Gremach Infrastructure Equipment & Projects Ltd - Rs 22.00

Incorporated in 1991, Gremach Infrastructure Equipment & Projects Ltd’s (GIEPL) main activity is to provide rental of construction/earthmoving machineries to medium & large construction companies who are engaged in the business of infrastructure developments like constructing of roads, airports, dams, power projects, mining activities, housing & civil construction and other related activities. GIEPL’s business is flourishing rapidly as it makes business sense for the construction companies to take these costly construction equipments on a rental basis instead of blocking their capital in procuring equipments which may not be used for executing other projects. The other advantage of taking the equipment on rental basis is the availability of quality equipments without the hassle of their maintenance. Thirdly, with rapid technological developments, the cost of replacement of these equipments is also very high and hence the developers now prefer to take equipments on rent rather to own them. Over the year, GIEPL has pursued a strategy of diversifying the selection of machinery/equipment according to different business segments in the infrastructure sector. In addition to renting its owned equipments, company also hires equipments owned by other parties and rent it out to its own clients. Infact, GIEPL has been deriving majority of revenue from renting of equipment which are exclusively owned by third parties. This is possible due to the fact that, company has established a very strong network so as to have a geographical reach as well as a diversified industrial and project segment.

Remarkably, GIEPL is among the handful of large player in the organized sector, which is presently being dominated by small unorganized players. But as the project location are diverse and the equipment requirement at various sites may vary, only bigger companies with strong financial muscle like GIEL can fulfill the requirement. Secondly, company has an edge over its peers as it has huge asset bank of heavy equipments ranging from compacters, rollers, concrete mixers, dozers, forklifts, loaders to excavators, PTR, dumpers, electronic sensor pavers, kerb laying machine, tunneling boomer, concrete batching and mixing plant. Moreover it also has a vast pool of skilled labour that include mechanical engineers, civil engineers, mechanical experts, technicians, and operators etc. who operate and maintain the equipment. Because of all these factors, GIEPL boats of having a very strong clientele base that includes all the major infrastructure players in the country such as L&T, Punj Lloyd, Shapoorji Pallonji, Gammon India, HCC, Gannon Dunkerley etc. Incidentally, company adopts direct marketing approach and has set-up a separate Tender department to procure contracts from public sector undertaking as well as from private clients. As of now, company has a centralized maintenance department & workshop in Kalamboli, Navi Mumbai spread over an area of 450 sq. mtrs each.

As a part of its diversification plan, GIEPL has taken 75% controlling stake in 11 Coal mine licenses in Mozambique having an aggregate 13,520 hectares (appx. 13,52,00,000 sq. mts) of land in prime region of Moatize, Africa. With the global shortage and crisis of hard coking coal, the future prospect of this business looks terrific. To cash on the real estate boom, company has also ventured into setting up of SEZ and has received formal approval for 100 hectares Metal SEZ at Kolhapur & another at Dhule in Maharashtra. Witnessing a sharp jump in E&P activities across the globe, company has planned to enter into the business of renting of oil & gas drilling rigs. Accordingly it has signed the MOU with China's biggest oil & gas rig manufacturer and has placed order for design and manufacture of four rigs. Although in short term both the above diversification looks a risky venture, but in long term it may emerge as a sustainable and profitable business.

To conclude, with govt’s special emphasis on creating physical infrastructure and massive investment being planned in coming years, GIEPLS core business of renting equipment will continue to do exceedingly well. This concept is growing rapidly and gaining wide acceptance as the penetration level in India is quite low at 2%, compared to UK at 80% and North America at 35%. In order increase its equipment bank, GIEPL has raised almost Rs 200 cr in Feb 2008 thru FCCB route to be converted into equity @ Rs 376 per share. However, considering the CMP, the bond holders may not opt for conversion and hence company has to redeem the bond. The only saving grace is that, redemption is due by Jan 2013. Fundamentally, GIEPL has reported an EPS of Rs 24 for FY08 whereas for H1FY09 it has already earned an EPS of Rs 13. Despite such performance its share price which hit a high of Rs 500 in Jan’08 is not finding any buyer even at Rs 25. The share price of its other recently listed group company “Austral Coke” has also fallen sharply from Rs 300 to Rs 100 presently. Even after taking a slowdown into consideration, GIEPL may end FY09 with topline of Rs 300 cr and NP of Rs 24 cr i.e. EPS of Rs 16 on current equity of Rs 15.20 cr. However company has huge debt on its book despite excluding FCCB of Rs 200 cr. Hence although company doesn’t look cheap at an Enterprise Value of Rs 400 cr still the downfall from current level looks minimal. Only aggressive investors can buy at current levels as share price can double in 12~15 months.

