Gayatri Projects - Rs.238.00

Incorporated in 1989, Gayatri Projects Ltd (GPL) is engaged in the execution of major civil works including national highways, irrigation projects, mass excavation, bridges, ports, airports and industrial civil works. It has a rich experience of completing projects worth Rs.2500 cr. in the last 16 years and has successfully accomplished around 650 kms of highways, 1000 kms of irrigation canals, 21 irrigation projects, 7 projects of dams and reservoirs, 9 highways and runway projects, 8 site leveling projects and 3 industrial projects. It has also executed various site preparation and grading, construction of roads, drains, ponds, reservoirs and industrial structures for reputed companies like Nagarjuna Fertilizers, Reliance Petroleum, Jindal Vijzayanagar Steel, Visakhapatnam Steel Plant, HPCL, etc. Moreover, it has done specialized works for Indian Railways, Port Trusts and Airport Authorities. GPL also provides design, engineering, procurement, construction and project management services for various infrastructure projects. Although the company has executed various projects in different sectors of infrastructure, its expertise lies mainly in the road and irrigation sectors.

Since inception, GPL has built a huge fleet of construction equipments including heavy earth moving machines, concrete mixers, batching plants, road equipments, quarry equipments, transportation equipment and various other equipments for fabrication and erection plants. Presently, GPL has projects worth more than Rs.1000 cr. of Public Works/ Irrigation departments of various State governments namely Andhra Pradesh, Madhya Pradesh, Chattisgarh and Gujarat apart from other clients. Of these, highway projects constitute around 40% and the rest 60% are irrigation projects. In addition, it has to execute projects worth Rs.1400 cr. in a joint venture with other prominent construction companies. Thus, it has pending orders of Rs.2400 cr. to be completed over the next 3 years. Importantly, GPL has bagged one toll project and two annuity based projects under the BOT format from National Highways Authority of India (NHAI). To maintain growth, the company intends to expand its execution capabilities in industrial construction and focus on pursuing EPC contracts as they enable it to become the main contractor and bid for a higher number of critical projects.

To fund the execution of the Meerut-Muzaffnagar BOT project and for repayment of debt, GPL came out with an IPO of 29 lakh shares including sale of 19 lakh shares by Videocon group at Rs.295 per share. Thus it raised about Rs.29.50 cr. from which Rs.20 cr. went into creating a SPV for BOT project and around Rs.7 cr. was kept for repayment of debt. GPL is now planning to raise further capital of around Rs.130 cr. through the FCCB route. As per the recent budget, Section 80(I)A exemptions have been withdrawn for sub contractors with retrospective effect from FY 2000. Since GPL did not take the benefit, it will not have any major impact. But it was planning to take the benefit from FY07, so its tax outgo will be affected to that extent. However as GPL enjoys one of the best margins in the industry, for FY07 it is expected to register a turnover of Rs.500 cr. and PAT of Rs.28-30 cr. i.e. EPS of Rs.28-30 on its equity of Rs.10 cr. And considering its huge order book position, it may report a top-line of Rs.650 cr. and PAT of Rs.45 cr. for FY08. This works out to an EPS of Rs.45 for FY08. On an expected diluted equity of around Rs.13.50 cr., the EPS will work out to Rs.33. Still GPL is trading grossly cheap compared to its peers. Despite promoter concerns and high debts, investors are strongly recommended to buy GPL for a price target of Rs.400 (70% appreciation) in 12-15 months.

STOCK WATCH

Great Offshore (Code: 532786) (Rs.515.45) is India’s largest integrated offshore service provider operating in two broad segments – ‘Port & Terminal Services’ and ‘Oil & Gas Offshore’. While the former involves providing berthing, unberthing, towing of vessels and other harbour services to ports, the latter involves exploratory drilling, offshore support and construction services to oil & gas companies. For the December’06 quarter, it reported total revenue of Rs.148 cr. and profit of Rs.37.50 cr. resulting in an EPS of Rs.10 for the quarter. It has a fleet of 39 vessels, which includes 25 Offshore Support Vessels (OSV), 11 Harbour Tugs, 1 Construction Barge and 2 Drilling Vessels. For FY07, it may register a top-line and bottom-line-line of Rs.550 cr. and Rs.150 cr., which may shoot upto Rs.650 cr. and Rs.200 cr. for FY08 respectively. This translates into EPS of Rs.40 and Rs.53 for FY07 and FY08. Hence at a reasonable P/E of 16-18 times against its FY08 earning, its share price can appreciate to the range of Rs.850-950. A good medium-term bet.

