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SYNOPSIS

We initiated coverage of Swan Energy Ltd & set a target price of Rs.390.00 for Medium term to Long term Investment.

Swan Energy Limited (SEL), a 100 year old company listed on Mumbai Stock Exchange with a market capitalisation of ~Rs 11.29bn.

Owned and managed by Dave and Merchant families who took over the company from J.P Goenka Group in 1990.

SEL, originally in textile business had discontinued Textile Operations in 2002 as a strategic move to convert all its premises into Lucrative Real Estate projects considering their prime location in the heart of Mumbai City.

SEL with large area of land available, ventured into property development in 2005.

To futher diversify its operations, SEL

has ventured into Energy sector and is

setting up a 3 MMTPA LNG Floating

Storage & Regasification unit (FSRU)

and has plans to increase the capacity

to 10 MMTPA in a phased manner.

Stock Data: 

Sector: Construction &

Energy Face Value Rs. 2.00 52 wk. High/Low (Rs.) 119.40/56.00 Volume (2 wk. Avg.) 314000 BSE Code 503310 Reuters Code SWAN.BO Bloomberg Code SWAN:IN Market Cap (Rs.In mn) 11290.75 Share Holding Pattern

 

1 Year Comparative Graph

BSE SENSEX Swan Energy Ltd

C.M.P: Rs. 118.85 Target Price: Rs. 390.00 Date: April 3rd, 2012 BUY

Swan Energy Ltd Detailed Research Report

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SYNOPSIS

SEL is currently engaged in developing real estate projects in prime locations of

Mumbai, with total saleable area of 1.78 mn sq. ft in Kurla (IT park) and Sewri

(residential complex) in alliance with Piramal Group (Piramal Holdings), now known as

Peninsula Land Ltd.

Cash flows from Real Estate Development planned to be used for new business of FSRU projects and Infrastructure.

SEL has plans to use gas based power generation owned by it for merchant sale by

leveraging gas availability from FSRU.

The company has plans to develop more FSRU projects at different locations along

coastline.

The company wants to leverage FSRU gas availability and strategic relationships with

GSPC, BPCL and HPCL to develop gas market for automotive applications.

The company has set up a state-of-art-textile Process House at Ahmedabad, Gujarat.

The plant has been built on a 4 acre plot with an installed production capacity of 1.25

lakhs meters per day. The company has imported state-of-art machineries for the

plant from Germany, Belgium, Italy and Austria.

SEL has initiated the process for ISO 9001: 2008, Oekotex 100 and GOTS certification

for textile business.

During the quarter ended 31st December 2011, the company posted robust growth in

Net Operating Revenue and the same is increased by 50.33% to Rs. 275.07 million.

 

 

 

 

 

 

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Investment Highlights

Sustainable ENERGY for growth:

Real estate business – Company’s Turnaround Factor:

Swan Energy (SEL) would see a terrific upmove in growth trajectory of its revenues and

earnings on the back of revenue generation from Real estate business, which is at

inflection point with the impending completion of its major real estate projects in the

near term to generate strong cash flows in FY13.

SEL has mills located at Sewri and Kurla, where the company has under taken real

estate development. The company’s two projects , namely Ashoka Gardens ( residential

project) and Peninsula Technopark (commercial property) are nearing completion

having total saleable area of 1.78mn sq. ft.The company has appointed reputed

developer M/s Peninsula Land as the project manager for both the projects.

A commercial IT park ‘Peninsula Technopark’ at Kurla consisting of 4 buildings with

0.88mn sq. ft. of saleable area. The construction work of 3 buildings have been

completed and for remaining 1 building it is at the advanced stage and is expected to

be completed by June 12.

A residential complex ‘Ashok Gardens’ at Sewri consisting of 2 towers of 23 floors, each

housing 3 wings with 0.90 mn sq. ft. of saleable area, have nearly been completed and

is ready for possession.