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Orient Paper & Industries Ltd - Rs 18.00

Incorporated in 1936, Orient Paper & Industries Ltd (OPIL), flagship company of the renowned CK Birla Group is a diversified company having interest in papers, cement and electric fans.

· CEMENT DIVISION (60%):- OPIL’s main cement plant is located at Devapur, Andhra Pradesh, and a split grinding unit in Jalgaon, Maharashtra, leveraging the proximity to limestone, coal and fly ash sources on the one hand and fast-growing markets of Maharashtra, Andhra Pradesh and Gujarat on the other. With current installed capacity of 3.40 million tonne, it manufactures and markets portland pozzolana cement under the brand 'BIRLA A1 and ordinary portland cement under the brand name of 'ORIENT GOLD'. Ironically, cement contributes 60% to total revenue but more than 90% of the company’s profit comes from this division only. Incidentally, company cement division is amongst the most cost-efficient units in the country with one of the highest EBIDTA percentage. Hence to take advantage of the market growth and success of its brands and distribution network, company is in the midst of further augmenting its capacity to 5 million TPA by April 2009. As demand supply situation for cement is favorable in Maharashtra and Andhra Pradesh, cement prices are expected to remain stable with no substantial correction. It is also setting up a 50 MW captive power plant at Devapur plant to achieve further economy in the cost of energy consumed. This is also expected to become operational by April 2009. Meanwhile, last year company generated more than Rs 10 cr on sale of 107353 units of CERs and is entitled to get similar CERs each year until 2012 based upon its performance under the CDM project.

· PAPER DIVISION (20%):- OPIL manufactures a wide range of writing and printing paper specially photocopying and office paper category apart from being a market leader in tissue paper with more than 40% market share. Its paper mill is located at Amlai in M.P having an installed capacity of 95,000 TPA. Notably, the demand for tissue paper is growing at around 15% per year and to meet this rising demand, company is expanding its tissue paper manufacturing capacity from current 10,000 TPA to 30,000 TPA by April 2009. To provide sustainability in raw material availability, the company has been undertaking farm-forestry programmes across 18 proximate districts of Madhya Pradesh and Chhattisgarh. Last year it assisted 4500 farmers to plant 5 lac clonal plants and 128 lac seed rooted plants in a land area of over 5000 hectares. It recently constructed sixth mist chamber is contemplating to further build two more mist chambers to double the clonal propagation capacity to 20 lac seedlings. Oh the other hand, its second plant in Orissa at Brajrajnagar which is spread across 850 acres is non operational since 1999. If disposed off it can fetch revenue of Rs 100 cr.

· ELECTRICAL APPLIANCES (20%):- OPIL is India’s largest manufacturer of electric fans in terms of in-house manufacturing capacity with its two plants at Kolkata and Faridabad having an installed capacity of 35 lakhs fans per year. Having a market share of over 17% in the organized sector, it offers entire product chain including fans, portable fans and exhaust fans - across price points, colours and designs with its ‘ORIENT PSPO’ brand as one of the most visible and respected names. Having global presence across 20 nations such as USA, Egypt, South Africa, Saudi Arabia etc, company enjoys the status of being the largest exporter of fans from India. Interestingly, company has expanded its product range by launching lighting products in few states from Feb 2008 and intends to gradually expand its reach across the country. In the meantime, it is setting up a modern manufacturing facility for Compact Fluorescent Lamps at its Faridabad plant.

