Concept Consultants

Punj Lloyd Ltd is a diversified in Engineering & Construction services in Oil & Gas, Infrastructure and Petrochemicals, and with interests in Defense, Aviation, Marine and Upstream sectors. The company known for its capabilities in finishing the mega project on time

The company has done projects across the world, the Group continues to provide integrated design, engineering, procurement, and construction and project management services for the energy, infrastructure and petrochemical sectors. From pipelines, tanks and terminals to refineries, power plants to renewable, airports, rail transit systems to expressways, the Group can offer EPC solutions across a wide spectrum of businesses.

The company has recently singed MOU with Thorium Power Ltd, The MOU establishes a framework to explore and identify the strengths of Thorium Power in areas of the deployment of Thorium Power’s nuclear fuel designs in India, Southeast Asia and other territories; to expand consulting activities for the development of nuclear power generation regionally and worldwide; and to pursue the establishment of a joint venture between Thorium Power and Punj Lloyd to best capitalize on the emerging nuclear renaissance. 

In the Q2 FY2009 company got more orders for leading companies like, Qatar petrochemical, GVK Power. The company also won it’s first drilling contract in Libya. The company’s order book stood at more than 21000 crore at end Q2. As per the company statement the 28% of order book is from South Asia and 26% from Middle East, 37% form south East Asia and Asia pacific.

The company announced following numbers in its Sep 2008 (Q2) quarter.

Total revenue of the company have gone up by 53% to Rs2954 crore. The net profit after tax of the company has shown increase of 60% to Rs. 144 crore. The EPS of the company stood Rs. 4.94 for Q2 FY2009 and Rs 8.44 for half year. Also the EBITA of the company has been showing consistent growth to the tune of above 75%.

The company has been trading in the range of 120-140-170 and at current market price the company is trading at around 11 times of last yeas EPS of 12.65 and the company has already reported 8.44 for first two quarter. The stock price of the company had heavy correction along with the entire market, looks good the current market price.

On Technical charts the company made its 52 week High of Rs 656 and low of 127.40, if showing consolidation formation and trading in the range of 130-180 range the stock huge support at 140 levels, Rs 140 has been acting as support when the stock is trading above 140 and as  resistance when the stock is trading below 140. In my view the stock may reach 250-300 range in year’s time. Investors with long term view can invest in this stock.

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Deepak Fertilizer and Petrochemicals, is mainly into production of chemicals which accounts for 66% of its revenues and 87% of its net profits and manufacturing of fertilizers accounting 31.8% of revenues and 11% of Net Profit. The company has recently forayed in the realty sector with the setup of a specialty Mall in Pune, which also generated almost 4 crores of revenues in Sep 08 quarter.

The company in the last quarter has announced a net profit increase of 91% amounting to 41.81 crores and jump of 65% in revenues to 369 crores. The company during the last financial year had touched 1000 crores of revenue for the year and is well on track this year to surpass it by crossing 700 crores of revenue in the first half. The EPS declared for the half year is 9.83 compared to 11.37 declared for FY08.

The company is currently trading at 5 times its last year earnings. At the 52 Week high, the valuation had jumped to 15 times on 6-Jan-2008. With the companies diversification into realty providing it a steady stream of revenue and hopes of a brighter future for its fertilizer business and the drop in prices of raw materials especially Naphtha gives a brighter cost future for the company. The only risk being the downturn in the economy leading to depression in prices and sales. But we expect the company to be better placed to face the uncertain future with its past execution strength, strong management and well planned diversification. The valuation at 4 times is quite attractive considering the high dividend yield of 4%.

Technicals
The company made a 52 week high of 178 on 2-Jan-2008 and a 52 Week low of 40 on 27-Oct-2008. Its all time high was 178 made on 2-Jan-2008. The price has fallen sharply since and is now taking support at 50 levels. It is forming an inverted head and shoulder pattern with potential upside target of 69 in the short term . Once it breaks above the 69 resistance it can move up to 90. On the downside, the stop loss should be placed at 47 which can be broken if there is fresh panic in the markets.

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If one has to go by the amount of pessimism in the market and the mood being really negative and nothing but negative, then going by the past experiences, markets  bottom out when every  one is talking about only down sides ignoring the  fundamentals and the latest financial results.

One more point which may support these levels is the latest results which are not as bad as expected by the market.

At SENSEX level of 21000, we saw the same euphoria where every one was talking about only higher levels for the index, and not looking at the PE, Fundamentals, or results. That’s when market made the TOP.

So will market stop falling at this level of 8000-7600 which is nearly 70% from the peak and show some sideways movement?

