Easun Reyrolle - Rs.475.00

Established in 1980, Easun Reyrolle Ltd (ERL) is a joint venture of Easun group-India and Va Tech Reyrolle-U.K. a part of Va Tech group-Austria, the world's third largest T & D company. Easun group has been in the field of power engineering for over six decades offering virtually all vital components for a substation. Starting as a producer of electro-mechanical discrete relays, ERL has today emerged as a strong and independent solution provider in the areas of power system protection, control, automation, metering and switching segments and offers its customers in India and abroad, the state-of-the-art technology and efficient customer support. Whether it be in power generation, transmission, distribution or utility, ERL offers products, system, solutions and services to manage these segments with reliability, efficiency and safety.

The company has three manufacturing plants in India located at Hosur, Bangalore and Chennai, which incorporate modern production facilities and the latest test equipment. Presently its traditional business, which consists of power systems and power protections solutions contribute about 80% of the total revenues while power automation, metering and switchgears contribute the rest. Interestingly, the company is a strong competitor for MNCs like ABB, Siemens and Areva (Alstom) etc. In line with the market trend and moving up the value chain, ERL has recently ventured into a new business area i.e. construction of projects on turnkey basis under which it will mainly concentrate on substation projects and power system automation project which has high potential in coming years. Moreover, it is setting up a 45,000 sq ft world class manufacturing facility at Hosur for medium voltage switchgear with an investment of Rs.12 cr. This will be further expanded to 75,000 sq ft later on.

Fundamentally, the company is quite strong and with the government stressing on National Rural Electricity Infrastructure and Household Electrification Programmes to provide access to electricity to all rural households in five years the future looks very promising for the company. For FY06, its turnover grew by 100% to Rs.106 cr. whereas the NP increased 270% to Rs.13 cr. resulting an EPS of Rs.39 on its tiny equity of Rs.3.33 cr. It has reported healthy numbers for the June’06 quarter as well. For FY07, it may register a topline of Rs.120 cr. and bottom-line of Rs.15 cr. i.e. an EPS of Rs.48. Hence at a single digit PE, scrip is trading grossly cheap compare to its peers. Importantly, Siemens is interested in acquiring this company and has probably bought the 23.54% stake held by Va Tech Hydo GMBH. Siemens was to make an open offer for 20% but the ERL board opposed the open offer, as it did not wanting Seimens to takeover. The fact that Siemens is eyeing the company gives a clue to its value in the electrical power space. Investors are strongly recommended to buy it at current levels or at declines and hold it for 2-3 yrs at least to reap a windfall profit.

STOCK WATCH

Thirumalai Chemicals (Code: 500412) (Rs.137.50) has world scale plants for manufacturing diverse products including Pthalic Anhydride (PAN), Maleic Anhydride (MAN), Fumaric Acid, Food Acids etc. From this fiscal, the company has changed its marketing strategy and now enters contract for regular supply on a pre-determined formula basis to its customers. This has improved its capacity utilization and led to higher sales volume leading to economies of scale. For June’06 quarter, it reported stunning numbers whereby net sales increased 110% to Rs.143 cr. and it posted a net profit of Rs.9.80 cr. compared to a net loss of Rs.2.25 cr. last year. This is in spite of higher tax provisioning of Rs.5 cr. For the current full year, it may report sales of Rs.450 cr. with net profit of Rs.25 cr. i.e. EPS of Rs.24 on an equity of Rs.10.25 cr. However, fluctuating raw material cost is a concern, which may dent its profit if it rises significantly going forward.

Under license from Bauer-Germany, International Combustion (Code: 505737) (Rs.235) offers a comprehensive range of geared motors, gearboxes and electric motors manufactured on specially designed interlinked CNC production lines. It also manufactures and markets a wide range of mechanical and electro-magnetic vibrating screens, feeders & conveyors to handle all types of bulk material. Due to strong demand from the user industry, it sales grew by 50% to Rs.21 cr. whereas its net profit jumped 120% to Rs.1.85 cr. for the June’06 quarter. Considering the same growth rate, for FY07, it may register a turnover of Rs.90 cr. and PAT of Rs.7.50 cr. i.e. EPS of Rs.30. Moreover, it has huge reserves of around Rs.25 cr. on its very tiny equity of Rs.2.27 cr. i.e. book value of Rs.124 making it a strong bonus candidate.

