Stock Market Research

Kolte Patil is the best Real estate company going around.. This company has virtually little debt and is well managed. It has paid 20% dividend on a face value of 10 that is 2/- pershare when quoting at 60/-. Its projects in Bangalore and Pune is doing well. It has a market cap of 900 crores and EPS of 5,8 and expects eps of 10 and 15 in FY 13-14 and 14-15. I expect the share prices to go past 200.

The company is well managed and any reduction in interest rates will see further impetus in real estate stocks. I recommend a strong buy.

1) Tata Motors UK based subsidiary Jaguar and Land Rover global sales in November increased 14% to 29,893 units, which gives a indication of strong rise in sales and income for Tata Motors after the end of the current quarter.

2) The Company is also setting up a new engine plant in Wolvrehampton, UK.

3) JLR had witnessed increasing sales from emerging markets, which contributed to a 32 percent increase in global retail sales to 324,184 vehicles in the eleven months to November 30,2012.

The hoopla and the hype

SEBI s intervention and investigation apart, the stock does have a appeal for larger banks. The banking amendment act have sparked a potential thought process that the smaller, well performing banks can become targets for merger/acquisition by larger private sector banks. ICICI bank has been known to aggressively take over smaller banks in the past. This activity has infact helped ICICI bank become the largest private bank in the country in terms of branch network. The company pays premium over the targets current market price. This will continue to be the trend as the cost per branch would still be lesser than the market cap per branch of ICICI. This stems from the fact that ICICI has impressive revenue per branch and revenue per employee figures.

A good tactic here would be to buy both ICICI bank and Karnataka bank. If the merger does happen, the holders will receive some shares of ICICI for the holding in KTK Bank as per the calculated exchange ratio. The rates are likely to be cut in January 2013, which is likely to push up the banking index higher. Especially ICICI bank and KTK bank are likely to gain significantly.

Financial highlights: Karnataka Bank

Sales growth 5 year CAGR: 19.32%

Return on Equity 5 year average: 13.59%

Rationale

ICICI s per branch market cap is around Rs.45 crore whereas at current market price, KTK Bank per branch market cap is around 6 crore. ICICI s last target Bank of Rajasthan was acquired by paying Rs.6.5 crore per branch. Karnataka bank is a better performer than BoR was when it was acquired so ICICI will likely offer a higher rate for it. Assuming it will offer Rs.7 crore per branch, the KTK bank stock should go upto Rs.185/share on the day of share conversion and possibly even higher in the interim period (due to market optimism).

Value at Risk

Maximum possible downside (monthly) using 95% confidence level: 25.28%

The average monthly return since January 2009 is 3.2%.

(CMP Rs 18.70 as on 17/12/2012)

Market Cap: [Rs.Cr.] 22.63 | Face Value: [Rs.] 10

Logix Microsystems Ltd. (LML) is a niche automobile imagery product developer offering various specialized online products and web solutions mainly to the US automobile industry. It provides customized web solutions and online marketing platforms to automobile OEMs, web portals and automobile dealers in the US. The company services over 600 auto dealers with over 1,200 showrooms, auto portals like Yahoo Autos, AOL Autos and auto OEMs viz., General Motors, Ford Motor Co., Mitsubishi Motors, etc. The company has a small internet presence through web portal www.carazoo.com.

Logix is India s leading automotive software products company. It has a well proven suite of products being used by more than 1,000 customers in USA, Europe and India. The company has been able to build a strong brand name in the automotive space in the US, Europe and India. Companies such as Toyota, Ford, Renault, Yahoo and AOL are using their products. It is focusing on the Indian automotive market and has already signed up more than 150 dealerships in India, which is one of the fastest growing automotive markets in the world.

The stock is close to its all-time low as the company s performance was severely impacted during the last three years due to the recession in the United States. However, the company s order books are at an all time high as the US market has started improving and business has started pouring in from new markets such as Europe and India. The company is getting a lot of traction in the European market with successful product deliveries to Hyundai, Toyota and Renault.

All these developments augur well for the company s future. This translates into a substantial capital gain for an investor who buys the stock today with a long term view.

Online automobile marketing gaining importance with auto dealers

The size of the dealership market is estimated at USD 693 billion with over 20,700 dealers. It is the major link between auto OEMs and end consumers. To convert more browsers into buyers, auto marketers are revving up their online ad spending. eMarketer estimates that online automotive advertising, including spending by manufacturers, dealer associations and dealers, will hit $3.24 billion this year, or 11.4% of total US online ad spending. In 2012, spending will grow faster than it had the past five years, climbing 18% to $3.82 billion.

Large user base, high flexibility in accessing sites, multimedia content, multi-usage formats and low cost make the internet an attractive platform for auto OEMs and dealers to market their products. The user see can multiple car models online, without having to visit car showrooms.

