STOCK WATCH

ICSA (India) Ltd. (Code: 531524) (Rs.1060) is in the business of constructing & setting up of power transmission lines and substations. It also provides embedded technology for the power sector to identify Transmission & Distribution (T&D) losses and monitor power consumption using the GSM Network. It has successfully deployed its power sector products like Substation Controllers, Distribution Transformer Controllers, and Automatic Meter Reading Systems etc. Apart from the power sector, its Remote Monitoring applications are utilized by other sectors including oil, gas, mining, irrigation, transport and water utilities etc. For FY07, it may report sales of Rs.330 cr. with net profit of Rs.65 cr., which can shoot upto Rs.500 cr. and Rs.100 cr. respectively for FY08. On its current equity of Rs.6.60 cr. the FY07 EPS works out to around Rs.100. Recently, the company raised around Rs.100 cr. through the FCCB route and has also issued 7.5 lakh warrants at Rs.1135 to promoters and Goldman Sachs. Hence on its diluted equity of around Rs.8.50 cr. its FY08 EPS works out to Rs.118. However, the company is planning to raise another Rs.100 cr. through ADR/GDR or any other route to fund its future growth plans.

Honda Siel Power Products Ltd. (Code: 522064) (Rs.172) is engaged in manufacturing and marketing of portable generator sets, portable engines, internal combustion engines, pumping sets, water pumps, lawnmowers, spare parts and other related products in India. Being a 67% subsidiary of Honda Motor Co. Japan, the company is the undisputed leader in the field of portable generators with more than 70% market share. For FY07, it is expected to report net sales of Rs.225 cr. with net profit of Rs.15.50 cr. i.e. an EPS of Rs.15 on its equity of Rs.10 cr. Notably due to various indigenisation plans, the company has reduced its import cost from 35% to 20% as a percentage of material cost earlier. Its profit margin has accordingly considerably and is expected to rise further for FY08. It may clock a turnover of Rs.260 cr. and PAT of Rs.20 cr. i.e. EPS of Rs.20 for FY08. A safe bet.

Manugraph India Ltd. (Code: 505324) (Rs.172) is the largest manufacturer of web offset and sheet-fed offset presses. With a whopping 70% market share, its presses are present in almost all-major publication houses, in India. Besides, it has worldwide presence from Latin America to Europe and from the Middle East to China. Recently, it has acquired Dauphin Graphic Machines Inc., a leading manufacturer of web offset printing machines based in Pennsylvania, USA for $19.20 mn. With this acquisition, it will become the world largest single width press manufacturing company. It is expected to end FY07 with sales of Rs.375 cr. with net profit of Rs.50-52 cr. i.e. EPS of Rs.17 on its equity of Rs.6 cr. having FV of Rs.2 per share. However, due to the recent acquisition its consolidated numbers will double and it can register a consolidated turnover of Rs.750 cr. for FY08. There is also good interest from institutional investors as FIs hold around 8% whereas domestic MFs hold 4% as on December 2006 and HDFC MF and Reliance MF have also bought good quantity from open market in the range of Rs.185-200 in the last two months. A solid bet for the long-term.

TIL Ltd. (Code: 505196) (Rs.191) is India's leading provider of technology intensive, application specific heavy engineering equipment for use in core infrastructure sectors. Its business is primarily dividend into three segments namely material handling (25%), construction equipment (50%) and power system (25%). Its product profile consist of Mobile Cranes, Forklift Trucks, Hydraulic Excavators, skid steer loaders, off highways trucks & Dumpers, Industrial generator sets, diesel engines and various other material handling and earth moving equipments. On a standalone basis, it may end FY07 with sales of Rs.550 cr. and profit of Rs.17 cr., which will result in an EPS of Rs.17 on its current equity of Rs.9.70 cr. To meet the increasing demand, the company is planning to increase its capacity for material handling equipment like mobile cranes etc. Accordingly for FY08, it can clock a turnover of Rs.625 cr. with net profit of Rs.21 cr. i.e. EPS of Rs.22. On a consolidated basis, it works out to an EPS of Rs.25-26. At a reasonable discounting by 12 times, the share price can touch Rs.300 in 9-12 months. A good bet in the engineering sector.

