Honda Siel Power Products Ltd - 240.00 Rs

Incorporated in 1985, Honda Siel Power Products Ltd (HSPP), erstwhile Shriram Honda Power Equipment Ltd is engaged in manufacturing of portable generators, water pumping sets and general purpose engines. Besides, it also offers a small range of end-use appliances such as brush cutters and engine lawn mowers. HSPP is a 67% subsidiary of Honda Motors Co. Japan, which is one of the world’s largest power products company. Hence the ‘HONDA’ brand is quite popular and trusted by millions of people in India. Infact, HSPP is the undisputed leader in portable gensets with nearly 70% market share, whereas it enjoys 20% market share for water pumps and engines. To achieve this it has a build up a strong distribution network with strength of over 800 dealers and 15 area offices spread across the country. Although not so lucrative, company has also been exporting to over 40 countries with Saudi Arabia, UAE, South Africa, Kenya being the key markets. Presently, exports contribute around 25% of sales revenue. Incidentally, HSPP was the first power products manufacturing company in India to have been awarded the ISO 9001:2000 certifications for its quality assurance systems & ISO 14001 for its environment management systems.

Under the technical collaboration of its parent company, HSPP has set up state-of-the-art manufacturing facilities at Greater Noida, Pondicherry and Rudrapur (Uttranchal) with a combined installed capacity of 1,75,000 units of portable generating sets /engines / pumping sets. Armed with the latest & world-renowned 4-stroke Honda technology, company has 25 models of generators, 6 models of engines and 10 models of water pumping sets. It boasts of launching the India’s first LPG run gensets which is doing extremely well along with its super silent series. Importantly, the Honda generators conform to the most stringent phase II noise & emission norms lay down by the Central Pollution Control Board, which the cheap Chinese products fail to. However, going forward the major growth for the company is expected to come from its engine and water pump sets division on back of strong industrial growth & increased mechanization in the agriculture/floriculture/horticulture sectors. On the other hand the generator segment is witnessing higher demand mainly from small industrial units and private set-up businesses due to continuing long power cuts in rural and semi urban areas. To understand the customer requirements better and on real time basis it has also put up its own showroom in Gurgaon

With a view to improve its profitability, last year company indigenized critical engine components such as carburettor assy, insulator carb, all non-asbestos types of gaskets etc and is further planning to manufacture spark plug, ring piston set, ring gear and connecting rod casting in house. Hence company has been able to reduce the import cost as percentage to the material cost to 27% in FY07 compare to 31% in FY06 and intends to further take it down to 25% for FY08. To bring down its logistic cost and improve operational efficiency, company is consolidating its manufacturing facility and has decided to re-locate Rudrapur plant (component manufacturing unit in 32 acres) to Greater Noida. Considering all the factors it may clock a turnover of 260 cr and PAT of 20 cr i.e. EPS of 20 Rs on equity of 10.14 cr. Moreover, this MNC is not only debt free but also has huge liquid cash to the tune of 108 cr which translates into 107 Rs per share. Despite such strong fundamentals, company is available at a market cap of merely 240 cr. It also has a huge reserve of more than 150 cr leading to a book value of 160 Rs making it a strong bonus candidate as well. If not, there is also a remote possibility of parent company opting for delisting the company. To conclude, investors are strongly recommended to buy at current levels as it can give 50% return in 12~15 months.

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Krone Communications (128.00) is a 62% subsidiary of US based ADC Telecommunications, which is world leader in communications network infrastructure and has presence in over 150 countries worldwide. Thus, Krone provides the connections for wireline, wireless, cable, broadcast and enterprise networks in India. Its innovative network infrastructure equipment and professional services enable high-speed Internet, data, video, and voice services to residential, business and mobile subscribers. Besides structured cabling solution, it also offers Wi-Fi and Wi-max solutions. In addition, the company enables wireless carriers to get more from their networks with its Digivance™ radio frequency transport solutions and ClearGain® tower-mounted amplifiers. Because of its hi-tech professional service its clientele includes corporate giants like Bharti Televentures, Reliance Infocom, Tata Teleservices, Siemens, HFCL Infotel, TCS, Alcatel, Cognizant, Lucent, etc to name a few. For FY07 ending Oct 2007, it is expected to report a topline of 90 cr and bottomline of 7.50 cr which translates into EPS of 16 Rs on small equity of 4.60 cr. That means this debt free MNC is available at a very cheap discounting of 8x times. In future, the parent company may also opt for delisiting which will trigger the share price to its real worth.

