Mazda Ltd - 71.00

Established in 1977, Mazda Ltd (Mazda) erstwhile Mazda Controls Ltd was founded by Mr. Sorab R. Mody with a small unit to manufacture automated valve packages. Today, it’s among the few engineering companies in the world, manufacturing very specialized, high technology and critical equipments for various industries like power, refineries, fertilizers, chemicals, nuclear, sugar, paper, food, pharma etc. Broadly its product profile can be segmented into Vacuum system, Valve division, Air pollution control equipment, Crystallizers and Evaporators. Hence its product range includes various types of vacuum jet ejectors, turbine bypass valve, desuperheaters, condensers, pressure reducing stations, pneumatic actuators, steam jet thermo compressors, process control equipments, scrubbers etc. In India, its products are installed at plants of Reliance group, United Phosphorus, IOC, BHEL, Alstom, Cadila, Grasim, GSFC, HPCL, Siemens, Triveni Engineering, GHCL, NRC, L&T, Nuclear Power Corp etc. Besides engineering, it also has a Biotechnology division dealing in carbohydrates, rare sugars and miscellaneous bio-chemicals. Recently, company has diversified into business of manufacturing food and drink concentrates in a small scale.

Mazda has two manufacturing facilities located at Ahmedabad, Gujarat. For vacuum systems and air pollution control equipment, it has a technical collaboration with market leaders Croll-Reynolds Inc. USA, who also holds 12% stake in the company. Accordingly, the designing and engineering is done jointly by them, whereas manufacturing of equipment is done by Mazda and marketing is done by Croll across the globe. Mazda also has the collaboration with Germany-based Kauer Engineering for manufacturing various types of valve. Importantly, Mazda has the coveted ASME 'U' stamp accreditation certificate from the American Society of Mechanical Engineers (ASME) which very few Indian engineering companies can boast off. Hence, company can fabricate pressure vessels and heat exchangers confirming to ASME standards and are authorized to stamp them as 'coded Vessels'. In future company intends to increase its export substantially with having Siemens, Alfa Laval, APV Asia Pte, BASF, Petronnas, Bachtel, Colgate Palmolive, European Space Agency, IDE Technologies Ltd, Ministry of Oil & Gas Industry Turkmenistan etc as its international clients. It is also expecting some good order from German firm for supply of fabricated valves for gas pipeline in Europe.

Due to increased business and unavailability of space in its two existing units, Mazda is setting up third manufacturing unit with an investment of approximately 5 to 6 crores. It is well poised to harness the growth opportunities and is continuously upgrading its manufacturing facilities, technology, production processes and its marketing reach to maintain its growth in future. For FY07 it recorded 40% growth in sales as well as NP to 53 cr and 5 cr respectively. Hence, it reported an EPS of 12 Rs on small equity of 4.25 cr. Earlier company had split the face value to 2/- Rs per share but last year it again consolidated to 10/- Rs. For FY08 it is estimated to report sales of 65 cr and profit of 6.25 cr which means EPS of 15 Rs. Therefore the scrip is trading at a P/E ratio of less than 5x times which is extremely low considering its expertise and future prospect. Investors are strongly recommended to buy as scrip can touch 120 levels (70% returns) in 12 months or so.

STOCK WATCH

Inspite of strong March nos, share price of Uttam Galva (33.00) is lying low. It is the second largest manufacture of cold rolled and galvanized products like coils, plain sheets, corrugated sheets, CRCA and colour coated steel. It exports to 128 countries worldwide including developed nations such as USA, Japan, Australia, New Zealand, Canada, Germany etc to name a few. It is undergoing massive expansion estimated to complete by August this year which will take its cold rolling capacity to 10,00,000 MTPA and galvanizing to 7,00,000 MTPA. Couple of month back it raised 85 cr thru GDR @ 40 Rs per equity share. For FY07 it clocked a turnover of 2567 cr and PAT of 101 cr ie EPS of 10 Rs on equity of 105 cr. With steel prices remaining stable and expansion effect kicking in from August, it may end FY08 with total sales of 3500 cr and profit of 125 cr. Earlier company had raised approx 200 cr thru FCCB which is yet to be converted into equity shares. Although the conversion price is Rs 64.50 per share we assume it to be finally converted into 44/- Rs per share. Hence after conversion we estimate fully diluted to be nearly 150.00 cr. Accordingly FY08 EPS works out 8 Rs. Hence investors can buy with a price target of 48 Rs in 6~9 months.

