FSL Ltd ...cmp..Rs 18.15..CASE STUDY

Friends,
Ashok Mahajan asked me about FSL Ltd and I am pasting his post here and the answer for it will be below it......
Read On:


ashok mahajan said...



Rajiv ji

please send your view on FSL.i receive a report in my mailbox


Barclays to drive Q3 revenue growth
Stake sale: The probability of stake sale by ICICI Group along with two other large institutions – Temasek's Aranda Investments and Metavante Investments – has been an equity overhang on the stock. ICICI Group, Temasek and Metavante currently own 21.2%, 20.04 and 18.2% respectively in FSOL. Since the listing of FSOL, Temasek diluted its stake by a little over 2%. ICICI Group brought down its stake from 26.74% in March 2009 to 21.2% at present.


FCCBs: FSOL currently has outstanding FCCBs of US$ 212.4 mn with maturity of Dec 2012. As the current stock price is much lower than the conversion price of Rs 92.3, we have assumed that the FCCBs will not be converted into equity. Hence, FSOL will need US$ 296 mn to repay these FCCBs in 2012. FSOL currently generates cash of US$ 40 mn every fiscal and it will have cash of US$ 75 mn by end-3QFY11E. This means that the company will have US$ 150 mn of cash on its books by Dec 2012. The management seems confident about refinancing the balance amount of ~US$ 150mn.


Valuation: FSOL to achieve 2-3% QoQ revenue growth in constant currency. This would be largely led by revenue from the Barclays project, which kicked off last month. EBIT margins are likely to see an impact of 60-70 bps for the quarter as a result of ramp-up costs associated with the Barclays project and due to fewer working days.


FCCBs as debt and our adjusted EPS estimates for FY11/12 are largely unchanged at Rs 2.15/Rs 2.92. We maintain our Outperformer rating on the stock.


February 21, 2011 5:56 PM


 
My Answer:
 
ashok,

First thing I do not like about FSL is HUGE eq. 430 cr Eq  is HUGE.
Now just take an example.For this Co to post an eps of 10, it will have to earn 430 cr as Net Profit.
Now try to think, with the orders of even Barclays bank also, will FSL be able to earn NP of 430 cr for whole year or even 215 cr for whole year?
So that the eps comes to 10 if it earns 430 cr and eps comes to 5 if it earns NP of 215 cr....
Remember here that FSL is making profit of 20-22 cr every qr now and if it wants to makes 430 cr for whole year then the profit should be atleast 100 cr every qr and that will be 5 times from what it is making.Is that possible?That means that the growth will be 500% in one year?Can it be possible?
Ask question to yourself?Think over it.Ye ho sakta hai?Pucho apne ap ko.......aur phir invest karo....
Friends, the reason I write this on front page is I want all of you to know how to analyse things at stock market.
These are simple parametres that I have written.But investors forget the basics time and again and get carried away with a call or tip from friend.
I don't say one should not listen to them.Listen to them but before buying do your homework and that is also not hard.One need to follow the basics which I have written here.
Under no circumstances the FCCB will get converted at 93.They will have to pay back the FCCB money just like Venus Remedies has to.
And remember here that Venus Remedies is having an EPS of 50 and stock quoting at 216 , means available at below 5p/e......then imagine what can happen with FSL Ltd if they have to payback the FCCB money?
  Usually, when a brokerage house comes out with a report their clients has already had bought those stock way ahead and then when the report comes out it is their PMS clients time to sell.
Another thing we need to remember is that, any FII's Co report or any brokerage Co report , when one read one needs to remember that they are for 20-30% return in a year that is the maximum while here at my blog I talk of multibagger return.
Don't get carried away with research report from brokerage.....rest your decision....you all are very smarter then me......