Cloud Computing: The Next Golden Era in IT Sector

Over the long term, absence of other barriers, Economics always wins.

Cloud Computing is the new rage in the IT. The problem is everyone seems to have a different definition for it. As a metaphor for the internet, "the cloud" is quite familiar, but when combined with "computing" the meaning gets big and fuzzy. Cloud computing is basically internet-based computing, where shared resources, software and information are provided to computers and other devices on demand, just like electricity grid.

A webmail is a simple cloud computing example where anyone can access their webmail from anywhere in the world simply by knowing the web address of the webmail service, there's no need to know the name of the server or an ip address or anything else. The webmail provider takes on the job of making sure that there's enough disk space and processing power to allow all their customers to store and retrieve their mail on demand. The user doesn't have to worry about maintaining web clients on their PC or, in case of companies, local email servers.

Cloud computing is the 5th generation of computing (after mainframe, personal computer, client-server computing and the web). The cloud computing infrastructure market is estimated to grow to around $70 billion in the next 5 years, up from $16 billion in 2008. Cloud spending is growing 6 times faster than the traditional IT spending.

Cloud Computing comes into focus only when you think about what IT always need: a way to increase capacity or add capabilities on the fly without investing in new infrastructure, training new personnel, or licensing new software. Cloud computing encompasses any subscription-based or pay-per-use service that, in real time over the Internet, extends IT's existing capabilities.

Cloud computing provides resource availability along the lines of pay-as-you-use model. In a typical use scenario of an application running on a cloud, the idea would be to optimize the resources that the application requires and only have sufficient resources that are requires for the application to run. As and when the resource demand increases due to usage loads and to be able to meet the SLA (Service Level Agreement) defined for that application, additional resources should be added to fulfill the demands and again removed when the demand decreases. With this model of being able to dynamically manage resources, the cost substantially reduces since the cost is always calculated based on the resource requirements in a dynamic manner as well as the SLA can be met. So the basic thing that is driving it is ECONOMICS.

According to Steve Ballmer India is going to lead in cloud computing. He even said that India will not only see a surge in cloud computing services but companies all over the world will look to India to support their transition to cloud computing. Microsoft Corp, the world's biggest software maker is among a handful of companies betting big on cloud computing, aiming to convince enterprises to give up building and managing data centres and switch to their computer capacity instead. The other players in cloud computing are Amazon, Google, AT&T as well as smaller firms like Rackspace and Terremark. Microsoft believes that India will move directly to the cloud services, much like how it bypassed the landline revolution that never happened and leapt to mobile phones. This transition that India will champion will seed 3 lakh jobs in 5 years. Microsoft already has more than 600 customers for its cloud services, but wants a deeper head start over rivals. The company is therefore sparing no efforts in making its cloud computing push a success in India, a market that is developing very nicely and where piracy is reducing and intellectual property protection is better than in China.

So with such good revolutionary prospects, investing in companies involved in providing cloud computing solutions would be a good fruitful long term investment.

Tata Chemicals Limited BSE Code: 500770 NSE Id: TATACHEM

CMP (BSE): Rs. 344.85

CMP (NSE): Rs. 344.35

Industry: Fertilizers

Before I start with Tata Chemicals Limited, I just want to say that this is one stock that I want to have in my portfolio for the rest of my life. According to me, this is the best stock based on its fundamentals and business model. Above all, it is in TATA's that we trust.

Tata Chemicals Limited is a part of the US$ 70.8 billion Tata Group. It was established in 1939. It is a global company with interests in chemicals, crop nutrition and consumer products and they serve a diverse set of customers. It operates broadly in three sectors - Living Essentials, Industry Essentials and Farm Essentials.

Living Essentials: TCL covers products that are basic to daily living such as salt, baking soda products and water purifier. TCL is the pioneer and India's market leader (60% market share) in the branded, iodised salt segment and Tata Salt has been recognized as India's No.1 food brand for more than 5 years. I-Shakti, new refined salt is the second largest salt brand. Tata Salt Lite is the market leader in the low sodium salt category within the first year of launch. TCL is the 4th largest manufacturer of sodium bicarbonate in the world. To meet the challenge of providing safe drinking water to India's population and reducing the incidence of water borne diseases, TCL launched 'Tata Swach' - a unique, low cost and innovative nanotechnology based water purifier last year. It is a household water purification system that does not require electricity and uses natural materials . It is an attempt to provide health and wellness to the consumers.