To summarize, OPIL is implementing a total capex of around Rs 800 cr for all its expansion plan. Out of this company raised Rs 160 cr thru right issue in the ratio of 3:10 @ 360 per share. The balance amount will be funded thru internal cash generation and a minor debt from bank, if required. Importantly, in the last two years company has repaid most of its loan and has significantly brought down its total debt to Rs 165 cr from Rs 435 cr in 2006. As a result, it has a very healthy debt equity ratio of 1: 0.16 as at 31st March 2008. Due to sharp rise in input cost of coal, metals, chemicals, wood pulp etc, OPIL has reported dismissal performance for H1FY09. But with the recent sharp fall in the price of all these raw materials, OPIL may clock a turnover of Rs 1350 cr and PAT of Rs 150 cr for FY09. This leads to an EPS of Rs 8 on equity of Rs 19.30 cr having face value as Rs 1/- per share. As company is available fairly cheap at an EV of Rs 525 cr, investors are recommended to buy at current levels for a price target of Rs 30 in 9~12 months.

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STOCK WATCH

Shanthi Gears (32.00) is the second largest player in industrial gear segment with 20% market share and at the same time is the undisputed leader in the customized product segment where the manufacturing is as per clients’ requirements. Remarkably, it is also the only listed manufacturer of gears for helicopters and light combat aircrafts to Hindustan Aeronautics Ltd. Of late, company has even started manufacturing gearboxes of 250 KV for windmills. For six months ending Sept’08, it recorded nearly 15% growth in sales and NP to Rs 126 cr and 23 cr respectively. Incidentally, the recent fall in steel and other metals will reduce its input cost considerably and may give a good fillip to its bottomline in coming qtrs. Accordingly it may end FY09 with sales of Rs 260 cr and PAT of Rs 40 cr i.e. EPS of Rs 5 on fully diluted equity of Rs 8.60 cr having face value as Rs 1/- per share. Moreover if rumors are to be believed then India’s largest windmill manufacturer Suzlon, through its subsidiary Hansen Transmission (world’s fifth largest maker of gearbox), was interested in taking a stake in SGL. If it happens, this may lead to re-rating of the company and share price may see a vertical rise

Elecon Engineering (30.00) is a leading manufacturer of bulk Material Handling Equipment (MHE) and Asia’s largest producer of industrial gear with 26% market share in India. For more than five decades, it has been supplying hi-tech equipment to core sectors such as steel, fertilizer, cement, coal, petrochemicals, lignite and iron are mines, power stations, defense and port mechanization in India and abroad. With a strategy of diversification, last fiscal company started a new business of setting up of Wind Turbine Generator (WTG) farms and manufacturing of WTG gear boxes. It has started manufacturing of WTG gear box having capacity of 1 MW to 2 MW, which is the import substitute, thereby becoming the first Indian company to manufacture gearboxes of such sizes. As on 30th Sept 2008, it has an pending order in hand of Rs 1772 cr comprising of Rs 1527 cr for MHE division and Rs. 245 cr for gear division. On the back of satisfactory H1FY09 nos, it is estimated to clock a turnover of Rs 950 cr and net profit of Rs 55 cr for FY09. This translates into EPS of almost Rs 6 on current equity of 18.60 having face value as Rs 2/- per share. Moreover the promoters are constantly buying shares from open market to increase their stake thru creeping acquisition. A solid bet.

