STOCK WATCH

Eastern Silk Inds. Ltd. (Code: 590022) (Rs.243.05) is a leading manufacturer & exporter of silk fabrics with nearly 30% share of the organised silk market. It is present across the entire value chain from yarn to basic/design fabrics to embroidered fabrics and made-ups. It is now aggressively shifting towards the lucrative machine-made fabrics instead of handloom and powerloom fabrics. Secondly, it is implementing a huge capex of Rs.300 cr. to expand its weaving capacity and foray into home furnishing and made-ups business in a big way. Since the last four years, its OPM is constantly improving and is expected to be 20% for FY07 compared to 10% in FY03 and is expected to register net sales of Rs.475 cr. with net profit of Rs.63 cr. This translates into an EPS of Rs.40 on its current equity of Rs.15.80 cr. Currently, the scrip is trading at a P/E multiple of just 6 and has the potential to touch Rs.320 in the medium-term. It has also decided to split the face value of its Rs.10 paid-up share to Rs.2, which will improve its liquidity going forward.

Coral Laboratories Ltd. (Code: 524506) (Rs.119.50) manufactures a variety of formulations in capsules, dry syrup, tablets, liquid orals, special diagnostic kits, ointments, creams, injections, eye/ear drops etc. catering to inflammatory, bacterial, biotic, protein deficiencies and skin conditions. Last year, after expanding the capacity of its Daman plant, the company set up a new UK MHRA and US FDA compliant formulations plant n at Dehradun in Uttarkhand, which enables it to enter the regulatory export markets of developed countries. Its second project for the manufacture of 'Betalactum' is almost completed and the third project for injectibles is under implementation. Although its third quarter was not so great, it may still end FY07 with sales of Rs.32 cr. and net profit of Rs.6.50 cr. This translates into an EPS of Rs.18 on its current equity of Rs.3.57 cr. For FY08, it can report sales and net profit of Rs.40 cr. and Rs.8.50 cr. respectively. Buy on sharp declines only.

ITL Industries Ltd. (Code: 522183) (Rs.28.40) is a reputed metal cutting solutions provider offering a wide range of machine tools and cutting lubricants besides trading in hydraulic power packs and hydraulic presses. Apart from making Industrial Blades, Power Hackshaw Machines, Special Purpose Machines, Hydro Testers, Lubricants and other supporting equipments, it also manufactures Tube and Pipe Mills, Section Mills, Straightening Machines, Draw Benches, Automatic Cut-offs, Accumulators etc. It has already completed its modernization and expansion project with a capex of Rs.2.5 cr. last year and has also acquired the land in the SEZ in Pithampur for meeting global opportunities. Notably, it has healthy orders in hand due to good demand for tubes & pipes manufacturing machines along with its newly launched circular saw machine. The company is expected to declare very good numbers for the March’07 quarter and may end FY07 with sales of Rs.21 cr. with net profit of Rs.1.50 cr. i.e. an EPS of Rs.5 on its tiny equity of Rs.3.25 cr. At the current market cap of merely Rs.9 cr., it’s a risk-free buy, which can double in a year’s time

Few days back, GM Breweries Ltd. (Code: 507488) (Rs.89.90) came out with average numbers for the March’07 quarter. It made an all time high sales of Rs.47 cr., although it’s just 7% higher on YOY basis. It seems that the company made some accounting adjustment in FY06 and reported Rs.7.40 cr. net profit for the March 2006 quarter. However, for March 2007 quarter, it earned a decent OPM of 15% whereas its net profit stood at just Rs.3.60 cr. For the full year FY07, net sales increased by 12% to Rs.173 cr. whereas its OPM worked out to 13%. After a tax provision of Rs.6.20 cr. (i.e. 34% on the PBT), it reported a PAT of Rs.11.90 cr. This translates into an EPS of Rs.13 on its equity of Rs.9.36 cr. In spite of fall in profit in absolute terms, the company declared 18% dividend compared to 15% last year. For FY08, the company can clock a turnover of Rs.190 cr. with net profit of Rs.15 cr. i.e. an EPS of Rs.16. At a forward discounting by 8 times, the scrip can easily touch Rs.125 in a good market.