Industry Essentials: TCL covers the products that are essential raw materials for various industries such as glass, detergents, mining and chemical processing. TCL is the second largest producer of soda ash in the world with manufacturing facilities in India, Kenya and USA. TCL has a capacity of approximately 5 million MT in soda ash. About 2/3rd of this capacity is based on natural soda ash. Due to this, it owns 35% of the global low cost and sustainable natural soda ash capacity. Due to its favourable geographic positioning, it caters to key glass and detergents industry in USA, Europe and Asia, which accounts for almost 95% of the production and 86% of the demand for soda ash. During the global crisis, the demand was shrunk considerably. However, now with the slow revival of the global economy, the demand is expected to increase.

Farm Essentials: TCL covers products that are needed to improve productivity of the farm such as fertilizers, pesticides, speciality nutrients, seeds, agri-services and crop protection products. It is India's leading crop nutrients player with its own manufacturing of urea and phosphatic fertilizers and a leading player in crop protection business through its subsidiary Rallis. The crop nutrition and agri-business has its presence across all the three key agro-nutrients - Nitrogen (N), Phosphorus (P) and Potassium (K). In order to secure raw material supply of phosphatic rock, it acquired an equal partnership in the Moroccan company Indo Maroc Phosphate S.A. (IMACID), along with others.

There are 75 million more people to feed in the world each year. In India, almost 70% of the additional earnings go towards spending on food. These factors are continually increasing the pressure on the world farmers to grow more grain and oilseeds leading to more demand for nutrients, seeds and efficient irrigation mechanism. In India the situation is that it has about 7% of the total land in the world, however it feeds almost 17% of the population (Indian population). Hence, in order to improve the productivity and feed the existing demand, India would definitely remain as one of the key drivers for the growth of nutrients demand in the world.

TCL, through its networks of Tata Kisan Sansars (673 stores, from 580 stores last year) in the northern states provide end to end solutions to the small farmers and help them enhance the yield from their land. These centres are one stop resource centres for the farmers. They even provide a variety of farming solutions such as advice on crops, information on weather and market price, application services, contract farming arrangements and market linkage for agricultural produce. It has also entered into a JV with Total Produce of Ireland to provide fresh produce from the farmers to the retailers. This is a 50:50 JV known as Khet-Se. Overall, TCL intends to increase its presence in the Indian farm.

The implementation of the Nutrient Based Subsidy (NBS), resulting in decontrolling of the Phosphatic (P) and Potassic (K) fertilizer, will help in improving the agricultural productivity and would also invite new investment. This will definitely prove to be beneficial for the company.

Aqusition of Rallis: In 2009, TCL acquired almost 50.06% stake in Rallis. Through Rallis, TCL will strengthen its presence in the entire agri-input space. Currently, TCL is a dominant player in the crop nutrition segment and Rallis has a leadership position in the Indian Crop Protection industry. Through this synergy, TCL will enhance value creation as well as will access business synergies in the agri- inputs sector.

TCL is quoting at 17.36 PE whereas the industry PE is 12.08. Even though the PE is high, I am very optimistic about this particular stock because of its bright future prospects and its entire business model. It has a well diversified business in itself thereby reducing the overall risk. In addition to this it has acquired Rallis in 2009 and the benefits of this synergy will seep in the topline as well as bottomline from the 1st year itself. The dividend yield is almost 2.57% at the current market price. It is quoting at 2 times its book value. Thus because of its good promising prospects, even at a premium I find this stock very attractive.

Buying this stock on dips would be a very good pick, somewhere around 300-315 levels.

Happy Investing.

