Category Archives: Companies

Snapshots of the companies in my watch list. Some of them are already in my portfolio. Some of them are still in the waiting list for the right time to buy at right price.

Hero Honda

The Hero Honda is a joint venture between the Honda Motors Co., Japan and India’s Hero Group. Honda Motors Co., Japan is among the pioneers of the global motorcycle industry. The Hero Group has a long track record of mass manufacturing and distribution from the days of Hero Cycles.

Hero Honda has been the largest two wheeler company in the world for eight consecutive years. The company crossed the ten million unit milestone over a 19-year span. In the new millennium, Hero Honda has scaled this to 15 million units in just five years! As one of the world’s technology leaders in the automotive sector, Honda has been able to consistently provide technical know-how, design specifications and R&D innovations. This has led to the development of world class, value – for- money motorcycles and scooters for the Indian market. Hero Honda is recognized today as one of the most successful joint ventures in the world.

Two positive indicators for Hero Honda are the company is efficient in managing capital and it has an excellent track record of rewarding shareholders by paying out dividends. Its management is shareholder friendly though largely a family managed entity.  It enjoys strong brand equity and distribution network. The brand Hero Honda is associated with fuel efficiency.

The company also has a strong distribution system. Hero Honda’s bikes are sold and serviced through a network of over 3500 customer touch points, comprising a mix of dealers, service centres and stockists located across rural and urban India. Hero Honda has world-class manufacturing facilities at Dharuhera and Gurgaon in Haryana and a most sophisticated plant at Haridwar. The company is able to introduce a variety of models cutting across the entry (100 cc), deluxe (100 to 125 cc) and premium (125 to 250 cc) segments.

Competition is strong and it has no pricing power. It may be noted that Indian motorcycle industry has become extremely competitive. Undoubtedly, the new competitors pose a formidable challenge in the premium segment with dazzling models, which will attract the affluent metro crowd.  However it is difficult to beat Hero Honda in the entry and deluxe segments. These segments cater to India’s value conscious smaller centers where the company’s distribution network, service capabilities and goodwill are unmatched.

Hero Honda has been consistently generating returns on equity well above 35% in the last 10 years. Over the past 5 years, the company has posted returns of around 41% on an average. Importantly, the rapid increase in return on equity has not been fuelled by debt. During this entire time, it has utilised little or no debt. The company is able to generate funds from the internal accruals for the capital expenditure. Same time it has a good track record of paying handsome dividends to its shareholders.

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Glenmark Pharmaceuticals

Glenmark PharmaGlenmark Pharmaceuticals Limited was incorporated in the year 1977. Glenmark Pharma is a mid-sized Indian pharma company with focus on niche therapeutic areas of dermatology, gynaecology, paediatrics and diabetics. The domestic formulations business contributed about 29% to the company’s revenue in FY09. On the international front, while exports to the semi-regulated markets have been growing at a strong pace, the company is also strengthening its presence in the US and European generics market on its own and through the partnership route. The company is also focusing on R&D.

Glenmark is a leading player in the discovery of new molecules both new chemical entity and new biological entity with eight molecules in various stages of clinical development. The company has a significant presence in branded generics markets across emerging economies including India. Its subsidiary, Glenmark Generics Limited has a fast growing and robust US generics business. The subsidiary also markets APIs to regulated and semi-regulated countries. Glenmark employs nearly 6000 people in over 80 countries. It has twelve manufacturing facilities in four countries and has five R&D centres.

Investment Rationale

While first three quarters of the financial year 2009-10 has seen a lukewarm performance reported by the company, the scenario is expected to improve fourth quarter onwards as the businesses begin to pick up. Glenmark Pharma is expected to report strong growth going forward as its generics business in the US, Latin America, Europe and semi-regulated markets scales up. Management’s ability to strike out-licensing deals for its molecules and a strong R&D pipeline at present with potential going forward makes Glenmark’s prospects bright.

Recently the company got final approval from US Food & Drug Administration for Ropinirole Hydrochloride tablets in multiple strengths. Ropinirole Hydrochloride tablet is the generic version of GlaxoSmithKline’s Requip tablets. The drug is used for treating signs and symptoms of idiopathic Parkinson’s disease. The annual sales of the drug in the US is about $500 million.

As in any business, there are risk factors too to be considered when investing in Glenmarks Pharma’s shares. The high debts position, realisation from R&D front, increased competition and price erosion in the US generic markets are some of the risk factors going forward. Due to the global financial crisis and its impact on companies, revenues from the out-licensing deals may not be as forthcoming for some time as they once were. This will have an impact on Glenmark’s margins.

The company continues to be in talks with global pharma majors to garner some out-licensing deals. The fact that the company was able to bag such a deal with Medicis Pharmaceuticals USA is an encouraging sign.

Company is already working towards reducing the debt burden. The cash generated from the improved performance of its business will go towards paying off this debt. Besides this, the company has filed a draft prospectus with the SEBI for listing Glenmark Generics and part of the proceeds from this listing will also be used to retire debt.

