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Bharati Shipyard Ltd
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STOCK WATCH

Ratnamani Metals (35.00) is basically engaged in manufacturing welded and seamless stainless steel (SS) pipes & tubes, carbon steel (CS) LSAW, HSAW and ERW pipes. To cater the rising demand company is adding 3,000 TPA of capacity in stainless steel tubes and pipes segment, which is to be operational shortly thereby taking the total stainless steel pipe capacity to 22,000 tonne. In carbon steel segment, it is adding 100,000 tonne of HSAW capacity through brown field expansion, which will double its HSAW capacity of 200,000 TPA and take the total carbon steel capacity to 400,000 TPA. Company meets 100% power requirement from its own 24 windmills generating 20.54 MW of green power. It has also got itself partly backward integrated by establishing hot extrusion line which has reduced its dependence on imported material to some extent. As a part of forward integration, company has recently set up a 3 layer polyethylene and epoxy coating line with capacity of 2.7 million sq mtrs. As most of the company’s sale is to oil, gas & petrochemical industry it reported poor performance for the Dec qtr. Even for the nine months ending Dec’08, its topline grew by 12% to Rs 690 cr whereas NP declined by 25% to Rs 55 cr thereby already posting an EPS of Rs 11 on current equity of Rs 9 cr. However company hasn’t made the notional forex loss provisions to the tune of Rs 12.50 cr on the outstanding foreign currency loan. So taking this into consideration company may end FY09 with sales of Rs 900 cr and profit of Rs 50 cr i.e. EPS of Rs 11 for the entire year. For FY10 it has the potential to do much better with enhanced capacity. Accumulate only at sharp declines.

Hitachi Home & Life Solutions (35.00), a 68% subsidiary of Hitachi-Japan and proud owner of “HITACHI” brand, is amongst the top air-conditioning companies in India with an installed capacity of 250,000 units per year. It manufactures high technological home and commercial air conditioners like window AC, split AC, concealed splits, ductables, chillers and specific telecom cooling solutions. To capitalize its brand equity and strong distribution network in India company has also ventured in the business of trading for the refrigerators and washing machines. Its plant at Kadi, Gujarat is among the seven Hitachi room air conditioner facilities worldwide. Being a technology driven company, it has introduced several innovative products such as “ACE, IOTA, ATOM Square, Takumi” which are doing extremely well in the market. Its refrigerator and washing machines sales are also picking up. On the other hand its commercial air conditioning division is also on a rampant growth mainly due to the retail sector and mall culture expanding in a big way. However, there is bit of slowdown currently for consumer durable as well, but the situation will improve in due course. Hence, company has planned a capex of Rs 45 cr for the current year to expand its line of business. Surprisingly for Dec quarter company reported a loss even at operating level due to which its share price got hammered badly. Still it may end FY09 with sales of Rs 450 cr and PAT of Rs 21 cr leading an EPS of Rs 9 on equity of Rs 23 cr. Being almost a debt free company, foreign promoters may even come out with buy back to delist the shares. Keep accumulating at declines

Jupiter Bioscience (35.00) is poised to become a global peptide solutions group having a broad canvas of peptide chemistry products, peptide reagents, coupling reagents, protective agents and supplier of key ingredients used in peptide based pharmaceuticals. It is operating in a very niche segment and is among the few companies in the world to have competency in synthesis of peptides. The technology focus of the company has enabled it to develop more than 400 products in its catalogue and establish a leadership position in the peptide business internationally. For the first three quarters it has already clocked an EPS of Rs 13 as it reported 15% growth in sales to Rs 95 cr and 5% increase in PAT to Rs 22 cr in comparison to corresponding previous period. Company has been regularly investing considerable resources in developing the processes for manufacture of generic peptide APIs. It has finalized to acquire a manufacturing facility of Merck Life Sciences, Switzerland and has even signed a long term business contract with them. Earlier it entered into a 10-year product purchase agreement with Ranbaxy on peptide pharmaceutical for global market, but it seems the contract may get cancelled by the new management Daiichi Sankyo. They didn’t even opt for conversion of 31.77 lakh warrants @ Rs 147 and allowed it to get lapsed. However the cancellation of this deal will not affect the company substantially as it will go for other options to market its product. For FY09 on a standalone basis, it can report sales of Rs 135 cr and NP of Rs 25 i.e. EPS of Rs 15 on current equity of Rs 16 cr. A strong buy.