Frontier Springs - Rs.16.00

Incorporated in 1981 and promoted by Mr. K. L. Bhatia, Frontier Springs Ltd. (FSL) belongs to the small Kanpur based Frontier group which has over 30 years of experience in the business of automobile & railway suspension parts like U-bolt, center bolt, coil springs, leaf springs, centre pivots, side assemblies, cast steel brake beams, buffer components, buffer assemblies, coupler components metal bonded etc. Out of these products Suspension springs, Leaf springs and Coil springs are made by FSL. The range of application of these springs varies from rail rolling stock to passenger cars. It also makes heavy and light hot coil springs for earth moving equipments, boiler plants etc. Apart from the Railways being a major customer, its clientele includes Ford, Opel, Daimler, BMW, Mercedes, Tata Motors, Texmaco, Kalyani Brakes, Central Ordinance Depot, Sunflag Industries, Usha Martin etc. Moreover its products are also exported to the UK, USA, Holland, Australia, Netherland and South East Asian countries. In short, it has a very good quality and design reputation both in India and abroad.

FSL’s manufacturing facility is located at Rania in Kanpur, UP, with an installed capacity of 10,800 MTPA. In order to obtain better space utilization, more fatigue life and weight reduction, different types of springs are manufactured at its plant. Variable load rates as well as fixed load rate coil springs are manufactured by high quality chrome vanadium and chrome silicon steel rods which are duly crack detected and epoxy powder coated. Incidentally, the group companies Frontier Alloy Steels and Frontier Metaprod help FSL get regular supply of raw materials thus giving it the much needed cost-efficiency advantage. Recently, it set up a new assembly line for the manufacture of heavy and light-coiled springs by importing the plant from Cogan Constructions, USA. The commercial production has already started and is expected to contribute an additional Rs.12 cr. of revenue per year, which is quite substantial for FSL. The company plans to further expand its Leaf Spring capacity as it is expecting some big order from a large UK based trailer manufacturer. Moreover, it has decided to diversify into the business of Air Suspension Spring, which has been indigenously developed. FSL has already engaged the services of M/s KPS Consultants and Impex Private Ltd., New Delhi primarily to explore the lucrative Technical Know-how and collaboration with some countries in Europe and China for manufacture of Air Springs.

FSL is thus well poised to encash the exponential boom in the Locomotive & Automotive Ancillary industry. The recent expansion and future capex will give a substantial fillip to its topline and bottomline in coming quarters. For the nine months ending 31st December 2006, its sales increased by whopping 60% to Rs.17 cr. whereas net profit jumped 140% to Rs.0.95 cr. with the massive expansion and modernization plans approved in the recent railway budget, FSL is expected to get some big orders in the near future. For FY07, it may report net sales of Rs.25 cr. with net profit of Rs.1.40 cr., which can shoot up to Rs.35 cr. and Rs.2.25 cr. for FY08. This works out to an EPS of Rs.4 and Rs.6 respectively. Investors are strongly recommended to buy the FSL scrip at current levels as its share price can easily double in 12-15 months.

Goodyear India - Rs.140.00

Established in 1922, Goodyear India Ltd (GIL) was originally incorporated as Goodyear Tire and Rubber Company (India) but was subsequently renamed as GIL in 1961 when it became a public limited company. This 85-year-old FERA company has a technical-cum-financial collaboration with Goodyear Tire and Rubber Company, USA which is also the holding company with 74% equity stake. Notably, the American parent is among the top three players in the world with presence in six continents and operating from 80 facilities in 28 countries. Here in India, GIL has emerged as a leading manufacturer of automotive tyres with 15% market share. In fact, it is the largest supplier of tractor tyres in the country and was the first to roll out tubeless radial tyres on Indian roads.

GIL has two manufacturing facilities: one in Aurangabad, which makes passenger car tyres and other facility in Haryana where tractor and other tyres are made. Except for two-wheelers, the company has presence in all major segments like passenger cars, heavy and light commercial vehicles, tractors & farm equipments etc. It supplies to most of the auto companies including Maruti, Tata Motors, M&M, Ford, GM, Hyundai, Ashok Leyland, Swaraj Mazda, TAFE, PTL, Eicher, Escorts, etc. It also commands a major market share in the Off The Road (OTR) segment by being the major supplier to Coal India Limited, Escorts, L&T, Tata Steel and other steel plants of the country. Importantly, it has strong presence not only in the OEM segment but also in the replacement market. Besides, its tyres are being exported to Australia, Dubai, Hongkong, Phillipines, Nepal, Bangladesh, Srilanka, Bhutan and Pakistan. Due to improved market conditions, GIL is finally implementing its Rs.80 cr. expansion plan to increase the production capacity at its Aurangabad facility from 4500 tyres per day to 10,000 tyres in the next two years. On the retail front, it has introduced international & multi-brand format 'Shop-in-shop' outlets, which not only sells tyres but also car accessories. GIL plans to open 300 such outlets by 2008 at an investment of Rs.50 cr.