Proposed development of plot in Goa and Mysore

SEL had acquired 104 acre plot in 2009 to develop an IT SEZ and had obtained

necessary permission from the state of Goa, but due to change in government policies

all SEZ projects have been de-notified. Since SEL had acquired the plot from a private

seller, the company now plans to develop the same in to a mix of residential and

hospitality projects.

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The possible developable area under this project is ~ 4.5 million square feet. Though

the project is at an nascent stage, we have not factored the same in our estimates, but

we believe that the project has strong potential owing to the locational advantage as

the plot is situated near to the proposed airport. SEL is also in negotiation to jointly

develop a residential project with 187 acre plot of land in Mysore. The company is

planning to jointly develop the Mysore plot in to residential bungalows.

Completion of scheduled real estate projects to generate strong cash flows

SEL’s is expected to see an accelerated growth in revenues and profitability in FY13 on

the back of completion of real estate projects. The improved financial performance

would generate strong cash flows in the near term which would enable SEL to fuel the

funding of its growth plans in existing real estate business and lucrative new business

segment of energy and ports.

Deployment of real estate cash flows into energy generation activities:

The company has formulated plans to deploy the cash flows that are generated from its

real estate activities into energy generation activities.

SEL’s foray into newer lucrative business segment of Floating storage cum

regasification unit (FSRU) and development of ports which would provide sustainable

revenue and earnings growth for the company going ahead.

Entry into FSRU and high margin port business with margin in the range of 65%-

70% would provide stability of revenues and fuel growth in profitability.

Investment in Floating storage cum regasification unit (FSRU) Project

SEL is investing in a Floating storage cum regasification unit (FSRU) to leverage

opportunity in the LNG business segment. The key objectives of the FSRU project are

to provide LNG import facilities in the quickest possible time and provide regasification

at competitive rates.

The FSRU project would provide a stable new revenue stream for SEL.

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The Beautiful Swan: Textile business to leverage on ‘Swan’ brand name:

SEL has set up a State of the Art – Fabric Processing Unit in Narol, Ahmedabad with a

capacity to process 1.25 lacs meters per day. A continuous processing plant set up

with the machines from Germany, Italy, Belgium and Austria. The project has been

sanctioned under Technology Upgradation Funds (TUFS), which would keep the cost of

debt at a relatively lower level owing to interest subsidy provided by the Government of

India. SEL commenced the processing unit in the year 2011-12.

The revenue and profitability growth are also expected to be strengthened from the

commissioning of its textile processing unit in Narol at Ahmedabad, which would

leverage on its strong brand image of ‘Swan’, which has been in existence since last

100 years.

“Swan” is a household name as its products catered to the needs of men, women and

children, namely Dhotis, Sarees, Dress Materials & Suitings/Shirtings of fine & Super-

fine qualities from natural & synthetic fibers, cotton, polyester, viscose, nylon etc.

With multiple triggers for growth, SEL is on the road to a sustainable growth in

revenue and earnings over the next five years.

Visibility of revenue from business streams other than real estate is going to be a

crucial key growth driver:

SEL is generating small amount of revenue from its textile trading business, and real

estate business is currently giving excellent cash flows. However, we believe this will

fetch cash flows only till the revenues from said real estate projects are accounted for.

Company’s investment in FSRU will fetch revenues in next 1-2 years once the project is

commissioned and fully operational.

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Key Financials:

Particulars FY10 FY11 FY12E FY13E Revenue 5372.91 4093.57 1963.97 10948.23 Rev.Growth (%) -23.81 -52.02 457.45 EBIDTA 568.01 794.56 1012.59 4415.34 EBITDA Margin (%) 10.57 19.41 51.56 40.33 Profit Before Tax 546.34 679.94 684.63 3462.19 PBT Margin (%) 10.17 16.61 34.86 31.62 Net Profit 389.01 438.17 472.19 2312.13 PAT Margin (%) 7.24 10.70 24.04 21.12 No. of Shares(in Millions) 95 95 95 95 EPS (INR) 4.09 4.61 4.97 24.34 EPS Growth (%) 22.97 12.64 7.76 389.66 P/E Ratio (x) 29.04 25.78 23.92 4.89 EV/Sales (x) 2.10 2.76 5.75 1.03 EV/EBITDA (x) 19.89 14.22 11.16 2.56 ROE (%) 31.58 26.59 22.27 52.17 ROCE (%) 7.50 9.67 5.79 26.85 Book Value (Rs.) 12.97 17.35 22.32 46.65 P/BV 9.17 6.85 5.33 2.55 Debt Equity Ratio (x) 3.21 1.74 2.84 0.94

