STOCK WATCH

For the latest March’09 Genus power (100.00) reported 30% growth in revenue to Rs 246 cr but PAT fell by 20% to Rs 20 cr on the back of higher interest cost. However for the entire FY09 it managed to clock 6% rise in bottomline to Rs 51 cr on 25% higher sales of Rs 586 cr. Thus it posted an annual EPS of Rs 35 on current equity of Rs 14.80 cr. Importantly company is having an impressive order book position of more than Rs 1000 cr which is almost double its FY09 revenue. Moreover it has participated in tenders of more than worth Rs.1683 cr, out of which it is already 'L-1' bidder in tenders worth Rs.262 cr. Company is amongst the leading integrated metering solutions' providers and the pioneer in implementing AMR (Automatic Meter Reader) technology. It has diversified into engineering construction and currently derives more than 50% from EPC power T&D projects where it provides absolute solutions for power transmission & distribution system. As a step forward, company 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. But at declines.

IMP Power (60.00) has come out with flying colors for the March quarter. Sales increased by 35% to Rs 53 cr and PAT grew by 30% to Rs 4 cr leading to an EPS of Rs almost Rs 6 for the single quarter. Accordingly it recorded 30% and 10% growth in topline as well bottomline to Rs 139 cr and 9.5 respectively for the nine months March’09. Importantly company has an healthy order book position of approx Rs 125 cr to be executed in next 6 months. Company is engaged in manufacturing of entire range of power & distribution transformers, electrical & digital measuring instruments, testing equipments etc. It has vendor approval from almost all the State Electricity Boards, major turnkey EPC contractors and the only transformer company in India to be in zero sales tax zone enjoying 15 year sales tax holiday which shall continue till year 2012. Secondly, it has achieved backward integration through manufacturing of OLTC & RTCC in house thereby emerging as one of the lowest cost manufacturer of transformers. To cater to the rising demand and increase its market share, company has recently doubled its production capacity from 3600 MVA to 7000 MVA. With this company now list among the top 10 EHV and power transformers manufacturing companies in India. Besides last fiscal, company has also upgraded its Kandivali plant to manufacture complete range of analog meters in addition to high end meters like maximum demand indicator, trivector Meter, multifunctional and kWh Meters. For FY09 ending June’09 it may report sales of Rs 200 cr and NP of Rs 13 cr i.e. EPS of Rs 19 on current equity. A screaming buy.

Recently Transformer & Rectifiers (186.00) reported flat nos for the March’09 quarter. Sales grew by 25% to Rs 133 cr but PAT remained flat at Rs 13 cr due to lower operating margin. But for the full year ending March 2009 its sales jumped up 40% to Rs 425 cr whereas PAT shot up 35% to Rs 44 cr. This translates into EPS of Rs 34 on current equity of Rs 12.90 cr. Thus the scrip is trading at a PE ratio of merely 5.5x times. Company has announced 40% dividend against 20% last year. It is one of the few manufacturers in the country manufacturing the entire range of transformers namely power generation, transmission and distribution transformers, industrial transformers such as furnace transformers, and special transformers such as mobile substation, rectifiers, testing transformers etc. Infact, it is among the largest manufacturer of furnace transformers in India. With an installed capacity of 7200 MVA it has the capability to manufacture transformer upto 160 MVA in 245 kV class. To cash on the boom in power sector, company is setting up a Greenfield plant in Moraiya, near Ahmedabad with an installed capacity of 16,000MVA. The new plant, expected to be operational shortly would be capable of manufacturing transformers upto 756kV class. Interestingly, out of Rs 139 raised thru IPO company has utilized only 95 cr till date and balance Rs 44 cr is still lying in the bank. Investors can safely accumulate this scrip as it will start reporting substantial growth from FY10, as new plant will begin operations by then.