ANG Auto (170.00) is among the few companies in the world to be completely integrated – from the manufacture of components to sub-assemblies and assemblies and finally to vehicles. Today it the largest trailer manufacturing company in India with a capacity of 3600 trailers per year and will soon be No. 1 in Asia as it is augmenting the capacity to 6000 trailers. Notably, company has entered into a five year contract with Ashok Leyland for trailers, which is valued at 1500-1800 cr. Secondly, its patented automatic slack adjuster and the single piece dummy axle is witnessing strong demand from all over the world. Going ahead, it intends to manufacture suspension systems and is also setting up a forging unit at Bhiwadi, Rajasthan at capex of Rs 37. To consolidate its operations company has decided to merge ANG Auto Tech, its 75%subsidiary with itself. For FY08, it is expected to clock a turnover of 175 cr and profit of 25 cr on a standalone basis. This works out to an EPS of 19 Rs on fully diluted equity of 13.40 cr. Because of sharp rupee appreciation scrip is hitting 52week low, thereby giving good opportunity for long term investors to accumulate at declines.

Steel Cast (175.00) is a leading manufacturer of carbon steel, low alloy steel, high alloy steel, hadfield manganese steel and other superior grades of wear and abrasion resistant steel castings by sand molding and shell molding process. It basically supplies to host of OEM’s in segments like construction equipments, cement machinery, steel plant manufacturing, mining, aerobridge industry, shipping, power etc. In order to cater the increasing demand, company has expanded its capacity to 10,000 TPA in March 2007 and has recently enhanced it to 13000 TPA in Sept 2007. Ironically, it is among the very few firms deploying 6-Sigma methodology and philosophy in the organizational working of the company in association with M/s. Caterpillar. However, due to sharp rise in nickel and other ferro alloys prices, company’s margin has been impacted in last 3 quarters. That’s why the share price has tumbled down from a high 325 and is hitting 52 week lows. But from early June nickel prices have cooled down more than 35%, which will again improve the company’s margin in coming qtrs. Hence, on an estimated OPM of 17% for FY08 it may register sales of 125 cr and PAT of 10 cr. This leads to an EPS of 28 Rs on small equity of 3.60 cr. At a reasonable discounting by 8x times, scrip may cross 225 Rs in medium term.

Shakti Metdor (180.00) is a market leader in making special scientific doors, fire doors, stainless steel doors and general doors. In short it is one shop stop for total door solutions. It primarily caters to infrastructure industry, information technology, ITES, BPO, pharma and healthcare sector. In addition to performance door, company is examining the feasibility of introducing new products to cater to the building industry which are wood substitutes and would also compliment the current products. Apart from having an ISO 9001: 2000 certifications, it is stream lining its operations by implementing ERP from SAP business software. To maintain its leadership, company is regularly expanding its manufacturing capacity. Last fiscal only it commissioned the R&D centre and facilities training centre. On the export front, company is looking at South Asia, among other regions, as a possible growth area for its product and is actively exploring it. For FY08 it is estimated to clock sales of 75 cr and profit of 12.50 i.e. EPS of 45 Rs on a very tiny equity of 2.75 cr. Scrip has the potential to touch 250 Rs in short to medium term.

Uni Abex Alloy Products Ltd - 115.00 Rs

Incorporated in 1972 and belonging to professional Neterwala group, Uni Abex Alloy Products Ltd (UAAP) is a pioneer in alloy steel casting. It produces static, centrifugal castings and assemblies in heat, wear and corrosion resistant alloys. It supplies majority of its products to core sector industries like petroleum, petrochemical, fertilizer, iron & steel, manufacturers of decanters, valves, heat-treatment plants, galvanizing plants and engineering industries. Its product range includes reformer tubes, catalyst tubes, air injection tubes, radiant tubes, harp assemblies, bowl cylinders, glendon coils, sink rolls etc. UAAP is one of the major suppliers of decanter components to Alfa Level, which is also its biggest client. On the international front, company has been exporting to USA, France, Germany, Denmark, Japan, Italy, China and Canada.

Located at Thane-Mumbai and having a production capacity of 1500 tons, UAAP’s manufacturing plant is equipped with modern manufacturing & testing facilities. Earlier it had technical collaboration with Abex Corporation, USA and with SCHMIDT Clemens, Germany in development of heat, corrosion and wear resistant alloys for various industrial applications. While company has mastered the manufacturing skill from its technology partners, it has its own in-house R&D department as well, which helps it develop new products for its clients. Notably, UAAP is an approved manufacturer of reformer/catalyst tubes by Engineers India Ltd and is also considered as a premier source for high nickel and chromium alloys. It is among the few to have the process capability to manufacture static castings up to 1000 kgs single piece, horizontal centrifugal castings of 75-650 mm diameter & 6000mm length and vertical centrifugal castings upto 1200 mm diameter and 1000 mm length. Last year it developed TX-63 for air injector tube for high temperature application upto 1010°C.

