Market Mantra
Yesterday, the S&P BSE Sensex, fell 304.18 points, or 0.50%, to 60,353.27, while the Nifty50 fell 50.80 points to 17,992.15 or 0.28%. Today also the Nifty is down 49.65 (0.28%). The indices are going for seasonal adjustments, post a massive Bull run --medium to long term investors need not worry.
Investors were concerned after the Dow Jones fell as the US Federal Reserve's December monetary policy meeting increased apprehensions, that the US central bank will continue to raise interest rates in the future.
Yesterday, the U.S. stocks sank after economic data showed private payrolls rose more than expected last month and weekly jobless claims fell to a three-month low, pointing to continued tightness in the labor market despite higher interest rates.
But the point is that we can't draw such staight forward conclusions, simply by looking at the US Jobs data while ignoring other economic matrices, like job cuts, contraction in the US economy (Two consecutive quarters of negative growth mark a “technical recession.”), etc. Hence, it will be too much exaggerated to think that the US Fed will go on, with its interest hiking spree in the near future.
Meanwhile, though the Joe Biden administration has argued that the American economy is not in a recession, based on a still strong labor market, but the underlying structural shifts doesn't warrant further rate hikes, because such monetary measures do act with a time lag of 4-6 months. Thus my conclusion is that either the US Fed has done away with interest rate hikes or there could be just 100 bps left, for the final call.
Given this scenario and considering the current state of Indian economy, I would suggest you to slowly pick up stocks which has a story to tell.
#Buy the shares of A2Z Infra Engineering Ltd (Rs.9.90) for short term targets of Rs.17/19.
💥Major portion of Company's business, except the Municipal Solid Waste segment, depends on demand from sectors that are directly linked with the macro environment and broader economic sentiments. For e.g., the Engineering Services segment would see more demand if the Gross Capital Formation or capital investments improve in the economy.
💥The Company's performance in the FY2021-22 was a mixed bag. While the operating revenues declined on a YOY-basis by 14.8%, but continuous de-focus from the low Margin EPC business has given an improved revenue mix in favour of our profit-making businesses.
💥The combined share of Facility Management Services and Municipal Solid Waste business increased from 55% in FY2020-21 to 61% in the financial year FY22.
💥The Company was also successful in managing its direct raw material and employee costs in line with the revenue despite high inflation. During FY22, the Company's cost of financing was also reduced to less than half of the FY2020-21 level.
💥 Interestingly, the company was able to enter into one time settlement with three banks during FY22 to reduce its outstanding debt.
💥At the operating level, one the key development during the year 2022 was sale of its wholly owned subsidiary Chavan Rishi International Limited.
💥The Company also won two major mandates in the Facility Management Services space with a term of 3-years each.
💥In the Engineering Services and Power Genera on Projects business, the Company con nues to face challenges.
Various Segments of Company's Business:
Power Transmission & Distribution:
A2Z Infra Engineering Ltd (Rs.9.90) is an experienced company in Engineering & Urban Infrastructure Services sector.
As part of the services, the Company provides integrated design, testing, installation, construction and commissioning services on a turn-key basis to its clients.
The Company’s projects include rural electrification, railway overhead electrification, reduction of AT&C losses, feeder renovation, underground cabling, feeder segregation, installing High Voltage Distribution System (“HVDS”) and Low Voltage Distribution System (“LVDS”) distribution lines and transmission lines. The Company has strong capabilities to build, operate and maintain:
• Substations & Switchyards up to 765 kV.
• Transmission lines up to 765 kV.
• 11 / 33 kV distribution lines comprising of Feeder Renovation Projects, Tube Well Connection, Segregation of Domestic and Agriculture load, Augmentation of Lines, Providing Laying of HT & LT Aerial Bunched Cables and Offering BPL Connections along with New connection & replacement of old meter works.
The Company has its overseas presence in Nepal, Uganda and Tanzania.
Under Engineering Services segment we may pursue infrastructure projects like Sewage Network & Treatment Plants, Gas Distribution Networks, and Metro projects in select cities.
