Stone India Ltd - 135.00 Rs

Incorporated in 1931 and a part of well known Duncan Goenka group, Stone India Ltd (SIL) is a multi-product engineering company and is basically serving the Indian railroad industry for over seven decades. Being a pioneer in brake systems and train lighting alternators, SIL is today the undisputed leader in locomotive brake systems and has a huge range of mechanical and electrical products for the railroad industry. It also manufacture few critical products for defence tanks and armoured vehicles. Currently, company generates about 90 per cent of its revenue from railways and has a market share of about 25-30 per cent. Broadly, company has segmented its product profile into following three categories:-

Carriage business group: SIL manufactures and deals in pneumatic equipments like distributor valves, brake cylinders, angle cocks, dirt collectors, hoses, slack adjuster apart from compact air braking system of carriage & freight stock for railway rolling stock operation. Recently it has developed its own patented beam mounted brake system for all types for freight wagons.

Locomotive business group: Under this category it produces & markets brake systems, centrifugal lube oil filter and regenerating type 'Vaporid' air dryers for Diesel and Electric Locomotives. In addition the company specializes in conversion of vacuum to air brake system in locomotives.

Train Power business group: SIL manufactures and supplies brushless alternators, electronic rectifier regulators and pantographs. Alternators are actually power generators used in the coaches and pantographs are used in the electric locomotives & electric multiple units to draw power from the overhead traction.

Other than the corporate office and the manufacturing facilities in Kolkata, SIL has branches and service centres located at all major towns and cities of India. To diversify its product portfolio, it has set up a greenfield facility at Nalagarh, Himachal Pradesh which is likely to go on stream this fiscal itself. Besides, it intends to put up a third plant somewhere in south. As company manufactures sophisticated & critical components involving high precision and accuracy, it has collaborated with several global industry leaders for its high technology products. Faiveley S.A. of France, SAB of Sweden, WABTEC Corporation of USA, SAB WABCO of France etc are to name a few. Off late, SIL has also ventured into the railway electronics business through introduction of a slew of high value power electronic products like inverters, converters and power supply system for coaches, locomotives, EMUs and metros. Accordingly, it made a technical collaboration with SMA Technologies AG, Germany for producing 180 kilovolt-amps (KVA) auxiliary power converter for railways. The other product of this new division viz end of train telemetry device is also been approved by railways. Earlier, SIL entered into an exclusive understanding with ZRJC, Guangzhou, China for manufacturing & supply of air conditioning system along with microprocessor based control system for passenger coach rolling stock & metro coaches.

In order to de-risk its business model, company is looking to increase the revenue from projects & services area for which it is executing a huge order for refurbishment and up gradation of 1115 wagons from ministry of defence. Notably, SIL is the only private company selected to execute this order which was earlier done by Indian railways. Moreover, company has already entered the Asian rail market and has appointed Telewira Tegas SDN BHD, Malaysia, as an exclusive agent for turnkey project work relating to freight car, passenger coach and locomotive up gradation and maintenance for Malaysian railways. It has also been exporting air brake system to internationally reputed wagon manufacturer in China. And importantly, couple of weeks back, SIL partnered with Sumitomo group Japan to gain the technical know-how for manufacturing of air springs which are technically far superior to the existing mechanical suspension system.

To conclude, the on going major restructuring of Indian Railways and large capacity expansion of its network augurs well for SIL which is well poised to take on all the future opportunities in line with its strength & core competencies. Indian Railways are planning an investment of gigantic Rs 5,00,000 crores in next few years, out of which Rs 1,00,000 Crores is meant for rolling stock & Rs 2,00,000 crores in private-public partnership projects. Hence, SIL will continue to grow at a scorching pace in future as well. For H1FY08, sales grew by 60% to 41 cr and NP increased by 70% to 6.90 cr. Despite such excellent performance, share price has tumbled down sharply from a high of Rs 220 Rs in Dec’06 to current levels. This may be because of the delay in commencement of new plant in HP and also due to the fact that in April 2006 warrants holders didn’t exercise their right to convert 14,32,000 warrants even at the low of price of 97 Rs as they had got the allotment in 2005. Well for FY08, company is expected to register sales of 100 cr and PAT of 13.50 cr i.e. EPS of Rs 18 on equity of 7.60 cr. Investors are strongly recommended to buy at current levels with a price target of 220 Rs (i.e. 60% appreciation) in a year’s time.