On the back of strong industrial growth, UAAP is augmenting the existing capability and capacity through capital investment in new plant and machinery and through expanding/developing its sub-contractor/vendor network. It intends to take its capacity to 2000 tons in phased manner by 2008. UAAP also wanted to enter a joint venture with EU company for manufacturing reformer tubes. But nothing has been materialized till now. Meanwhile it will continue to concentrate on lucrative export market and is expected to derive nearly 50% revenue from it in FY08. Considering the healthy order book position, encouraging Q1FY08 nos and assuming an operating margin of approx 13%, company is expected to end FY08 with sales of 75 cr and NP of 5.50 cr. This works out to an EPS of 28 Rs on a tiny equity of 1.98 cr. At a reasonable discounting by 7x times, scrip has the potential to touch 200 mark (i.e. 75% return) in 12~15 months. However, the rising cost of inputs like nickel, ferro alloys and steel scrap and fluctuations in Euro and US $ exchange rate may have negative impact on margins.

Orient Ceramics & Industries Ltd - 51.00 Rs

Orient Ceramics and Industries Limited (OCIL), was incorporated on 18th May, 1977 for the manufacture of ceramic tiles with an installed capacity of 5,000 TPA at Sikandrabad, 40 kms from Delhi. Since then it has emerged as one of the reputed and high quality ceramic tile manufacturer in North India with present capacity of 2,20,000 TPA. OCIL today possesses the most state of the art technology, which enables a finished tile to be packed untouched by hands within 2 hours from ceramic powder. It produces wall as well as floor tiles under the brand name “Orient” and offers one of the largest range by way of designs, colors, sizes, choice of surface finishes such as satin matt, vellum matt, high gloss & rustic finish etc. It also makes special tiles under various collections branded as Artline, Midline, Vivaldi, Novista, Goemetricos & Egyptian Rustic collection. Each of this collection is unique based on some theme, finish, pattern, cost etc. Besides, company has created a niche for itself thru “Rangoli” - its designer collection which is fusion of tradition with modernity. Although marginally company’s products are exported to Europe, South East Asia, Middle East and the SAARC countries.

In order to cater the rising demand, OCIL has last fiscal only increased the production capacity from 120,000 to 220,000 MT per annum without any cost escalation and contingency. For FY07 it worked at 100% capacity utilization with 141,642 MT of production which is expected to move up to 200,000 MT this year. Secondly, with the introduction of latest machinery, company is now able to produce high value glazed and polished vitrified tiles from current fiscal. Further, it has converted all manufacturing lines to fuel saving single fast firing technology. Hence, despite pressure on the selling price, it continues to maintain high operating efficiency by way of reduced wastage, fuel efficiency and lower inventory. OCIL is also expanding its product portfolio with long-term contract manufacturing agreements in India and China. Within this fiscal, it is expected to add approximately 20 per cent of its topline via outsourced products including ceramic, vitrified tiles and bathroom fittings under the brand name Iris. To focus more on the South, the company has opened a regional distribution centre in Bangalore recently and is now planning to further strengthen its primary retailer network to 750 and secondary retailers to 2,500 from the present 600 and 2,000 respectively. There is also noticeable increase in activity outside the Tier A cities which provides an opportunity for company to leverage its strong pan-India distribution.

Real Estate sector is booming and the key demand driver is four main sectors including residential, office space, retail & hotels. Although capacity in the residential & office space sectors has been steadily increasing over the past few years, there has been an unprecedented growth in the retail sector. Huge multi storey malls as well mid size shopping malls have been mushrooming all across India which presents a compelling opportunity for OCIL to increase its sale of larger format tiles. With the approach of the Commonwealth Games 2010 and further increase of tourism exposure to India, many new hotels are expected to be built. Moreover the government's much needed thrust towards improving infrastructure like airport, railways etc is also expected to directly benefit companies like OCIL. In short, the demand for ceramic tiles will continue to grow substantially in coming years. On the back in increased capacity company is expected to clock a turnover of 240 cr and PAT of 13 cr which translates into EPS of 12 Rs on expanded equity of 10.50 cr. Moreover, a company having a gross block of 157 cr, is available at an enterprise value of merely 110 cr which is extremely cheap by any standards. Hence investors are strongly recommended to buy at current levels with a price target of 75/- Rs (i.e. 50% appreciation) in 9~12 months.