Cubex Tubings Ltd. (Code: 526027) (Rs.35) is a leading manufacturer of copper and copper alloy seamless condenser tubes, rods, strips, profiles and wires. Recently, it has developed large diameter cross-section copper-nickel tubes to meet the requirements of defence and shipyards. Further, it is entering the manufacture of oxygen-free, high conducting grade copper extrusions mainly used in the electronics industry. Besides, it reported excellent numbers for June’06 quarter with sales increasing by 130% to Rs.22.50 cr. whereas net profit doubled to Rs.2.04 cr. Couple of months back, it bagged some big orders from NTPC for seamless solid drawn condenser tubes under global competitive bidding and has also participated in other tenders aggregating Rs.50 cr. Hence for FY07, it may clock a turnover of Rs.85 cr. and profit of Rs.8 cr. This works out to an EPS of Rs.10 on its fully diluted equity of Rs.7.70 cr. A good bet at CMP.

Paradyne Infotech (Code: 532672) (Rs.56) is among the very few recently listed companies whose scrip is trading above its IPO price. In October’05, it came out with an IPO at Rs.42 per share and hit a high/ low of Rs.93/ Rs.42 respectively. Recently it declared very encouraging results for the June’06 quarter with sales of Rs.27 cr. and net profit of Rs.2.84 cr. i.e. quarterly EPS of Rs.2.60 on equity of Rs.10.88 cr. Incidentally with every passing quarter, its top-line and bottom-line is increasing and more importantly, its OPM is improving. From 9% in December’05 its OPM has increased to 15% for June’06 on account of better product mix. For FY07, it can register a top-line of Rs.120 cr. and bottom-line of Rs.12 cr., which means an EPS of Rs.11. Though it may not get enjoy higher discounting like other IT scrips, a reasonable P/E of 8 times, it may again test its high in the current calendar year itself.

On the back of constant selling and drastic fall in the share price of Mirco Technologies Ltd. (Code: 532494) (Rs.152.30) just before the Q1 result, few marketmen expected poor numbers from this company. Bu to their surprise, it came out with flying colours. For the June’06 quarter, its total revenue increased by 90% to Rs.22 cr. while the net profit almost tripled to Rs.6.52 cr. Moreover, it received the approval for installation of Micro VBB (Vehicle Black Box) Classic Series in Ford Ikon Vehicles, which is a good breakthrough for the company. Considering the company’s aggressive marketing plan, it is estimated to end FY07 with a top-line of Rs.100 cr. and bottom-line of Rs.26 cr., which means an EPS of Rs.25 on its diluted equity of Rs.10.50 cr. After touching a bottom of Rs.123, the scrip has made a sharp technical pull-back and may continue its upward journey if the sentiment remains positive.

Gitanjali Gems - Rs.114.00

Establised in 1966, Gitanjali Gems Ltd (GGL) is one of the earliest diamond houses in India. Having received over 50 national and Export Council awards for outstanding exports, it is one of the largest diamond exporting companies in India. It is among the very few integrated players operating right from sourcing of rough diamonds to cutting and polishing them, also manufacturing gold and diamond jewellery and finally branding, marketing and selling through retail operations in India as well as international markets. GGL exports a significant part of its production to various international markets in Europe, including to Antwerp and Italy, USA, Middle East, Japan, China, Hong Kong and Thailand. GGL is the only company, which retails some of the reputed brands like Gili, Nakshatra, Asmi and D'Damas thru its arms and associates Gili was the first branded jewellery introduced in India.

GGL has two modern diamond manufacturing facilities located at Borivali in Mumbai and at the Special Economic Zone at Surat in Gujarat. It also has a large sophisticated jewellery designing and manufacturing facility at the SEEPZ and two jewellery manufacturing facilities at MIDC all in Andheri, Mumbai. For branded jewellery, GGL has established a large retail setup, which includes 26 exclusive distributors across India with around 620 outlets including those in host stores, five standalone stores and 17 franchisee stores in 30 cities and towns in India. Couple of months back, it also formed a joint venture with Sanghvi Exports to manufacture and market SANGINI brand of diamond jewellery. Recently, GGL entered into an agreement with the Government of Andhra Pradesh to develop a special economic zone spread across 200 acres in Hyderabad exclusively for the gems & jewellery industry. For its future growth, the company is expanding its production capacity by setting up additional diamond and jewellery manufacturing facilities in Mumbai and in the proposed Gems and Jewellery Special Economic Zone (‘GJSEZ’) in Hyderabad. To increase its retail share, it is setting up another 10 Asmi retail outlets, 100 D'damas stores, 90 kiosks at Shoppers Stop stores, 6 Nakshatra flagship stores and 25 outlets for Fantasy Diamonds - its subsidiary company. It will soon launch a new collection of international brand called ‘Desire’, which would include real and costume jewellery, watches and accessories from some of the biggest brands in the world.