Indo Asian Fusegears (135.00) is engaged in manufacturing of all types of LT switchgears, miniature circuit breakers, compact fluorescent lights and other allied electrical engineering goods. Apart from six manufacturing facility, it has recently put up three more units in tax free area of Haridwar- Uttaranchal, all of which have begun commercial production. Importantly company has entered into various foreign tie-ups for manufacturing as well as marketing state of the art modern style lighting equipments, fittings & accessories, home automation products, wiring accessories etc in India. It may report Sales and NP of 210 cr and 17 cr for FY07, which is expected to shoot up to 325 cr and 27 cr for FY08. This translates into EPS of 11 Rs and 18 Rs respectively on diluted equity of 15.05 cr. Hence at a reasonable discounting by 12x times scrip has the potential to touch 220/- Rs in medium term

Besides Indian hotel and EIH, Panoramic Universal (115.00) is the only company in India which owns and operates five hotels in USA and a small motel in New Zealand. Here in India, it has three hotels at Shirdi, Goa and Malvan each. Moreover it also owns “Pancard Club Hotel and Resort in Baner Hills along with ‘Area 51’, a large entertainment lounge in Pune. Company is now constructing two 3 star hotel cum club, one each at Thane and Durgapur. Further it intends to develop three 5 star hotels of 250-300 rooms each in Pune, Kerala and Goa. Above all it has very aggressive plans to grow inorganically. In near future, company may undergo some restructuring as management wants to consolidate its group companies into one. On a consolidated basis, for FY07 it has clocked a turnover of 132 cr and NP of 33 cr ie EPS of 26 Rs on small equity of 6.50 cr having 5/- Rs face value. Which means stock is trading at P/E ratio of less than 5x times. Considering the recent rupee appreciation, scrip has fallen sharply. For FY08 it can register 30 Rs EPS. However, high debt equity ratio with total debt of around 120 cr is cause of concern but at the same time promoter holding of 74% give some comfort level.

Couple of days back Kulkarni Power Tools (88.00) came out with decent set of nos for the March quarter. It recorded 25% growth for both sales as well as PBT to 12.50 cr and 1.20 cr respectively. However, due to higher tax and VRS provisioning its NP declined by 10% to 0.65 cr. But on a full year basis its sales improved by 15% to 44 cr and NP increased by 25% to 2.35 cr. This is inspite of higher deferred tax provisioning to the tune of 1.50 cr and VRS expense of 0.26 cr. Still it reported an EPS of 14 Rs on a tiny equity of 1.70 cr and declared 30% dividend for FY07. Company is a leader in the design, engineering, manufacturing and marketing of power tools like drills, grinder, hammers, cutters, polishers etc for construction and various other industrial activities. Notably, with its “POWERMASTER” brand, it has developed strong customer alliances with some of the largest retailers and most important brand names in the world. For FY08 it can register a topline of 50 cr and bottomline of 4 cr ie EPS of 24 Rs. Consdering the 52week H/L as 173/76 Rs it’s a good bet at CMP.

Hydro S &S Industries Ltd - 32.00 Rs

Established in 1987 and belonging WS Group - a well known industrial group in south India, Hydro S & S Industries Ltd (HSSIL) is a leading manufacturer and supplier of high quality reinforced polypropylene compounds, thermoplastic elastomers, pultruded profiles and fibre reinforced composites. It sells its product under the brand name HYFIL, HYPRENE, XTRUGLAS which are very well accepted in the market. Reinforced polypropylene which is nothing but modified polypropylene by the addition of reinforcements such as talc, chalk, mica and glass fibre has established itself as a metal substitute in engineering applications. The company’s products find application in varied industries like automotive, electrical, furniture and home appliances segments etc with automotive being the primary sector contributing 85% of total revenue. Automotive applications include Bumpers, Instrument panels, Pillars and Side Trims and other interior & exterior plastics. HSSIL has an enviable clientele including Tata Motors, Maruti Udyog, Hyundai Motors, General Motors, Nilkamal Plastics, Supreme Industries, Whirlpool of India, Amararaja Batteries, TAFE etc

HSSIL’s has two manufacturing facilities spread across Pudukottai (near Trichy) and Pondicherry with a combined processing capability of about 18000 MTPA. For manufacturing of thermoplastic elastomers, it has a technical alliance with a leading USA based company called Advanced Elastomers Systems. Moreover it is an authorized distributor in India for a whole range of masterbatches, produced by TOSAF, Israel, a global leader in the field of performance masterbatches. Earlier company was appointed by ExxonMobil Petroleum & Chemical, BVBA as an authorised distributor in India for their ‘Santoprene’ range of thermoplastic elastomers. The company also exports its products to Nigeria, Bangladesh etc. and is also planning to venture into Malaysia, Pakistan and Burma still keeping India as main focus area. Interestingly, to de-risk the wide fluctuation in raw material prices HSSIL has entered into tolling arrangement with certain customers where it procures raw material from the customers and supply them the finished product. It has also set up godown facility at Gurgaon and Pune to meet just-in-time requirement of its clients such as Tata Motors and Maruti.