Retail investors are simply selling Bartronics (85.00) as company reported 90% fall in NP to Rs 2 cr against 16.50 cr in the corresponding period last year. But actually it has reported good set of nos. On a standalone basis its sales as well as operating profit shot up 60% to Rs 115 cr & 42 cr respectively. But due to higher interest and depreciation cost it reported flat PBT to Rs 23 cr. Now again company made extraordinarily high tax provision in this single quarter which led to sharp decline in NP. For the entire FY09 it registered 100% growth in revenue to Rs 375 cr and 45% increase in PAT to Rs 47.50 i.e. EPS of Rs 16 on standalone basis. But importantly it has performed much better on a consolidated basis as it clocked a turnover of Rs 583 cr and PAT of Rs 75 cr for FY09 leading to an EPS of Rs 26 on current equity of Rs 29 cr. Hence scrip is trading at a PE ratio of around 3x times which is low for a company which enjoys 90% market share in smart card and 95% in RFID segments. It offers all Automatic Identification and Data Capture (AIDC) solutions and is the only company to offer end-to-end AIDC solution. Having over 1600 clients including blue chip companies, its smart card capacity has been booked for the next two years. Worth a punt at current levels.

Gayatri Projects Ltd - Rs 70.00

Incorporated in 1989, Gayatri Projects Ltd (GPL) a Hyderabad based infrastructure company is engaged in the execution of major civil works including national highways, irrigation projects, mass excavation, bridges, ports, airports and industrial civil works. It has executed various site preparation and grading, construction of roads, drains, ponds, reservoirs and industrial structures for reputed companies like Nagarjuna Fertilizers, Reliance Petroleum, Jindal Vijzayanagar Steel, Visakhapatnam Steel Plant, HPCL, etc. Moreover, it has done specialized works for Indian Railways, Port Trusts and Airport Authorities. GPL also provides design, engineering, procurement, construction and project management services for various infrastructure projects. Although the company has executed various projects in different sectors of infrastructure, its expertise lies mainly in the road and irrigation sectors. However off late GPL has started to de-risk its business model and is aggressively foraying into new ventures like urban infrastructure, real estate development, water transport, power plant setup, airport runway & industrial construction.

Earlier GPL was more of a smaller regional contractor but in the last couple of years it has not only become a bigger player but also undertook projects in various states including Assam, UP, MP, Karnataka, Gujarat, Maharashtra, Orissa etc. It has formed several subsidiaries to execute various projects and has even entered into JVs with some big players like Simplex Infrastructure, DLF, Ion Exchange, Nagarjuna Construction Company, IDFC, and Maytas Infra to enhance its financial and technical qualification. Moreover it has moved up the value chain and is executing five BOT road projects of which four are annuity based and one is tolled based. The total cost of these BOT projects is Rs 2200 cr and is expected to start generating cash flow from March 2010. GPL is having 51% share in each of the four annuity projects, while its share in the toll road project is 40%. In order to focus on BOT segment and smooth execution of projects, company has set up a subsidiary named Gayatri Infrastructure Venture Ltd and has transferred the 5 BOT projects into it. For future growth this subsidiary is targeting to win Rs 2000~5000 cr of orders in next 5 years. On the other hand, GPL has formed a 50:50 JV with the largest real estate developer i.e. DLF group, to develop roads, highways and bridges across the country. To start with, the joint venture would initially look for BOT road projects in Maharashtra, Orissa and Andhra Pradesh.

Apart from road projects, GPL is also executing few irrigation projects and has recently bagged two huge orders worth Rs 2132 cr from AP Govt for construction of canals. The order is to be completed in 4.5 years and for this GPL has formed an 80:20 JV with Ratna Infrastructure. In the water business, the company has tied up with Ion Exchange which will jointly bid for contracts for water and sewerage treatment plants and desalination plants. Besides GPL is contemplating to develop an integrated township along with DLF and is in midst of acquiring around 1,000 acres, close to the Shamshabad international airport. Moreover it is actively exploring the opportunities to get into setting up of Greenfield power plant and bidding for airport runway tenders in foreseeable future. As on date, GPL boast of having a massive unexecuted order book position of Rs 5000 cr against its FY08 turnover of Rs 750 cr. This ensures the strong revenue visibility for next three years. Notably, the order book is almost equally divided between the irrigation & road projects.

