Every Event is Special at Jaypee and this time August boasts of another Luxurious 2 day event for our esteemed guests who joined us for our 2 day management meet cum conference on 19 & 20 August, at the splendid Thai and Balinese Influenced Radisson Resorts at Alibaug.

The day began with the MMTC and progressed with a simple but elegant presentation from “UFlex Limited” which was followed by a delectable lunch proceeded on to fresh intellectual discussions and an exchange of some ideas from a veteran in the Cement Industry and then came in the Spectacular story of “Planet 41”- An Unlisted high Potential VAS player providing everyone a great perspective and detailed insight on the VAS industry.

Day 2 started with a presentation from the very senior expert from the steel Industry followed by a sumptuous lunch and then a quick and crisp Presentation from the management of “Omaxe Limited”

Jaypee Capital organized this conference with an idea to put forth some good sectors and companies before the Investment managers from various domestic funds. All of the Guests were accompanied by the sales and research team of Jaypee Capital. The Investors got an very good and Informal opportunity to engage in an in-depth Q&A in a group and on a one-on-one basis.

MMTC Ltd attended our Alibaug Conference, here are the key takeaways.

losses on trading of pulses on which 15% subsidy is provided by the government.

• The company also trades in coal, for which it has tied up with all the major State Electricity Boards like Punjab SEB and others. It has also received order from NTPC to supply to its plants.
• The company also trades in fertilizers like MOP, DAPP and Urea.
• In the export division the main trades are from Iron Ore where the profit is close to $4-$5.
• Iron ore export comprises of close 15%-18% of Turnover.
• In the domestic market MMTC has been conducting Jewellery exhibitions for many years in cities like Mumbai, Goa, Ahmadabad and Chandigarh
• The company has a wind power plant in Karnataka
• MMTC is setting up a FTW Zone in Noida for which land has been acquired. Another one in Kandla is also expected to come up
• The company is into Gold refining as well as part of a JV.
• MMTC has 50% stake in Neelachal Ispat which is involved in production of Pig Iron.
• MMTC is looking to expand into other commodities as well.

Company Overview:

Minerals Division

MMTC continues to lead India's foray in mineral exports with global success for four decades by redefining standards of global excellence by customer satisfaction worldwide. It continues to be the largest supplier of Iron Ore, handling about 15% of India’s total exports.

MMTC has managed with commendable elan the bulk operations spread across far ? flung areas in the mineral rich states of the country and by exporting minerals from all the major ports of India, thus utilizing the extensive network of infrastructure facilities.

MMTC's drive for excellence is reinforced by its marketing thrust in traditional markets like Japan and S. Korea and Pakistan.
MMTC is the catalyst in developing the Chinese market for Indian Iron Ore.

Precious Metal Division

MMTC’s Precious Metals Division is in to a range of activities covering imports, exports and domestic retail trade. It helps in promoting exports from India by holding exclusive foreign exhibitions of gold and studded jewellery at chosen overseas locations.

MMTC is an authorized agency of the Government of India for import of gold, silver, platinum, palladium, rough diamonds, emeralds, rubies and other semi?precious stones and supplies these items to jewellers in India for domestic sales and exports. It is one of the custodians of the Diamond Plaza Customs Clearance Center in Mumbai. MMTC is also the custodian for import & export of precious
cargo at SEEPZ, SEZ Mumbai.

The company also operates an in?house assaying and hallmarking unit at New Delhi, Jaipur, Ahmedabad and Kolkatta for testing purity of gold and gold articles duly accredited with Bureau of Indian Standards.

MMTC has a unit in New Delhi for manufacturing its own brand of gold and silver medallions since the year 1996. Customized requirements for corporate/institutional orders are serviced from here throughout the year. MMTC has retail jewellery & its own branded Sterling Silverware (Sanchi) showrooms in all the major metro cities of India. MMTC also supplies branded hallmarked gold
and studded jewellery.