With the expansion of GM, M&M, re-entry of FIAT and the new project of Volkswagen in the vicinity of Pune, HSSIL is creating a third facility in the Pune belt to handle the increasing requirements of these OEMs. This facility will initially have an annual capacity of 6000 MTs and is expected to commence operation by March 2008. In future company also intends to set up a plant at Uttranchal in order to cater the north Indian market and avail tax benefits. For FY07 it reported sales of 101 cr and NP of 2.80 cr thereby registering an EPS of more than 4 Rs. It is expected to declare 12% dividend giving a yield of around 4% at CMP. For FY08 it may clock a turnover of 115 cr and PAT of 3.75 cr ie EPS of 6 Rs on equity of 6.50 cr. At an enterprise value of 40 cr it’s a decent buy for long term as expansion effect will be visible only in FY09.

Shree Ganesh Forgings Ltd - 28.00 Rs

Established in 1982, Shree Ganesh Forging Ltd (SGFL) is one of the well known manufacturer and exporter of flanges, fittings and automotive components. It specializes in producing complete line of stainless steel, carbon steel and alloy steel forgings for industries like oil, gas, petrochemical, food, dairy industries, breweries, nuclear application, automobile industry, two wheeler industry, earth moving industry, tractor industry, defense, railway etc. SGFL boasts of making more than 2500 varieties of specialized items on piecemeal production and manufactures different variety of flanges and fittings such a weld neck, slip on blind, lap joint, threaded, socket weld, forged vales etc weighing from 0.5 kg to 1000 kg. Moreover it also manufactures hot forged components such as gears, shafts, crankshafts, crown wheels and pinions, propeller shaft components like sleeve yokes, flange yokes, universal joint crosses, connecting roads, steering knuckle arms etc. for four wheelers, two wheelers etc. Interestingly, it also has capabilities to supply vast range of steel forged finished products like eye, shank, single, double, and swivel hooks for the lifting industry.

SGFL’s manufacturing plant, located in the industrial belt of Pawane in Navi Mumbai is well equipped with facilities right from raw material & cutting section, die making, upset forging, ring rolling, heat treatment, shot blasting up to machining and testing. Ironically, company products has been qualified, approved and certified by numerous foreign agencies across the globe. Infact SGFL is the only one company in India who is approved by Syncrude Canada and has obtained CRN No from all 13 provinces of Canada. Its product are well accepted in international market and being exported regularly to USA, Canada, U.K., Ireland, Europe (Germany, Netherlands, Belgium, Denmark, Spain, France, Greece, Austria, etc ) and Middle East markets. Importantly, SGFL has various alliances with internationally reputed organizations to market its product and nearly 70% of its revenues come from export. In domestic market SGFL is preferred supplied to biggies like Alfa Laval, BEML, Greaves, L&T, Voltas, BARC, Kirloskar, KSB, Godrej, M&M etc.

To cater the rising demand, SGFL has implemented an expansion plan in late 2005 to double its forging capacities from 11000 MT to 22800 MT at the existing location by installing 2500- MT press and 4000- MT press with robotic application, with additions of 48 nos of C.N.C Machines. The project is almost completed and is expected to start commercial production soon which will give a great fillip to its financials. Besides to increase its global presence, SGFL recently acquired 100% stake in two European companies - Hertecant N V, a manufacturing concern located in Belgium and ELFE, a distribution company located in France from Outo Kumpu for a consideration of 23 cr. Moreover it has also acquired free zone land at Jebil Ali SEZ in Dubai to start a state of the art manufacturing unit consisting of 36 CNC machines with a capacity of 1,80,000 pcs per month. For FY07 it may clock a turnover of 105 cr and PAT of 6.75 cr i.e. EPS of 5 Rs on current equity of 12.50 cr which can shoot up to 7~8 Rs EPS for FY08. However the appreciating rupee is cause of concern for the company. With 52 week H/L as 24/71 Rs and good institutional interest, scrip is trading fairly cheap at current market cap of merely 35 cr. Hence investors are advised to accumulate this scrip for 50% return in a year’s time.