(Unless stated otherwise all figures are in Rs. mn)

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Valuation Conclusion:

Income from real estate projects would lead to cashflow generation and stupendous jump

in revenues and earning in FY13. We have not factored earnings from the FSRU and port

segment as these businesses are at a nascent stage and post commissioning would provide

an upside to our estimates.

SEL’s FY13 earnings are expected to increase five-fold from an EPS of Rs 4.97 in FY12E to

Rs 24.34 in FY13E. With such strong earnings growth over the next financial year and

investments in sunrise business segments, we expect the stock to get re-rated as the

market has yet to factor the strong earnings growth and potential earnings from planned

investments.

SEL appears to be trading at very cheap valuations of 4.89x its FY13E earnings of Rs

24.34 and 1.03x on FY13 mcap/sales basis. We expect the stock to get re-rated and give a

valuation of the stock at 16x FY13E earnings with a target price of Rs 390 providing strong

upside to the current market price.

In a Nutshell:

We expect the EPS to rise five-fold from Rs 4.97 in FY12E to Rs 24.34 in FY13E.

Accelerated earnings growth in FY13 would lead to significant re-rating of the stock

as it appears to be trading at very attractive valuations of 4.89x FY13E earnings of

Rs 24.34.

On the basis of EV/Sales, the stock trades at 5.75 x for FY12E and 1.03 x for

FY13E.

On the basis of EV/EBITDA, the stock trades at 11.16 x for FY12E and 2.56 x for

FY13E.

Price to Book Value of the stock is expected to be at 5.33 x and 2.55 x respectively

for FY12E and FY13E.

We expect that the company will keep its growth story in the coming quarters also.

We recommend a strong ‘BUY’ in this particular scrip with a target price of Rs.390

for Medium term to Long term investment.

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Financial Update:

Nine Months Performance:

Nine Months Results Update as at Q3 FY12:

Swan Energy Ltd has reported net operating revenue of Rs 772.99 million for the nine

months ended on December 31, 2011 as against Rs 428.35 million in the same period last

year, a rise of 80.46%. It has reported net profit of Rs. 83.80 million for the nine months

ended on December 31, 2011 as against Rs. 66.25 million in the same period last year, an

increase of 26.49%. It reported earnings of Rs.0.88 per share.

Quarterly Results - (Rs in mn)

As At Q3FY12 9 months

Q3FY11 9 months

YoY %

change Net Operating Revenue 772.99 428.35 80.46

EBIDTA 170.29 69.95 143.45

PBT 83.80 66.25 26.49

PAT 83.80 66.25 26.49

Basic EPS 0.88 0.70 25.71

Segmental Revenue:

During the quarter, On YoY basis the textile revenues increased significantly from

Rs.377.56 mn in nine months ended at 31.12.2010 to Rs.420.87mn in the nine months

ended as at Q3 FY12, i.e., an increase of 10.29%, whereas the revenues from the

construction segment increased significantly by 85.58% to Rs.352.11 mn. During the year,

net capital employed in the textile segment and construction segment increased by 22.62%

and 36.70% respectively.

