Query Corner: Adani Enterprises, Great Offshore, OnMobile, SREI infra, Sterlite Technologies, Ion Exchange, Jayshree Tea ::Business Line

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Please let me know the technical prospects of Adani Enterprises bought at Rs 374.

A. Pradeep Kumar

Adani Enterprises (Rs 288.3): Adani Enterprises went into tailspin between July 2011 and January 2012. The stock dropped from Rs 765 to Rs 261 in this period. The recovery in January from this trough could not get past the first medium-term resistance at Rs 456 and the stock is pinning out of control again.

Immediate support is at the recent trough at Rs 261. This also coincides with the trough formed in March 2008. If this low is breached, next halt can be at Rs 220. Further fall will drag it to the March 2009 trough at Rs 120.

Investors should, therefore, hold the stock only as long as it trades above Rs 261. Resistances for the months ahead would be at Rs 456, Rs 515 or Rs 574. Long-term view will turn positive only on a move above Rs 574. Investors with a smaller investment horizon should, therefore, divest their holdings if the stock struggles to get past these resistances.

Hold Jayshree Tea; Target :Rs 105 ::ICICI Securities

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D i sm a l   e a r n i n g s…
Jayshree Tea posted dismal Q3FY12 results as earnings got eroded due
to subdued earnings from the tea segment and losses from the sugar
segment. Net sales increased by 65% to | 166.9 crore after the
consolidation of the sugar business. The company has changed the
inventory valuation methodology, which has resulted in higher operating
cost in the third quarter. Subsequently, it would result in lower losses in
the fourth quarter. EBITDA margins dipped from 19.7% to 5.1% as other
expenditure has increased from | 16.9 crore to | 29.9 crore. Net profit got
eroded from | 19.8 crore in Q3FY11 to | 0.7 crore due to lower EBITDA.
Operational Highlights
Revenues from the tea segment increased by 5.7% from | 104.9 crore to
| 110.9 crore on the back of higher volumes and stable price realisations.
However, earnings from the tea segment declined from | 22.6 crore to
| 9.3 crore due to higher operating expenses. Revenues from the sugar
segment declined from | 54.1 crore in Q2FY12 to | 26.9 crore in Q3FY12
due to the late start of crushing. However, losses in the segment came
down from | 4.7 crore in Q2FY12 to | 1.2 crore.
Valuation
The stock is trading at 6.4x and 5.2x its FY12 and FY13 estimated EPS of |
15.2 and | 19.0, respectively. With  higher domestic production, export
volumes for Indian companies have remained high. However, subdued
results from the sugar segment still remain an overhang on the stock. We
believe the tea segment would continue to do well in FY13 as volumes
and realisation continue to remain stable but uncertainly about the sugar
business would be a drag. We are cautious on earnings from the sugar
segment and, hence, have downgraded the stock from BUY to HOLD with
a target price of | 105/share.

Buy Jayshree Tea; Target : Rs 195 ::ICICI Securities,

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D i s m a l   e a r n i n g s …
Jayshree Tea’s Q2FY12 results were below our expectations as net profit
witnessed a 33% de-growth to | 29.6 crore on the back of losses in the
sugar division. However, net sales grew by 51.5% to | 209.6 crore after
the acquisition of MP Chini last year. Margins have dipped from 25.2% to
18.9% as the sugar division posted | 4.73 crore of losses. Employee cost
for the company increased by 17.1% to | 40.3 crore from | 34.4 crore in
Q2FY11 on the back of a revision in wages. Power & fuel cost also
witnessed a 15% rise compared to the corresponding quarter.
Operational Highlights
The company reported 7.1% revenue growth in the tea segment led by an
increase in export prices after a drop in production in Kenya (largest tea
exporter). Revenues from the chemical segment also witnessed strong
32% growth while revenues from the sugar segment stood at | 54.1
crore. Margins in the tea segment improved from ~28% in Q1FY11 to
~34% in Q2FY12 due to a sharp increase in export prices in July and
August. Export tea prices for Indian companies were up 15% in July and
4% in August. We believe tea prices would continue to remain high as
production in Kenya and other African countries would not increase
sharply in 2012 whereas export demand for Indian tea has been rising
continuously. Simultaneously, higher production in India would result in
strong volume growth.
 
