Paramount Cables Infratech Ltd - 33.00 Rs

Incorporated in 1978, Paramount Cables Infratech Ltd (PCIL) erstwhile Paramount Communication Ltd, is the only Indian cable company to offer comprehensive range of specialized cables & wires needed by all sectors of the economy viz. power and electricity, thermal and nuclear power plants, space research, railways, telecom, IT, oil and gas, petrochemicals, steel, electronics & various other industries. Based on the product type, company has classified its business operation into three categories.

A. Power Cables: PCIL manufactures the entire range of cables for power sector including high tension & low tension power cables, Aerial bunch cables, control cables, instrumentation cables & thermocouple cables. Company derives nearly 55% revenue from this segment and is well positioned to take maximum advantage of the boom in the power sector because of its long-standing and prestigious track record with major players in the industry including NTPC, BHEL, Areva, L&T, various Electricity Boards, Power Grid, Reliance Energy, ECC, ABB. Alstom, Siemens amongst many others

B. Railway Cables: Ironically, Paramount is the single largest supplier of underground quad axle counter cables and underground signaling cables to the Indian Railways. It even supplies specialized instrumentation cable for underground and elevated Metro projects. Notably, more than 30% of total revenue comes from Railway alone.

C. Telecom Cables : With 15% revenue share, this segment offers a single point source for a wide range of high quality telecommunication cables which covers optical fibre cables, jelly filled cables, aerial telecom cables, buried service wires, installation cables, co-axial cables, computer cables etc.

PCIL has two state-of-the-art manufacturing facilities at Dharuhera, Haryana and Khushkhera, Rajasthan. These plants are equipped with unique swing facility which enables it to shift from one type of cable manufacturing to other type depending upon the demand, thereby de-risking the business and increasing the capacity utilization. Last fiscal, company commissioned 1,500 km HT power cable capacity at its Dharuhera plant and increased the LT power cable capacity to 25,000 km. This year it has set up additional capacity of 30,000 km of LT and 2,000 km of HT power cables at the Khushkhera plant thereby taking the present installed capacity to 55,000 km of LT and 3500 km of HT power cables. On the back of robust demand company is further augmenting its capacity of LT by 35,000 km and HT by 2500 km. For this it has already commenced land development and civil construction on 25 acres of land just opposite to its existing plant. Post completion of this expansion which is expected to complete within this calendar year, PCIL will boast of having a capacity of 90,000 km for LT and 6,000 km for HT.

More importantly, in Sept 2007, PCIL acquired UK based AEI Cables which is one of the oldest and internationally most reputed brands in the world, with numerous customer approvals and technological strengths. With a turnover of more than Rs 500 cr AEI claims a market share of 10-15% in UK and currently operates at 60-70% capacity level at its plant in Birtley, North East of England. Interestingly, this Rs 105 cr acquisition was substantially funded thru borrowings against the AEI Cables assets with PCIL actually infusing only Rs 25 cr. However AEI has made loss at PAT level for the first half of FY08, which PCIL is planning to turnaround by end of current fiscal.

In order to fund its expansion plans, PCIL had raised more than Rs 65 cr in April 2006 thru GDR route @ Rs 40 per share. Subsequently in Nov 2006, it raised another Rs 120 cr thru FCCB, to be converted @ Rs 53 per share. Now it is planning to make preferential allotment of 91 lac warrants to promoters and promoter group which is expected to be made around Rs 35. To conclude, with huge investment in power sector, railway expansion plan and rapid growth in telecom sector, the cable industry in general and PCIL in particular is on exponential growth. Fundamentally, company reported stellar performance for FY07. However for FY08 it is estimated to report sales of Rs 450 cr and profit of Rs 35 cr on standalone basis. This works out to an EPS of more than Rs 3 on diluted equity (post conversion of all FCCB @ Rs 53) of Rs 21.50 cr with face value as Rs 2/-. On consolidated basis, the key trigger will be the turnaround of AEI cables. Once this UK subsidiary start reporting reasonable net profit, the share price of PCIL will shoot up substantially. Hence investors are recommended to keep accumulating the scrip at declines for a price target of Rs 50 (i.e. 50% return) in 12~15 months.

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Greaves Cotton Ltd - 265.00 Rs

Established in 1859, Greaves Cotton Ltd (GCL) - part of B M Thapar group and well known as Greaves Ltd is one of India’s leading and well-diversified engineering companies. It manufactures a wide range of industrial products to meet the requirement of core sectors in India and abroad. GCL’s core competencies are production of diesel/petrol engines, gensets, agro equipment and construction equipment. Besides, it is also engaged in marketing high technology systems for marine, aviation and electronic applications. The business operations of the company are divided into four business groups strategically structured to ensure maximum focus on each business area and yet retain a unique synergy in the operations.