Stock Watch

Hind Rectifiers (911.00), one of the leading manufacturers of locomotive transformers, rectifiers, inverters, and power electronics like diodes and thyristors (types of semiconductor devices) etc announced satisfactory result for the March qtr. It clocked an all time high sales of 27 cr (up 27%) whereas NP declined by 15% to 3.10 cr primarily due to increase in other expenditure, depreciation and tax provisioning. However for full year its sales improved by 25% to 87 cr and NP increased up 30% to 11 cr. Hence it reported an EPS of 74 Rs on a very tiny equity of 1.50 cr and declared 10/- Rs as dividend. Recently, company modernized its Mumbai facility and has set up new plant in Uttranchal which commenced operation only in April 2007. Due to excise duty and income tax benefit from new plant, company’s profit margin is expected to improve going forward. Accordingly, it may clock a turnover of 120 cr and PAT of 18 cr for FY08 which translates into EPS of 120 Rs. Besides, to increase the liquidity company has announced stock split of equity shares to 2/- Rs face value. Secondly, being in the 50th year of its operation a liberal bonus can’t be ruled out in near future. Scrip is tipped to touch 300 Rs post split.

Accel Frontline (58.00) is a joint venture company formed between Accel ICIM Systems & Services and Frontline Technologies, Singapore. It is a SEI - CMMi Level 5 company, which is one of the highest in quality standards for IT service providers. For the March quarter its topline declined marginally to 48 cr but PAT improved 35% to 2.40 cr on back of higher operating margin. For entire FY07, total revenue grew by 15% to 186 cr whereas profit jumped up 70% to 12 cr leading to an EPS of 5 Rs on equity of 22.50 cr. It declared 15% dividend leading to an impressive payout ratio of 30%. To fund its growth plan, company had raised around 39 cr thru IPO route @ 75 Rs per share in Oct 2006 of which 50% is yet to be utilized. Earlier this year it acquired the banking solutions division of a Chennai company specializing in software products for banking applications and implementation and migration services for core banking software in India, middle east and African regions. Recently it also got the order for installing and maintaining smart card based Automatic Ticket Vending machines across western and central railway stations including suburban stations of Mumbai. Considering all the factors, company is expected to register a topline of 225 cr and bottomline of 15 cr ie EPS of 7 Rs for FY08.

Last week Ramsarup Industries (150.00) announced decent set of nos for the March quarter. Sales shot up to 420 cr against 320 cr last year whereas NP increased by 70% to 11 cr. For the full year it recorded 30% growth in sales to 1306 cr and 60% rise in net profit to 43.50 cr. This works to EPS of 25 Rs on equity of 17.50 cr for FY07. Company is continuously enhacing its production capacity for steel wire as well as TMT bars and has recently completed the expansion project at its exisiting plants viz Kalyani and Shyamnagar. For future growth it has a massive expansion plans whereby it is putting up a greenfield plant in Durgapur for manufacture of Low Relaxation Prestressed Concrete (LRPC) strand wire along with special grade steel wires. Phase-I of this new plant is expected to commence operation by Sept 2007. To fund this project, company intends to raise around 200 cr Rs via FCCB/GDR route which may dilute the equity to nearly 30 cr. Meanwhile, company has forayed into infrastructure activities also like laying of power transmission line etc which is growing rapidly. For FY08 it can register net sales of 1750 cr and profit of 55 cr ie EPS of 31 Rs on current equity.

Although cement manufacturers can’t hike the cement prices until early next year, still they will be making decent profit, for FY08 atleast on back of favourable demand-supply situation. Deccan Cement (140.00) is no exception and it came out with excellent nos for the March quarter. It reported 20% jump in sales to 47 cr but NP zoomed up 60% to 8 cr registering an EPS of more than 11 Rs for the quarter. For the entire year ending March 2007, its sales grew by 40% to 172 cr but NP tripled to 28 cr leading to an EPS of whopping 40 Rs. Due to higher price realization, the OPM shot up drastically to 28% against 12% last year. However it declared only 30% dividend as it has aggressive capex plan. In future, company intends to shed off its mini cement manufacturer tag as it is planning to ramp up its capacity by setting up a new 10 lakh tonne cement facility along with a captive power plant. Currently it produces only 3 lakh tonne of cement and enjoys the benefit of lower excise duty due to its small size. For FY08, company is expected to maintain its current profit margin and report sales of 180 cr and PAT of 31.50 cr ie EPS of 45 Rs on equity of 7 cr.