Investing in Daal (Lentils, Pulses etc)

So we have all heard about the agricultural story and how emerging markets are moving up the value chain and need more protein. In addition to meat, lentils are a great source of protein especially for vegetarians (think India in addition to Middle East where pulses are consumed). Lentils are a staple part of the diet (in the emerging market as a whole) and the country despite being a major producer is not able to able to overcome supply side constraints on both production and distribution sides.

Refer to charts on http://wapedia.mobi/en/Lentil

Refer to charts on http://www.fao.org/docrep/006/y4343e/y4343e02.htm

Agriculture in India, over the long term may be severely challenged due to rapidly dropping water tables and urbanization. Even if India meets the agricultural challenges, India will remain an importer in the immediate future.


Refer to charts on http://conservationfinance.wordpress.com/2006/08/

Why Alliance Grain Traders?

1. They provide value-added processing of pulses and buy lentils, peas, beans and chickpeas from farmers around their 24 facilities located in the best pulse growing regions in Canada, the United States, Turkey, Australia and China and ship them to over 85 countries around the globe.

Value added processing covers the following function - Alliance Grain Traders state-of-the-art production facilities features production lines for cleaning, sizing, splitting, colour-sorting and packaging a full line of lentil, chickpea, pea, bean and canary seed products.

2. Strong management with a dividend paying stock that has experienced a bit of a pull back. Investor presentations can be seen at http://www.alliancegrain.com/investor-relations/presentations.html

http://finance.yahoo.com/q?s=AGT.TO

Canadian Supplier to The Tata Nano

CV Tech group of Quebec has supposedly been talking to Tata Motors about supplying the automatic transmission for the Tata Nano according to a report in The Times of India - http://timesofindia.indiatimes.com/city/ahmedabad/Tata-Motors-in-tie-up-talks-with-Canada-firm/articleshow/7273401.cms

The Nano has been a bit of a sales dud in India so far. If you think the trend may end up being reversed then CV Tech group - http://finance.yahoo.com/q?s=CVT.TO may be an interesting play to look at.

Making Movies A Bit More Realistic

Question
How can movie theatres squeeze out more revenue from each seat?

Answer
Make the movie going experience even more immersive. A case in point is Quebec, Canada based D Box Technologies - http://www.d-box.com/


Value Proposition
While not quite the sci-fi future of virtual reality, D Box seems to have quite a unique niche when it comes to gaming, home theatre systems and movie going. Imagine being pitched and feeling the tremors and shakes as the celluloid action unfolds.

Cinema goers may well fork out the extra dough for watching the movies on D-Box seats. Please refer to this link for a users review of the seat - http://www.marketnews.ca/content/index/page?pid=5602

Apart from movies, the large gaming market, home theatre and perhaps even the simulator markets could be decent targets.

Test Case
For a small company, D Box has been able to tie up with some large studios and cinema chains in Canada, USA, Japan and Netherlands. Their web site lists all out the number of seats and additional details.

Pricing
They just did an equity offering at 65c (http://business.financialpost.com/2010/11/16/d-box-technologies-gaining-traction/ and http://business.financialpost.com/2010/12/14/d-box-ready-for-prime-time/ ) Canadian and the stock trades around this price. So if you feel this could be the next IMAX coming out of Canada, it may be time to jump onto the band wagon. http://finance.yahoo.com/q?s=DBO-A.V

I was looking for a stock that would let overseas investors play on India’s appetite and love affair with the movies when I came across D Box Technologies.

Making 8.5% in a month - The Big Easy?

Question
How would you like to make a quick 8.5% in a month or so?

Answer
Look no further than CIC Energy listed in Toronto (http://finance.yahoo.com/q?s=ELC.TO&ql=0). Currently trading at $ 6.84, shareholders as of Dec 8 are slated to vote on the acceptance of a buy out offer from JSW (Jindal group of India) in a special shareholder meeting on Jan 21, 2011.

The Discount
The buy out offer from JSW is at $ 7.42 per share. CIC shares trading at $ 6.84 represent a decent potential return of 8.5% for a months worth of lock in. Buy outs from Indian companies on the Toronto Stock Exchange are not that common and that could perhaps explain the lack of investor confidence in the closing of the deal. That lack of confidence of course is why there is an arbitrage opportunity.

Tau Capital
Once CIC Energy has been acquired, I hope Tau Capital http://www.taucapital.com), the folks that developed and monetized CIC Energy, will focus on taking Talon Metals Corp. to the next level. Talon seems like a good play on multiple commodities in Brazil.

Feeding India

Here is a great slideshow on why India will be an increasingly large consumer of Potash - http://www.potashcorp.com/industry_overview/2010/markets/india/1/

Once you factor in the growing population, need to eat, need to eat more protien, it becomes obvious how Potash (required for crops as well as animal feed) is a commodity that will look to re-scale its 2008 peak soon.

With Potash Corp out of the take over limelight - http://www.bhpbilliton.com/bb/investorsMedia/news/2010/bhpBillitonWithdrawsItsOfferToAcquirePotashcorpAndReactivatesItsBuybackProgram.jsp, the focus is back on the juniors (http://www.reuters.com/article/idUSTRE6BI0MN20101219)

So far no Indian firm has made a play for a Potash resource. They have made plays for coal, iron ore and oil deposits across the globe.

Of all the juniors, I like Western Potash, the most - http://ca.finance.yahoo.com/q?s=WPX.V

Playing the Potash juniors is suited for the patient at heart as some ofthe majors have capacity expansion plans but as we have seen with the Baffin Island and New Millenium Capital story - every one wants their own captive supplies.

