Gokaldas Exports: Exit option

The stock is unlikely to perform even after Blackstone's $165 million investment for 50.1 per cent stake.

Shareholders of Gokaldas Exports would do well to exit the stock either through the open offer at Rs 275 per share or in the stock market if the prices touch that level before the open offer commences.

The stock rose 10.3 per cent in Tuesday's trading to close at Rs 252 in the wake of private equity player Blackstone investing $165 million (Rs 677.8 crore) for 50.1 per cent stake and the mandatory 20 per cent open offer.

The stock has been an underperformer in the broader market, although it has outperformed many of its peers in the textile sector. The reasons for the underperformance are mainly the appreciating rupee and also the fact that the US and the EU are soon expected to release extra quotas for China in certain categories of textiles.

Indian companies already face stiff competition from Chinese firms and the situation is unlikely to change. The operating margin which stood at 12 per cent in FY07 is expected to fall to 10.8 per cent in FY08, in the process knocking down the earnings.

It's true that Blackstone, which manages $80 billion worth of assets worldwide, has access to a large number of companies in its portfolio and through these companies, it can help Gokaldas.

For instance, Blackstone may be able to get a big retailer to source products from Gokaldas. It's also true that Blackstone will look for a return of 25-30 per cent over time.

However, it seems unlikely that these benefits will come through very quickly and how profitable these orders will be for Gokaldas remains to be seen.

At Rs 275, the stock would be valued at 15 times FY08 estimated earnings and the valuation does not seem justified for a minority shareholder, in an illiquid stock when the prospects for the textile sector don't appear too bright.

Omax Autos: Lacklustre

Omax Autos, which supplies a range of components to the two-wheeler industry (nearly 85 per cent of its total sales) and four-wheeler industry, reported a lacklustre performance in the June 2007 quarter, due to a decline in its exports on a y-o-y basis, coupled with higher personnel expenses.

As a result, the company's operating profit was more or less flat on a y-o-y basis at Rs 15.56 crore in the last quarter, while its net sales expanded 7.5 per cent to Rs 172.26 crore. Its operating profit margin declined 80 basis points y-o-y to 9 per cent in Q1 FY08.

The company had to grapple with personnel expenses as a percentage of net sales rising 45 basis points y-o-y to 10.2 per cent in the last quarter.

Meanwhile, Omax Autos's domestic sales improved 8.3 per cent y-o-y to Rs 165 crore in the last quarter and analysts say that was due to increased offtake from Hero Honda, coupled with the addition of new clients like TVS Motors. However, the company's exports fell 8.75 per cent y-o-y in the last quarter.

Omax is attempting to reduce its dependence on the two-wheeler segment (currently grappling with sluggish demand conditions) by setting up a manufacturing facility for chassis supply to Tata Motors. At Rs 64.6, the stock trades at about 5 times estimated FY 08 earnings.

California Software :Takeover push

Chemoil's open offer to acquire an additional 20 per cent in California Software (Calsoft) comes as a result of the former increasing its stake in the company through a preferential allotment.

The Singapore-based marine fuel products supplier Chemoil, which held a 29.28 per cent stake in Calsoft, increased its stake to 47 per cent after the preferential issue, and plans to take it to 67 per cent.

With Chemoil in the driving seat, Calsoft, an IT services and product engineering services player, will gain financial muscle. Chemoil had revenues of $4.3 billion in CY06 and net profit of $57.8 million.

According to the management, once Calsoft becomes a subsidiary, it can draw on Chemoil for lines of credit, in case it needs to for financing acquisitions. Like many other software companies, Calsoft too has had a series of small acquisitions.

Its financial performance has not been great""Calsoft's earnings had increased just 7 per cent y-o-y in FY07, as it was not able to successfully turn around one of its earlier acquisitions American HealthNet.

But there has been some improvement in the past two quarters. In the June 2007 quarter, its top line improved by 35 per cent y-o-y. Its consolidated operating profit margin also improved to 9.4 per cent against 7.8 per cent in FY07. After Chemoil increased its stake last week, the stock has appreciated over 17 per cent.

The financial benefits of Chemoil will take some time to come through, but long-term investors will benefit. Otherwise, Rs 100 per share is a good price to exit.

After Chemoil increased its stake last week, the stock has appreciated over 17 per cent. The financial benefits of Chemoil will take some time to come through, but long-term investors will benefit. Otherwise, Rs 100 per share is a good price to exit.

With contributions from Shobhana Subramanian and Amriteshwar Mathur