I. Engines - Power Generation Group (15%): This business group manufactures diesel engine (10 - 1000 HP) primarily for generating sets in the 15-550 KVA range, in both air-cooled and water-cooled versions and enjoys 15% market share in the domestic market. These engines also finds applications in barges, pilot launches, compressors, construction equipment, cranes, forklifts and various defense applications. Notably, GCL even manufactures dual fuel engines / gensets (30 KVA to 400 KVA) and gas engines / gensets (25 KVA to 300 KVA) operating on natural gas, bio-gas and producer gas.

II. Engines - Agro Equipment Group (10%): Under this group GCL manufactures light-weight, fuel-efficient, 2/4-stroke engines in 1 - 4HP range which are either marketed as complete pumpsets for the agricultural sector or as bare engines for multiple applications like water pumps, sprayers, construction equipments, allied agricultural machineries and more. With its plant in Chennai, this division boasts of making different types of petrol/kerosene run portable engines, sprayer engines, power tillers, portable gensets etc.

III. Engines – Automotive Group (55%): Engines including CNG/LPG variants manufactured by this division are for automotive, marine and industrial applications, with majority revenues accruing from the light-weight diesel engines used in 3-wheelers. Incidentally, GCL has been the sole supplier to Piaggio for more than a decade. To tap the emerging 4-wheeler SCV segment, company has indigenously developed the new generation twin cylinder engine with a suitable gearbox which has huge potential in coming years.

IV. Infrastructure Equipment Group (20%): GCL manufactures a wide range of products in both the road making & concreting equipment segments such as vibratory soil compactors, heavy/light tandem rollers, transit mixers, concrete pumps, batching plants. Secondly, company markets the entire range of CIFA and BOMAG tunneling equipments, which include shotcrete pumps, spritz system, tunnel forms, sprizzo, moulds, tampers, plate compactors, pneumatic tyre rollers, recyclers & refuge compactors amongst many other machines. It also deals in tunnel boring machine, roadheader, backhoes, stage loaders, lump breakers, conveyors, roof bolters, locomotives for mining, tunnelling and surface transport of famous international brands like Dosco, Clayton, WAM, SIM etc

Presently, GCL has six manufacturing plants spread across Aurangabad & Pune in Maharashtra and Chennai, Ranipet & Gummidipoondi in Tamilnadu. In view of anticipated higher demand, company has last year set up an additional manufacturing facility for concrete mixers at its existing location in Gummidipoondi. Moreover, few weeks back it inaugurated its technology centre and a new diesel engine plant at Chinchwad, Pune equipped with the state-of-the-art facilities to manufacture new generation water-cooled multi cylinder medium HP diesel engines for one-ton four wheelers, gensets and industrial applications. As a part of company’s long term strategy to position itself in the global market, GCL last year acquired, Bukh Farymann Diesel GmbH (renamed as Greaves Farymann Diesel GmbH) which is engaged in the manufacture and marketing of single cylinder diesel engines and parts for Rs 25 cr.

On the flip side, Piaggio – the largest client representing nearly 30% of GCL’s total revenue is planning to set up its own engine production facility, which is expected to be operational in 2010. However, the likely impact on this is expected to be more than offset by a combination of various initiatives being taken by the GCL, such as diversifying the application range of engines, focusing on global business opportunities by leveraging of 'Farymann' brand, introduction of newly developed twin cylinder engines and tying up new OEMs for SCV application. Moreover on the contrary, couple of weeks back Piaggio Group's Indian subsidiary signed a 8 year agreement with the company for purchase of mono-cylinder diesel engines for application on the three-wheeled vehicles manufactured by them. This implies that GCL will continue to be a single source supplier of such mono-cylinder diesel engines to Piaggio.
On the other hand, its strong service and distribution network has helped GCL counter competition from China. To maintain its future growth company is putting special thrust on greater penetration in rural sector and targeting overseas markets for pump sets. In short, with ambitious plans to capitalize on the opportunities across the industrial, automotive and infrastructure sectors, GCL is set to boost its brand equity in the market. Although it ended FY07 on quite a robust note but for FY08 ending June 2008 it is estimated to clock a turnover of Rs 1400 cr and PAT of Rs 115 cr. This translates into EPS of Rs 24 on current equity of Rs 48.80 cr. At a fair discounting by 16x~18x times, scrip has the potential to touch Rs 380 ~ 430 within 12~15 months. Hence investors are advised to accumulate at sharp declines.

