing capacity). Its t/o for the sugar year 2008-09 would be no less than Rs 2000 crs thereby reducing interest cost per unit of sale to 3 pc from 3.6 pc and depreciation cost per unit of sale to 7 pc from 8.3 pc.

Isn’t it wonderful that BH is selling at a point where its market cap. is just Rs 1420 crs and asset value is Rs 3000+ crs. The story is similar for others like ‘balramchin’, ‘oudhsugar’ and ‘dhampursug’ which have asset to market cap. of roughly 1.2,4.8 and 4.6 while ‘bajajhind’ has this ratio at 2.1.

The reserves to m/cap ratio is nearly same for ‘bajajhind’, ‘oudhsugar’ and ‘dhampursug’ but is slighly lower for ‘balramchin’. ‘balaramchin’ has some what better tradability and also reputation amongst the sugar companies. ‘balramchin’ and ‘bajajhind’ trading in F and O section also implying you may enter it while wait for selling other sector holdings at opportune time and exchange.

Should you have any queries please have no hesitation is asking.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Top Ten Sugar picks after end of crushing season 2008

By Sharad Khandelwal – A veteran market analyst

Top Ten Sugar picks

Company 52 W Hi 52 W Lo Price

1. Bajaj Hindustan 400 116 232
2. Shree Renuka Sug 136 42 122
3. Balrampur Chini 128 50 99
4. EID Parry 229 112 215
5. Triveni Engg. 196 48 115
6. Sakthi Sugars 127 53 77
7. Dhampur Sugar 107 39 63
8. Oudh Sugar Mills 90 37 65
9. Simbhaoli Sugars 62 26 36
10. DCM Shriram Inds 139 37 114

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Need for prudent Sugar policy,

By krsna Khandelwal – A veteran market analyst

Friends,

Sugar mill owners are wrong in demanding to buy the cane at lower rate this year from farmer without realising farmer has also had to bear higher input costs. The Allahabad High Court in its interim order has fixed Rs 1100/- per tonne to be paid to farmers till the matter is finally resolved. This has been challenged by the farmers body in SC and they insist on getting 1250/- per tonne.

The question is whether the mill owners are justified in their demand for the lowering of the cane price. I think not, the mill owners have never shared their extra ordinary profits with farmers in good years. They mostly show the cost of operations on the higher side otherwise how else a few companies make profit and some show losses. Mills owners do not declare that they would not buy cane at over certain pricing before the sowing of the cane. If the sugar prices remain lower the farmer is denied the payment and the govt. is pressurised for concessions , if the sugar sells too high they have no heart for the consumers. The losses are mostly on account of the interest outgoes. Why then for the expansion, borrowing is resorted to. Why not the profits are retained but are distributed through dividend. Why is it expected that if sugar cycle turns downward , only the farmer,lender and the govt. have to bear the brunt. Why then they are called entrepreneurs and promoters if they can not put their own stake at risk.Why they do not ask for the right cane pricing policy. No risk and all rewards, what a mockery of free enterprise.

I have applied some thought to cover the interests of all in the sugar related activity and consumers. There is a clear need for a standard agreement between the farmer and mill owners where the bench mark price will be paid to farmers right at the time of delivery of cane and after the sugar year is over, the farmer should be paid extra according to a factor derived on the basis of the average sugar price in the region for the whole of the sugar year. The bench mark price will ensure payment of input costs and plus some more for farmers own needs. The mill owners will have no complaint that they have had to pay extra to farmer and will only share the extra gains and will have to bear the losses due to their own incompetency and lack of own funds. The farmers will not be at risk of loosing their dues if the mills go bankrupt.

Further there is need to scrap the concept of levy but the release (for sale) mechanism should remain in tact. This however should be as per a formula and not at the whims of the Neta/Babu combination.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Strategy for Sugar Stocks

By Sharad Khandelwal – A veteran market analyst

India’s sugar industry, plagued by problems of plenty is in for more trouble with forecasts of a bumper crop for the second year in a row.

India’s prospects are being hemmed in by the glut and could persist into the season starting October 2008.The government last month said sugar mills in coastal areas would get a subsidy of Rs 1350 a tonne, while those in the north of the country would receive Rs 1450 per tonne to help prop up exports.

However, the incentive was meant only for white sugar and it does not help much in view of good overall rest of the world output. What India needs is to develop its base for regular export of raw and refined sugar, good petroleum mixing policy with excise set off policy for power production and its internal consumption. The July 07 export ban by GOI has dealt a severe blow to Indian Sugar Industry and it is the duty of the govt. to find a solution by creating a good buffer stock and partial waiver of interest on carrying sugar stocks.

Local prices have fallen to about Rs 12 K ($295.80) per tonne, from about Rs 18 K a year ago which is even lower than the cost of milk and just equal to the chilled mineral water.

