India’s BEML IPO Expected to Skyrocket

BEML is a public sector undertaking (PSU) with headquarters at Bangalore. It was incorporated in 1964 and began operations in 1965. It was fully owned by the Ministry of Defence, Government of India. In 1992, the government divested 25% stake. So far about 40% equity has been divested to financial institutions and general public. BEML is Asia’s second largest manufacturer of earth moving equipments. The domestic market share of the company is about 70%.

BEML’s machinery has plenty of applications in coal, mining, steel, cement, power, irrigation, construction, road building and railway. The product range has been expanded to cover high quality hydraulics, heavy duty diesel engines, welding robots and undertaking of heavy fabrication jobs.

The manufacturing plants are located at Bangalore, Mysore and Kolar Gold Fields. The product range includes:

Earth moving equipment such as bulldozers, dump trucks, hydraulic excavators, wheel loaders, wheel dozers , tyre handlers, pipe layers, rope shovels, walking draglines, motor graders , scrapers, water sprinklers, aircraft towing tractors and backhoe loaders;

Railway equipment such as integral rail coaches, electric multiple units, rail buses, track laying equipment and overhead equipment inspection cars;

Heavy duty hydraulic aggregates and high power diesel engines.

BEML has been granted "Mini Ratna Category - I status" by the Ministry of Defence, Government of India with effect from 29th August 2006. Key financial data for the year ending 31.03.2007:

Item	Rs. Crores
Gross Income	2479.28
Total Expenditure	2144.11
Net Profit	204.93
EPS (Rs.)	55.77
P/E	22.54
Book value	238.60
Dividend	100%
Market capitalization	4,297.85

Following table gives the shareholding pattern as on 31.03.2007:

Entity	% holding
Central government	61.23
Mutual funds/UTI	13.40
Financial institutions/banks	6.40
FII's	6.26
Corporate bodies	2.55
Retail investors < 1 lakh	5.86
Retail investors > 1 lakh	3.36
NRI's	0.81

Details of the IPO:

Issue Period: June 27, 2007 to July 03, 2007

Issue Size: 49,00,000 Equity Shares

Issue Type: 100% Book Building

Face Value: Rs.10/-

Price Range: Rs. 1020/- to Rs. 1090/-

Market Lot: 5 shares

Minimum Order Quantity: 5 shares

Retail Investor cap: Rs.100,000

Application forms can be downloaded from here.

Red Herring Prospectus is available here.

This stock is already listed and traded at both BSE and NSE. We have discussed the daily chart in Technical review of select India stocks – Part 3.

Now let us analyze the long term trend for BEML.

When Elliot wave theory is applied to the monthly chart of BEML, currently a full cycle has been completed. Watch waves 1 through 5 and a, b and c. As I have mentioned already, an ideal bull market 50% support is maintained in the monthly chart. It managed to break 61.8% retracement exactly a year ago; now since it has closed above 38.2% retracement levels, it can be concluded that the uptrend has begun. The stock will have to close above 1387. After that we can think of stock testing its all time high at 1788.

Wave Analysis:

Wave	Low	High	Gain
1	10.05	114.95	11.44
3	56.05	261.00	4.66
5	96.50	1,788.00	18.53

It can be seen that the 5^th wave has witnessed the highest gain. The first wave, usually is shorter compared to the third and fifth.

Conclusion:

The current market price of BEML is 1180. It is about 90 rupees higher than the IPO high price or by about 7.6%. We have seen in technical reviews that the stock is bullish in short term and long term charts. The company has performed very well in the sector. The key financials are good. IPO looks attractive at the current price levels.

One may wonder that the valuations are very high. But that is exactly how the market has gone in the last 4 or 5 years. We certainly can’t think of stock falling to a very low level now. We have seen in Indian stock market – An Outlook that Steel Authority of India has appreciated nearly 17 times. BEML though, got multiplied 178 times between September 2001 and March 2006.

Technical review of select India stocks – Part 3

Overview:

In part 1 of the review I had mentioned that the following stocks need to close above their resistance levels:

Ind Swift Laboratories Limited: 63.40 (Current: 57.15)

Omax Autos Limited: 94.70 (Current: 85.70)

Indiabulls Real Estate: 420 (Current: 368.20)

We also discussed in part 2 of the review about the following stocks.

Jindal Photo Limited: 122.30 (Current: 110.15)

Punjab tractors Limited: The stock lost 9.76% on a weekly basis. Bearish engulfing pattern has been formed in weekly charts. However, as I said on many other occasions we will wait for a confirmation next week.

Pochiraju Industries Limited:

I mentioned that “Watch the consistent decline from 23.05.07 after the “gap” day. This shows that the crowd is not interested at all in the stock now; But the technical analysis theory suggests that this type of formation is usually highly bullish.”

The stock gained about 6.50% on weekly basis. The harami pattern in weekly chart needs confirmation next week. On 12.06.07 stock closed at 22.65 and on 14.06.07 it closed at 26.55 or about 17.2% gain in two sessions. However a bearish engulfing pattern in daily chart needs confirmation on Monday. The low at 21.50 remains unbroken; this gives us hope that stock will move up further.

This week we will discuss about the following stocks:

APAR INDUSTRIES LIMITED:

The stock has been consolidating around 160 level for more than 2 months now. Its previous high of 170 was broken on a closing basis on 29.05.07. On 31.05.07 a “falling window” (Japanese) or “downward gap” was observed. Now this gap acts as a strong resistance. The stock is just about to enter its 5^th wave. Between 11.04.07 and 08.06.07 the highest recorded volume was 12.372. On 12.06.07 at NSE, 358,302 shares were traded (nearly 29 times its previous high volume). No block deals were reported at NSE. This gives us a clue that there is some activity about to begin in the stock.

Once stock breaches resistance at 178.50 we can expect it to reach 199.50 and 219. However, first it has to break the falling window at 174.45.

Bharat Earth Movers Limited (BEML):

A double bottom has been formed in the daily charts between 26.04.07 and 11.05.07. This indicates bullishness. Further, it broke its resistance at 1120 on 15.06.07. Any decline in the stock could be a good opportunity to enter. The next targets for this stock are 1260 and 1386.

Lakshmi Vilas Bank:

After hitting a high of 117.55 on 07.02.07, stock has fallen to 80.70 or about 31% decline. It is getting consolidated for the last two months. The low at 73.55 on 11.01.07 has not been broken on a closing basis yet. The next higher low at 76.90 has not been breached on closing basis either. This indicates the stock is bullish. It has to close above 83.70 in daily charts. If it does, the upward targets for the stock are 94.75 and 100.

AZTECSOFT LIMTED:

In Top 10 cheapest India stocks we discussed about stocks falling 50% from their previous high. This is yet another example. The stock has fallen from its all time high of 237 on 13.03.06 to a low of 87 on 15.05.07 (about 63%). This level of 87 was breached and stock closed below it at 86.35 on 12.06.07. Bullish piercing line pattern was immediately formed on the next day, indicating possible strong support at this level. The bullish pattern was confirmed by a positive close and green candle on 14.06.07.

It is true that the stock is available at bargain prices. However, even if we consider this candlestick pattern as strong support, it will be the first wave only. Sometimes first wave is extended; many times it is short. A daily close above 104.90 will give the confirmation. It is better to enter the third wave, as many people consider it to be the best method.