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(Rs in mn)

Segment wise Revenue

Segmental Revenue (9 months ended as at)

Capital Employed (9 months ended as at)

Segmental Revenue Q3 FY12

Q3 FY 11

% Growth

Q3 FY12

Q3 FY 11

% Growth

Textile 420.87 377.56 10.29

372.62 303.87 22.62

Construction 352.11 50.78 85.58

1359.03 994.14 36.70

• Break up of Expenditure(9months)

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Quarterly Performance:

• Q3 FY12 Results Update

Swan Energy Ltd has reported net operating revenue of Rs 275.07 million for the

quarter ended on December 31, 2011 as against Rs 182.98 million in the same quarter

last year, a rise of 50.33%. It has reported net profit of Rs. 25.17 million for the quarter

ended on December 31, 2011 as against Rs. 18.82 million in the same quarter last

year, an increase of 33.74%. It reported earnings of Rs.0.26 per share.

Quarterly Results - (Rs in mn)

As At Q3FY12 3 months

Q3FY11 3 months

YoY %

change Net Operating Revenue 275.07 182.98  50.33

EBIDTA 45.82 20.02  128.87

PBT 25.17 18.82  33.74

PAT 25.17 18.82  33.74

Basic EPS 0.26 0.20  30.00

• Segmental Revenue:

During the quarter, On YoY basis the textile revenues increased significantly from

Rs.149.20 mn in Q3 FY11 to Rs.168.61 mn in Q3 FY12, i.e., an increase of 11.51%,

whereas the revenues from the construction segment increased significantly by 68.28%

to Rs.106.45 mn. During the year, net capital employed in the textile segment and

construction segment increased by 22.62% and 36.70% respectively.

(Rs in mn)

Segment wise Revenue

Segmental Revenue

Capital Employed

Segmental Revenue Q3 FY12

Q3 FY 11

% Growth

Q3 FY12

Q3 FY 11

% Growth

Textile 168.61 149.2 11.51 372.62 303.87 22.62 Construction 106.45 33.77 68.28 1359.03 994.14 36.70

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• Break up of Expenditure

• Segment Revenue

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Profitability Projections (Rs in mn):

Financials FY10 FY11 FY12E FY13E Net Sales / Income from Operations 5348.04 4031.06 1902.26 10883.44 Other Operating Income 24.87 62.51 61.71 64.79 Revenues 5372.91 4093.57 1963.97 10948.23 Expenses 4804.90 3299.02 951.38 6532.89 EBIDTA 568.01 794.56 1012.59 4415.34 EBIDTA (%) 10.57 19.41 51.56 40.33 Interest 19.01 98.99 285.87 908.95 Depreciation 2.66 15.63 42.09 44.20 PBT 546.34 679.94 684.63 3462.19 Tax 157.33 241.77 212.44 1150.06 PAT 389.01 438.17 472.19 2312.13 Equity 190.00 190.00 190.00 190.00 F.V 2.00 2.00 2.00 2.00 EPS (INR) 4.09 4.61 4.97 24.34 CMP 118.90 118.90 PE 23.92 4.89

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Balance Sheet: (Rs in mn)

Particulars (Rs.in.mn) FY10 FY11 FY12E FY13E Equity share capital 190.00 190.00 190.00 190.00 Reserves & Surplus 1041.76 1457.85 1930.04 4242.17 Net worth 1231.76 1647.85 2120.04 4432.17 Secured loans 2381.95 1738.43 1624.74 1159.68 LIC Loan 1000.00 1500.00 J&K Loan 1500.00 Loan funds 2381.95 1738.43 2624.74 2659.68 Project Advances 1570.84 1125.30 3387.30 Net Deferred Tax Liability 2.44 18.34 18.34 18.34 Total Liabilities 5186.99 4529.92 8150.42 8610.19 Gross block 338.07 1050.41 2455.67 2901.21 Less: Depreciation 15.27 29.96 72.05 116.25 Net Block 322.80 1020.45 2383.62 2784.96 Capital work in Progress 397.87 0.00 2148.10 906.50 Investments 2132.06 1373.11 1820.61 1003.11 Net Current Assets Current Assets, Loans & Advances 4368.19 2775.87 3012.57 4033.62 Less: Current Liabilities & Provisions 2033.93 639.51 1214.48 118.00 Net Current assets 2334.26 2136.36 1798.09 3915.62 Total Assets 5186.99 4529.92 8150.42 8610.19

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Charts:

Net Operating Revenue & PAT

P/E Ratio(x)

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EV/EBITDA(x)

Debt Equity Ratio

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P/BV

COMPANY BACKGROUND

Swan Energy Ltd. originally incorporated in 1909 as Swan Mills Ltd a manufacturer and

marketer of cotton and polyester textile products in India was taken over by the Dave &

Merchant family from the J.P.Goenka group in 1990 and changed its name to Swan

Energy Ltd (SEL) in December, 2008.