Bharati Shipyard (60.00), second largest private shipyards in India is engaged in design and construction of bulkers, cargo/container ships, tankers, dredgers, passenger vessels, chemical carriers etc. It has special expertise in construction of offshore support vessel required for oil exploration industry and is the first Indian player to bag an order of an oil rig. However, the shipyard sector is going thru rough phase as Baltic freight index has crashed dramatically and no shipping company is placing fresh order for ships. On the contrary, there is the great risk of order cancellation if the current situation persists for longer duration. Secondly the crude oil prices have also fallen substantially forcing the oil companies to reduce their E&P activities. Meanwhile, company has an all time high order book position of Rs 4800 cr which is almost 7x times its FY08 revenue, thereby ensuring a strong revenue visibility. Although company hasn’t got any order cancellation, still it may have to renegotiate some orders with lower realization. Due to slump in business, it has slowed down its Greenfield expansion and other capex plan. Notably, 50% of its FCCB has already been converted into equity and the balance FCCB of more than Rs 200 cr may come up for redemption in Dec 2010. For FY09, company is estimated to clock a turnover of Rs 825 cr and PAT of Rs 65 cr without taking govt subsidy into consideration. This translates to an EPS of 24 on current equity of Rs 27.60 cr. It seems all the negative has already been factored in the share price and technically also scrip seems to have bottomed out.

Till now cement industry was facing double whammy with falling cement prices and rising input cost. Now, although the input cost have soften but at the same time demand has also taken a hit due to slowdown in construction activities. Despite this JK Lakshmi (30.00) appears to be one of the safest & cheapest bet in current sentiment. It has recently expanded its production capacity to 3.65 million TPA and is in the midst of taking it further to 4.75 million tonne by end of this fiscal. The recent fall in coal and pet coke prices augurs well for company as it has fully stabilized the working of the 36MW captive thermal power plant. To maintain its margin, company has increased the sale of blended cement which now constitutes more than 75% of total sales. Secondly it is also constantly expanding its RMC business and currently has a total of 9 RMC plants in operation with an overall production capacity of 5.58 lacs cu.mtr. Depending upon the market situation, company is also contemplating to setup a new cement plant in Chattisgarh with a capacity of 2.7 million tonne of cement. Last year company got nearly Rs 40 cr on allotment of 41 lac shares @ 97.50 Rs against convertible warrants. Incidentally, company has already posted an EPS of Rs 11 for H1FY09 and is expected to end FY09 with sales of Rs 1050 cr and PAT of Rs 85 cr i.e. EPS of Rs 14 on equity of Rs 61.20 cr. However, a huge of debt of Rs 700 cr on its books is a cause of concern.

Small & Beautiful

Bharati Shipyard (60.00), second largest private shipyards in India is engaged in design and construction of bulkers, cargo/container ships, tankers, dredgers, passenger vessels, chemical carriers etc. It has special expertise in construction of offshore support vessel required for oil exploration industry and is the first Indian player to bag an order of an oil rig. However, the shipyard sector is going thru rough phase as Baltic freight index has crashed dramatically and no shipping company is placing fresh order for ships. On the contrary, there is the great risk of order cancellation if the current situation persists for longer duration. Secondly the crude oil prices have also fallen substantially forcing the oil companies to reduce their E&P activities. Meanwhile, company has an all time high order book position of Rs 4800 cr which is almost 7x times its FY08 revenue, thereby ensuring a strong revenue visibility. Although company hasn’t got any order cancellation, still it may have to renegotiate some orders with lower realization. Due to slump in business, it has slowed down its Greenfield expansion and other capex plan. Notably, 50% of its FCCB has already been converted into equity and the balance FCCB of more than Rs 200 cr may come up for redemption in Dec 2010. For FY09, company is estimated to clock a turnover of Rs 825 cr and PAT of Rs 65 cr without taking govt subsidy into consideration. This translates to an EPS of 24 on current equity of Rs 27.60 cr. It seems all the negative has already been factored in the share price and technically also scrip seems to have bottomed out.