Shri Lakshmi Cotsyn BSE Code: 526049 NSE Id: SHLAKSHMI

CMP (BSE): 149.85

CMP (NSE): 149.75

Industry: Textiles

Shri Lakshmi Cotsyn Ltd (SLCL) is one of the fastest growing US% 250 million Indian conglomerate. Shri Lakshmi is well positioned as an integrated multi product and multi market player covering almost all the activities of textile value chain. It is a premiere manufacturer of home furnishing products and manufactures denim fabric, terry towels, bed linen,cotton fusible interlining, embroided fabric, technical textile products and ballistic products. Since its commencement in 1993, as a small textile unit, it has grown magnanimously, diversifying into various business.

It has 3 subsidiary companies under its arm. They are

(1) Shri Lakshmi Defence Solutions Ltd (SLDSL): It is a 100% subsidiary of SLCL and is one of the leading suppliers of defence equipments, prominently since 2003. Recently they have launched the complete 360 degree armoured vehicle for the Indian armed forces and the police. They have introduced an exclusive range of uniquely designed models of the 360 degree armoured vehicle such as DHRUV-ATC (Armoured Troop Career) , DRONA-MPV (Blast and Mine protection vehicle) and VIPER (fast moving attacking vehicle). The high end 360 degree protected armoured vehicle is first one of its kind in India with bullet, mine and blast proof capabilities. SLDSL plans to make around 300-400 vehicles a year and expects a turnover of Rs 150 cr in this year itself. SLDSL along with Indian paramilitary forces is also pursuing some high-value customers in India, Europe and the Middle-East who want their vehicles to be armored with Level-B7 protection with bullet, mine and bomb-proof accessories. The armoring could cost anywhere between Rs 50 lakh to over Rs 1 crore, depending upon the accessories embedded in the vehicle. This time in the union budget a total of $28 billion has been allocated, the highest ever. Apart from this they have facilities for manufacturing complex weapon systems. They have even developed an ultra light HAP against ORDINANCE KIRKEE BULLETS OF AK 47, weighing inly around 2.1kg each to reduce the weight of the bullet proof jacket. In addition to a range of ballistic products, they also have an established network and affiliates around the world, backed by long term strategic alliances with local as well as global manufacturers. All their facilities are as per the ISO standards. With proven capabilities and technical know how from a US based company and trained manpower in providing comprehensive defence solution equipment, they are the only Indian Company to have produced a composite structured bullet/ mine proof vehicle. Their wide ranging resources, expertise and flexibility ensures delivery of products that are researched, tested and customised to meet the specific needs of each branch of the armed forces.

(2) Weaves Retail: It is a 100% subsidiary of Shri Lakshmi Cotsyn Ltd (SLCL). It is India’s first eco-friendly textile brand for health conscious families. It was launched in mid 2008 with a single focus of having a wide range of bedspreads that bring revolution in Indian textile market. Their product range includes innovative products such as Vitamin E (skin care) bed sheets, water repellent bed sheets, mosquito-bacteria repellent and stain free bed sheets. Their range will also include other home furnishing products such as towels along with pillows, cushions and comforters. They have entered into the branded retail segment with terry towels, home furnishing, and high-end organic textile and plans to open 300 retail shops and shop outlets.

(3) Shri Lakshmi Nano Technologies Ltd (SLNTL): It is a 100% subsidiary of SLCL, working on nano technology fabrics and smart textiles with collaboration from international companies. They nurture new scientific findings in research laboratories and transform them into valuable products in the market. Their aim is to foster a network of technology experts in fields of nanotechnology to lay a roadmap for our forthcoming innovative products. They aim to optimize utilization of upcoming nanotechnologies to invent, design and manufacture advanced textiles fabric that provides safe, effective and antimicrobial protection in a variety of products. The current research is to produce eco-friendly conductive fabric with only one sensor which will allow the monitoring of body temperature, blood pressure, ECG, heart beat rate and other vital health signs.

At the current market price the stock is quoting at a discount (0.92 times the book value). It PE is a mere 2.90 as compared to an average industry PE of 6.46. The dividend yield is 1.34%. Its EPS is Rs.51.50 for the year 2009-2010. The earnings has been approximately growing at 60% CAGR since the past 5 years. Its market capitalization is 253 crores whereas its turnover is 1055 crores, which is almost 4 times its market cap. In addition to this it has a very small equity of just Rs. 15.58 crore (1.558 crore shares). This can prove beneficial because any good news can fetch very good returns to the shareholders. And with this company I feel the future prospects are very good because of its thrust on innovation and innovative product offerings.

