Jubilant Organosys has entered into a new agreement with Syngenta for the supply of pyridines, which starts from early 2008 and is valid up to five years. Analysts highlight that they estimate Jubilant's margins from the deal at about 30 per cent, as the key input, molasses has seen a sharp dip over the last few months. |
In contrast, other manufacturers of pyridines are understood to be using inputs derived from crude oil and it has resulted in their margins hovering at about 12-15 per cent. Pyridines are used in the manufacture of active pharmaceutical intermediates and agrochemicals. |
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Jubilant was already a supplier to Syngenta for pyridines, prior to this multi-year deal announcement. Clearly, this agreement is well timed, given Jubilant's recently expanded its capacity for pyridines and picolines to 42,000 tonne a year compared with 28,000 tonne a year in FY06. The Jubilant stock rose 5.5 per cent to Rs 307 on Wednesday. |
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The supplies of pyridines and their derivatives form a part of Jubilant's custom research and manufacturing services segment (Crams). Crams accounted for over 60 per cent of Jubilant's revenues in its pharmaceuticals and life science products and services division in FY07 or approximately Rs 632 crore. |
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Earlier, Jubilant had acquired US-based Hollister-Stier Laboratories, and it had given the company an entry into the high-growth contract injectables. This acquisition coupled with a tight check on operating costs helped Jubilant's consolidated operating profit margin expand 1,510 basis points y-o-y to 34.2 per cent in the June 2007 quarter. At Rs 307, the stock trades at a reasonable 16 times estimated FY08 earnings, given its growth potential. |
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Tata Investment: Undervalued |
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Tata Investment Corporation's open offer at Rs 600 per share is at a 37 per cent premium to the Sebi formula for such offers or a 33 per cent premium to the prevailing market price on the day the offer was announced. But look at the underlying value of its holdings and the open offer price is at a discount to the intrinsic value. |
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Tata Investment Corporation is an investment company, which has substantial holdings in group companies. The market value of its quoted investment portfolio was at Rs 2310 crore on September 18, 2007 assuming that there is no change in its investments since March 2007. The market value of its investments in 13 group companies was nearly Rs 1,400 crore on September 18 or around Rs 670 per share. Of this, its holdings in Tata Chemicals (Rs 426 crore), Tata Tea (Rs 229 crore) and Tata Steel (Rs 192 crore) are substantial. The rest of its holdings are invested in other blue chip companies. This is just the quoted part. |
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Besides, it had investments in mutual funds and unquoted securities of Rs 365 crore (at cost) at the end of FY07, which works out to an additional Rs 106 per share. Thus, the offer is at nearly 30 per cent discount to the investment value. And, this does not include the market value of its holdings in unlisted companies such as Tata Sons, Tata Teleservices, Tata Autocomp and the mutual fund business. |
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With this open offer, the Tata group wants to increase its stake in the company to 89 per cent and keep the company listed. Typically, holding companies and investment companies have traded at a discount to the market value of investments, and after the open offer, the stock price should come back to lower levels from the current Rs 580. |
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Thus, it makes sense for short-term investors to exit through the offer. Investors, who have the capacity to stay for the long-term, could continue holding the stock as they will stand to gain from value unlocking in companies such as Tata Teleservices and Taco as well, which should get listed eventually. |
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