Nitco Ltd (22.00), owner of “NITCO TILES” brand is a complete flooring solutions provider, focused on the premium tile segment which helps it maintain margins at higher levels. It has exotic range ceramic tiles, vitrified tiles, cement-terrazzo tiles, pavers, steps & risers, Italian marble, & artistic creations in mosaic tiles which covers entire gamut of indoor, outdoor and even industrial applications. Last fiscal company successfully forayed into the business of sourcing cement from Pakistan etc and selling them in India. Recently it ventured into the real estate business and is developing a total area of 37.3 acres with a saleable area of 16.28 lacs sq. ft at Thane, Mumbai and Alibaug. The projects include premium residential, premium villas and IT park formats. On the other hand it is increasing the ceramic production capacity by 10,000 sq mtr at Alibaug and enhancing the processing capacity of imported marble at Silvassa thru a capex of approx Rs 200 cr. As 60% revenue comes from institutional clients, company is now focusing on retail segment and has planned to open 43 Le Studios Express (retail outlet) soon against 12 studios already operational. It is also contemplating to diversify into new products like sanitaryware, CP fittings etc in near future. Ironically, share which was placed at Rs 260 to QIB one year back is not finding any buyer even at Rs 25 now. With expected EPS of Rs 8, book value of Rs 155, EV\EBITDA of less than 3x times, company is trading reasonably cheap at market cap of merely Rs 75 cr.

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Numeric Power Ltd
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Emco Ltd
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XL Telecom & Energy Ltd - Rs 29.00

XL Telecom & Energy Limited (XL) was originally incorporated as a private limited company in 1985 to manufacture and deal in cable splices, manufacturers of protection equipment and allied accessories for electronic telephone exchanges and other establishments. Subsequently in 1990 it got converted into public limited company and then gradually emerged as one of the fastest growing telecom equipment manufacturers. Simultaneously, during 1994 it also got itself engaged into solar energy sector although at a small scale. Thus it has been pioneer in solar module manufacturing with a rich experience of almost 15 years. Of late, to cash on the huge opportunity XL has aggressively moved on to non conventional energy business especially solar photovoltaic segment. Accordingly, the energy segment which constituted 55% of total sales last year, now contributes nearly 90% of revenue. Apart from solar energy company also has interest in ethanol production. Broadly company has divided its revenue model into two segments.

A. Energy Segment: This is sub categorized into following two divisions:

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  Solar Photo Voltaic Systems Division: This division now forms the core business and major revenue driver for the company. It makes solar photovoltaic modules / panels of various capacities ranging from 5Wp to 280Wp catering to domestic and international customer requirements. Starting with initial module manufacturing capacity of 24MW in 2005, XL has last year increased the capacity multifold to 180 MW. Moreover it is in the midst of setting up a huge Greenfield plant at Fab City (SEZ), Hyderabad under a capex of Rs 360 cr. With this it will add another 40 MW module manufacturing capacity thereby taking the total to 220 MW. Besides, to get itself backward integrated, XL is putting up a solar cell manufacturing facility with a rated capacity of 120 MW. The capex has been fully funded and the plant is expected to begin commercial operation within this calendar year. Along with this backward integration company has also moved up in the solar value chain by going into solar energy power generation through grid connected solar farms. During Oct 2008, its 100% subsidiary in Europe- ‘Saptashva Solar Ltd’ has established the first solar farm in Spain with an installed capacity of 1.60 MW, thereby perhaps XL becoming the first and only solar manufacturing company in the world to capture the complete solar value chain of – Solar cell to module to system to solar farm or power generation. It has also signed the power purchase agreement for 25 years with the Spanish utility company which ensures stable revenue. Importantly, Saptashva is looking for establishing series of such “Solar farms” across Europe which may lead this subsidiary becoming the largest customer for the holding company in terms of solar panels and EPC services. Infact, XL is very bullish of getting into EPC segment of solar farm establishment and has internal target to set up so many solar farms generating as much as 300 MW over next three years. On the other hand, recently company’s one of the end customer commenced operation at its largest 30 MW solar park using XL’s exported solar panels which proves the company’s credential.

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  Ethanol Division: Earlier company had aggressive plans about this division but with the drastic fall in crude oil price and unfriendly approach of govt, XL has decided to go slow. It has an ethanol fuel facility at Nanded in Maharashtra with a production capacity of impressive 1.5 lakh litres per day. The plant has been inspected and cleared technically by oil companies both in terms of capacity evaluation and the quality of the product being produced. In order to meet the raw material requirement for ethanol production, company is contemplating to establish the distillery unit for which it has already incurred about Rs.27 cr out of total planned capex of Rs.72 cr.
  