TIL Ltd - 186.00 Rs

Established in 1944, TIL, earlier known as Tractors India Ltd. is India's leading providers of technology intensive, application specific heavy engineering equipment for use in core infrastructure sectors. In fact, it is the pioneer and undisputed leader in mobile crane manufacturing and has now emerged as an integrated provider of total material handling solutions. Importantly, TIL enjoys exclusive marketing rights in the northern and eastern India for the Caterpillar (USA) range of construction/earth moving equipments and engines. TIL’s product profile is broadly segmented into three divisions:

1. Material handling equipment (30% revenue): This division manufactures material handling equipment such as cranes, forklifts trucks, reachstakers, articulated self loading cranes, anode transport vehicles etc. Besides, it also markets imported heavy duty crawler cranes, heavy logistic vehicles, aerial work platforms etc. Notably, TIL produces mobile cranes of 10 to 100 tonnes in diesel, electric and hydraulic versions and is the only domestic manufacturer of cranes in the range of 30 – 100 tonnes.

2. Construction equipment (50% revenue):This division markets earthmoving, construction and mining equipments like hydraulic excavator, skid steer loader, motor grader, wheel loader, off highway trucks & dumpers, track type tractor etc. manufactured by Caterpillar (USA), one of the world’s biggest manufacturer of construction equipment with a very strong reputation. It also trades in critical spares parts and provides after-sales service to customers.

3. Power systems (20% revenue): This unit is engaged in assembly, supply, erection and commissioning of power generating sets (diesel-based) driven on Caterpillar engines in the 180 - 2250 KVA range, which find diverse use in several industry segments like hospitals, railways, hotels & restaurants, cinema houses, multiplexes, residential colonies and factories. It also offers higher range of gas/heavy fuel based ‘CAT’ power systems and engines with capacities from 1.6 MW to 12MW.

TIL has two plants, one at Kolkata for material handling equipment and the other near Delhi for power systems. Besides, it has 34 service centres all across the country and has technical collaborations with international manufacturers like Boss (UK), Grove (USA), National Crane (USA), Luna Euipos (Spain) & Hencon (Holland) for making equipments in India. It is also bringing in higher technology from Manitowoc, USA, for competing with other foreign players in crane sizes of above 100 tonnes. Due to better margins, TIL has started focusing more on value added high tonnage offerings such as Reach Stackers (container handling mobile equipment) and Electric Level Luffing cranes (for Bulk Cargo). It has a very healthy order book position with good orders flowing from Tata Steel, Reliance Petroleum, Bharat Coking Coal, Punj Lloyd, ONGC, Madhucon, Soma, KMC etc. Of late, it has also started renting equipment, which is growing rapidly and has a huge potential. Meanwhile, TIL plans to introduce high technological products like 40 tonnes RTG, 10-35 tonnes Electrical Level Luffing Cranes, Refuse Collection Vehicles & Fire/Crash Rescue Vehicle. Moreover, as the company is working at optimum capacity utilization it intends to enter into the used equipment market and may even go for a greenfield expansion to increase capacity.

Incidentally, TIL’s wholly-owned subsidiaries in Union of Myanmar, Singapore and Nepal are also doing well. With the Government’s emphasis on infrastructure development and the investment plans of industries such as cement, steel, coal, etc. as well as the port and mining sectors, the future prospects of TIL look very promising. Also, as the peak load shortage continues, its Power System business will continue to grow. On a standalone basis, it may earn a profit of Rs.18 cr. on revenues of around Rs.550 cr. This means EPS of more than Rs.18 on its equity of Rs.9.73 cr. For FY08, its EPS can increase upto Rs.22 and consolidated EPS may stand at Rs.30. Thus, the scrip is trading at forward P/E multiple of 8, which is extremely cheap. Investors are strongly recommended to buy it at current levels with a price target of Rs.260 in a year’s time. Long-term investors can expect much higher levels.