International Combustion (Code: 505737) (Rs.262) offers a comprehensive range of geared motors, gear boxes and electric motors manufactured on specially designed inter-linked 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. Of late, it has started manufacturing Microfine Classifiers, which has a strong market potential. For the December’06 quarter, its sales improved by 20% to Rs.19.50 cr. but net profit increased 40% to Rs.1.90 cr. registering a quarterly EPS of Rs.8.50. To meet the increasing demand, an expansion programme has been initiated by the company for augmenting the manufacturing capacity of its Gear Box/Geared Motor Division. It is also upgrading the manufacturing capacity of its Heavy Engineering Division. For the full year FY07, it may clock a turnover of Rs.78 cr. with net profit of Rs.7.50 cr. i.e. EPS of Rs.31 on its diluted equity of Rs.2.40 cr. For FY08, its EPS is estimated may shoot above Rs.40. At a reasonable discounting by 14 times, the scrip has the potential to touch Rs.550. Besides, it has huge reserves of around Rs.30 cr. making it a strong bonus candidate as well. A screaming buy.

From the high of Rs.60, the share price of Patels Airtemp (Code: 517417) (Rs.35.70) has corrected almost 50% to around Rs.30 currently. The company is involved in the design and manufacture of industrial process plant equipments like pressure vessels, heat exchangers, air cooling & air heating equipment, dehumidification plants, air conditioning and refrigeration equipment and coils etc. For the December’06 quarter, its net sales jumped by 75% to Rs.12.50 cr. whereas net profit almost doubled to Rs.0.77 cr. It caters to core industrial sectors like power, refineries, cement, engineering, chemicals, fertilizers, textiles, pharma which are doing extremely well. It may end FY07 with a turnover of Rs.45 cr. and profit of Rs.2.35 cr. leading to an EPS of Rs.5 on its current equity of Rs.5 cr. For FY08, it has the potential to report an EPS of Rs.7. At the current market cap of around Rs.18 cr., this engineering company is available fairly cheap and can easily appreciate 50% in 6-9 months.

Goodyear India (Code: 500168) (Rs.143) manufactures tyres and rubber goods for automobiles with presence in all major segments except two wheelers. The company is a pioneer in introducing tubeless radial tyres for passenger cars. Importantly, it has technical-cum-financial collaboration with Goodyear Tyre, USA, which holds 74% equity stake and is among the top three players in the world. For the nine months ending 30th September 2006, its net sales increased by 25% to Rs.590 cr. but net profit grew over 6 times to Rs.35 cr. Importantly, its OPM doubled to 7% compared of 3.5% last year due to fall in rubber prices. It has an aggressive capex plan of Rs.80 cr. to double its production capacity by 2008. Besides, it has plans to open 300 multibrand format shop-in-shop outlets in the next two years. For the full year ending December’06, it may report sales of Rs.800 cr. with net profit of Rs.50 cr. i.e. an EPS of Rs.22 on its equity of Rs.23 cr. For CY07, if rubber prices remain low, its EPS can rise upto Rs.28-30. A good bet in the auto ancillary sector.

VST Tillers Tractors - Rs.132.00

Established in 1965, VST Tillers and Tractors Ltd. (VST) is the undisputed leader in the Indian tiller market enjoying more than 50% market share. It manufactures power tillers along with low horse power (sub 20 HP) tractors to cater to small farmers. Power tiller is nothing but the two-wheeled version of tractors and is meant for farmers with smaller land holdings and for those who cannot afford expensive tractors. The cost of a tiller is almost 1/3rd of a tractor. Presently, tillers is the main product of the company with 2/3rd revenue coming from it followed by tractors, which contribute around 20%. In addition, VST supplies farm equipments, diesel engines and precision components like crankshafts, connecting rods etc. It is also trades by supplying imported machinery from other countries such as rice transplanters, combine harvesters, garden tillers, reapers, hedge trimmers, bush cutters, hole diggers etc.

VST has three manufacturing facilities at Bangalore, Mysore and Hosur in technical collaboration with the Mitsubishi group of Japan. The products are sold under the brand name - VST Shakti, Mitsubishi-Shakti and Euro Trac and are also exported to countries in South Asia, East Asia, Middle East, Africa, Europe, USA etc. In order to beat the competition and increase its market share in the lower end tillers, VST has started importing Chinese tillers in CKD form, assemble them at its Hosur facility and sell them under a new brand Dragon Power Tiller (14 HP horizontal four stroke single cylinder) through its marketing and distribution network. In collaboration with Mitsubishi, Japan, it is planning to put up a manufacturing plant of diesel engines for power generators and tractors. Besides, the company continues to pursue cost cutting strategies, increasing manufacturing efficiencies, strengthening marketing initiatives and garner greater economies of scale to stay ahead.