However there are few concerns with respect to execution of projects and raising of finance to fund the projects. Incidentally, company’s three of the five BOT projects are in consortium with Maytas Infra whose fate is in doldrums, which may eventually delay the project execution. Secondly company already has a high debt of more than Rs 450 cr (Rs 750 cr on consolidated basis) including FCCB to the tune of Rs 100 cr making it difficult for the company to raise more debt. And with the current market sentiment, raising money thru equity route is equally hard. Third concern is the management’s adoption of aggressive accounting policy by not providing for the loss in one its JV namely IJM-Gayatri. As per unconfirmed reports GPL’s share of loss till date in JV is nearly Rs 80 cr, which is twice of FY08 standalone profits. It is claiming this loss from NHAI and the final decision by NHAI is yet to be taken.

Sarcastically the share price which hit a high of Rs 700 in Jan 2008 tumbled down to Rs 40 in March 2009 before recovering to Rs 70 currently. Fundamentally, GPL has done well and for the nine months ending Dec 08 on a standalone basis, its topline has increased by 40% to Rs 670 cr and PAT has also risen by 15% to Rs 30.50 cr thereby posting an EPS of Rs 30 till date. Accordingly for entire FY09 it may clock a turnover of Rs 975 cr and PAT of Rs 40 cr leading to an EPS of Rs 40 for the year on the current equity of Rs 10.10 cr. Considering the high conversion price for FCCB, they may come up for redemption in 2012. But there is the risk of equity dilution in future; as GPL may again look to raise capital thru equity route once the market sentiment improves. Having a book value of Rs 177 and order book of Rs 5000 cr, aggressive investors can buy at current market cap of Rs 70 cr for handsome gain in short to medium term.

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Gayatri Projects Ltd
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STOCK WATCH

As anticipated earlier, SEAMEC (85.00) has once again come out with stunning set of nos for the March’09 quarter. Its topline almost tripled to Rs 100 cr on YOY basis, whereas it recorded a net profit of Rs 62 cr against net loss of Rs 17 cr in the corresponding period last fiscal. Ironically, its Q1 profit alone is substantially higher than the entire FY08 profit of Rs 47 cr. The reason for this bumper performance is due to the fact that all its four vessels were constantly engaged for the whole quarter and that too at a healthy charter rate. Importantly, none of its vessel is expected to go for dry dock in the current fiscal and will be fully deployed thru out the year. However due to slowdown in the oil E&P activities, the vessel hire charges have fallen in the recent past and accordingly company has signed a new contract for SEAMEC-II at a significantly lower rate. But at the same time it has been able to rent out its PRINCESS vessel at quite as healthy rate although only for 2 months. Its not only a debt free MNC but also a cash rich company having potential to generate Rs 60 ~ 70 cr cash thru core business operation. For CY09 it can report revenue of Rs 325 cr and net profit of Rs 125 cr i.e. EPS of Rs 37. Moreover it is expected to get an insurance claim of Rs 25 cr which will straight away add to the bottomline. It will most probably be able to clock a bumper profit for June’09 quarter as well but its H2FY09 may not be as good as H1FY09. Despite this scrip can easily shoot up to Rs 125~130 Rs in short term. Catch it if you can. If the market remains bullish it has the potential to touch Rs 200 in few months.