Fertilizer Division

MMTC has remained one of the largest institutional buyers of fertilizers across the globe. MMTC has built this unique position through its continued presence for about four decades in the fertilizer arena internationally. MMTC has been successful in building confidence both amongst its suppliers as well as its buyers in India and abroad through its unstinted transparency in dealings and commitments to contractual terms of international trade. MMTC, through these four decades of buying, selling and net?working, has created a strong leverage for itself, benefiting both the suppliers as well as the buyers. It thereby adds value in the supply chain with its reliable sourcing ability. Thus, MMTC remains the single unique window for buying and selling of all fertilizer products globally. We reassure all our valued business associates the most transparent, efficient and effective trading experience in fertilizers.

UFlex Ltd attended our Alibaug Conference, here are the key takeaways.

• Favorable Industry Dynamics: Flexible packaging industry is expected to 20%-25% p.a in India mainly led by increasing middle class, rising income levels and changing consumption patterns. Increased consumption of branded products and quality and convenience based products is expected to improve flexible packaging business.

• Business Segments: The business is predominantly divided into two segments viz. Plastic Film Business and Flexible Packaging Business. The size of the addressable for UFLEX is $3 bn, out of which the Films segment is a $0.5 bn industry whereas the Packaging industry is a $ 3.5 bn industry. The Films industry is a fully organized industry whereas the Packaging industry is largely unorganized.

• Backward Integrated: It is the largest Flexible packaging company in India and the only backward integrated company with capacities in Plastic Films and Packaging Products. It provides end to end flexible
packaging solutions like packaging design and structure, packaging products and packaging equipments.

• Capacity Expansion: UFlex is looking to expand capacities aggressively by FY12 in both Films and Packaging segments. The company intends to ramp up capacity to 263000 TPA (existing 160000 TPA) in the films segment and 75000 TPA (existing 55400 TPA) in the packaging segment.

• Capex: UFlex had laid out an additional capex plan of Rs 1100 crores over the period FY09?FY12 to expand capacities. Out of which Rs 240 crores has already been done, Rs 450 crores is expected to be spent in FY11 and the remaining in FY12.

Favorable Industry Dynamics

The Indian Packaging Industry is close $ 15 billion, but 80% of the same is Rigid Packaging which is the oldest form of packaging whereas 20% is Flexible Packaging. Rigid Packaging constitutes glass bottles, metal cans, aerosol cans, etc.

However given the expanding middle class and rising income levels, the patterns of consumption are bound to change substantially and the demand for quality and convenience?based products will increase. This in turn will encourage the flexible packaging industry.

Increasing penetration of organized retail and greater demand for branded and packed goods would lead to increased demand of flexible packaging business. The entry of multinationals in the retail industry would also help increase in consumption of packing materials with more products sold in packaged form.

Business Segments

The business is predominantly divided into two segments viz. Plastic Film Business and Flexible Packaging Business. The size of the addressable for UFLEX is $3 bn, out of which the Films segment is a $0.5 bn industry whereas the Packaging industry is a $ 3.5 bn industry. The Films industry is a fully organized industry whereas the Packaging industry is largely unorganized. At present UFlex generates close to 43% of its revenues from international business and it is expected to increase going forward as it is expanding its reach in other countries like Mexico and Egypt. An increasing trend which is
emerging is the shift of production facilities from the developed countries to low cost countries like India, China and Thailand to due cost pressures.

Backward Integration

It is the largest Flexible packaging company in India and the only backward integrated company with capacities in Plastic Films and Packaging Products. It provides end to end flexible packaging solutions like packaging design and structure, packaging products and packaging equipments. UFlex operates a higher margin profile as compared to its peers due to its backward integration. UFlex is also leader in innovation flexible packaging which helps them generate improved margins due to offering of specialized value added products. UFlex is one of the 2 companies in the world who invented 3D packing and had even applied for a patent. It has also introduced Zip Pouch packaging for which it has acquired patent as well. The company also manufactures packaging and converting equipment, rollers for flexo printing, shims for holographic embossing, printing ink, adhesives and rotogravure cylinders for various types of rotogravure printing and anilox/ coating and packaging equipment.