It has projects ins various states of India including Jammu & Kashmir, Rajasthan, Orissa, Bihar, Arunachal Pradesh, Jharkhand, Kerala, Chhattisgarh, Haryana, Uttar Pradesh and Himachal Pradesh.
Telecom Infrastructure EPC
Telecom Infrastructure Projects is the main business activity of the Company. Major offerings by Company in Telecom Infrastructure EPC are supplying, laying and maintaining of Optical Fibre Cables (OFC) networks. EPC services offered by the Company under this segment include:
• Optical Fiber Cable NLD / Access Networking Construction & Maintenance.
• Network Integration.
• Telecom Infrastructure Operation & Maintenance Services.
• Material Planning & Project Management.
• Radio Frequency Engineering Services.
• Engineering Construction & Infrastructure Services.
The Company is successfully executing orders for construction of Telecom Network Backbone on Turnkey basis in the untapped toughest terrains of the country like Leh, Ladakh and North East India, which will help in building the optical Network to connect each and every part of the Nation.
Further, Company has tied up with Telesonic Network Ltd. (an Airtel group company) for work to be carried out on continuing basis at various circles including obtaining permission from applicable authority for HDD/Open Trench/ Moiling/First level restoration/Duct Pulling up to 4 number/ DIT/All Fiber Blowing & Pulling/Splicing/Manhole and Hand hole Supply and installation/ODF and OTB installation/AT Testing and sign off/Handover to O&M Team and such other work as may be specified/required from time to time.
Waste to Energy- Power Generation Projects (PGP)
The Company collaborated with sugar mills for setting up three power plants on Built, Own, Operate and Transfer (BOOT) basis for a period of 15 years in the state of Punjab and to ensure continuous supply of Refuse derived Fuel (RDF) to the said Power Plants, Company developed an indigenous waste processing plant for running the said Plants on Refuse Derived Fuel (RDF) from Municipal Solid Waste.
Non- supply of bagasse by the Co-operative Sugar Mills, various implied delays in approvals and execution of agreements including delay in handing over of land, and there are disputes between the concerned parties with ongoing arbitration proceedings, the execution of Project by the Company has become unviable despite its best bona fide and consistent efforts.
In the light of Section 12(5) read with schedule VII of the Arbitration and Conciliation (Amendment) Act, 2015 and various judicial pronouncements in this regard, the Addl. Registrar of the Co-operative Society, Punjab, appointed by the Co-operative Sugar Mills as the Sole Arbitrator was ineligible to be appointed as an arbitrator in the concerned arbitration proceedings as the dispute arising under the MoUs were to be referred to Arbitrator, who should have been the Registrar, Cooperative Societies, Punjab. The said award passed by Additional Registrar has been challenged by the Company under Section 34 of the Act before the Hon’ble District Judge, Chandigarh. Moreover, A2Z Infra had filed petitions under Section 11 and 14 of the Act before the Hon’ble High Court of Punjab & Haryana and Hon’ble District Court, Chandigarh, respectively, for appointment of an independent arbitrator and termination of mandate of the existing arbitrator, being illegal and arbitrary appointment, in the instant arbitration proceedings initiated by the Cooperative Sugar Mills and the said petitions are still pending before the respective Courts.
Due to these disputes with sugar mills in respect of cogeneration power plants, the sugar mills have terminated the agreement signed between the parties during the pendency of arbitration before the Additional Registrar; validity of termination is a matter of dispute to be dealt by the arbitrator while deciding the disputes between the parties. Henceforth, at present all the three power plants are non-operational.
Impact of COVID-19 pandemic
The COVID-19 pandemic has distressed the execution of the projects at various sites. Due to the onset of the COVID- 19 pandemic since March 2020, there is an inherent risk to health and safety of the employees and workers, and risk of disruption in production due to lockdown. Impact of COVID- 19 in the last two years, results in delay of significantly accelerate execution of the projects. It has resulted into the distressed Cash flows/Financials results for the Year ended March 31, 2022 as well.
But with the removal of nation wide lockdowns, the fundamentals of the company are expected to move up exponentially in the coming months.
Accumulate!!
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