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STOCK WATCH

Lok Housing & construction (210.00) is having a land bank of whopping 1222 acres across Mumbai, Pune and Bangalore with development potential of 62.5 million sq ft. Most of the land has been acquired long back at very low cost and are located at Ambernath(80 acres), Kalyan(92 acres), Vasai(136 acre), Turbhe(180 acre), Pune(425 acres), Bangalore(240 acres) and balance 69 acre spread across Andheri, Malad, Khar, Thane & Virar in Mumbai. With the recent merger of Lok Shelter, company is now involved into lucrative business of urban rehabilitation and reconstruction projects as well. Hence, it has already submitted a proposal to the state government to rehabilitate tenants of about 300 unsafe cessed buildings in Mumbai and simultaneously develop 6 million sq ft in the heart of the city in association with MHADA. At the same time it has several residential townships under construction at Mulund, AMbernath, Khar, Virar, Thane, Kalyan, Marol etc. Importantly, it has finalized to make pref allotment of 50 lac warrants @ Rs 354 to promoters. Keep accumulating at declines.

Yuken India (190.00) is one of the reputed manufacturers of power saving hydraulic pumps & valves which are very popular in heavy engineering industry as effective means of automation and hence find extensive use in various key sectors like machine tools, material handling equipment, construction machinery, drill rigs, automobiles, defence, steel, power & cement plants, plastic machinery etc. Besides it also manufactures complete hydraulic power units as per customer specifications, cylinders, parison controllers, actuators, accumulators and power packs. Due to phenomenal demand, company has recently doubled its hydraulic casting products capacity to 2400 TPA and is further augmenting it to 6000 TPA within next 2~3 years. Besides it made a tie up with Hydrocontrols SPA Italy to produce and market state-of-the-art mobile control valves especially for agriculture, construction, earth moving and lifting machineries. For FY08 it is estimated to clock a turnover of Rs 100 cr and PAT of Rs 5.50 cr which translates into EPS of Rs Rs 18 on very tiny equity of Rs 3 cr. For FY09, EPS is estimated to shoot up to around Rs 25. It’s a screaming buy as scrip as corrected 50% from its recent high of Rs 400.

3i Infotech (125.00) is the fourth largest Indian software products company offering a comprehensive range of software products & solutions primarily for banking, insurance, capital markets, mutual funds, telecom, manufacturing, retail & distribution industries. It provides complete end-to-end outsourcing solutions to various industries mainly in the domestic market and specializes in non-voice based BPO services. It is also recognized as one of the major national players in the e- Governance consultancy space in India. Importantly, company derives revenues from products and services in a 1:1 ratio which differentiates it from other IT companies. In order to beat the competition and grow at a rapid pace, company is betting high on inorganic route and has adopted an acquisition-led strategy to acquire new capabilities and foray into new geographies in the BFSI space. With net dollar inflow of less than 10%, company is hardly affected by the rupee appreciation. On the back of excellent performance till now and considering the strong order book position, it is expected to report total revenue of Rs 1200 cr and net profit of Rs 175 cr on consolidated basis. This works out to an EPS of Rs 10 on fully diluted equity of Rs 175 cr. A good contrarian bet.

Aurobindo Pharma (310.00) is among India’s top five pharmaceutical companies with operation in over 100 countries and marketing over 180 APIs and 250 formulations. Infact it is one of the largest players in Semi Synthetic Penicillin and Cephalosporin space and is backward integrated into manufacturing key raw material P-Gen. Presently company derives nearly 70% of the revenue from the sale of APIs and intermediates while about 30% comes from formulations. Interestingly, it is one of the largest DMF filer with the US FDA from India with 114 DMFs filed to date. Besides it has filed 100 ANDAs in US and 40 ANDAs in Europe, out of which 62 approvals (both final and tentative) have been received from US and only 7 approvals from Europe. In order to increase its foot hold in Europe, company earlier acquired Pharmacin in Netherlands with a portfolio of 203 market authorizations; and Milpharm in UK having 100 market authorizations. For future, company is planning to invest around Rs 200 cr in SEZ at Jedcherla near Hyderabad, and Rs 160 cr in Pharma city near Visakhapatnam. To fund its growth plan APL has raised nearly Rs 900 cr thru FCCB route to be converted into equity shares @ Rs 1014 and Rs 879 in tranches. On a standalone basis it is expected to register a topline and bottomline of Rs 2200 cr and Rs 280 cr for FY08 i.e. EPS of Rs 52 on current equity of 26.90 cr and Rs 40 on estimated diluted equity of Rs 35 cr (assuming FCCB conversion @ Rs 550). A good bet in pharma space.