Capacity Expansion

UFlex is looking to expand capacities aggressively by FY12 in both Films and Packaging segments. The company intends to ramp up capacity to 263000 TPA (existing 160000 TPA) in the films segment and 75000 TPA (existing 55400 TPA) in the packaging segment. With increased capacity the company will have the benefit of scale and expansion across various geographies. UFlex is aggressively expanding its presence in countries like Mexico, Egypt and it already has presence in Dubai. This move would help the company counter the anti dumping duties levied on exports. Mexico is part of NAFTA and will provide access to North American Markets and Egypt will provide access to GCC, Southern Europe and Africa. Increased revenue from international business will provide higher realizations and higher margins.

Omaxe Ltd attended our Alibuag Conference, here are the key takeaways.

Company Background ? Omaxe Ltd ventured into real estate development in 2001 and since then it has delivered 10.68 mn sq. ft. adding to 17 number of projects – 9 Residential, 2 Integrated Townships & 6 Commercial Projects. It has presence across 30 cities and 9 states in India. It has land bank of 4500 acres representing 164 msf of saleable area.

Key Takeaways
Well?spread land bank of 164 msf ? 93% paid for: Company owns ~4500 acres of land bank spread across 30 cities providing saleable area of 164 msf. With the average land cost of `150 psf; the total cost of land is Rs. 24.6bn; 93% of this is already paid for with balance (towards Government authority) expected to be paid by FY12

Aggressive development plan ? 114 msf by FY15 ? Out of the saleable are of 164 msf, company is developing 114 msf in the first phase with the balance to be developed in future. Of the ongoing 114 msf; company has already sold 50 msf for a total sales value of `72 bn; more than 60% cash is already received and balance is expected to receive over next 2 – 3 years. Total project cost for the ongoing projects is `103 bn of which more than 50% is already incurred

Low inventory for the company ? Most of the projects for Omaxe in Noida, Greater Noida, Faridabad and Lucknow have all been sold out to the extent of 70?75%. Major portion of the projects are at the completion stage which provides them with an edge over their competitors whose projects are still under construction.

Timely execution of the projects ? The company has good execution capabilities, as most of its projects were executed in a period of 3 – 3.5 years. Timely execution leads to a higher demand as compared to peers since it provides with ready possession and there is hardly any waiting period for the customers, which aids in increasing the market visibility of the company.

Demand scenario in Delhi and Lucknow ? The markets at New Delhi and Lucknow are diverse in terms of the product demand by the customers. There is great demand for luxury and super luxury apartments in Delhi, which have an average realization in the range of `. 5,500 – `. 6,000 per sq ft. and with the construction cost being ` 2,000 per sq ft., the EBITDA margins, are higher as compared to that in Lucknow which has an average realization of `1,800 per sq ft. and construction cost of `1,100 per sq ft. where the margins are relatively lower.

Upcoming projects in the pipeline ? Company has planned a Hi?City in Lucknow which will be spread across 2,700 acres. Currently 300 acres are in company’s possession while acquisition for others is in progress. Company plans to develop this phase in 5 – 6 phases of 500 acres each with first phase expected to be started in next 3 – 6 months. The entire project is expected to be developed in next 10 - 12 years.

Strong cement demand and increasing prices has increased profitability of the cement payers because of which they have generated huge free cash flows and has gone for the huge capacity
expansion plans.

• Sector has seen capacity addition of around 55mt in last 2 years – biggest ever capacity addition in 2 years in Indian Cement Industry.

PRESENT:
• As on date, Industry stands at Installed capacity of 275mtpa.
• Cement prices has started coming down from 2nd fortnight of May’2010 due to stabilization of capacities commissioned in last year.
• Major collapsed in prices have seen in Southern region due to huge capacity addition in past 1 year and comparatively lesser demand.
• Nonetheless, Sector was able to hike the prices in few selected marketing areas by Rs.10/bag (like Pune, Gujarat and Mumbai) on Aug 19’2010.
• Currently, on an average cement price in India is hovering around Rs.235/bag.