In February this year, GGL raised around Rs.330 cr. through an IPO of Rs.1.70 cr. shares at Rs.195 per share to invest in its subsidiaries/ associate companies expand its manufacturing capacities and penetrate the retail market besides the development of the SEZ near Hyderabad. For FY06, it recorded 20% rise in top-line to Rs.1621 cr. but its net profit zoomed by 450% to Rs.48 cr. on the back of better operating margins. This led to an EPS of Rs.8 on an equity of Rs.59 cr. Considering its focus on jewellery business and retail expansion, it is estimated to report a turnover of Rs.2000 cr. and net profit of Rs.70 cr. for FY07. This will translate to an EPS of Rs.12 and at a reasonable discounting of 18 - 22 times; it should trade in the range of Rs.220-260. Investors are strongly recommended to buy and hold for at least 15-18 months.

Aarvee Denim - Rs.51.00

Aarvee Denims & Exports Ltd. (Aarvee) was incorporated in March 1988 as Amtex India, a private limited company and was subsequently converted into a Public Limited company in April 1992. Today, Aarvee is the second largest manufacturer of denim fabric in India after Arvind Mills. It manufactures over 70-80 varieties of denim fabric with different textures and style and markets them under the brand name ‘Amtex’. Although operating predominantly in the domestic market, it also exports to Africa, USA, Panama, Honduras, Chile, Turkey, Venezuela, Mexico, Morocco, France, US and Bangladesh. Besides spinning and weaving Aarvee is also into garmenting and manufactures cotton and denim garments like jeans, trousers, jackets, shirts, skirts etc for men, women and kids.

Presently, Aarvee can produce 47 million metres (MM) of denim fabric including outsourced weaving job work at its Narol plant. Simultaneously, its’ spinning and stitching capacities stand at 18500 metric tonnes per annum (MTPA) and 6 lakh pieces of readymade garments per annum. The company has a captive power plant and has installed two windmills and coal based thermal power plant of 2.5 MW capacity, which reduces its power cost substantially. To achieve a larger global market share the company is implementing a massive Rs.100 cr. expansion plan whereby it will expand its weaving capacity by 25 MM to touch 72 MM and the spinning capacity by 13000 to take the total to 30000 MTPA. It also intends to augment its garment production capacity to 15 lakh pieces. As a strategic move, the company is diversifying in a big way into the lucrative market of Home Textiles & Made-ups. It is now planning a processing facility of 20 MM and a weaving capacity 3 MM totally dedicated for manufacturing of bed linens, pillow covers, cushions and tablecloth among others. Recently, Aarvee has launched its ‘Aden’ garment brand in the domestic market in Ahmedabad, Delhi and Mumbai and will expand to the rest of India gradually.

To fund its expansion, the company raised nearly Rs.40 cr. through preferential allotment of 45 lakh shares at Rs.86 per share to M/s DEG - Deutsche Inventions - a German Development Financial Institution and to promoters. For FY06, its turnover increased by 20% to Rs.277 cr. whereas its net profit grew by 30% to Rs.34 cr. This works out to an EPS of Rs.15 on its current equity of Rs.22.50 cr. Although denim prices have come down in recently putting some pressure on margins we expect it to end FY07 with top-line of Rs.325 cr. and bottom-line of Rs.38 cr. i.e. EPS of Rs.16 on diluted equity of Rs.23.50 cr. considering company expansion plan and foray into home textile. At a reasonable P/E of 6, the scrip should trade near about Rs.100. Investors are strongly recommended to buy Aarvee at current levels as the scrip can easily double in 15-18 months.