Accel Frontline - Rs.61

Established in 1991, Accel Frontline Ltd. (AFL) is an IT Services provider specialising in consulting, infrastructure, applications, outsourcing and support services. It has a strategic alliance with the reputed Singapore based Frontline Technologies Corporation Ltd. The company has structured its business by carving out the following four strategic business units (SBUs):

IT Infrastructure Solutions: More than 50% of its revenue comes from this segment, which offers its customers the chance assess, build, deploy and optimise IT Infrastructure for mission critical applications. The solutions include system integration of data centres, networks, storage management, disaster recovery and security.

Infrastructure Management Services: With 30% revenue contribution, this SBU provides IT infrastructure maintenance, facilities management services, application management services and IT outsourcing.

Enterprise Software Solutions: This unit contributes nearly 10% of its revenue and specialises in providing ERP consulting, application management, outsourced product development and industry specific solutions with software products like ‘Accel EMS’ for the manufacturing domain, ‘Prodigy’ and ‘Accel UMS’ for the Education domain, ‘Accel HealthSPACE’ for the Healthcare domain and ‘Best B’ for the Banking domain.

Business Process Outsourcing Services: Although its BPO division generates only 10% revenue, it has an unique model under which it provides warranty outsourcing, logistics management, repair depot and technical helpdesk services to major IT and telecom product companies.

Presently, AFL operates out of its head office, 8 regional offices, 22 area/branch offices and 80 service locations. It has state-of-the-art software development centres in Chennai and Kochi. Its BPO division operates at 39 locations with its head office in Chennai and presence in other major centres and the metropolitan cities. It also has two subsidiary offices in Singapore and Dubai. Besides, the company is a certified partner for Sun Microsystems, Microsoft, IBM and Oracle to deliver applications on their platforms and provide support for such applications. Notably, AFL’s business processes conform to ISO 9001:2000, SEI CMMI Level 5 and BS 15000 standards. With a prestigious client list of over 2000 corporates and having presence in seven countries, AFL is now planning to tap the Far East, Middle East, and African countries apart from increasing its market penetration in USA.

Couple of months back, AFL acquired the banking solutions division of a Chennai based software company, which specializes in software products for banking applications and implementation and migration services for Core Banking software in India, Middle East and Africa region. Recently, the company also entered into a strategic partnership with Seagate Technology, USA, to provide professional data recovery services through its extensive network. More importantly, a few days back it was awarded a prestigious contract by the Centre for Railway Information Services for installing and maintaining smart card based Automatic Ticket Vending Machines (ATVMs) across Western and Central railway stations including the suburban stations of Mumbai. On a standalone basis, it is expected to register total revenue and PAT of Rs.200 cr. and Rs.15 cr. respectively for FY07, which can improve to Rs.250 cr. and Rs.20 cr. for FY08. This works out to an EPS of Rs.7 & Rs.9 for FY07 and FY08 respectively. Hence at a forward P/E of less than 7 and at its current market cap of Rs.135 cr., the scrip is trading fairly cheap. Secondly, it’s trading at 20% discount to its issue price of Rs.75. Investors are strongly recommended to buy it at current levels with a price target of Rs.100 in a year.

STOCK WATCH

Lloyd Electric & Engineering Ltd. (Code: 517518) (Rs.137.55) is India’s largest manufacturer of evaporator and condenser (E&C) coils used in air conditioners with an installed capacity of more than 1 mn. coils and can also assemble around 2,20,000 air conditioners per annum. Recently, it set-up a new manufacturing unit in Dehradun (Uttaranchal) to manufacture room air-conditioners, components of air-conditioners and electronic goods. Besides, it is in contract with an Australian company for designing, manufacturing and supplying of AC package units to Metro Rail in India It has also tied up with a Korean company for the manufacture of roll bond and frost-free coils for refrigerators. For FY07, it is expected to report sales of Rs.475 cr. with net profit of Rs.43 cr. This will work out to an EPS of Rs.14 on its diluted equity of Rs.31 cr. This can improve upto Rs.17-18 due to expansion and other factors in FY08. A solid bet.