B. Telecom Segment: This segment use to be the main business for XL earlier, but due to saturation in Indian market and better opportunities in energy sector, company reduced its focus and efforts towards telecom. But still it continues to manufacture / market following products depending upon the demand scenario.

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  CDMA Handsets & Fixed Wireless Phone: XLTEL is the first Indian company to setup a manufacturing facility for CDMA mobile handsets in India, as an independent company. It has established only “ASSEMBLY” facility for manufacture of mobile phones in partnership with KYOCERA Inc of USA and has a capacity of about 35 Lakh handsets per annum. It is supplying multiple models to all CDMA Operators like BSNL, MTNL, TATA and Reliance. Similarly it has established partnership with AXESSTEL of US for Fixed Wireless Phones with BSNL as its main customer.

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  Switch Mode Power System : Under technology transfer from SMPS de Austria XLTEL manufactures and offers a full range of SPMS needed by telecom operator in their exchanges as well as BTS stations in the mobile segment

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  Outside Plant Accessories: Company has been a supplier of joining kits, optic fibres accessories, fusion splicers etc for over two decades and enjoys nearly 40% market share in joining kit business. Its plant at Hyderabad with a capacity of 20,00,000 Heat shrink sleeve & 5,00,000 cable jointing kits is setup in technical collaboration with Corning Inc.

Solar power is fast emerging as the most viable and eco-friendly power generation option for tomorrow with no moving parts, no noise and zero emissions. Solar power systems are used for a variety of residential, commercial and industrial applications generally described as either 'on-grid' or 'off-grid' in nature. The market for 'ongrid' applications, where solar power is used to supplement electricity purchased from the utility network, represents the largest and fastest growing segment of the market And as company’s most of the products are used in on-grid applications, XL’s focus remains on emerging grid connected solar solutions as against conventional stand alone solar power systems. Thanks to technological breakthroughs, the generation and distribution cost of solar power has come down substantially, but still solar energy constitutes only a small fraction of the world's energy output. It is estimated that Spain, Italy, and France will drive the solar power demand in near future apart from Germany, Japan and US being the largest markets for solar photovoltaic demand. As per consensus among the global research organization, solar products are slated to register 40% CAGR for next 10 years

In order to fund its growth plans, XL raised nearly 59 cr in Dec 2006 thru IPO route @ Rs 150 per share, then approx 175 cr thru FCCB and simultaneously even allotted 52,50,000 warrants @ Rs 135. With part of FCCB and warrants already been converted, the equity share capital currently stands at Rs 18.80 cr. Ironically, company has recently reset the FCCB conversion price to Rs 160 per share from Rs 260 originally. Despite this the holders may not opt for conversion as the CMP is trading at huge discount. For year ending June 2008 it recorded 25% rise in topline to Rs 654 cr but net profit doubled to Rs 40 cr posting an EPS of Rs 21. Despite very poor performance for the Dec’08 qtr, its H1FY09 looks impressive with 40% and 60% growth in topline and bottomline to Rs 359 cr and 15.80 cr respectively. It may end the current fiscal with sales of Rs 700 cr and PAT of Rs 25 cr leading an EPS of Rs 13 on current equity of Rs 18.80 cr. Ironically, company’s bottomline is getting hit due to significant interest cost on the loan which it has borrowed for expansion. It seems instead of capitalizing the same, XL is writing off as a revenue expense. It has a capital work in progress of nearly Rs 250 cr against current gross block of Rs 55 cr. So the day new plant comes into full action, XL will report substantial jump in topline as well as bottomline. So investors are strongly recommended to buy at current levels as share price can triple in 24 months. However investors should note that company has high debt and receivables to the tune of Rs 378 cr (including FCCB) and Rs 224 cr respectively.

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Emco Ltd- Rs 30.00

Incorporated in 1964, Emco Ltd (Emco) is the third largest manufacturer of transformers in India and a leading player in electronic energy meters and turnkey electrical projects. With its acquisitions, joint ventures and growth strategies, Emco has ensured its presence in all the major areas of the power sector and have come a long way from being a product supplier to end-to-end solutions provider in the transmission and distribution sector. The company has spread from one manufacturing location to seven manufacturing locations in India (three for transformers, two for meters & the rest two for transmission line towers) and is now poised to make its presence felt even in the overseas market. For better efficiency and to focus on each business unit, Emco has segmented its business into following four divisions:-

• Transformer Division (65%): This is the flagship division of Emco with three manufacturing plants having combined installed capacity of 20,000 MVA. It offers widest transformers range from 5 kVA, 11kV right up to 315 MVA, 400 kV for power generation, transmission & distribution. It is one of the leading players in manufacturing special application transformers like furnace transformers (for Steel Industry), large rectifier transformers (for Chemical Industry) and traction and locomotive transformers (for Railways).