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Aro Granite (90.00) is one of the largest manufacturer and exporter of modular granite tiles and slabs with the share of more than 5% of India’s total export of granite products. Company has recently expanded its tile capacity to 5,40,000 sq mtr from 1,80,000 sq mtr, whereas slab capacity has been enhanced to 3,90,000 sq mtr from 2,95,000 sq mtr. This means overall it has augmented its production by 100%. To meet its raw material requirement company has started importing rough granite blocks from Saudi Arabia, Norway, Brazil & Finland etc. Besides there is also an improvement in the availability of raw material in the domestic market which was not the case earlier. Notably, the company has bagged the special export award from CAPEXIL for the sixth time in the year 2005-06. Company has managed to report satisfactory nos for the June qtr and is expected to report a topline of 150 cr and PAT of 19 cr for FY08. This leads to an EPS of 26 Rs on small equity of 7 cr. In order to increase the liquidity, the equity shares of the company have also been listed in NSE with effect from 24.04.2007. In case rupee continues to appreciate sharply in future, company’s margin may come under pressure.

Panoramic Universal (103.00) erstwhile IT Microsystem derives more than 80% of revenue from hospitality business as it 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. It also manages India’s largest discotheque as well biggest revolving entertainment lounge called ‘Area 51’ in Pune. On the back of rising ARR & occupancy level, company has implemented aggressive expansion plan and is coming up with hotels / resorts at Thane, Pune, Durgapur, Jaipur, Hyderabad, Kerala, and Goa. Earlier in May’07 its subsidiary in USA has purchased 79 acres land in Fort Drum at Watertown, New York, USA for commercial and residential project. In short, from the present 918 rooms under operation, the company targets to own and operate 1846 rooms in the next two years. To fund its growth plan, company is raising 55 cr thru 1:2 right issue @ 85 Rs per share and is also slated to come out with FCCB, QIB placement etc. Meanwhile it acquired 4.46% stake in Inter-connected Stock Exchange of India Ltd (ISE) at a bid price of Rs 250/- per share. For FY08 it is estimated to register total revenue of 150 cr and PAT of 36 cr i.e. EPS of 28 Rs on current equity of 6.50 cr having a face value of 5/- Rs per share. However the huge equity dilution and appreciating rupee is cause of concern.

On the back of boom in housing sector and strong demand for commercial property, Ansal Housing (190.00) is aggressively expanding and has launched residential townships branded as “Ansal Town” across seven cities namely Agra, Indore, Jammu, Rewari, Karnal. Meerut and Ghaziabad which are spread over 1400 acres. In all, company has lined up gigantic 56.10 million sq. ft of development (80% in the residential segment) spread over 22 cities in the next five years. It will also be developing an I.T. Park in Bangalore apart from venturing into construction of budget hotels and serviced apartments. Currently, company has a rich land bank of 2500 acres with about 50% under its own name while the rest under firm collaborators agreement. On a standalone basis it may end FY08 with total revenue of 275 cr and profit of 50 cr i.e. EPS of 29 Rs on fully diluted equity of 17.50 cr. Notably, the total value of the projects with the company and under joint ventures is around Rs. 6000 crores. Against this, the company is available at a market cap of merely 350 cr. It’s a screaming buy.

Purely on the fundamental basis, GM Breweries (95.00) is trading fairly cheap at the current enterprise value of 100 cr. Company enjoys virtual monopoly in country liquor in the districts of Mumbai, Navi Mumbai and Thane. Infact, it is the single largest manufacturer of country liquor in the state of Maharashtra. With the installation of additional bottling lines last fiscal, company now has the capacity to process 8.26 crores bulk litres of country liquor per annum. However the capacity utilization was little over 60% which means company has got tremendous potential to utilize the balance capacity by penetrating into interior districts of Maharashtra taking advantage of its brand image. Besides it also has the facilities to manufacture IMFL, which is not being utilized currently. With 68% holding promoters are investor friendly and has an uninterrupted record of dividend payment from the day of listing. It is expected to end FY08 with sales of 190 cr and NP of 15 cr which means an EPS of 16 Rs on equity of 9.40 cr. Having a gross block of whopping 68 cr, low debt equity ratio, strong cash flow, decent margins etc, the company deserves much better discounting. Scrip is bound to get re-rated sooner or later. Hold it patiently.