In the Union Budget 2007-08, the government has put special thrust on agriculture and hence farm credit target has been raised from Rs.1,75,000 cr. to Rs.2,25,000 cr. with addition of 50 lakh new farmers to the banking system. This augurs well for VST since more than 80% of tractor sales are on credit. It has reported very encouraging results for the December 2006 quarter and may end FY07 with sales of Rs.160 cr. and profit of Rs.11 cr. i.e. EPS of Rs.19 on its equity of Rs.5.76 cr. The management may even declare Rs.4 as dividend. Its sales and net profit can rise to Rs.200 cr. and Rs.12.75 cr. for FY08. Moreover, it also has some surplus property in Bangalore, which may fetch a handsome value to the company, although officially not announced by the company. Hence investors are advised to buy at declines as its share price can appreciate by 50% in 9-12 months.

Visesh Infotechnics Ltd. - Rs.36.00

Established in 1989 as an ERP software product company, Visesh Infotecnics Ltd. (VIL) is today a mature and fast growing company committed to providing reliable and cost-effective IT solutions to organizations globally. It has a state-of-the-art software development facility in Bangalore and another one at Gurgaon. Besides, it also has a base in Bangkok with a large strength of software and networking professionals. Importantly it has strategic partnerships & alliances with global IT leaders like Novell, Microsoft, Oracle, Compaq, IBM, Sun, Cisco, 3Com, HP, Toshiba etc. Its software and technology solutions are being used successfully in almost all industry verticals such as telecommunications, chemicals, automobiles, pharmaceuticals, services (including finance & ITeS), government, education, sugar, sales & distribution etc. Hence, VIL has a formidable client list of more than 1000 large and medium size corporates including several reputed multinationals and overseas clients and has been declared a winner in the world-renowned Deloitte Technology Fast 500 Asia-Pacific 2005 programme. It is also winner in the inaugural Deloitte Technology Fast 50 India programme.

VIL’s operations can be broadly divided into three segments: IT Solutions & Product Support, Enterprise Software & IT enabled Services. It has a proud history of product development and that of an IP (Intellectual Property) creator. In the ERP space, the company has three products namely BusinesSoft™, BusinessPro™ and powERPro, which are doing extremely well. Another software product VRetail™ is specially designed for retail space and has been deployed successfully by several departmental stores, supermarkets and retail chains in India and overseas. The company has lately diversified into high technology and fast emerging areas of mobile telematics with launch of TransXS™ pioneering remote vehicle tracking service that facilitates corporates and fleet operators to get 24x7 real-time information of their fleet location and enhance logistics management through vehicle utilization analysis, route planning, asset tracking etc. VIL also has a division called InfraServe, which designs, builds and manages IT infrastructure for its clients globally through effective deployment of hardware, software and networking products. Last fiscal, the company ventured into business of Knowledge Process Outsourcing (KPO) & BPO through its newly-formed division VConnect™ which has good orders and is expecting new legal process outsourcing contracts from reputed US Based law firm. A few months back, it entered into 50:50 joint venture with Cyberworks Software, USA, to provide outsourced services to its clients from its contact centers (BPO units) in India. Its Lapps.Biz™ is an e-commerce portal that provides mobility devices (laptops, hand-helds etc.) and applications to the upwardly mobile retail buyer at the click of a mouse. The company also offers internet and web based services thru SignDomains™, StepOne™ & InfraSurf™.

Notably, VIL has some aggressive expansion plans for which it is planning to raise around Rs.44 cr. through FCCB / GDR/ preferential allotment route and has already taken the approval at the recent EGM. For FY06, its top-line increased by 120% to Rs.78.50 cr. and net profit shot up by nearly 6 times to Rs.11.05 cr. i.e. EPS of Rs.4. It declared Re.1 as dividend, which means a healthy payout ratio of 25%. For this fiscal, it is expected to register total revenue of Rs.125 cr. and with profit of Rs.19 cr. i.e. EPS of Rs.7 on its current equity of Rs.26.97 cr. Promoters’ holding is around 56% and its book value stands at Rs.27. Although it needs funds for expansion, still it may declare 12.50% as dividend for FY07. Its forthcoming FCCB/GDR is expected to be placed above Rs.50 per share. Hence investors are strongly recommended to buy at current levels with a price target of Rs.55 (50% returns) in 9-12 months.