Valuation
The stock is trading at 5.2x and 4.4x its FY12 and FY13 estimated EPS of |
27.7 and | 32.5, respectively. With  higher domestic production, export
volumes for Indian companies are likely to remain high. With the
production in Kenya (largest exporter) already lower by ~10% to 259.3
million kg for January-September, 2011 compared to last year, we believe
the company would get the benefit of higher global prices. This would
result in higher margins for the company, going forward. Hence, we
maintain our price target of |195 per share with a  BUY rating.

Buy Jayshree Tea; Target : Rs 195 ::ICICI Securities,

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O u t l o o k   r e m a i n s   p o s i t i v e …
Jayshree Tea’s (JT) Q1FY12 results were better than our expectations
with the growth in earnings witnessing a significant jump. The topline of
the company rose by 10.8% YoY to |91.3 crore (I-direct estimate: |75.8
crore) over |82.4 crore in Q1FY11. We believe this was largely on account
higher sales volumes and realizations from tea business. Margins
improved from 16.5% (Q1FY11) to  25% (Q1FY12) led by the lower raw
material costs. The raw material costs as a percentage of net sales were
lower at 4.7% (Q1FY12) against  13.5% (Q1FY11). The considerable
improvement in margins led to robust growth of ~54% in the earnings
that stood at |18.1 crore against  |11.8 crore in Q1FY11. During the
quarter, the interest cost increased  by ~143% to |3.9 crore from |1.6
crore in the corresponding quarter last year; however, its impact on PAT
was cushioned by the higher EBITDA posted during the quarter.
ƒ Operational Highlights
JT’s tea sales during the quarter was higher by ~25% and stood at |68.2
crore, compared to |54.7 crore in Q1FY11. Sales from chemicals and
fertilizers remained subdued, declining by ~16% to |23.5 crore.
We believe that the company had better realizations both in tea and
chemicals business, consequently improving its EBIT (Earnings Before
Interest and Tax) to |19.1 crore (|10.1 crore in Q1FY11) and |4.2 crore
(|3.2 crore in Q1FY11) from tea and chemicals business respectively.  
V a l u a t i o n
The stock is trading at 4.9x and 4.4x its FY12 and FY13 estimated EPS of
|29.4 and |32.5, respectively. With the production in Kenya (largest
exporter) already lower by ~17%  to 178.4 mn kg for Jan-June, 2011
compared to that of last year and increasing demand for tea in global
markets, we expect the tea prices to remain firm (already higher by |10-
15/kg during the current season) in India. Also, with the production of the
country back on track, we expect both sales volumes and higher prices to
keep JT’s revenues and earnings growth robust. Hence, we maintain our
price target of |195 per share with a BUY rating.

Buy Jayshree Tea; Firming tea prices to improve earnings ..Target Rs 195 :: ICICI Securities,

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Firming tea prices to improve earnings…
Jayshree Tea reported Q4FY11 results. The net sales (standalone) grew
~14% to | 100.75 crore from | 88.4 crore in Q4FY10. Though the sales
were higher losses at the EBITDA level increased from 11.6% (| 10.3
crore) in Q4FY10 to 13.8% (| 13.9 crore) in Q4FY11. The dip was mainly
on account of higher raw material costs that increased ~520 bps to
60.8% of sales (| 61.3 crore). During the quarter, Jayshree’s interest cost
was also higher by ~150% at | 3.3 crore on the back of the loans taken
for acquisitions in Uganda. Thus, with subdued margins, higher interest
cost and complete accounting of tax for the year during the quarter; net
loss increased to | 22.4 crore in Q4FY11 from | 17.5 crore in Q4FY10.

Jayshree Tea - Target : | 190 Period : 3-6 months :: ICICI Securities

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Higher tea realisations to augment revenues…
Jayshree Tea (JT), the second largest producer of tea in India, would
benefit from the synchronous rise in domestic and global tea prices.
With the rise in tea realisations and increasing contribution from high
quality Darjeeling tea, we expect net profit to grow at a CAGR of ~15%
from FY11-FY13E.

