HDFC Mutual Fund SIP Update Q1-2007

Here is the latest Update of HDFC Mutual Fund SIP which we have been recommending to our investors. It is TRUE that in the past one year the returns have been less than 5%. However, serious long term investors who want to create wealth must stick to disciplined SIP investments. We recommend the following HDFC Funds and we are also investing in these funds by SIP route.

Our goal is to create long term wealth by means of equity investing, [We believe Equity is the best asset class for long term investors]. Even when we book profits in recently listed IPOs, we invest the Tax-free profits into these funds.

SIP has always outperformed Lump sum investment. SIP investments updated on March-30-2007.

Happy investing. Never ever stop your SIP in Panic. Just invest!!!

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Agro Tech Foods – Recommendation

ConAgra Foods Inc of USA, the world’s third largest foods company, holds a majority stake of 48.3% in Agro Tech Foods, through CAG Tech Holdings, Mauritius.

Agro Tech Foods operates in two business segments: branded foods, and bulk and processed commodities. The company has two very successful foods brands: Sundrop edible oil and ACT II, the No 1 popcorn brand in the world. Some other brands include Crystal and Rath vanaspati oil. The company has stopped its non-profitable brands of chips and atta, and has developed a strategy of focusing only on products with a gross margin above 20%.

Bulk and processed commodities include oils and grains procured, processed and distributed; and seed buying operation. This segment is not the focus of the company.

Earlier, Agro Tech Foods was a group company of ITC and had its manufacturing plant at Mantralayam in Andhra Pradesh. Subsequently, the plant was sold to ITC and was leased back for 99 years to the company for Rs 16 crore. Subsequent to ConAgra taking a majority stake, the parent found this arrangement totally unviable as reflected in the poor margin and losses.After a long conflict between the company and ITC, a London court passed an order of settlement: the company had to pay Rs 43 crore to ITC in phases (as reflected in extraordinary items over the past few years).

Presently, Agro Tech Foods has no manufacturing plant. Manufacturing is outsourced to unorganised players under its quality control. Hence, there is no need for any capex or any other significant investment to increase volume.

Sundrop normally contributes nearly one-third of the total turnover of Agro Tech Foods. The brand continues to grow at 10%. The company is operating this brand at a gross profit margin of around 15%, which it intends to increase to 20% with deeper penetration and promotion. With growing consumption and income level, the shift towards premium quality will sustain the profitable growth of this brand.

Currently, ACT II brand is available at over 120 locations across the country, where hot, fresh and tasty popcorn is served. The target market for vending popcorn is cinema theatres, amusement parks, shopping malls, coffee parlors, college canteens or even railway stations and bus stands. Over the next 12 months, Agro Tech Foods plans to increase the availability of ACT 11 vending operations in more than 400 locations across the top 14 towns. The company’s ACT II ready-to-eat brand, launched six months ago, has also received a very positive response.

The ACT II brand contributes nearly Rs 25 crore to the top line, with a gross margin of around 30%. Going forward, this brand has scope for almost doubling sales every year from both the vending popcorn as well as from the ready-to-eat segments, considering the huge untapped rural and urban markets with hardly any competition.

Agro Tech Foods is expected to register EPS of Rs 5.3 in FY 2007 and Rs 6.6 in FY 2008. At the current market price of Rs 75, the scrip trades at 14.2 times its FY 2007 earning and 11.4 times its estimated FY 2008 earning. This discounting is very low compared to Nestle and other MNC Dairy companies in India.

J P Morgan Overweight on Tech Mahindra

J P Morgan initiates coverage on Tech Mahindra with Overweight rating and a Dec-07 price target of Rs1,700, implying 13% upside.

JPM expects a 42% revenue CAGR and 38% EPS CAGR in FY07-09 led by: (1) strong growth of two largest clients—BT and AT&T; (2) diversifying customer base; (3) strong offshoring trend in TSP space; and (4) widening service offering. JPM expects a 37% revenue CAGR from British Telecom (TM’s largest customer with~60% of revenues) due to BT’s aggressive offshoring drive and recently signed US$1B deal with BT Global Services. JPM expects a 45% revenue CAGR from AT&T (second-largest client) due to offshore vendor consolidation, stake in TM, and low base.

JPM is expecting Tech Mahindra to report an EPS of Rs 72.0 for FY08 and Rs 102 for FY09. At these EPS’ JP Morgan target is slightly on the lower side because of strong management and better than expected growth story.

We at DalalStreet.Biz continue to be bullish on the prospects of Tech Mahindra and rate it as an aggressive BUY with a Price target of Rs 1,900. Tech Mahindra will enter the big league software companies in FY08 and will see a re-rating for its stock.

Order Book and Good Results – ABB Hits New High

ABB’s net profit jumped 69% in Q1 March 2007 at Rs 86.63 crore (Rs 51.30 crore). Sales rose 63% to Rs 1312.44 crore (Rs 802.91 crore).

ABB also registered a strong 43% year-on-year growth in order intake at Rs 2000.3 crore during the quarter ended March 2007, which has further strengthened the order-book. Order backlog, as at 31 March 2007, stood at Rs 4259.60 crore compared to Rs 3372.3 crore at the beginning of the current calendar and compared to Rs 2674.30 crore as at end of March 2006.

ABB has been one of the prime beneficiaries of strong investments in both power sector as well as the manufacturing sector.

The current price of Rs 4157.80 discounts its FY 2006 (year ended 31 December 2006) EPS of Rs 80.30, by a PE multiple of 51.7.

At the time of announcing FY 2006 (year ended 31 December 2006) results, ABB announced a 1:5 stock-split, implying a subdivision of a share of Rs 10 into five of Rs 2 each. This is subject to shareholders approval in the ensuing annual general meeting. The ABB stock hit a high of Rs 4160, which is a lifetime high for the counter.

Cipla hammered on Poor Q4 Show

Cipla reported 34% fall in net profit in Q4 March 2007 at Rs 126 crore from Rs 191 crore mainly due to a sharp decline in active pharmaceutical ingredients (APIs) exports and rising material costs. The company’s performance in the same quarter last year was exceptionally good because of strong sales in Western markets.

Net sales for the quarter were up 6.3% to Rs 938.5 crore, on the back of a 14.4% growth in domestic revenues to Rs 399.7 crore. Exports were flat at Rs 529.3 crore in the quarter ended 31 March 2007, from Rs 526.6 crore in the last year’s corresponding quarter. A change in product mix also contributed to the decrease in profitability.

Cipla today reported a 8% increase in net profit at Rs 660.82 crore for the year ended 31 March 2007, as compared to Rs 607.64 crore in FY 2006. Net sales were up at Rs 3572.1 crore compared to Rs 2985.9 crore in the year ended 31 March 2006.

Cipla expects its exports business to show modest growth in the next two quarters, on account of ever-rising pricing pressure in the US.