Visesh Infotechnics Ltd. (Code: 532411) (Rs.30.30) has strategic partnerships & alliances with global IT leaders like Novell, Microsoft, Oracle, Compaq, IBM, Sun, Cisco, 3Com, HP, Toshiba etc. Its ERP softwares and other products are being successfully used in almost all industry verticals such as telecommunications, chemicals, automobiles, pharmaceuticals, services (including finance & ITeS), government, education, sugar, sales & distribution. Of late, it has diversified into high technology and fast emerging areas of mobile telematics. Last fiscal, the company ventured into the business of Knowledge Process Outsourcing (KPO) and BPO through its newly-formed division VConnect™. The company has other aggressive expansion plans for which it may raise more than Rs.40 cr. in the near future. It may end FY07 with a topline of around Rs.125 cr. and bottomline of Rs.19 cr. i.e. EPS of Rs.7 on its current equity of Rs.26.97 cr. The scrip can easily rise 50% in the medium-term. Just buy and hold.

Kavveri Telecom Products Ltd. (Code: 49.55) (Rs.590041) is a leading manufacturer of telecom related products like Antennas, Radio frequency (RF) components, Cables & Connectors, Repeaters, Fixed Cellular Terminals and Solar Products. Besides it also provides solutions like Site/RF Survey, RF planning, designing & implementation, Repeater based GSM & CDMA indoor as well as outdoor coverage solution and Microcell based indoor coverage solution. Its esteemed clientele includes industry giants such as Ericsson, Motorola, Spice, Airtel, Reliance Infocomm, BEL, MTNL, BSNL, Tata Teleservices, Aircell, Infosys, IBM, HP, LG, ISRO, World Space etc to name a few. A few days back, the company bagged a huge contract from Hutchison Essar for providing In-Building Solutions (IBS) to their network for all its circles throughout India for the year 2007. Last year, it also acquired Til-Tek Antenna - a leading antenna manufacturing company based in Canada. For FY07, it may report sales and net profit of Rs.40 cr. and Rs.5.25 cr., which may shoot up to Rs.60 and Rs.8.50 cr. respectively in FY08. This means EPS of Rs.5 & Rs.9 on its current equity of Rs.9.80 cr. A good buy for the medium-to-long-term.

Austin Engineering Co. Ltd. (Code: 522005) (Rs.77.80) is a leading manufacturer and exporter of quality automobile and industrial ball and roller bearings. It manufactures all types of bearings including Ball Bearings, Cylindrical Roller Bearings, Needle Roller Bearings, Tapered Roller Bearings, Spherical Roller Bearings and Flexible Roller Bearings. On the back of strong industrial growth, the bearing industry is doing exceptionally well and this company, too, is expected to announce decent numbers for the March 2007 quarter. For full year ending 31st March 2007, it may register net sales of little less than Rs.65 cr. with net profit of Rs.5.50 cr. This translates into an EPS of Rs.16 on its tiny equity of Rs.3.53 cr. and may declare 20-25% dividend. With huge reserves of Rs.20 cr. supporting its small capital, the book value works out to more than Rs.65. For FY08, it can register an EPS of Rs.18. At a current P/E ratio of less than 5 and EV of Rs.40 cr., it’s a value buy.