SEL is a diversified player with interests in Energy, Real Estate & Textile sector. The

company's core business includes trading of fabric & development of properties. The textile

manufacturing business was completely stopped in 2002 and the company with its large

area of land available in the heart of Mumbai had ventured into property development in

2004 with a tie up agreement with Peninsula Land Ltd for various real estate activities

including development of its mill land in Mumbai.

SEL is currently developing 2 property projects in Mumbai with total saleable area of 1.78

mn sqft in Kurla (IT park) and Sewri (residential complex) in alliance with Piramal Group

Piramal Holdings), now known as Peninsula Land Ltd.

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The construction work at Kurla & Sewri for Residential & Commercial projects are about

to end in the current fiscal, while it has acquired land in Goa for further development.

The company has formulated plans to deploy the cash flows that are generated from its

real estate activities into energy based projects.

SEL has re-started its textile manufacturing activity, with the vision leveraging on its

successful brand image, to cater to the booming demand of Indian textiles from global

players by setting up a textile unit at Ahmedabad in Gujarat.

Mr. Navinbhai Dave is the non executive chairman of the company. The board comprises

of 9 members, of which 5 are the non executive independent directors. Mr. Nikhil

Merchant, the Managing Director and Mr. Paresh Merchant, the executive director, have

been associated with the company for more than 16 years. The majority of other directors

have experience of more than 30 years in varied fields.

BOARD OF DIRECTORS & KEY MANAGEMENT PERSONNEL:

Name Designation Profile

Navinbhai Dave Chairman • First Indian to be conferred with ‘Coat of Arms’ by British Queen Elizabeth II in ’94.

• Conferred with Distinguished Honorary Alumni of the University of South Carolina Aiken in 2000.

Nikhil V Merchant Managing

Director

• Widespread experience in several sectors of the Indian economy.

• BS in Textile Engineering from the Philadelphia College of Textiles and Science; and completed Management Education Programme from IIM Ahmedabad.

Paresh V Merchant Executive

Director

• Associated with SEL for last 16 years and responsible for its operations and the business activities of the group companies

• Commerce Graduate and certified with Management Education Programme from IIM Ahmedabad

Shobhan Diwanji Director • Over 30 years of rich experience in financing and structuring.

• B.A in Economics from the university of Mumbai and MBA in Finance from University of Rochester,

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NY, USA. • Associated as Director, Capital Market Group,

Lazard India and as Senior Consultant with Tata Economic Consultancy services.

P. S. Teckchandani Director • Over 45 years of experience in the Oil & Gas industry.

• Worked with Indian Oil Corporation (IOC) for 30 years and then with Essar Oil as the CEO of the refinery project at Jamnagar and whole time Director of Essar.

P. Suvaganam Director • Over 36 years of experience in the Oil industry • Was associated with IOC for 33 years, involved in

international financing, reporting, risk identification and management of JV and subsidiary companies.

R.K.Sukhdevsinhji Director • Over 50 years of rich experience in all functional areas related to the Oil and Gas Sector.

• Graduate in Economics. • Ex- Chairman & MD of BPCL, EX-MD of Essar oil

Limited.

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Business Overview:

The traditional business of the company includes trading of fabric and has recently

forayed into the energy sector. The company is developing LNG regasification unit in

Pipavav, Gujarat with a capacity of 4.5 mmtpa and it has also acquired 99.98% interest in

Cardinal Energy & Infrastructure Pvt. Ltd.