Happy Value Investing.

West Coast Paper Mills Limited. BSE Code: 500444 NSE Id: WSTCSTPAPR

CMP (BSE): 94.80

CMP (NSE): 94.50

Industry: Paper and Paper Products

Globally, paper and paperboard consumption is estimated at around 365 million metric tons (MT) and it is expected to increase to 402 million MT by 2012. The global paper market is dominated by North America, Europe and Asia continents. The Asian paper industry is growing at higher rate in comparison with North America and Europe because of lower manufacturing cost in comparison with Western countries due to lower labour cost. Indian paper manufacturers also have cost advantage due to adequate availability of human resource at competitive prices. Moving ahead, there is good scope for increasing export of writing & printing paper from India.

The Indian Paper Industry accounts for about 1.6% of the world’s production of paper and paperboard and there is tremendous scope for growth present in the Indian paper industry. This is due to the fact that India’s per capita consumption of paper and paper products is around 8 kgs as against the world average of 56 kgs. Even an increase of 1kg per capita consumption will result in an additional 1.2 million tonnes demand for paper. With respect to paper consumption, Japan enjoys the highest per capita consumption of over 250 kg in Asia, followed by Singapore of over 145 kg. The developed countries like US, Canada, Germany and UK enjoys higher per capita consumption of 300 kg, 243 kg, 233 kg, and 202 kg respectively.

Hence I believe that there is substantial growth potential left for increasing paper consumption in India. Owing to this fact, the Indian paper industry has witnessed huge investments in last 3 years (2006-09), more than the total investments in the industry from 1960 to 2006. Among the various paper companies the early riser was West Coast Paper Mill Ltd, which is one of India's largest integrated paper and paperboard manufacturing company. In 2006, West Coast Paper Mills sensed both the need to rapidly expand capacity, and the underlying opportunity it presented. They embarked on a journey to add a further 140,000 tonnes to their paper and paperboard capacity with an investment of Rs. 1300 crores. The additional capacity is already on-stream from this year and with this the company manufactures 900 tonnes of paper every day (as against 500 tonnes of paper before expansion). The company has one of the lowest historical capacity costs in the country, their expanded capacities would be highly cost effective and would increase the margins. With an increased capacity of 320,000 tonnes, they now command more than 3% of 10 million tonnes rapidly expanding paper market.

One of the important factor is availability of the raw material. Here the raw material for paper i.e wood, being an agricultural produce, has a limited supply. Add to that, the environmental concerns over deforestation and increased dependence on external parties like farmers for raw material supply. On the whole, cost efficient procurement of raw material has become the biggest challenge in the industry. Hence, in order to ensure sustained supply of low cost raw materials in the future the company has initiated a core plantation program called 'Contract for Farming' within a radius of 250 kms of Dandeli by partnering local farmers.They focused on promoting and using waste/degraded land for hi-tech plantations of pulpwood trees such as Eucalyptus and Acacia. Today, an area of 9100 acres of degraded /wasteland was covered under Core Plantation Scheme. The Company has plans to cover around 1 Lac acres of land under afforestation in a period of 5 to 6 years under Company’s Plantation. The wood from this plantation program is expected to be available from 2012 onwards. This will take care of about 50% of their total requirement of the raw material. Lately, prices of pulp has been rising in the international markets. The per tonne cost of pulp in US has gone from a low of $350 to $970 and is expected to increase further in the coming months. This has led to an increase in prices of paper by Rs. 4000-5000 per tonne.

West Coast Paper has a PE of 5.12 in an industry where the PE is 12.71. Last year, it declared a dividend of 100% (Rs. 2/-) which brings the dividend yield to about 2.22% at the current price. The stock is quoting at a marginal premium at 1.05 times its book value. The EPS for the year 2009-2010 was Rs. 8.80. With the additional capacity, the revenues are going to be a little more than double in 2010-2011. Even the profits are set to double this year. In addition to this, the company has a very small equity (Rs. 12.55 crore). Hence even a small positive news might give very good hefty returns to its shareholders.