FUTURE:

Demand Scenario:

• Expecting wooing 10%+ cement demand growth due to (same stated in our Cement Industry Initiating report dated June 04’2010)
1. Continuous focus of the Indian government on Infrastructure
2. Strong Rural Housing demand on account of good monsoon and various government schemes like NREGAS, Indira Vikas Yojana etc.

Capacity Scenario:
• FY’11E to see another 23mt of capacity addition.
• However, pace of capacity expansion to slow down post FY’12 as players who has announced huge expansion plans have not yet acquired any land for the expansion.
• FY’13 is likely to be a year in which demand again will overpass supply.

Pricing Trend:
• Pressure on prices to persist in Q2FY’11 also because of D-S mismatch and monsoon.
• Post Q2FY’11, prices to stabilize.
• However, prices will not be able to see the all time high level of Rs.280/bag.
• Southern region to see more pain in prices due to muted cement demand growth and over?capacity situation.
• In a nutshell, average cement price in FY’11 is likely to come down on y/y basis. (we have also assumed 5% y/y decline in cement prices in FY’11 in our valuation model)

FEW FACTS RELATED TO CEMENT INDUSTRY

• Profitability of the players to take a hit in FY’11 due to lower realizations.
• Consolidation is likely to take place as smaller players will find it difficult to survive in this tough time.
• MNCs are likely to enter the India due to potential growth in Indian Cement Industry
• Alternative mode of transport like Sea Route is expected to develop to minimize the surging freight cost
• Credit period given to dealers is expected to be lengthen KEY ISSUES TO BE DEAL WITH BY CEMENT INDUSTRY
• Logistic issues due to shortfall in railway wagon, increasing freight cost
• Un availability of Skilled labourers
• Shortage of quality coal resulting in higher coal cost
• Land acquisition problems

Planet 41 a Mobile Vas player (unlisted) attended our Alibaug Conference. Here are the key takeaways.

Company Overview:
• Planet?41 offers several value added services suitable both for the mobile operators and content providers.
• The company along with its international partners has developed several products for Mobile 3G networks like Live TV, Video Portal, Video Blog, Video RBT, Video Dating, M?Banking, Video Mail, Video Conferencing, Speech recognition for mobile Video etc to name a few.
• The company is also in the process of setting up a R&D lab to research and develop more 3G enabled content, products and services for mobile and IP networks.

USPs of Planet41:
• Video related services on mobile 3G networks will help service providers to give their customers and unparalleled next generation video experience right on their handsets.
• Planet41 would redefine the mobile frontier by specializing in Mobile Interactive Video Services (IVVR); The Company would provide a complete solution that includes the design, development and deployment of innovative integrated multimedia services, delivered over mobile and broadband networks.
• The company also aggregates rich content for mobile users to increase average revenue per user.

Investment Rationale:

• Strong Industry Outlook: Indian VAS industry is expected to grow at a fast pace esp. because of 3 reasons:

Falling margins in the voice segment pushing the telcos to look for other sources of revenues,

Data services accounting for only 9?10% of revenues expected to increase esp. with 3G spectrum available

Number of subscribers capable of accessing data services increasing rapidly and has crossed 177 million now.

• Strong products to capture the 3G opportunity: Planet41 is a provider of next generation 3G related content and services to mobile and fixed line consumer, telecom operators, broadband operators and enterprises. With 3G spectrum available, Planet41 is in a strong position to capture the 3G opportunity with its wide variety of products in the 3G domain.

The company has products like Live TV, Video Portal, Video Blog, Video RBT, Video Dating, M?Banking, Video Mail, Video Conferencing, Speech recognition for mobile Video which will help it cater to the different customer segments via these products.