Small & Beautiful

Yuken India (60.00) 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 doubled its hydraulic casting products capacity to 2400 TPA and is further augmenting it to 6000 TPA within next couple of year. 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. Fundamentally, from the last two quarters company’s margin came under pressure due to increase in input/raw material cost and sharp depreciation in rupee. But with the recent fall in metal prices across the board, its margin will improve in coming quarters. So despite dismissal performance for H1FY09, it may end FY09 with topline of Rs 100 cr and bottomline of Rs 2.75 cr. This translates into EPS of Rs 9 on a tiny equity of Rs 3 cr. If things get better it can report an EPS of 15~20 for FY10. Share price of this MNC Associate can easily appreciate 50% within a year.

Being a 67% subsidiary of Honda Motor Co. Japan, Honda Siel (150.00) is the undisputed leader in the field of portable generators with its “HONDA” brand commanding more than 70% market share. Infact company boasts of launching India’s first LPG run gensets which is doing extremely well along with its super silent series. For the first time company has achieved the sales volume of over 100,000 Units (112,517 units) in domestic markets for FY08. At the same time to reduce the input cost, company has indigenised few of the critical parts of engine which it use to import earlier. Thus it has successfully reduced the import content to 19% from 22% and is further slated to bring it down to 15% in the current year. Moreover to consolidate the manufacturing operations company is shifting its Rudrapur (Uttaranchal) plant to its factory at Greater Noida in Uttar Pradesh. Although it may disrupt the production in short term but surely will beneficial in long term. Considering its encouraging performance for H1FY09 it may register sales of Rs 275 cr and PAT of Rs 24 cr i.e. EPS of Rs 24 on equity of Rs 10 cr. Financially, it is not only a debt free but a cash rich company holding more than Rs 100 cr as liquid cash. So at current market cap of Rs 150 cr investors are effectively getting this MNC company for Rs 50 cr i.e. at Rs 50 per share. Due to current market sentiment, its share price has fallen 50% which may motivate the foreign promoters to buy back and delist the company from Indian bourses. In case they don’t opt for delisting, then may give handsome bonus in FY10 being its silver jubilee year. A solid buy.

Transformer & Rectifiers (150.00) is one of the leading manufacturers of power & distribution transformers, furnace transformers, rectifier transformers and specialized transformers. It currently manufactures transformers up to 220 kV class and has an installed capacity of 7,200 MVA transformers per annum. To cash on the boom in power sector, company is setting up a Greenfield plant in Moraiya, near Ahmedabad with an installed capacity of 16,000MVA. The new plant, expected to be operational by March’09 would be capable of manufacturing transformers upto 756kV class, though the company initially intends to manufacture transformers of 220kV and 400kV classes. As of now, company has order book position of Rs nearly Rs 400 cr, out of which 70% comprises of power transformers. For the H1FY09 it has registered 55% increase in sales to Rs 195 cr and 75% jump in net profit to Rs 22 cr. Accordingly it may end FY09 with sales of Rs 400 cr and NP of Rs 36 cr i.e. EPS of Rs 28 on current equity of Rs 12.90 cr. Importantly, it will start reporting substantial growth from FY10, as new plant will begin operations by then.

Part of Aditya Birla group company, Bihar Caustic (30.00) is among the leading caustic soda producer in the northern and eastern region of the country. Besides, it also produces liquid chlorine, hydrochloric acid, sodium hypochlorite, compressed hydrogen and has even ventured into aluminum chloride. Recently it has also set up a 25 TPD stable bleaching powder (SBP) plant as a value added product for chlorine utilization. As power constitutes one of the major input cost, company has put up its own 30 MW coal based captive power plant. Considering market condition and demand, company is augmenting the capacity of its caustic soda plant from 265 TPD to 300 TPD at a capital investment of Rs 30 cr. Although company is vulnerable to caustic soda price movement, but with Hindalco being its parent company & biggest customer, the margin of safety is high. Notably, company enjoys the highest operating margins among it peers - even better than Gujarat Alkalies and Chemfab Alkali. Financially company is doing excellent, although it reported drastic fall in profit for Sept’08 qtr as the boiler of the power plant tripped due to mal functioning of safety device and hence company has to purchase power from outside for time being. Still it may end FY09 with topline of Rs 200 cr and NP of Rs 38 cr i.e. EPS of Rs 16 on equity of Rs 23.40 cr. Apart from all this, company is contemplating to rechristen itself as Aditya Birla Chemicals (India) Ltd.