Supreme Infrastructure’s (28.00) core competency lies in construction/widening of roads & highways, but it also undertakes other infrastructure projects like integrated nallah development, drainage work, laying of railway tracks, construction of minor bridges, development of IT Park, residential tower, RCC building, strengthening of sea wall and laying of tetra pods etc. Its area of operation is mainly concentrated in Mumbai region and few parts of Maharashtra & Bangalore with major clients like NHAI, MCGM, MMRDA, MSRDC, MUTP, PWD, BMC, AAI, BPT, TMC and also private agencies like Hiranandani, K. Raheja, Pratibha Ind, BARC, Sadbhav Eng, Mundra Port etc. Importantly, company has its own captive ready mix concrete plant, asphalt mix plant, quarrying and crushing unit & paver block manufacturing unit. For the latest Sept’08 qtr it posted revenue of Rs 66 cr and profit of Rs 6 cr against Rs 18.50 cr & Rs 1.50 cr last year. It has already clocked an EPS of Rs 11 for six month ending Sept’08. To cater the increasing demand for RMC, company is contemplating to almost double its RMC capacity to 300 cum. per hour by adding two new RMC plants in Mumbai and other city. With a massive order in hand of more than Rs 500 cr, it may register a topline of Rs 250 cr and NP of Rs 18 cr. This translates into EPS of Rs 13 on equity of Rs 13.90 cr. A decent buy for agressive investors.

From a high of more than Rs 1000 early this year, share price of KLG Systel (70.00) has become one fifteenth and is still hitting new lows. Company specializes in offering technological solution for entire business life cycle i.e. right from concept and creation, through plant design, project execution and management operations & optimisation to expansion/ revamp. It also provides on-line IT solutions to distribution utilities, using its self-developed software Vidushi, SG61 Technology and solution for determining the transmission & distribution losses, fixing the areas of power theft, on-the spot billing & cheque collection, increasing revenue collection efficiency of the utilities and addressing consumer grievances. Recently it has demerged the power systems solutions business into a new subsidiary named KLG Power in which IBM group company has invested Rs 12 cr for taking 1.20% stake, thereby putting the valuation of KLG Power Ltd to whopping 1000 cr. Ironically against this, KLG systel - the parent company which is holding the rest 98.80% is available at a market cap of Rs 90 cr. For FY09 on a standalone basis it is expected to clock a turnover of Rs 240 cr and profit of Rs 30 cr i.e. EPS of Rs 24 on current equity of Rs 12.60 cr.

Till now cement industry was facing double whammy with falling cement prices and rising input cost. Now, although the input cost have soften but at the same time demand has also taken a hit due to slowdown in construction activities. Despite this JK Lakshmi (30.00) appears to be one of the safest & cheapest bet in current sentiment. It has recently expanded its production capacity to 3.65 million TPA and is in the midst of taking it further to 4.75 million tonne by end of this fiscal. The recent fall in coal and pet coke prices augurs well for company as it has fully stabilized the working of the 36MW captive thermal power plant. To maintain its margin, company has increased the sale of blended cement which now constitutes more than 75% of total sales. Secondly it is also constantly expanding its RMC business and currently has a total of 9 RMC plants in operation with an overall production capacity of 5.58 lacs cu.mtr. Depending upon the market situation, company is also contemplating to setup a new cement plant in Chattisgarh with a capacity of 2.7 million tonne of cement. Last year company got nearly Rs 40 cr on allotment of 41 lac shares @ 97.50 Rs against convertible warrants. Incidentally, company has already posted an EPS of Rs 11 for H1FY09 and is expected to end FY09 with sales of Rs 1050 cr and PAT of Rs 85 cr i.e. EPS of Rs 14 on equity of Rs 61.20 cr. However, a huge of debt of Rs 700 cr on its books is a cause of concern.

Genus Power Infrastructure Ltd - Rs 76.00

Founded in 1994 Genus Power Infrastructure Ltd (GPIL) erstwhile Genus Overseas Electronic Ltd is amongst the leading integrated metering solutions' providers and the pioneer in implementing AMR (Automatic Meter Reader) technology. It manufactures wide range of high-end programmable multi-functional intelligent single phase & three phase electronic meters with in-built advanced security and anti-tamper features such as AMR enabled meters, trivector meters, panel meters, time of the day meters, audit meters, etc. But importantly, over the last few years GPIL has significantly transformed itself from only a meter manufacturer to an entrenched power infrastructure player. It now derives more than 50% revenue from EPC power T&D projects where it provides absolute solutions for power transmission & distribution system. As a step forward, GPIL has also launched IT enabled distribution transformer metering system, feeder monitoring and management system, smart street light management system with value added software application for providing end to end solutions for energy management. Today, GPIL operates in following four verticals.