• Meters Division (5%): This division has a state-of-the-art fully computerized manufacturing facility with an installed capacity of 1.3 million meters per annum - one of the largest in Asia. It offers metering solutions like tamper proof electronic energy meters, automatic meter reading solutions, prepayment metering solutions & high end metering like Trivector meters, Grid metering etc. It also offers a total energy and revenue management solutions to customers in the distribution business.

• Projects Divisions (30%): This division offers turnkey solutions from concept to commissioning of large electrical substation projects in the power sector. It focuses on turnkey projects in the T&D area, mainly catering to high voltage and extra high voltage substations up to 400 Kv and strengthening the sub-transmission and distribution network. It also undertakes entire industrial electrification work from designing to execution. Besides, with the acquisition and amalgamation of Urja Engineers Limited, Emco moved into the transmission line business enabling itself to offer a wider portfolio of products and solutions for transmission and distribution of power under a single roof to various customers. It can now construct EHV Power Transmission Lines upto 765 kV on a total turnkey basis and boasts of having a tower manufacturing facility up to 45000 MT/Annum. It also provides custom built outdoor packaged substation upto 1 MVA.

• International Division: This division basically offers the products and services of other divisions to the international market and currently derives around 20% of total sales from exports. With supplies to global majors such as SHELL, Global, Petrofac-UAE, Parsons-UK, Peebles-UK and other leading power utility multinationals in more than 30 countries, Emco has experience of designing transformers to meet various International standards like BS, IEC, ANSI, CSA etc and meeting the approval of independent Inspection agencies such as BVQI, Lloyds, Crown Agent, SGS and others.

With a goal to achieve 30% of revenue from international business, Emco has decided to set up a transformer manufacturing plant in South Africa to meet the growing demand in the African region and neighboring countries. For this it has signed a bilateral trade agreement with Edison Power (Pty) Ltd, a leading electrical contracting company from South Africa for this purpose. This 51:49 JV will set up a state-of-the-art plant capable of manufacturing all range of transformers upto 20MVA rating and having an initial name plate capacity of 2000 MVA per annum. Emco has also floated a 100% subsidiary in Singapore which has already made investments in solar renewal energy company, USA and in a coal mine company, Indonesia.

Apart from above, Emco has setup 7 wind mills of 1.5 MW each in Maharashtra. Besides getting additional revenue on sale of electricity generated to MSEDCL, Emco has also registered this project with UNFCCC under CDM and is expected to start trading in CER from current year. Moreover the company is also in the process of setting up a 540 MW Coal-based power project near Nagpur for which it has already obtained the coal linkage from Government of India and has procured the land for the project. The plant is expected to commission before mid 2010 with a total estimated outlay of Rs 1100 cr. Further the company has plans for synergic diversification in to switchgear business, up to 400 kv, which would further add to the top line and bottom line of the company. Incidentally, the management intends to double the company’s turnover every two years. Couple of weeks ago, Emco has bagged five huge orders to the tune of Rs 550 cr from Power Grid Corporation for 765Kv transmission lines project and supply of galvanized steel tower. Notably, this is one of the largest 765 Kv overhead transmission line order placed by PCGIL. With this, Emco now boast of having an unexecuted order book position of more than Rs 1500 cr.

Fundamentally, Emco has been performing excellent and been substantially benefited from the strong surge in investments towards improving the country's dilapidated T&D framework as also adding new transmission capacities. It caters to several govt and private entities such as MSEDCL, NTPC, APSPDCL, NDPL, Power Grid, IRCON, CSEB, KPTCL, ACC, Reliance group, Tata Group, Essar group, Aditya Birla group, Jindal group, Jai Balaji to name a few. For FY08 it registered 45% growth in net sales to Rs 944 cr whereas profit shot up 60% to Rs 64.50 cr posting an EPS of Rs 11 Rs on equity of Rs 11.77 cr having face value as Rs 2/- per share. Although the performance for the current fiscal till date is not so impressive still it is expected to do well in future. Traditionally, the last quarter has always been comparatively better due to dependence on govt orders and hence company is expected to end FY09 with a topline of Rs 975 cr and bottomline of Rs 45 cr which works out to an EPS of Rs 8 on the current equity of Rs 11.80 cr. Despite company having relatively a higher debt of more than Rs 300 cr, it’s a screaming buy. Investors are strongly recommended to buy at current levels as share price can easily double within a year.

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