Our recommendation is therefore to buy good Sugar Stocks(like Balrampur Chini,Dwarikesh Sugar, EID Parry) in anticipation of proactive policy changes by the govt. after each negative quarterly results and continuous profit booking for 50% quantity till 2009.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Long term sweetner for sugar industry

By krsna Khandelwal – A veteran market analyst

Friends,

You are aware that a basic industry like sugar is passing through rough patch. Cyclical industries come across such periods repeatedly and then the govt. has to find solution to their problems that are due to the macro level phenomenon, not under control of any body. In case of sugar, it happens very often. Rain God and other Gods get angry and punish some times by over production of raw material and some times by under production. Added to it is statutory requirement of carrying inventory and not have fixed rates of interest. There is no war chest of money created in good times to help. Industry has to survive for the sake of consumer, producer and most of all for the sake of farmer. Direct subsidy of any kind is a big thing for any govt. to commit. On serious thinking I have chanced upon a solution this may even be good practice wherever the industry of any ilk has to be supported across the board. Please try and improve upon the following scheme of granting relief without obligation on any body and without burdening any shoulder:

‘Whenever an industry group is found to be afflicted by the lower market price and/or excess production, the govt. should convert the interest, charged by bank on the fund utilized for inventory carry over, in to loan without interest . This amount may be carried over by the banks until the industry gets back in to a position to settle it. The RBI should then consider such amount of loan as CRR deposit with itself and suitable set off is allowed to respective bank. This arrangement would ensure the industry health, regular supply to consumer and maintenance of price line. This would mitigate the problem without burdening any body including the govt. All the stake holders of the industry concerned would be relieved.’

If you happen to agree to above, please make efforts at your end to make the govt. listen and put it in practice. It should be particularly given support by the investors, promoters, consumers, raw material providers, the financiers, the exchequer and the industry employees.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Panch Tattva: Post Result: HINDZINC,NICOLASPIR,ESCORTS,ABB, BALRAMCHIN,BAJAJHIND,CADILAHC, RELIANCE at CMP on 26 Apr 2007

By krsna Khandelwal – A veteran market analyst

Friends,

Find the Panch Tattva post result points and the attendant strategy for more companies that gave out their results against closing price on 26 Apr 07:

HINDZINC @665 gets 1205 points and is fit for investment , only thing is to be quick to adhere to any metal price related news and be ready to book wind fall profits.

NICOLASPIR @248 gets 870 points and is out of favour for investment.

ESCORTS @124 gets 973 and is neutral, only those having any idea of what companies plans are should delve in to it, it has possibilities on both sides.

ABB @4096 gets 822 points and although it is one of the most coveted stocks , I would not advise you to retain it.

BALRAMCHIN @63 gets 833 points but calls for investment on declines for longer term.

BAJAJHIND @160 gets 646 points and falls under the same category as Balrampur Chini above.

CADILAHC @322 gets 1081 points and buy it for keeping for medium to long term.

RELIANCE (RIL) @1596 gets 926 points and I would suggest to get of it for the time being. It has to improve upon performance over the next quarter or two or has to slide down to 1250 level to qualify for safe investing.

The investing community favours to invest in transparent companies. National Bureau of Economic Research (NBER) study suggests that the investors in US are getting attracted to foreign firms more on account of improved transparency level after the US listing. NBER was founded in 1920 as private non profit, nonpartisan research organisation dedicated to promoting a greater understanding of how the economy works. Sixteen out of thirty one American Nobel Prize Winners in Economics have been researchers at NBER.

The markets have behaved unnaturally over the last two days due to the manipulative tactics of operators to influence the level on Nifty closing. So there may be a correction today.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Panch Tattva: Update: NIRMA,DRREDDY at CMP on 7 Mar 2007

By krsna Khandelwal – A Stock Market Vedic Theory proponent

Friends,

NIRMA @315/- gets 972 points by way of Panch Tattva update and may be bought on declines for medium term.

DRREDDY @635/- gets 1138 points by way of Panch Tattva update and is perfect buy in these trying times.Profits may be booked at 8% appreciation.

The markets were very choppy , indicating forces at play on both sides.The cement scrips are not ready to drop but it seems that some insiders may have taken short positions before budget having some inkling about what was in store for cement in budget and may be trying hard to cover the short positions. Serious investors who have bought cement scrips should hold on to them and get out only to book gains.

The Tata Steel drop today seems very much out of line and those who have courage should buy more and stick with investment in this.The seriousness of the govt. is missing . Mr. Kamal Nath even said that the cement control may brought by govt. . Its time the PM makes an statement to reassure the investors. There may be a method in madness. If the govt. is really interested in seeing cement prices drop it could have well withdrawn the tax incentive on house purchase thus curbing the demand itself. POSCO chief has been called back due to delays in clearances and land acquisition , would such matters not make steel a scarce commodity down the line. So the govt. is barking up the wrong trees under pressure of recent losses at the hustings.Sugar Companies though under tremendous pressure due to low sugar prices are still not loosing values any more. This is time to accumulate sugar stocks. IT scrips may any time show weakness as the supply is continuing from the promoters’ side.

Hari Om

BIRDINFO Stock Rx – A Vedic Prescription for stock market