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Bharti Airtel

3 November 2009

Bharti Airtel, is Asia’s leading integrated telecom services provider with operations in India and Sri Lanka. Bharti Airtel has been at the forefront of the telecom revolution and has transformed the sector with its world-class services built on leading edge technologies. Bharti Airtel is the largest mobile telephony operator in the GSM space in India. Apart from being the largest player in the mobile segment with subscribers in all the 23-telecom circles of the country, Bharti Airtel also provides varied services like fixed line, broadband and retail Internet access.

The structure of Bharti Airtel is divided into three business units: Mobile Services, Airtel Telemedia Services and Enterprise Services. It has recently launched a new service called Direct-to-Home (DTH) service by the name of Airtel Digital TV. Recently much advancement happened in Bharti Airtel like Apple iPhone 3G came in India via Airtel and Airtel Digital Service launched during the second half of 2008.

Bharti Airtel is a professionally managed company with a dynamic, innovative and focused management. Mobile communication segment has bright growth opportunity in India. Bharti Airtel is the market leader in India.

The company posted sales of 373 billion for the year ended March 2009. During the period FY05 to FY09, the company grew its sales and profits at compounded annual rates of 46% and 59% respectively.  The operating profit margins during the said period have never dipped below 33%. The NPM have shown a steady increase from 15.24% in Mar05 to 22.67% in Mar09. The reported return on net worth has always been over 27%, touching the high of 35.23% in Mar07. This just goes to show what fantastic value Airtel has created for its stakeholders. The company has been steadily reducing its debt levels for the last 5 yrs.

The company has recommended its maiden dividend of Rs 2 per share (dividend payout of 5%). Keeping in mind that it has crossed its peak capex requirements (for spreading its presence across India), the company expects to generate free cash flows and subsequently reward its investors in return.

The future of the telecommunications industry in India continues to look promising. India has the worlds second largest population and that means there will be a growing need for telecommunications services. With an estimated middle class of 500 million within a decade, India’s consumer demand will provide the telecommunications industry with plenty of room to grow. As is common in most countries, the telecommunications indystry in India is controlled by a few powerful players who dominate the market. Bharti Airtel is the largets of these companies, with 24.7% of the market as of the forth quarter of 2009. Its next largest competitors are Reliance Communications with 17.7% and Vodafone Essar with 17.4%.

Bharti Airtel’s well capitalized position, strong cash flows, and dominant market share make it a company with excellent prospects looking forward. In addition, its corporate ties to Bharti Enterprises provides it with the opportunity to engage in profitable cross-promotional advertising with other popular brands.

Why it is best time to enter in this company? At current market price of 299.95, it is a the lower end of 52 weeks low. The current condition in the telecom industry such as price war created a negative sentiments in the market and caused the crash in the market price of its shares. But this is just a short term concern and large operators like Bharti Airtel can easily come out of this mess and the company have a better long term prospects. Its long term investment outlook is very positive as it dominates a market that has enormous growth prospects. The share price has stabilized around $300 and is a buying opportunity to obtain ownership in a solid company at a deep discount. The stock is a bargain and an excellent way for investors to diversify their portfolios.

Yes, now it is your company! Get to know more about the company, keep an eye on it. You will not sell your company unless and until it is really warranted.

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Suzlon Energy

12 December 2009
Suzlon Energy, incorporated in 1995, is Asia’s leading manufacturer of wind turbine generators (WTGs). It is the first Asian company to manufacture WTGs, which have MW and multi-MW capabilities. The products manufactured by Suzlon include rotor blades, control panels, nacelle cover and tubular towers. The company had recently acquired the Belgian Hansen Transmissions, which is one of the three major multi-MW gearbox suppliers in the world. Suzlon has to its distinction the setting up of the largest wind power project in India. The project is located at Vankusawade Wind Park in Maharashtra and has a total capacity of 210 MW. The company enjoys cost advantages over its global competitors by way of operating manufacturing capacities in India. Also, the company has a subsidiary for technology development in Germany and an R&D facility in the Netherlands for rotor blade molding and tooling.

The Industry

The world is now looking for the energy security with the governments, looking to diversify energy source, to mitigate the geopolitical risk around oil and gas supplies.

The wind is a promising and fastest growing renewable energy source. Wind energy has the potential to power the future in all Critical Success Parameters like Cost Competitiveness, Established Base, Resource Availability and Magnitude. It has compelling growth dynamics with reference to various concern such as climate change and global warming, energy security, increased electricity demand and cost competitiveness.

The wind industry has enjoyed a period of uninterrupted growth of 34% CAGR over the past 5 years. The year 2008 was another record year for the industry, with global annual installations growing by 36% to over 27 giga watts (GW). The global installed wind power capacity grew by 28.8% to reach 120.8 GW, making wind power one of the fastest growing sources of utility-scale electricity generation. This reflects a huge and growing global demand for emissions-free, sustainable and local sources of power generation (source Global Wind 2008 Report: Global Wind Energy Council).