Energy:

Swan Energy Ltd (SEL) is an emerging energy company committed to following a

sustainable growth path. Led by a powerful vision, the company continues to look beyond

traditional power sources for a lower carbon energy future. SEL has in place a strong

pipeline of innovative energy projects offering exposure to vast growth opportunities in the

Indian energy sector.

Earlier known as Swan Mills Ltd, it has changed its name to Swan Energy Ltd in order to

focus itself towards Indian energy sector.

LNG Floating Storage & Regasification Unit (FSRU):

SEL is investing in a Floating storage cum regasification unit (FSRU) to leverage

opportunity in the LNG business segment.

• The Company is developing LNG regasification unit in Pipavav, Gujarat with a

capacity of 3 MMTPA of LNG imports to ensure adequate availability of gas in

required time frame.

• The unit would provide regasification facilities at a cost which is competitive to

current cost being charged at existing terminal of Petronet.

• The detailed project report (DPR) has been submitted for approval and the company

is planning to invite EPC bids for planned port facilities.

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• Term sheets / MOU’s have been signed with off takers/major oil companies.

• Agreements / Contracts with LNG suppliers are under finalization. Detailed

discussions are in process with all potential FSRU suppliers.

Floating Storage & Regasification Unit (FSRU) Project Parameters:

SSrr.. PPaarraammeetteerr BBrrooaadd DDeettaaiillss

11 CCaappaacciittyy 33MMMMTTPPAA ooff LLNNGG.. EExxppaannssiioonn 1100MMMMTTPPAA

22 LLooccaattiioonn PPiippaavvaavv

33 GGaass sseenndd oouutt

rraattee

NNoorrmmaall--1111,,55MMMMSSCCMMDD

PPeeaakk--1133..55 MMMMSSCCMMDD

44 GGaass pprreessssuurree 9955 bbaarr

55 RReeggaass pprroocceessss CClloosseedd lloooopp wwaatteerr bbaasseedd iinntteeggrraatteedd wwiitthh GGPPPPCC

66 RReevveennuuee mmooddeell TToolllliinngg tteerrmmiinnaall

77 PPrroojjeecctt ccoosstt IINNRR 22880000 CCrroorreess

88 SScchheedduullee CCoommmmiissssiioonniinngg bbyy eenndd 22001144 oorr eeaarrllyy 22001155

Ports :

The company has also entered into a joint venture agreement with a leading company of

India to develop two ports in Gujarat. Generally companies in the port business have

operating margins in the range of 65%-70%. Entry into the port segment would lead to

improvement of operating margins going ahead.

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1. Real Estate Projects

• The company is currently developing its mill land situated in Sewri and Kurla in

Mumbai into residential and commercial properties respectively. The total saleable

area is 1.78 mn sq.ft.

• The development activities at Sewri & Kurla are under progress, where a Mega

Residential complex is under construction at Sewri under the name 'Ashok Garden',

comprising of two towers, where as Kurla, Commercial complex are under

construction, having four buildings under the name 'Peninsula Techno-park'.

Possession of three out of four buildings have been handed over on completion of

the construction. It expects completion of this both projects during the current

fiscal.

Particulars Project at Sewri Project at Kurla

Name of the Project Ashok Gardens Peninsula Technopark

Plot Area 48,927 sq. m. 44,781 sq. m.

Saleable Area 0.90 mn sq. ft. 0.88 mn sq. ft.

Schedule Completed – Except for the

upper most floors

remodeling work

Completion June 12

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Work Completed as on

28.02.12

Tower I & II

• Possession already given for the ready area which is 90 % of the total project.

• Balance work is scheduled to be completed before March 2012

• Peninsula Land Limited has been appointed as Project Manager for this project.

Building A – Completed

Building B – Completed

Building C – Completed

Building D – 4.24 lac sq. ft.

• Under construction. Work

complted up to 8th Floor in the 10 stories building. Expected completion by June 2012.

• Peninsula Land Limited has been appointed as Project Manager for this project.

• In addition to these, the company owns land in Goa & is considering for the

development of the same in short period.