The biggest turnaround for the tyre industry was the fall in the price of rubber, as it constitutes around 40% of the total raw material cost. Although, historically rubber prices are still trading high but in the last one year they have cooled off a bit. The RSS-4 Kottayam rubber price is currently trading around Rs.8700 per quintal compared to Rs.11500 in May 2006. Hence for the September 2006 quarter, GIL’s topline grew by 40% to Rs.212 cr. but NP zoomed by 10 times to Rs.15 cr. compared to Rs.1.50 cr. last year. It reported a healthy OPM of 10% after a long time. For the full year ending 31st December 2006, it may report net sales of Rs.800 cr. and NP of Rs.50 cr. i.e. an EPS of Rs.22 on its equity of Rs.23 cr. Hence at its current market cap of around Rs.325 cr., this MNC associate is trading at P/E ratio of than 7. However, as the performance of the tyre industry largely depends on the rubber prices, it’s very difficult to predict the future profit of the company. If the price of the rubber falls in future, the share price of the company will rise. Investors can buy at declines for a 50% return in 15-18 months.

STOCK WATCH

Hind Rectifiers Ltd. (Code:504036) (Rs.740) is a beneficiary of the recent railway budget as 50% of its revenue comes from the railways. It makes locomotive transformers, power electronics components and equipments. It manufactures diodes and thyristors (types of semiconductor devices), rectifiers, inverters and transformers that are used in locomotives. For the first three quarters, its sales grew by more than 20% to Rs.60 cr. whereas net profit jumped 55% to Rs.8 cr. To maintain its future growth, the company has modernized its Mumbai plant and is setting up two new plants in Uttaranchal, where it will get tax benefits as well. Commercial production may start by April 2007. For the full year FY07, it may report a topline of Rs.85 cr. with net profit of Rs.11.50 cr. But for FY08, it can report sales of more than Rs.100 cr. with PAT of around Rs.15 cr. on contribution from the new plant. This works out to an EPS of Rs.76 for FY07 and Rs.99 for FY08 respectively. It’s a solid buy for medium to long-term.

Accel Frontline Ltd. (Code:532774) (Rs.59.55) is a mid cap IT company which concentrates mainly on the four segments viz. IT Infrastructure solutions, IT Infrastructure Management services, Enterprise Software solutions and Business Process Outsourcing services. For the first nine months ending 31st December 2006, its topline grew by 20% to Rs.142 cr. whereas bottomline jumped 80% to Rs.9.50 cr. Couple of months back, it was been chosen by Sun Microsystems as its Strategic Regional Partner for Tamil Nadu and Kerala. Besides it recently acquired the banking solutions division of Telesis Global Solutions Ltd., a Chennai based Software Company specializing in software products for banking applications and implementation and migration services for core banking software in India, Middle East and African regions. The company is aggressively working to increase its global presence and has raised around Rs.39 cr. through the IPO route at Rs.75 per shares in October’06. It may end FY07 with total revenue of Rs.190 cr. and PAT of Rs.14 cr. i.e. an EPS of Rs.6 on its equity of Rs.22.50 cr. For FY08, it can report an EPS of Rs.8. Currently, the scrip is hitting new lows and is trading at 20% discount to its issue price. Accumulate at declines.

Another scrip which is quoting at 20% discount to its issue price is Sunil Hitech Engineers Ltd. (Code:532711) (Rs.80). It specializes in fabrication, erection, testing & commissioning of thermal power plants with high precision quality and timeliness. It also looks after overhauling and maintenance of the plant. For the current first three quarters, its turnover remained almost flat at Rs.98 cr. but net profit increased by 15% to Rs.4.30 cr. Recently, the company forayed into manufacturing of transmission towers by setting up a galvanizing plant at Nagpur with an annual production of 20,000 MT capacity. For the full year FY07, it is estimated to clock a turnover of Rs.150 cr. with profit of Rs.6.25 cr. But with a present order book position of more than Rs.500 cr. and still growing, its future earnings will be quite strong. For FY08, it can report a total revenue of Rs.200 cr. with net profit of Rs.9.50 cr. Hence, it is expected to report an EPS of Rs.6 for FY07 and Rs.10 for FY08 respectively. With its 52-week high as Rs.167, the scrip can easily appreciate 50% in 6-9 months.