Smart Investment (Guj)

Bihar Caustic Ltd

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Indo Asian Fusegear Ltd

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Small & Beautiful (Guj)

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Avantel Softtech (67.00) designs and manufacturers repeaters, filters, splitters, tappers, combiners, couplers & amplifiers to enhance the capacity and coverage of wireless communication networks for use in GSM, CDMA and 3G networks. Interestingly, it has developed customized solutions for INSAT based mobile satellite services with advance microwave, digital wireless communication and signal processing products for defence and commercial market. Hence it offers mobile satellite services for messaging, tracking and all locations based services with appropriate network security. Using this same technology it provides specialized products like Ship borne terminal, handheld terminal, S-band receiver, UHF transmitter, burst demodulator etc which are one of its kind. It has also signed a Transfer of Technology (TOT) agreement with ISRO for supply of hubs and satellite interactive terminals for EduSat networks. Thru its govt recognized R&D division, company has developed a number of products for defence sector by ensuring compliance of stringent defence standards. Being Q4 the best quarter for company traditionally, it may end FY08 with sales of Rs 35 cr and profit of Rs 5 cr i.e. EPS of Rs 10 on equity of Rs 5.15 cr.

La Opala (31.00) is among the very few well-established domestic crockery brand in the country with a range of 100 products including dinner sets, tea sets, coffee sets, soup bowls & spoons, mugs, plates, casseroles, flower vases and other table wares. Infact, it is the market leader with 50% market share in opal ware and 20% market share for crystal ware. It is having good distribution network with approx 50 distributors & 9300 dealers. Apart from having pan India presence company is also exporting to 30 countries across the globe including US, UK, Spain, Belgium, France, Germany, Japan, Dubai etc. In order to meet the growing demand and increase its market share company has recently set up a new fuel efficient unit of opal ware at tax free zone of Uttrankhand with a capacity of 4,000 MTPA at a cost of Rs. 35 cr. Hence company has more than doubled its opal ware capacity to 7500 MT from 3500 earlier. However, although company has started trial production in Sept 2007, but due to synchronization problem, this new plant is yet to operate its full fledge production. Hence FY08 will not be a great year but for FY09 it is estimated to clock sales of 75 cr and PAT of Rs 7.50 cr i.e. EPS of Rs 7 on current equity of 10.60 cr. A risk free bet.

KEI Industries (80.00), the second largest power cable company in India is engaged in manufacturing of high and low tension cables (HT and LT), control and instrumentation cables, house wires and stainless steel wires. In near future it plans to manufacture Extra High Tension cables which will serve the modern power transmission segment. It is also contemplating to move up the value chain from manufacturing and supplying cables to executing EPC contracts and manufacturing and supplying transformers. Last week company started commercial production at its new 100% EOU unit in Alwar-Rajasthan for manufacturing of HT and LT power cables. Hence it has increased its capacity by 10,000 Kms thereby taking the total cable manufacturing capacity to 50,000 kms per annum. Company has already registered excellent performance for the first three quarters and may clock a turnover of Rs 900 cr and PAT of Rs 52~55 cr for FY08. This translates into EPS of Rs 7 on fully diluted equity (post conversion of all FCCB) of around Rs 15.75 cr. But considering company’s recent expansion and future growth plans it is estimated to report an EPS of more than Rs 10 for FY09. Scrip can appreciate 50% in 12~15 months.

Shanthi Gears (70.00) is engaged in the manufacture of gears, gearboxes, geared motors and gear assemblies both standard and custom-made. Its product portfolio includes a range of worm gear boxes, helical & bevel gear box, geared motor, custom built gear box, mill gear box, open gearing, CNC machine tools and products for the textile industry. It also manufactures high precision gears for marine and aviation industries. It has recorded 25% growth in sales to Rs 176 cr and 30% rise in net profit to Rs 32 cr for nine months ending Dec 2007. Notably, company makes gearboxes of 250 KV for windmills and is looking for technical collaboration to manufacture higher capacity gears for windmills. On the back of strong industrial and economic growth company is sitting on a strong order book of more than Rs 100 cr currently. For FY08 it can clock a turnover of Rs 250 cr and profit of Rs 45 cr which leads to an EPS of Rs 5.25 on fully diluted equity of Rs 8.60 cr with a face value of Rs 1/- per share. Moreover for FY09 it has the potential to register an EPS of Rs 6.50 which means scrip is trading fairly cheap at P/E ratio of 10x times. Besides, company is having around 18 acres of surplus land in prime location of Coimbatore which can fetch handsome value once sold.

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