Gremach Infrastructure’s (25.00) main activity is to provide rental of construction/earthmoving machineries to infrastructure companies including L&T, Punj Lloyd, Shapoorji Pallonji, Gammon India, HCC, Gannon Dunkerley etc. It has a 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, concrete batching and mixing plant. In addition to renting its owned equipments, it also hires equipments owned by other parties and rent to its own clients. For the first nine months ending Dec’08 it has already registered an EPS of Rs 15 by earning PAT of Rs 23.30 cr on topline of Rs 238 cr. Although company is witnessing lower demand due to slowdown in construction sector, but going forward it is expected to regain normal business. Interestingly, it has got in-principle approval for 100 hectar Metal SEZ at Kolhapur & another at Dhule in Maharashtra. It has also taken 75% controlling stake in 11 Coal mine licenses in Mozambique. To fund its growth plant company has raised almost Rs 200 cr in Feb 2008 thru FCCB route to be converted into equity @ Rs 376 per share. Ironically, share price which hit a high of Rs 504 in Jan’08 is not finding any buyer even at Rs 20. Aggressive investor can buy at current levels.

Bharati Shipyard (75.00), 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 no shipping company is placing fresh order for ships. On the contrary, there is the great risk of order cancellation. 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 more than Rs 5000 cr which is 7x times its FY08 revenue, thereby ensuring a strong revenue visibility. 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. Recently govt has decided to disburse the pending subsidies to shipbuilding companies although the decision on extension of subsidy scheme beyond 2007 is yet to be taken. 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. Promoters are looking to take preferential allotment of warrants at low price. A good bet for long term.

ICSA(115.00) boasts of developing innovative products suitable for power utilities in the field of energy management, energy audit, control application which identifies distribution losses, and help the power utilities reduce their costs & streamline their operations. The list of its popular product includes Intelligent Automatic meter reading, Distribution transformer monitoring system, Theft detection device, Energy audit services, Pole top & Micro remote terminal unit to name a few. Company doesn’t face any significant competition as it enjoys virtual monopoly for few of its product. It also undertakes electrical infrastructure projects in power generation, transmission and distribution sectors both in India and abroad. Notably, it follows an asset light business model under which it designs and develops prototype models of the product and outsources manufacturing. Currently it is estimated of having an unexecuted order book position of more than Rs 800 cr. This includes the recent order of Rs 460 cr bagged by the company from Bihar and Maharashtra State Electricity Boards. Financially, for the first nine months its sales jumped up 80% to Rs 825 cr and NP shot up 50% to Rs 134 cr thereby surpassing the the sales and NP of entire FY08 by decent margin. Infact it is estimated to end FY09 with sales of Rs 1100 cr and PAT of Rs 170 cr leading to an EPS of Rs 36 on current equity of Rs 9.40 with face value as Rs 2/- per share. Buy at sharp declines.

Royal Orchid Hotels Ltd - Rs 45.00

Founded in 1973 by Chender K Baljee, the Baljee Group which has been re-branded as Royal Orchid group is soon becoming one of India’s most recognized names in hospitality with major presence in Bangalore. Royal Orchid Hotels Limited (ROHL) - the flagship company comprises of hotel assets, their management and the branding & marketing activities of these hotels. Apart from having ownership of hotels company also undertakes management contract with third party owners, so as to encourage the development of hotels and simultaneously provide with them with the benefit of professional management and a well recognized brand. From a modest beginning of owning single hotel in Bangalore, ROHL currently manages following twelve hotels.

Name Place No of rooms Category
Royal Orchid Banglore 195 5 star Business hotel
Royal Orchid Central Bangalore 130 4 star Business hotel
Royal Orchid Resort Bangalore 54 4 star Resort
Royal Orchid Suite Bangalore 92 4 star extended stay hotel
Hotel Ramada (Harsha) Bangalore 83 4 star Business hotel

Royal Orchid Metropole Mysore 30 4 star Heritage hotel
Royal Orchid Brindavan Garden Mysore 25 4 star Heritage hotel

Royal Orchid Golden Suites Pune 71 4 star extended stay hotel
Royal Orchid Central Pune 115 4 star Business hotel

Royal Orchid Central Jaipur 70 4 star Business hotel
Royal Orchid Galaxy Resort Goa 69 4 star Beach Resort
Hotel Peppermint Hyderabad 60 Budget hotel

Importantly, company follows a unique ‘asset light’ business model of taking properties on lease or entering into a contract for managing & operating the existing hotel instead of owning them outright. Majority of its properties are on long term lease, management contracts or in joint ventures which help the company in keeping its investments low. This has helped the company manage its funds efficiently, have lower payback period on its projects, earn attractive operating margins which eventually lead to higher ROCE. Moreover company is having presence mainly in the premium four / five star categories, where not only margins are lucrative but demand is also witnessing maximum growth. To de-risk its revenue model, company is expanding geographically and setting its foothold in other cities as well.