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Today Indian central bank, The RBI reduced CRR by 50 basis points to ease liquidity in the market. This measure was undertaken as an ad-hoc measure on a temporary basis. RBI has indicated that it will adopt a proactive policy and continue taking such ad-hoc measure from time to time depending on market conditions. The indian banks were facing tight liquidity crunch and this could have led to a major liquidity crisis hence all banks have welcomed this move and called for another 50 basis point drop. HDFC Bank chairman Mr. Deepak Parekh while welcoming this move said that this action was long overdue and infact should have been taken on last friday itself.

The RBI will hold a meeting at the end of this month where further actions are expected, this move is only expected to have an effect on overnight call rates and lending deposit rates will not be affected.

The above said action will come into effect from 11 Oct 2008 and will result in a liquidity release of 20,000 crores. Watch out for Banking stocks in tomorrow’s trading session.

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A candlestick chart is a style of bar-chart used primarily to describe price movements of an equity over time.

It is a combination of a line-chart and a bar-chart, in that each bar represents the range of price movement over a given time interval. It is most often used in technical analysis of equity and currency price patterns.

History
Candlestick charts are said to have been developed in the 18th century by legendary Japanese rice trader Munehisa Honma. The charts gave Honma and others an overview of open, high, low, and close market prices over a certain period. This style of charting is very popular due to the level of ease in reading and understanding the graphs. Since the 17th century, there has been a lot of effort to relate chart patterns to the likely future behavior of a market. This method of charting prices proved to be particularly interesting, due to the ability to display four data points instead of one. The Japanese rice traders also found that the resulting charts would provide a fairly reliable tool to predict future demand.

Candlestick Layout
Candlesticks are usually composed of the body (black or white), an upper and a lower shadow (wick). The wick illustrates the highest and lowest traded prices of a stock, and the body the opening and closing trades. If the stock went up, the body is white, with the opening price at the bottom of the body and the closing price at the top. If the stock went down, the body is black, with the opening price at the top and the closing price at the bottom. A candlestick need not have either a body or a wick.

Patterns:
There are multiple forms of candlestick chart patterns, with the simplest depicted at right. Here is a quick overview of their names:

1. White candlestick - signals uptrend movement (those occur in different lengths; the longer the body, the more significant the price change)
2. Black candlestick - signals downtrend movement (those occur in different lengths; the longer the body, the more significant the price change)
3. Long lower shadow - bullish signal (the lower wick must be at least the body’s size; the longer the lower wick, the more reliable the signal)
4. Long upper shadow - bearish signal (the upper wick must be at least the body’s size; the longer the upper wick, the more reliable the signal)
5. Hammer - a bullish pattern during a downtrend (long lower wick and small or no body); Shaven head - a bullish pattern during a downtrend & a bearish pattern during an uptrend (no upper wick); Hanging man - bearish pattern during an uptrend (long lower wick, small or no body; wick has the multiple length of the body.
6. Inverted hammer - signals bottom reversal, however confirmation must be obtained from next trade (may be either a white or black body); Shaven bottom - signaling bottom reversal, however confirmation must be obtained from next trade (no lower wick); Shooting star - a bearish pattern during an uptrend (small body, long upper wick, small or no lower wick)
7. Spinning top white - neutral pattern, meaningful in combination with other candlestick patterns
8. Spinning top black - neutral pattern, meaningful in combination with other candlestick patterns
9. Doji - neutral pattern, meaningful in combination with other candlestick patterns
10. Long legged doji - signals a top reversal
11. Dragonfly doji - signals trend reversal (no upper wick, long lower wick)
12. Gravestone doji - signals trend reversal (no lower wick, long upper wick)
13. Marubozu white - dominant bullish trades, continued bullish trend (no upper, no lower wick)
14. Marubozu black - dominant bearish trades, continued bearish trend (no upper, no lower wick)

Use of Candlestick charts:
Candlestick charts are a visual aid for decision making in stock, forex, commodity and options trading. For example, when the bar is white and high relative to other time periods, it means buyers are very bullish. The opposite is true for a black bar.

Technical Analysis

Dow Theory is a theory on stock price movements that provides a basis for technical analysis. The theory was derived from Wall Street Journal and co-founder of Dow Jones and Company.

The six basic tenets of Dow Theory can be summarized as below:

1. Markets have three trends
Dow defined an uptrend (trend 1) as a time when successive rallies in a security price close at levels higher than those achieved in previous rallies and when lows occur at levels higher than previous lows. Downtrends (trend 2) occur when markets make lower lows and lower highs. It is this concept of Dow Theory that provides the basis of technical analysis’ definition of a price trend. Dow described what he saw as a recurring theme in the market: that prices would move sharply in one direction, recede briefly in the opposite direction, and then continue in their original direction (trend 3).