· Metering Solutions: GPIL deals in all types of electronic meters such as residential meters, industrial meters, agricultural meter, substation meters, audit meters, grid meters, group meters, special meters (prepaid / rail mounted) etc. It specializes in providing AMR solutions for comprehensive billing using PLCC, RF, GSM and GPRS technologies which ensures drastic reduction in power pilferage, less AT&C losses, effective load management, improvement in quality of power supplied, customer satisfaction and maximization of revenue generation.

· Engineering Construction & Contracts: GPIL has vast technical expertise for commissioning new substations (design, engineer, supply, installation, erection, testing and commissioning sub-stations) or working out capacity augmentation, renovation and modernization of existing substations. Being an EPC contractor it also executes turnkey T&D projects like setting up transmission towers, execution of civil work, laying of cables, installation of transformers etc. Company also undertakes rural electrification projects, energy accounting and auditing at all distribution levels, comprehensive billing solutions for utilities etc

· Power Backup Solutions: GPIL boast of successfully introducing most advanced Sure Sine Wave inverter technology in India. Its revolutionary ASIC technology customizes wave form needed by different appliances hence ensuring 100% of their safety. It makes several inverters in the range of 400 VA to 100 KVA and for high load electronic system, it provides home UPS, online UPS and high frequency & line interactive UPS in the range of 3 KVA to 100 KVA. Although on a small scale, GPIL has also forayed into renewable energy segment with products like solar panel and solar water heater. Getting itself backward integrated and to offer complete power backup solutions, it is contemplating to launch a full range of batteries (lead acid, tubular) under the “GENUS” brand name.

· Hybrid Microcircuits: GPIL manufactures superior hybrid microcircuits which are used in all electronic components and find vast application across all the industries. The bulky printed circuit boards are becoming outdated and are now aggressively getting replaced with miniature hybrid microcircuits. Company has advanced design software such as VISULA, OrCAD for design of hybrid microcircuits and PCBs.

GPIL perhaps has one of the biggest manufacturing units of energy meters and power electronics in the country with its two plants located at Jaipur (Rajasthan) and Haridwar (Uttranchal). In order to sustain the growth momentum, last year company has set up a new facility at Alwar (Rajasthan) for manufacturing of poles, distribution transformers, etc. with an investment of Rs 50 cr. It also entered into two joint ventures in Brazil to manufacture electronic energy meters & provide state-of-art AMR technology. Meanwhile it continues to export its product to over 20 countries and is now focusing meter export to SAARC, Middle East, African and Latin American countries, where power reforms are taking place in a big way. Thus GPIL has become a global player with manufacturing facilities in India & Brazil, marketing offices in Singapore & USA and a full fledged sourcing office in China.

As of now, GPIL has an order book position of more than Rs 700 cr which is 1.5x times its FY08 turnover. Besides it has participated in tenders of more than Rs 6000 cr, out of which it is already a ´L1´ bidder in tenders worth Rs 1400 cr. Thus its order book will keep ticking as an when the order gets confirmed. Moreover, with continuous thrust of govt on power sector reforms through its various programmes, schemes, policies and regulations the future prospects of power sector looks very encouraging. Ironically, during last year company has raised Rs.84 crore by way of issue of 15 lac equity shares @ Rs 560 per share on preferential basis to fund its organic and in-organic growth and long-term working capital requirements. After this, share price went up to hit a high of Rs 1000/- in Jan’08 but has now been slaughtered down by 90% to sub Rs 100 levels. Considering its encouraging performance for Sept’08 and H1FY09, GPIL may report sales of more than Rs 500 cr and PAT of Rs 35 cr on conservative basis. This translates into EPS of Rs 24 on diluted equity of Rs 14.80 cr. Although GPIL has a debt on higher side and scrip may continue to witness distress selling from Citigroup, Morgan Stanley & Merrill Lynch, still long term investors are recommended to buy at current levels as share price can double in 15~18 months.

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