STOCK WATCH

IG Petrochemicals Ltd. (Code: 500199) (Rs.57.10) is the world’s third largest producer of Pthalic Anhydride (PAN), which is used in the manufacture of plasticizers, alkyd resins and as an intermediate in the production of dyes and pigments. Due to major financial restructuring and capital infusion by Spinnaker-a global fund, the company has made a strong turnaround this fiscal. For the December 2006 quarter, while its sales increased by 50% only to Rs.150 cr., its net profit zoomed to Rs.10.90 cr. against a net loss of Rs.15.60 cr. last year. Notably, it recorded the highest OPM of around 14% due to high realization, low raw material costs and higher capacity utilization. For the full year FY07, it is expected to clock a turnover of Rs.600 cr. with PAT of Rs.33.50 cr., which translates into an EPS of Rs.13 on its current equity of Rs.26.30 cr. and EPS of Rs.11 on its diluted equity of Rs.30.80 cr. A good turnaround scrip.

A major beneficiary of the Railway Budget will be Kalindee Rail Nirman (Engineers) Ltd. (Code: 522259) (Rs.164.75). It is a forerunner in execution of the railway signalling, gauge conversion from metre gauge to broad gauge, new railway line construction, modernisation of railway yards. up-gradation of railway sidings in ports, power plants, petroleum sidings, access control systems for metro rail, fibre optic networks, etc. Recently, it merged group company, Kalindee India Projects, through a swap ratio of 17:20, which will help it to bid for larger projects. Besides, it just now raised around Rs.27 cr. through a preferential allotment of 17.25 lakh shares at Rs.156.50 per share. Further, it is planning to raise approx. Rs.30 cr. through the GDR or FCCB route. It may end FY07 with a turnover of Rs.175 cr. with net profit of Rs.10.50 cr. i.e. EPS of Rs.10 on its diluted equity of Rs.10.34 cr. Since the company has more than Rs.750 cr. of orders in hand, its top-line is expected to shoot upto Rs.300 cr. with PAT of around Rs.22 cr. i.e. EPS of Rs.21 on its current equity for FY08. A solid buy as its share price can shoot upto Rs.240 in 12 months.

By this year’s budget, the government has expressed its special thoughts on health and family welfare by increasing its allocation by 20% to more than Rs.15,000 cr. This is positive for Sanjivani Parenterals (Code: 531569) (Rs.32.85) to some extent as it a supplier of pharmaceutical products to government bodies. Few months back, it bagged a prestigious order from the Mumbai Municipal Corporation and also won the bid of CMS Tender for bulk supply to all hospitals of the West Bengal government. Recently, it also entered into some contract with the defence ministry for three years, which is a good breakthrough for the company. For FY07, it may report a total revenue of Rs.75 cr. with net profit of Rs.4.50 cr. i.e. an EPS of Rs.8 on its equity of Rs.5.90 cr. Technically also, the scrip has bottomed out and the risk:reward clearly favours the bulls in this scrip.

After hitting a high of Rs.122, Paradyne Infotech Ltd. (Code: 532672) (Rs.87.30) has corrected sharply to Rs.80 levels on fears of MAT implementation and the FBT on ESOP. However, it is a rapidly growing mid-cap IT company set to capitalise on strong growth opportunities in HR and Banking software products, offshore & domestic software services, e-governance projects and IT infrastructure management services through both organic and inorganic initiatives in domestic as well as global markets. For the December 2006 quarter, its top-line grew by 60% to Rs.34.50 cr. and net profit more than doubled to Rs.3.95 cr. registering an EPS of Rs.3.65 for the quarter. For full year FY07, it may register total revenue of Rs.125 cr. and after providing Rs.2.50 cr. as current tax, net profit may stand at Rs.14 cr. This translates into an EPS of Rs.13 on its current equity of Rs.10.88 cr. For FY08, its EPS can rise to Rs.16. Buy on declines.

PBA Infrastructure Ltd. (Code: 532676) (Rs.95.30) executes civil engineering projects and specializes in construction of highways, dams, runways, heavy RCC structures, bridges and other infrastructure projects for various government bodies. Although the shares of construction and infrastructure companies have tumbled sharply on withdrawal of some tax exemptions in the budget, the future prospects of PBA Infrastructure are very encouraging as it regularly bags good orders. Its first three quarters revenue is up by 75% to Rs.187 cr. but net profit grew by 20% only to Rs.10 cr. only due to higher interest cost and tax provisions. Since it has pending contracts worth more than Rs.500 cr., it may report sales of Rs.265 cr. with net profit of Rs.12 cr. for FY07, which may shoot up to Rs.325 cr. and Rs.16.50 cr. respectively for FY08. This works out to an EPS of Rs.9 & Rs.12 for FY07 and FY08 respectively. The company is also planning to raise capital through FCCB/GDR/ preferential allotments, which will lead to its re-rating going forward.