After hitting a high of Rs.320, the share of Indo Asian FuseGear (Code: 532658) (Rs.117.75) has reduced to one third although its fundamentals have not changed much. The company manufactures all types of LT switchgears, miniature circuit breakers, compact fluorescent lights and other allied electrical engineering goods. Apart from six manufacturing facilities, it recently put up three more units in the tax-free area of Haridwar- Uttaranchal, all of which have begun commercial production. Last year, it entered into a joint venture with a Spanish company for setting up a new plant to manufacture and market state-of-the-art wiring accessories and products that include Intelligent Building and Home Automation products. Although its FY07 working may not be so great but the coming three years will be bumper years, as the company is on the inflexion point and the expansion effect will start kicking in from FY08. It is expected to register total revenue of Rs.350 cr. with net profit of Rs.30 cr. for FY08, which means an EPS of Rs.20 on its diluted equity of around Rs.15 cr. This is one of the best contrarian bets for the long-term.

Mobile Telecommunication - Rs.13.50

Incorporated in 1995, Mobile Telecommunication Ltd (MTL) is engaged in the business of telecom system development, manufacturing of electronic hardware, software development and trading in other products. In short, the company focuses on products and services related to the telecommunication infrastructure. It has gradually emerged as a reputed contract manufacturing service provider with its electronic manufacturing facility located at Nasik. It manufactures box assemblies as well as PCB assemblies and caters to clients from IT, Auto, Power, Medical and Telecommunications sector. In late 2005, however MTL diversified into the BPO business by acquiring the BPO facility of M/s Quantum eServices Pvt. Ltd.

Presently, MTL is focusing on three divisions – Internet technologies (VOIP & IP telephony), IT enabled services (International Call center) and manufacturing of telecom products (WLL handsets). The company is working on VOIP and IP Telephony technology and is in the process of establishing a network of Servers in USA, UK and India. Till such time as two-way telephony through Internet is allowed in India, MTL will be providing Voicemail through telephones. It is also setting up a subsidiary in USA to launch its services over there. On the BPO front, Quantum eServices has become a wholly owned subsidiary of MTL and has a 550-seater facility in the renowned Mindspace, Malad (W), Mumbai. The company is planning to enter into BPO space in a big way and the contract with one of the world's leading airline for its outsourcing requirement is underway. Thirdly, it is setting up a manufacturing plant for the production of WLL (Wireless in Local Loop) handsets based on corDECT technology. Notably MTL is the 5th licencee for this technology but has taken it solely for the export market.

Besides, MTL has got into APFC (Automatic Power Factor Controller) panels under the joint venture with Herodex Power Systems, who are one of the leading manufacturers of energy saving equipments related to industrial, commercial and power distribution applications. Hence the company has forayed into the energy - saving devices market and plans to enter into areas of light and energy saving products. With Herodex, the company is developing 'THAI CAP' APFC relays with the best technological features, which are definitely in a class apart from the other relays available in the market. Moreover, MTL is working towards a portal call Stdisdfree.com which will offer suite of services like PC-to-Phone, PC-to-PC, PC-to-Fax and voice mail, all integrated into one easy to use product. It has plans to launch the Automatic Meter reading system, which will collect the data automatically from meters and other devices via telecommunications at a remote central location of your choice. MTL also intends to enter the rapidly growing market of Wireless Brodband Services.

Although its future plans look very interesting, execution is the key to its growth. In spite of taking approval from the shareholders in November 2005 to raise around Rs.90 cr. through the FCCB/GDR route, nothing has been finalized till now. It was even decided to split the face value of shares to Re.1 but eventually it was dropped. For FY07, it may report a topline of Rs.23 cr. and bottomline of Rs.1.50 cr., which means an EPS of Rs.1.20 on its equity of Rs.11.90 cr. If things pan out well as per the company’s plans then for FY08 it can register total revenue of Rs.30 cr. with net profit of Rs.2.25 cr. i.e. an EPS of Rs.2. However, despite some promoter concerns, this company with a BPO facility of 550 seats is available extremely cheap at an Enterprise Value (EV) of Rs.20 cr. Long term investors can take an exposure as the scrip has bottomed out and can double in 6-9 months with operators support.