New Millennium Capital Corporation

For resource hungry enterprises in Asia, Australian, Indonesian and natural resource assets from the Western Coast of North America have made the most sense.

Corus Steel, in the UK, part of the Tata Group has had to elsewhere to secure its supply of Iron Ore. The Tata group collectively with Corus is the 8th largest producer of steel in the world in large part due to the volume numbers of Corus.

The Tatas have exercised their option to fund and the development of the (Direct Shipping Ore) DSO mine owned by the listed New Millennium Capital Corporation. In return for bearing 80% of the cost of developing the mine, the Corus arm of the Tata Empire will buy all of the iron ore produced by the DSO mine near Schefferville, Quebec.

The Captive Mine

The mine is supposed to start in 2012 and produce 4 million tones of order over the course of its life of 10 years.

At a conservative $ 50 per ton of iron ore, New Millennium is looking at a top line of $ 2 billion from this project alone.

Market Pricing

I like the fact that there is no talk of preferential pricing and Tatas will be paying market price for the ore that they buy. Sure, there may be volatility along the way, but over the course of 10 years, the volatility should be mostly trending upwards.

Tata Ownership
The Tatas own 27.4% of New Millennium and have a stake in seeing the mine built and operate efficiently.

Potential Upside

This brings us to the Taconite project (with the LabMag and KeMag mines). The deposits in these mines are manifold than the DSO levels. The Tatas have until Dec 31, 2010 to signify their interest in this project.

Patient Capital

My personal style of investment is to invest in projects which have a gestation period. That allows an investor to come in while the project plant is being set up and the stock is out of the news for some time.

This also allows for investors to maximize the upside as they see the stock break out once production is imminent.

Sources

http://www.nmlresources.com/pdfs/FactSheet.pdf
http://www.business-standard.com/india/news/tata-steel-securing-growth/408208/
http://www.livemint.com/2010/09/15232736/Tata-Steel-hedges-against-ore.html

GeoGlobal Resources:Another Play on the Krishna Godavari (KG) Basin in India

If you have been following the changes in policy and the recent success in oil and gas exploration in some non traditional regions, then India may have shown up on your radar.

The KG basin off India’s western coast, is home to the D6 mega gas fields owned by Reliance Industries (http://finance.yahoo.com/q?s=RELIANCE.NS) and Niko Resouces (http://finance.yahoo.com/q?s=NKO.TO).

Cairn India (http://finance.yahoo.com/q?s=CAIRN.BO) meanwhile is in the middle of buy out/merger talks with Vedanta (http://finance.yahoo.com/q?s=VED.L). Cairn India’s crown jewels are in the onshore eastern state of Rajasthan.

For an energy deficient nation like India, growing at a rapid pace, both finds are a heavenly gift.

So where might be the next Niko Resources?

I would like to point to GeoGlobal (http://finance.yahoo.com/q?s=GGR) resources as a company that could be the next NIKO if it manages to overcome a couple of hurdles.

What I like about GGR:

1. Its listed on the Amex in the US and hence overseas (non Indian residents can buy in). Most Indian stocks are off limits to non Indians as only a handful of Indian companies have ADRs and GDRs.

2. GGR has a 5% stake in the DeenDayal block in the KG basin. I do not know much about oil & gas exploration, but know that you are likely to find some where other folks have discovered hydrocarbon deposits.

3. GSPC as a partner (Gujarat State Petroleum Corporation Ltd.) a state run oil firm (owned by the state of Gujarat in India) owns 80% of the Deendayal block. GSPC is not public yet but they have tried to go public in the past and are at it again. Their draft prospectus can be found at http://www.sebi.gov.in/dp/gspcdraft.pdf

Having a strong Indian partner is a double edged sword (more about that later).

4. The DeenDayal Asset

A few years ago, the Deendayal deposit was touted as holding 20 tcf (trillion cucbic feet) of natural gas. However, the DGH (Directorate General Hydrocarbons in India) has only notified 2 tcf and has recently approved a field development plan of $ 1.8 billion - http://www.istockanalyst.com/article/viewiStockNews/articleid/4387656


5. Other Blocks

GGR has exploration blocks in 4 key basins in India – KG basin, Cambay Basin (in Gujarat), Deccan Basin (Southern India) and Rajasthan Basin (where Cairn India found oil). More details can be found at http://www.geoglobal.com/default.aspx?id=39

GSPC has reportedly found gas in large quantities in the Cambay Basin too http://economictimes.indiatimes.com/news/news-by-industry/energy/oil--gas/GSPC-strikes-huge-gas-reserve-in-Cambay-basin/articleshow/6230713.cms but extracting the gas will be a different story.

Things to Watch Out For:

1. The GSPC and GGR dispute

Page 19 of the GSPC draft prospectus http://www.sebi.gov.in/dp/gspcdraft.pdf has information on the dispute with GGR. The draft prospectus does not mention that GSPC may have not shared some updates about the fields in question since the dispute took a serious turn. http://economictimes.indiatimes.com/news/news-by-industry/energy/oil--gas/GSPC-GeoGlobal-may-attempt-to-settle-gas-dispute/articleshow/6021669.cms

Efforts have been made to resolve the dispute but so far, nothing has been reported.

2. Long Gestation Period

Assuming that GSPC gets going peak output from Deendayal is expected around 2015-2016.

If everything works out, only a patient investor will be rewarded handsomely.

Recommendation:

If you believe that India’s initial success in the E&P can be replicated then you could consider a small, long term investment in GGR.