Hence I think this is a very good stock for long term and would be a very good buy at around Rs. 80- 85.

Happy Investing.

Deepak Fertilizers and Petrochemicals Corporation Limited (DFPCL) BSE Code: 500645

CMP (BSE): 150

CMP (NSE): 151

Industry: Commodity Chemicals

DFPCL is among the leading Indian producers of Industrial chemicals. The products of DFPCL are methanol, iso- propyl alcohol (IPA), concentrated and dilute nitric acid, liquid CO2 and ammonium nitrate. These chemicals address the needs of the industrial customers in various sectors such as pharmaceuticals, DMT, pesticide, drugs and dye intermediates and refining of precious metals, resin, textile, fertilizer, rubber, petrochemical, fibre, polyester and mining chemicals, among others. The wide range of customers provides the company resilience against the cyclical impact of a single sector. Thus the company is well diversified, which helps it guard itself from the ups and downs in the global economy.

Some of the major raw materials for the company are natural gas and its derivative ammonia. The company had an assured feedstock (natural gas) availability since the company is well connected to the National Gas Grid to receiver gas from multiple sources like RLNG, Panna Mukta Tapti basin, KG basin and ONGC (C-series) among others. The company has signed quantity contracts for ammonia with an overseas supplier. The prices of natural gas and ammonia are expected to remain range bound in 2010-2011, placing the company in a favourable competitive position and thus helping it in maintaining its profit margins in the future.

The company is the market leader for IPA and nitric acid. It is an important player in methanol and CO2. It is the only manufacturer of IPA in India and is one of the very few companies in the world with a US pharmaceutical certification for IPA, making it the supplier of choice for the pharmaceutical industry. It will also emerge as the Asia’s largest producer of nitric acid.

DFPCL's new Technical Ammonium Nitrate (TAN) project at Taloja is ready for mechanical completion and should be commissioned on schedule this year. This would further drive volumes across the TAN segment of the chemicals business propelling DFPCL into a new growth trajectory. DFPCL has already announced that it has signed firm Ammonia contracts with a leading supplier from the Middle-East for this new project. Upon commissioning of this plant, the Company will be the fifth largest manufacturer of TAN in the world and will derive considerable advantages from the higher scale.

There are certain trends that are positive for the company’s current product profile.

• The horticulture production in India’s agri-products basket is rising almost twice as fast as other products. Also the India’s agri- export turnover is expected to double in the next 4 years to nearly USD 14 billion by 2014. The company will be well placed with its strong brands, robust distribution networks and emerge as a partner of choice for the farmers.
• After the Nutrient – Based Subsidy (NBS) regime, a policy that envisages subsidies based on the nutrient content of the fertilizer, rather than on the fertilizer per se; the various fertilizer companies are set to benefit, including DFPCL.
• Globally, the mining sector is poised for expansion. A clear demand- supply gap exists, especially in the East and South- East Asia, the Middle-East and South Africa. DFPCL is expected to exploit this opportunity. Capital investments in the infrastructure projects is on the rise. Key benchmark industries like cement, which are vital customers for TAN (Technical Ammonium Nitrate) have shown good growth and the outlook remains positive.

DFPCL has announced its 1st quater results and showed strong growth in both sales and volumes across all its products, backed by ample natural gas availability and higher operating efficiencies and this will continue in future. It is quoting at 7.14 PE, whereas the industry PE is 15.39. Considering the industry PE, the stock should quote around 320. It provides a dividend yield of 3% (dividend paid = Rs. 4.5 for the year 2009-2010). The EPS for the year 2009-2010 was Rs.19.51. This quater's EPS is posted as Rs.5.92. This continued in future would bring the total EPS for the year 2010-2011 to be approximately around 24. This would result in a growth of about 23% for the year 2010-2011.

It is a good long term stock with good fundamentals. The stock has recently surged due to the good 1st quater results posted by the company. The stock at around 130 levels would be a very good buy. This might be a potential MULTIBAGGER in future.

Happy Investing.