2. Trends have three phases
Dow Theory asserts that major market trends are composed of three phases: an accumulation phase, a public participation phase, and a distribution phase. The accumulation phase (phase 1) is when investors “in the know” are actively buying (selling) stock against the general opinion of the market. During this phase, the stock price does not change much because these investors are in the minority absorbing (releasing) stock that the market at large is supplying (demanding). Eventually, the market catches on to these astute investors and a rapid price change occurs (phase 2). This is when trend followers and other technically oriented investors participate. This phase continues until rampant speculation occurs. At this point, the astute investors begin to distribute their holdings to the market (phase 3).

3. The stock market discounts all news
Stock prices quickly incorporate new information as soon as it becomes available. Once news is released, stock prices will change to reflect this new information. On this point, Dow Theory agrees with one of the premises of the efficient market hypothesis.

4. Stock market averages must confirm each other
In Dow’s time, the US was a growing industrial power. The US had population centers but factories were scattered throughout the country. Factories had to ship their goods to market, usually by rail. Dow’s first stock averages were an index of industrial (manufacturing) companies and rail companies. To Dow, a bull market in industrials could not occur unless the railway average rallied as well, usually first. According to this logic, if manufacturers’ profits are rising, it follows that they are producing more. If they produce more, then they have to ship more goods to consumers. Hence, if an investor is looking for signs of health in manufacturers, he or she should look at the performance of the companies that ship the output of them to market, the railroads. The two averages should be moving in the same direction. When the performance of the averages diverge, it is a warning that change is in the air.

5. Trends are confirmed by volume
Dow believed that volume confirmed price trends. When prices move on low volume, there could be many different explanations why. An overly aggressive seller could be present for example. But when price movements are accompanied by high volume, Dow believed this represented the “true” market view. If many participants are active in a particular security, and the price moves significantly in one direction, Dow maintained that this was the direction in which the market anticipated continued movement. To him, it was a signal that a trend is developing.

6. Trends exist until definitive signals prove that they have ended
Dow believed that trends existed despite “market noise”. Markets might temporarily move in the direction opposite the trend, but they will soon resume the prior move. The trend should be given the benefit of the doubt during these reversals. Determining whether a reversal is the start of a new trend or a temporary movement in the current trend is not easy. Dow Theorists often disagree in this determination. Technical analysis tools attempt to clarify this but they can be interpreted differently by different investors.

Technical Analysis

The principles of technical analysis derive from the observation of financial markets over hundreds of years. The oldest known example of technical analysis was a method used by Japanese traders as early as the 18th century, which evolved into the use of candlestick techniques, and is today a main charting tool. Dow Theory is based on the collected writings of Dow Jones co-founder and editor Charles Dow, and inspired the use and development of modern technical analysis from the end of the 19th century. Modern technical analysis considers Dow Theory its cornerstone. Many more technical tools and theories have been developed and enhanced in recent decades, with an increasing emphasis on computer-assisted techniques.

There are several schools of technical analysis. Adherents of different schools (for example, candlestick charting, Dow Theory, and Elliott wave theory) may ignore the other approaches, yet many traders combine elements from more than one school.

Technical Analysis

Technical analysis is the study of past financial market data, primarily through the use of charts, to forecast price trends and make investment decisions.

In its purest form, technical analysis considers only the actual price behavior of the market or instrument, based on the premise that price reflects all relevant factors before an investor becomes aware of them through other channels. Technical analysis is widely used among traders and financial professionals, and some studies say its use is more widespread than is “fundamental” analysis in the foreign exchange market Academics such as Eugene Fama say the evidence for technical analysis is sparse and is refuted by the efficient market hypothesis, yet some Federal Reserve and academic studies include evidence that supports technical analysis.

Technical analysts (or technicians) identify non-random price patterns and trends in financial markets and attempt to exploit and understand those patterns. While technicians use various methods and tools, the study of price charts is primary. Technicians especially search for common patterns, such as the well-known head and shoulders reversal pattern, and also study such indicators as price, volume, and moving averages of the price. Many technical analysts also follow indicators of investor psychology (market sentiment). There are several schools of technical analysis. Adherents of different schools (for example, candlestick charting, Dow Theory, and Elliott wave theory) may ignore the other approaches, yet many traders combine elements from more than one school.

Technical analysts use judgment gained from experience to decide which pattern a particular instrument reflects at a given time, and what the interpretation of that pattern should be. Technical analysts may disagree among themselves over the interpretation of a given chart.

Technical Analysis