By 2012 it is expected that total annual new installations will grow from today’s level of 28,500MWto 51,000MW. In the next four years, the US is likely to overtake most European nations, to become the leading country in terms of annual installations. In Asia, strong growth is expected in China and India, new capacity additions are expected to be around 2,000 MW every year. Cumulative annual growth rate for new installations up to 2012 are expected to be 16%.

Company Performance

Suzlon’s market share (combined with REpower) rose to 12.3% thereby making Suzlon the 3 largest wind turbine manufacturing company in the world. Suzlong energy is having over 45% share of India’s domestic installations in FY08. On a cumulative basis, Suzlon has installed around 8,500 MW of India’s total wind power capacity. As at the end of March 2008, the company was the fifth largest manufacturer of Wind Turbine Generators (WTG) globally in terms of annual installed capacity. During the period between FY05 and FY08, Suzlon has grown its revenues and net profits at compounded rates of 91% and 41% respectively.

Sales increased by 90.7% to Rs 26,082 crore in 2008-09 from Rs 13,679 crore in 2007-08 registering a compounded annual growth rate (CAGR) of a staggering 91.4% over the past 5 years. The increase in financial year ended March 31, 2009, was primarily due to consolidation of REpower sales amounting Rs 7,125 crore.

Vertical integration of Wind Turbine Generator (“WTG”) Supply Chain give Suzlon a competitive advantage. Suzlon got strong international client base in key markets. Suzlon has geographical presence across the globe. The 91% subsidiary RE Power is Recognized as technology leader with strong presence in Europe. 26% subsidiary Hansen Transmissions is 2nd Largest globally in Wind gear-boxes.

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Suzlon Energy
India’s first home-grown wind technology company
Drops Savings and Investments recommends investments in Suzlon Energy with a long term perspective

12 December 2009
Current Market Price: INR 83.10

The Management
Chairman: Tulsi R Tanti
Industry
Wind Energy
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Suzlon  EnergySuzlon Energy, incorporated in 1995, is Asia’s leading manufacturer of wind turbine generators (WTGs). It is the first Asian company to manufacture WTGs, which have MW and multi-MW capabilities. The products manufactured by Suzlon include rotor blades, control panels, nacelle cover and tubular towers. The company had recently acquired the Belgian Hansen Transmissions, which is one of the three major multi-MW gearbox suppliers in the world. Suzlon has to its distinction the setting up of the largest wind power project in India. The project is located at Vankusawade Wind Park in Maharashtra and has a total capacity of 210 MW. The company enjoys cost advantages over its global competitors by way of operating manufacturing capacities in India. Also, the company has a subsidiary for technology development in Germany and an R&D facility in the Netherlands for rotor blade molding and tooling.

The Industry

The world is now looking for the energy security with the governments, looking to diversify energy source, to mitigate the geopolitical risk around oil and gas supplies.

The wind is a promising and fastest growing renewable energy source. Wind energy has the potential to power the future in all Critical Success Parameters like Cost Competitiveness, Established Base, Resource Availability and Magnitude. It has compelling growth dynamics with reference to various concern such as climate change and global warming, energy security, increased electricity demand and cost competitiveness.

The wind industry has enjoyed a period of uninterrupted growth of 34% CAGR over the past 5 years. The year 2008 was another record year for the industry, with global annual installations growing by 36% to over 27 giga watts (GW). The global installed wind power capacity grew by 28.8% to reach 120.8 GW, making wind power one of the fastest growing sources of utility-scale electricity generation. This reflects a huge and growing global demand for emissions-free, sustainable and local sources of power generation (source Global Wind 2008 Report: Global Wind Energy Council).

By 2012 it is expected that total annual new installations will grow from today’s level of 28,500MWto 51,000MW. In the next four years, the US is likely to overtake most European nations, to become the leading country in terms of annual installations. In Asia, strong growth is expected in China and India, new capacity additions are expected to be around 2,000 MW every year. Cumulative annual growth rate for new installations up to 2012 are expected to be 16%.

Company Performance

Suzlon’s market share (combined with REpower) rose to 12.3% thereby making Suzlon the 3 largest wind turbine manufacturing company in the world. Suzlong energy is having over 45% share of India’s domestic installations in FY08. On a cumulative basis, Suzlon has installed around 8,500 MW of India’s total wind power capacity. As at the end of March 2008, the company was the fifth largest manufacturer of Wind Turbine Generators (WTG) globally in terms of annual installed capacity. During the period between FY05 and FY08, Suzlon has grown its revenues and net profits at compounded rates of 91% and 41% respectively.

Sales increased by 90.7% to Rs 26,082 crore in 2008-09 from Rs 13,679 crore in 2007-08 registering a compounded annual growth rate (CAGR) of a staggering 91.4% over the past 5 years. The increase in financial year ended March 31, 2009, was primarily due to consolidation of REpower sales amounting Rs 7,125 crore.

Vertical integration of Wind Turbine Generator (“WTG”) Supply Chain give Suzlon a competitive advantage. Suzlon got strong international client base in key markets. Suzlon has geographical presence across the globe. The 91% subsidiary RE Power is Recognized as technology leader with strong presence in Europe. 26% subsidiary Hansen Transmissions is 2nd Largest globally in Wind gear-boxes.