ROHL has entered into an agreement to acquire 100% stake of Satkar Realties Private Limited, in connection with acquiring a 104 room hotel at Ahmedabad. As per terms of the agreement, it has already acquired 26% stake as of date. It will refurnish and upgrade the hotel to four star category and launch it under ‘Central’ brand name. ROHL is also looking to operate a four star property in Mumbai which is expected to get ready by end of 2010 thru lease. However company’s biggest project is a 180 room five star hotel which it is constructing under joint development in Hyderabad. It has also signed a management contract to operate 90 suites property adjacent to its project. Further company has entered into a joint venture with few developers for putting up a 160 room five star hotel in Jaipur. Apart from all these, it has formed a 30:70 JV company with Parsvanath group to establish 10 hotels with an investment of about Rs.500 cr, in the next 5 years. Earlier ROHL has also signed an agreement with New Jersey based Wyndham Hotel group which operates Ramada hotels globally. Under this agreement company will develop and manage 10 hotels over five year under Ramada brand in India. Meanwhile, ROHL has recently completed the major renovation work at three of its properties ­- Goa Resort, Bangalore Resort & Hotel Ramada which will improve the occupancy rate as well ARR going forward.

Until last year, company’s management was very excited about setting up budget hotels across India as it had targeted to operate 50 budget hotels under the brand name ‘Peppermint’ in the next 5 years. It had even tied up with IRCTC for 11 locations. But now, it seems company has put the plan under back burner and is focusing on niche segment only. It is quite contended with single budget hotel in Hyderabad and has no expansion plan for Peppermint brand. Few months back company acquired Royal Orchid Central, Bangalore property at a consideration of Rs 82 cr which was being managed by itself. Besides, ROHL has made an international foray, by acquiring a Tanzania based company, Multi Hotels Limited, which owns 30 acres of prime beach front property in Dar-e-salaam, the economic centre of Tanzania, for a consideration of Rs. 8 cr. It plans to develop a beach resort in next 2 years with an investment of about Rs 100 cr.

India, with its diverse landscape, offers huge scope for various theme-based travels like medical tourism, adventure tourism, heritage tourism, wellness tourism, pilgrimage tourism, eco-tourism, wildlife tourism along with business travels. Besides, the domestic national tourism is also on a rise. As per unconfirmed reports the estimated number of required hotel rooms is around 240,000, whereas the current availability is just 90,000 rooms, leaving a shortfall of 150,000 rooms. Recognizing the untapped opportunity, government declared hotel and tourism industry as a high priority sector and with a provision for 100 % FDI offered an additional impetus in attracting investments into this industry. Although, the Indian hospitality industry is going thru a temporary slowdown due to various factors but over the longer run it is expected to record a healthy double digit growth. ROHL with constant expansion backed by asset light model and strong goodwill is slated to do well in coming years. Hence company along with eight of its subsidiaries is expected to end FY09 with total revenue of Rs 140 cr and NP of Rs 20 cr leading to an EPS of Rs 7 on equity of Rs 27.25 cr. Ironically, company had raised Rs 112 cr @ Rs 155 per share thru IPO route in Jan 2006 and the issue was oversubscribed 40x times. Today company is available at a market cap of Rs 125 cr with no buyer even at Rs 50. Since listing company has given handsome dividend @ 50%, 60% & 60% consecutively. But for FY09 it may have to cut down to 30% or less. Considering the company’s, operational capabilities, strong brand value and future growth plan investors are recommended to accumulate at declines for a price target of Rs 75 in 12~15 months.

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