Strategies of strengthening US presence and diversification

LML has an established track record of 8 years in the US market, coupled with a robust client acquisition rate he company plans to focus on adding big-ticket clients including large auto dealers and auto OEMs. It added the world s largest auto dealer AutoUSA (revenues of USD 22 billion) as client. It plans to strengthen presence in the auto accessories market as well. In view of the fact that the company had a solely US-centric model, it plans to expand in Europe and India (currently a small presence). It also plans to launch a new product for real estate industry initially in India and in future, in the booming Middle East countries.

Consolidation may benefit Logix

Edmunds.com, a US-based provider of information on automobiles, discontinued licensing of enhanced imagery to third parties in 2006. Further consolidation may take place in the automobile imagery product segment, going forward. Logix, with its cost advantage may benefit from a shakeout.

Growth initiatives

The company is aggressively targeting European and Indian markets. They have setup a state-of-the-art automotive studio in Brussels to cater to the European requirement for high end automotive imagery. The company has established a sales office in Brussels as well. It is concentrating on increasing its penetration in the Benelux, French and German markets at present. In addition, they have established 5 sales and marketing offices all over India to target the Indian automotive dealer market.

The company has also entered the Turkish market with a local partner. Also, since we have Spanish language support, a major thrust is being put in the South American market which seems to be responding well to the company s products. They have firm enquiries from Mexico, Brazil and Argentina. Since the company is simultaneously pushing its products in these high growth markets, they expect rapid growth in the next 2-3 years in topline and bottomline.

Competition

The company s major competitors are in the US market. These are US based companies catering to the online automotive segment. They have been in business for a much longer period than Logix. Since Logix have the largest product suite in the industry, it eliminates the need for the customer to deal with multiple vendors. This is a very important differentiator vis- -vis competition.

The company does not have any real competition in the European and Indian markets. These are relatively virgin markets and the company s intent is to gain leadership position in these markets in the next 12-18 months. The potential in these markets is huge and they have the first-mover advantage which they need to build upon quickly.

Valuation and Conclusion

The company has a unique business model, huge market, diversification plans and new products in the pipeline. The stock at present prices of 18.70 is quoting at low single digit PE its forward earnings. It is expected to clock an EPS of 9 in FY12 and an EPS of 12 in FY13. Altogether a penny stock worth looking for

Business Outlook

Rapicut Carbides is a producer of tungsten carbide industrial consumables and has been in business for over 30 years. It is a specialized B2B consumables producers catering to a wide variety of industries including mining, construction, industrial equipments etc. The business is set to gain from the proposed expenditure in infrastructure in the current five year plan. Also, the easing on mining and exploration policies which can be foreseen going forward will substantially increase the demand for tungsten carbide drilling and cutting tools. Rapicut has a host of customers in the public sector domain and will continue to get business from them. One notable customer is Neyvelli Lignite which is going to provide more business from its planned increase of mining in new projects (2 MTPA Devangudi mine project, 2.25 MTPA Bithnok power station, 2.5 MTPA Barsinagar power station). The revenue growth going forward looks very positive for Rapicut carbides.

Financials: Quarterly

The company has performed exceptionally well in the past few quarters. It recorded sales of Rs.10.22 crore in the quarter ended September 2012, up by 51.6% over the same quarter last year. The net profit has also jumped by an impressive 33%. The company maintained its net profit margins at 11.45%.

Financials: Annual

The sales have grown at a 5-year CAGR of 14.95% and it has accelerated to 37% in last year. Net profit has grown at a 5-year CAGR of 29.96%. The current ROE is at 25%, which has improved over the 10 year average of 20.5% due to reduction of debt.

Fundamental

The company s main cost of manufacturing comes from raw materials especially Tungsten. Tungsten had been on an uptrend in the long term over the last 5 years and thus added to the cost of the company. The company still has maintained its operating profit margins around 17-18%. This is due to the fact that the company easily translates the increasing cost to the customers owing to its pricing power. We have seen that there has been no slippage in revenue growth. Now the tungsten prices have started to ease in the past couple of quarters and it is down by about 20%. This will translate into improving profit margins for the company. The debt is being reduced consistently and the company can be expected to be debt free in by FY15. The company is a regular dividend payer, it 4-year average dividend payout ratio is 22.4%. Next September, the company will likely declare a 40% dividend (Rs.4/share). It is listed on the BSE. The promoters have hiked their holding in FY11 and FY12.

Value at Risk

The value of risk suggests a maximum monthly downside of 16.663% at 95% confidence level. This calculated on the basis of last 3 years data. Average monthly return over this period was 4.5%.

Technical Analysis

The weekly candlestick chart suggests formation of bullish three white soldiers signal. The Bollinger band channel has widened and the momentum has erupted on the weekly chart. The current bullish move will continue for a while.