Electrosteel Castings Ltd. (Code:500128) (Rs.390.70) is a water infrastructure company that provides techno-economic solutions in the area of water supply and sewerage systems. In fact, it is India’s largest manufacturer of ductile iron pipes and cast-iron pipes with a capacity of around 2,50,000 TPA. It also provides turnkey services, which encompass manufacturing; supplying, laying, operating and transferring complete ductile iron pipe projects. For the December’06 quarter, it reported stunning numbers. Its sales shot up by 50% to Rs.300 cr. and net profit almost tripled to Rs.29.50 cr. To reduce the cost of production, the company is setting up a sintering plant with a capacity of 850 tonnes per day (TPA) at Khardah and has also been allocated the Parbatpur Coal Block in the Jharia Coal Field for mining coal for captive consumption. To fund these projects, it had raised about Rs.340 cr. through the FCCB route to be converted into equity shares at Rs.450 per share. For FY07 & FY08, it is expected to report revenues of Rs.1100/ Rs.1300 cr. with profit of Rs.105/ Rs.130 cr. respectively. This leads to an EPS of Rs.51 and Rs.63 on its current equity of Rs.20.80 cr. However, on its fully diluted equity of Rs.28.50 cr. considering the full FCCB conversion at Rs.450 per share, the FY08 EPS works out to Rs.45. Buy at sharp declines only.

Lloyd Electric & Engineering - Rs.138.00

Incorporated in 1987 and belonging to the Delhi based Punj Group, Lloyd Electric & Engineering Ltd. (LEEL) is in the business of manufacturing heat exchanger coils and sheet metal items for air-conditioning and refrigeration applications. In fact, it is India’s largest manufacturer of evaporator and condenser (E&C) coils for air conditioners. E&C coils are critical components in AC manufacturing next only to the compressor and account for approximately 20% of the cost of manufacture. Importantly, LEEL is the only Indian company to get US certification of quality for its E&C coils. The company also undertakes contract manufacturing to assembled room ACs, which are then sold by the OEMs under their respective brand names. LEEL is an OEM supplier to almost all AC manufacturers in India and it clientele includes Samsung, Electrolux, Carrier, Haier, Voltas, Blue Star, LG, Hitachi, Whirlpool, Diakin and the Indian Railways. Besides, it also exports its products to the Middle East, Australia, Asia and Africa.

LEEL has two manufacturing facilities located at Bhiwadi in Rajasthan and Kala-Amb in Himachal Pradesh. Recently, it has set-up a new manufacturing unit in Dehradun (Uttaranchal) to manufacture room air-conditioners, components of air-conditioners and electronic goods. The Bhiwadi plant has a capacity to produce 625,000 coils and assemble 20,000 ACs per year. The Kala-Amb plant can manufacture 400,000 coils and assemble 2,00,000 AC’s per annum. The biggest positive for the company is that it enjoys a 10 year excise duty and income tax exemption at its Kala-Amb and Dehradun facilities and would be paying sales tax at a concessional rate of 1% as compared to the normal 4%. Hence it is economical for AC manufacturers to outsource their manufacturing to LEEL making it a win-win strategy for both. Besides, the company has signed a MoU with Air International Transit Pty Limited, an Australia-based company for designing, manufacturing and supplying of AC package units to Metro Rail Corporation in India. It has also tied up with a Korean company, Hanyung Alcobis, for the manufacture of roll bond and frost-free coils for refrigerators. To cater to the rising contract manufacturing demand, LEEL is planning to double its AC assembling capacity to 400,000 units per year in the near future.

Last fiscal, LEEL raised around Rs.130 cr. through a GDR issue to be converted into equity at Rs.140 per share. Moreover, recently it got Rs.45 cr. by converting 40 lakh warrants issued in August 2005 into equity shares at Rs.125 per share. It reported very encouraging numbers for the December’06 quarter and is estimated to end this fiscal with sales of Rs.475 cr. with net profit of Rs.43 cr. This works out to an EPS of Rs.14 on its diluted equity of Rs.31 cr. For FY08, it may post an EPS of Rs.18. Notably, FII’s are holding around 26% stake in it with 6% held by mutual funds. Couple of weeks back, the company has hiked the FII limit to 74%, which indicates that FIIs are quite interested in this company. At a reasonable discounting by 12 times against its FY08 earning, its share price can once again test Rs.220 levels in 12-15 months.