STOCK WATCH

After hitting a recent high of Rs.1060, Easun Reyrolle (NSE listed) (Rs.476.65) has corrected sharply by more than 50% in the recent carnage as the company’s board opposed Siemens open offer bid for acquiring 20% stake. Siemens already has a 23% stake in the company and it is its direct competitor. Whether or not it takes over Easun Reyrolle, the fundamentals of Easun are improving making it a value buy at the current level. The company is a leader in the field of electrical power management and provides products and services for the protection, control, metering and automation of power. For FY06, its sales doubled to Rs.106 cr. whereas it net profit jumped 270% to Rs.13 cr. thereby exposing an EPS of Rs.39 on a very tiny equity of Rs.3.33 cr. For FY07, it may post an EPS of Rs.50. Moreover, the scrip is ripe for stock-split or bonus. Buy at declines as the scrip is in a downward trend.

Few days back, GNFC (Code: 500670) (Rs.84) came out with quite encouraging numbers while its total revenue grew by 40% to Rs.431 cr., its net profit increased nearly 80% to Rs.47 cr. compare to Rs.26 cr. (excluding extraordinary item of Rs.35 cr.) in the last quarter although there was some pressure on operating margin. But in absolute terms it was compensated by the rise in sales volumes. It has declared Rs.4.25 as dividend for FY06 and the scrip is still trading cum dividend giving a handsome yield of more than 5% at the current price level. Besides, the merger with Narmada chematur has been finalized, which will further consolidate and integrate its operations leading to better efficiency. For FY07, it is estimated to clock a consolidated turnover of Rs.2750 cr. and net profit of 350 cr. i.e. an EPS of Rs.22 on its expanded equity of around Rs.156 cr. It’s a strong buy.

Another scrip which has crashed mercilessly is Kalindee Rail Nirman Ltd. (Code: 522259) (Rs.77.05). From a high of Rs.223. the scrip is constantly hitting new lows and is currently trading around Rs.77. The company is a niche player and forerunner in the execution of major Railway Signalling & Telecommunications projects in India. After the successful execution of the high value and prestigious Delhi Metro contract, its order book is constantly bulging. It has bagged several high value contracts from Rail Vikas Nigam Ltd. for Gauge Conversion, for installation of signalling, for supply and installation of track and Yard lighting works etc to be completed in the next two years. Besides, Kalindee has further diversified into Ballasted and Ballast-less Railway Track, Access Control Systems for Metro Rail, Roads, Buildings and Bridges. To consolidate its position further, it is merging its group company Kalindee India Projects and Engineering Services Ltd with itself. The future of the company seems quite promising though huge equity dilution in the near future is a cause of concern.

Godawari Power (Code: 532734) (Rs.65.50) is part of the Rs.550 cr. Hira Group and declared its March result post listing for the first time. Sales have more than doubled to Rs.86 cr. whereas net profit increased by 70% to Rs.10 cr. It even declared 10% dividend. The company is basically engaged in the production of sponge iron, steel billets, steel wires, steel rods/ pipes and captive power generation. Incidentally, in January’06 it completed its first phase of expansion thereby increasing its capacity of Sponge Iron from 105000 MT to 235000 MT, Captive Power Generation from 18MW to 28MW, Steel billets from 150000 MT to 250000 MT and new capacities for the manufacturing of ferro alloys (16500 MT) and steel wires (60000 MT) per annum. Besides, the company’s first 7MW CDM power project from waste heat recovery has been registered with the CDM Executive Board and hence will get carbon credits for the same. For FY07, it may clock a turnover of Rs.325 cr. with net profit of Rs.35 cr. i.e. EPS of Rs.14 on its expanded equity of Rs.24.80 cr.

RTS Power (Code: 531215) (Rs.67.05) is one of the leading manufacturers of power and distribution transformers and supplies to most of the State electricity boards, government and semi government organization and to a few private players. Due to the government’s aggressive plans of ‘power for all’ by 2012 and modernization of existing equipment, the company’s products are in huge demand leading to a healthy order book for the company. For FY06, while sales increased by 65% to Rs.89 cr., net profit zoomed 350% to Rs.3.71 cr. For FY07, this may shoot up to Rs.120 cr. and Rs.5 cr. respectively. This will lead to an EPS of Rs.10 on its equity of Rs.5.20 cr. Earlier, there were also rumours of Siemens taking some interest in this company. As the scrip is in a downtrend, it can correct further to Rs.55 level where it can be accumulated for handsome gains over a long period of time.