Jay Shree Tea & Industries Limited:: Target Rs. 192 :: SKP Securities

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Company Profile
Incorporated on the October 27, 1945 Jay Shree Tea & Industries Ltd (JTIL), a well diversified
conglomerate of B.K. Birla Group of Companies, acquired a growing number of tea estates in
both North and South India and initiated innovative, intensive and integrated field development
work on all fronts. JTIL has adopted a marketing strategy to provide Garden Fresh Tea to all its
clients. Besides tea, JTIL manufactures Single Super phosphate and Sulphuric Acid. The
company is also engaged in Warehousing activities at Calcutta and Kochi. It has also developed
prestigious residential and commercial complexes at Calcutta and Bangalore. JTIL has under its
fold 22 tea estates including two estates in its subsidiary spread all over India and manufactures
around 15 million Kgs of tea per annum. Total area under tea is around 8000 Hectares. JTIL
produces around 10% of total Darjeeling tea produced in the country.
Investment Rationale
Increase in yields
Increase its tea yields through better agricultural practices resulting in
substantially lowering raw material and miscellaneous expenses per unit
of sales.
Treasury management resulting in lower interest cost
JTIL has successfully invested surplus funds in treasury instruments.
The returns from these investments have helped the company to better
manage its interest costs.
Interest cost of the company in FY10 decreased by approximately 26%.
Active treasury management by the company has helped to keep its
interest cost low which would otherwise be at higher levels.
Inorganic growth through acquisitions
Focused on increasing its revenues by maximizing its quantity
produced. The company has acquired estates in Rwanda and Uganda to
the tune of USD 6.5 million for the control of 11.3 million kgs in East
Africa.
Assam tea is a good blend with Ugandan Tea which shall augur well for
the shareholders in the long run.
Improved realization of export prices
Indian tea is widely sought in the export market. India will be facing a
100 mn kgs. deficit in tea production at the starting of the new season in
April leading to increase in export prices.
Acquisition of MP Chini Industries
Forayed into sugar industry with the acquisition of MP Chini Industries
This is likely to hedge the revenue streams of JTIL by diversifying its
existing portfolio which was earlier focused on tea and fertilizers.


Outlook & Recommendation
We expect bouyant tea prices in near term. Moreover, recent rally in JTIL
prices seems to have factored in most of this bouyancy. JTIL holds a leading
position in tea industry.
Stock is currently trading at a PE of 4.61x FY12E and 3.85x FY13E EPS.
We recommend HOLD rating on the stock with a 18 months target price
of Rs 192, at 4.5x FY13E earnings, giving it an upside of 17% from the
current levels.

Buy Jayshree Tea , Target : | 175:: ICICI Securities

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Jayshree Tea: Realisations fall, volumes sustain…
Jayshree Tea’s Q3FY11 results were below our expectation with net
sales declining ~10% to | 126.9 crore against | 141.1 crore in Q3FY10.
The dip in sales was due to a fall in realisation from ~| 130/kg in
Q3FY10 to ~| 122/kg in Q3FY11. The employee cost during the quarter
increased significantly to 25% of sales from 19.3% in Q3FY10. This was
due to the increase in labour wages by ~| 3.5/kg implemented in
January, 2010. Thus, margins in Q3FY11 slipped by 460 bps to 19.7%
against 24.3% in Q3FY10. Jayshree’s interest cost during the quarter
increased ~200% to | 4.98 crore against | 1.67 crore in Q3FY10 on the
back of higher debt of ~| 100 crore raised by the company to fund its
acquisitions in Rwanda. Hence, driven by lower EBITDA, higher
interest cost and fall in other income by ~5% to | 2 crore in Q3FY11, the
bottomline during the quarter was down ~40% to | 19.8 crore against |
33.2 crore in the corresponding quarter last year.

Jayshree Tea: Volume, realisation increase boosts sales:: ICICI Sec

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Volume, realisation increase boosts sales…
Jayshree Tea reported strong Q2FY11 numbers with the topline
growing by 26.5% to Rs 138.3 crore as against Rs 108.4 crore in Q2FY10.
The jump in sales was on the back of an increase in volumes as well as
realisations. EBITDA margins dipped to 25.2% from 29.3% due to the
higher employee cost as well as increased sales contribution from
bought leaf. Other income increased by 189% to Rs 14.8 crore from Rs
5.1 crore in the corresponding quarter on account of investment income
and subsidies on the fertiliser business. Net profit increased by 33.4% to
Rs 44.2 crore as against Rs 33.2 crore in the corresponding quarter led
by higher EBITDA and other income.