IT Park at Bangalore:

• SEL has acquired through its subsidiary company, Cardinal Energy & Infrastructure

Pvt. Limited, a 3.5 lakh sq ft IT park building in Whitefield, Sadramangala Village,

EOIZ Industrial Area, Bangaluru which would generate a monthly lease income of Rs

1.25 crore per month from July 2012 onwards.

• This is a ready infrastructure building with a long term leasing arrangement with a

reputed MNC.

Software Tech Project at Hyderabad:

• SEL has also acquired through its subsidiary company, Cardinal Energy &

Infrastructure Pvt Ltd, a 4.8 lacs sq. ft. Software Technology Project building in

Guchibowli, Hyderabad.

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• This is a ready infrastructure building with a long term leasing arrangement with a

reputed company under negotiation. The lease income of Rs. 2.16 Cr per month will

commence w.e.f. October 2012.

2. Textile Business

SEL has re-started its textile manufacturing activity, with the vision leveraging on its

successful brand image, to cater to the booming demand of Indian textiles from global

players.

The entire textile sector globally was severally affected at the time of slowdown & fierce

price competition. With the turnaround in the Global Economy scenario, demand for

the textiles products from India has increased recently & is likely to deliver a

sustainable growth in the coming time.

The company has set up a state – of –art textile Process House in the heart of

Ahmedabad at Narol in Gujarat. The plant has been built on a 4 acre plot with an

installed capacity of 1.25 lakhs meters per day. The company has imported state –of-

art machineries for the plant from Germany, Belgium, Italy and Austria. The company

has also initiated the process for ISO 9001: 2008, Oekotex 100 and GOTS certification.

This facility comprises of continuous processing machines like:

• Sinigeing/Desizing – Bejimac, Belgium

• Continuous Scouring and Bleaching range – Karl menzel maschinenfabrik,

GMBH, Germany

• Chain cum chainless Mercerising range – Goller Textilemaschinen, GMBH,

Germany

• Continuous Dyeing and E control and Cold Pad batch from A. Monforts

Textilmaschinen GMBH & Co.KG, Germany

• 12 Colour Rotary Printing Machine – MHM Sebduckmachinen, Austria

• Peaching / Sueding /Emerizing – Xetma Vollenweider GMBH, Germany

• Calendar – Ramisch Gaurneri, Italy

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Subsidiary Company: In January 2010, the Company had acquired 99.98% interest in

Cardinal Energy & Infrastructure Pvt. Ltd.

Risk Associated

Real Estate Segment

• Availability of credit is the most important factor for the companies engaged in Real

Estate sector. The restriction on availability of credit would paralyze the companies

ongoing projects or their future growth plans.

Textile Segment

• Textile sector plays an important role in contribution of GDP to the tune of 14%,

where a part of the revenues are collected from export earnings too. Hence any

slowdown in the Global economy & changes in the regulations by the Government

would impact the overall scenario of the sector.

• High competition from unorganized sector.

• Duty concessions to importers.

Energy Segment:

• Huge capital expenditure

• Long gestation period for generating revenues

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Industry Overview

Energy Sector:

Energy is an essential building block of economic development. Other than power sector,

demand for natural gas is likely to be strong considering the advantages of natural gas

over other fuels.

Gas Market Drivers:

• Gas demand in India is known to be supply driven

• Growth in demand dependant on infrastructure in the form of gas pipelines and

LNG imports

• Gas pricing in India converging towards international pricing

• India’s commitment to reduce GHG emission intensity of its GDP by 25% by

year 2020

Demand for natural gas outstripping supply:

There continues to exist a yawning demand – supply gap in India’s natural gas sector.

Compared to approximately 223 mmscmd of demand in FY10, the Supply stood at

163mmscmd, which was catered by a combination of domestic supplies (127 mmscmd)

and imports as LNG (36MMSCMD). Power sector accounts for the maximum demand

(46%) followed by fertilizers (27%) and industries.

As domestic production is unlikely to keep pace with domestic demand, a significant

requirement for LNG imports is emerging. India has no option but to go in for large – scale

LNG imports if it is to guide its power sector toward a fundamental shift in fuel choice. The

2 existing LNG terminals in India, Petronet LNG and Shell Hazira are working at more

than 90% capacity utilization. Thus the Indian market offers the maximum potential in

terms of growth of natural gas demand across sectors and hence is an attractive

destination for LNG import.

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Real Estate:

The Indian economy has witnessed robust growth in the last few years and is expected to

be one of the fastest growing economies in the coming years. Demand for commercial

property is being driven by India's economic growth. Real estate in India contributes about

5 per cent to India's gross domestic product (GDP). The total revenue generated in 2010-11

stood at US$ 66.8 billion.

Demand is expected to grow at a compound annual growth rate (CAGR) of 19 per cent

between 2010 and 2014—Tier 1 metropolitan cities are projected to account for about 40

per cent of this. Growing requirements of space from sectors such as education,

healthcare and tourism provide opportunities in the real estate sector. FDI of more than

US$ 9 billion was infused in real estate in the last decade.

• The foreign direct investment (FDI) up to 100 per cent is allowed with Government's

permission for developing townships and settlements

• New home loan borrowers of up to Rs 1.5 million (US$ 30,477) will get Rs 14,865

(US$ 302) as interest subsidy from the Government, on the condition that the cost

of the house should not exceed Rs 2.5 million (US$ 50,798)

• Allowing 100 per cent FDI under the automatic route in development of Special

Economic Zones (SEZ), subject to the provisions of Special Economic Zones Act

2005 and the SEZ Policy of the Department of Commerce

Investments:

Real estate emerged as the popular sector for private equity funds who invested US$1,700

million in this sector during 2011. Private equity in real estate projects will fetch

considerable returns by next year-end or early 2013, as per KPMG. Real estate plays an

important role in the Indian economy. This sector happens to be the second largest

employer after agriculture and is expected to grow at the rate of 30 per cent over the next

decade. The size of the Indian real estate market is expected to touch US$ 180 billion by

2020.

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Textile Sector:

The Indian textile industry is one of the major sectors of Indian economy largely

contributing towards the growth of the country's industrial sector. Textiles sector

contributes to 14 per cent of industrial production, 4 per cent of National GDP and 10.63

per cent of country's export earnings. The opening up of the sector through liberalization

polices set up by the Indian Government have given the much-needed thrust to the Indian

textile industry, which has now successfully become one of the largest in the world.

The total foreign exchange earnings from the textile exports during the current financial

year (April-July 2011) was registered at US$ 10.32 billion against US$ 7.75 billion during

the corresponding period of financial year 2010-11.

India has the potential to increase its textile and apparel share in the world trade from the

current level of 4.5 per cent to 8 per cent and reach US$ 80 billion by the end of the year

2020.

Recent Developments:

• Along with the increasing export figures in the Indian Apparel sector in the country,

Bangladesh is planning to set up two Special Economic Zones (SEZ) for attracting

Indian companies, in view of the duty free trade between the two countries. The two

SEZs are intended to come up on 100-acre plots of land in Kishoreganj and

Chattak, in Bangladesh.

• Italian luxury major Canali has entered into a 51:49 joint venture with Genesis

Luxury Fashion, which currently has distribution rights of Canali-branded

products in India. The company will now sell Canali branded products in India

exclusively.

With the increase in investments in the Indian textile sector, the subsequent increase in

the industrial production, and the positivity observed by the Textile sector has resulted in

progress and development of the sector.

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The company’s reentrance into manufacturing directly by setting up of an art Process

House at Gujarat will help company to capture the market potential and would enable SEL

to leverage its textile business on the “brand image of SWAN”.

______________ ____ ___________________________ Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for any investment decision.

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                         Firstcall India Equity Research: Email – info@firstcallindia.com C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods A. Rajesh Babu FMCG H.Lavanya Oil & Gas Ashish.Kushwaha Diversified A.Nagaraju Infrastructure & Real Estate

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