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.

STOCK WATCH

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.

ANG Auto Ltd - 175.00 Rs

ANG Auto Ltd (ANG) was established in 1991, primarily as a merchant exporter in the name of ANG Exports, to market automotive component to some of the USA based companies. Subsequently, it set up a plant to manufacture brake pins & rollers, camshafts, brake shoes and other critical components like dummy axles, gear sets, slack adjusters etc. Later in 2005, it further widened its product portfolio by merging two of the group companies namely ANG Auto pvt ltd and ANG Automotive Industries pvt ltd with itself. Today, under the dynamic leadership of Mr. Premjit Singh, ANG 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. It boasts of having a portfolio as vast as 15 different products with expertise in two critical auto-component families i.e. braking system and transmission system for heavy commercial vehicles, trailers and other vehicles. Notably, with the commencement of its trailer plant in April 2007, ANG has become the largest trailer manufacturing company in India with a capacity of 3600 trailers per year, against a cumulative competing capacity of 600 trailers per year.

As on today, ANG has eight world class manufacturing facilities with five units in Noida, one in Nalagarh-HP, one in Faridabad-Haryana and latest trailer manufacturing unit in Sitarpur-Uttranchal. From July 2007, company started producing trailer axles based on a new friction welding technology which is first of its kind in India. Off late, it also launched two unique products viz. the automatic slack adjuster and the single piece dummy axle which have become the major growth drivers for the company. Its automatic slack adjusters offers a continuous running life of 75,000 km (before adjustment) compared with the prevailing industry standard of about 20,000 km and has even got a US patent for that. Now, ANG is among the selected companies in the world, having a patented Auto Slack that too developed and engineered by its in-house technical team. However the biggest achievement by the company is its trailer manufacturing plant set up by ANG Auto Tech, a 75% subsidiary in collaboration with FUWA Engineering of China. Unbelievably the entire trailer, except for the tyre, rim and spring leaf is manufactured in-house, enhancing asset utilization, cost management, quality control and superior return on employed capital. Hence, within four months of the commencement of operations, ANG possesses the expertise to offer 18 trailer variants in multiple configurations (24 ft, 32 ft, 36 ft and 40 ft) and customized around different payloads with different structures and attachments for diverse applications. In order to be the largest trailer manufacturer in Asia, ANG is augmenting its capacity to 6000 trailers per year with an investment of 36 cr within this fiscal. This product commitment resulted in Ashok Leyland selecting the company for an alliance partnership whereby ANG would manufacture trailers and Ashok Leyland would market them as a co-branded product. This five year contract is valued at 1500-1800 cr, which is a huge breakthrough for ANG.

Currently 70% of revenue, ANG derives from exports to quality conscious US and European markets in addition to Australia, Brazil and Mexico, among others. Going ahead, company has drawn out a blueprint to extend one step further to the manufacture of suspension systems and is also looking for backward integration to set up a forging unit at Bhiwadi, Rajasthan at capex of Rs 37. To consolidate its operations further, company has decided to merge ANG Auto Tech also with itself. Incidentally, the market for trailers in India is virtually unexplored although it forms a major mode of logistic solution in developed economies due to cost and various other factors. Therefore with the massive investment & rapid developments taking place in road infrastructure, the future prospect of trailers is mind boggling. Recently, company raised around 50 cr thru FCCB route to be converted into equity shares @ 325 Rs per share. Although the first quarter result was not that encouraging, still it is expected to clock a turnover of 175 cr and PAT of 25 cr on a standalone basis. This translates into EPS of 19 Rs on fully diluted equity of 13.40 cr. And as ANG Autotech has started commercial production of trailers from this fiscal only, the consolidated nos will be much better. However the sharp rupee appreciation is a cause of concern for which the share price has tumbled badly and is hitting 52 week lows. Despite this, investors are recommended to buy at current levels as scrip has the potential to appreciate 50% from hereon in a year’s time.

Ansal Housing & Construction Ltd - 203.00 Rs

Incorporated in 1983, Ansal Housing & Construction Ltd (AHCL) – part of the high profile Ansal group is one of the reputed real estate developers with a predominant presence in North India. AHCL has been the pioneer to introduce the concept of large integrated residential townships in the country. Moreover, it has been the first to enter Tier - II & III cities like Ghaziabad, Noida, Allahabad, Lucknow, Ludhiana, Agra, Bhopal, Haridwar etc. Till now company has constructed massive 67.6 million square feet of commercial and residential project across India. Despite residential segment being the biggest contributor, AHCL is now seeing increased activity in commercial division since it has aggressively forayed into shopping malls and retail space. Under the collaboration of Radisson worldwide, company is setting up chain of restaurants across India with “The Great Kebabs Factory” and “Superstars” already operational in Noida. It also owns and manages club houses under the ‘Chancellor’ brand name in Ansal Townships. As a part of diversification, company has also forayed in automobile business thru a joint venture with Itochu Corporation of Japan. And on the back of excellent prospects, it is now setting up state-of-the-art sales cum service centre facility of Honda Cars at Ghaziabad.

Ironically, out of the total development done by the company till today, more than 95% have been carried out in the Tier II or Tier III cities which stands out as the USP of the company. Few of popular townships developed by the company are Aashiana - Lucknow(477 acres), Golf Link I & II - Greater Noida(140 acres), Tronica city - Ghaziabad(87 acres), Bachittar Enclave - Ludhiana(34 acre) etc. In the commercial space, Imperial Tower, Majestic Tower, Classique Tower, Vikas Deep etc in Delhi and Ansal Plaza - Ghaziabad(5,45,000 sq ft), Fortune Arcade - NCR(91,35,000 sq ft), Mega Arcade - Noida(750,00 sq ft) are some of its landmark creations.

On the back of boom in housing sector and strong demand for commercial property, AHCL 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 with an investment of Rs 2000 cr. 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. Interestingly, it has construction plans in much smaller towns like Kurukshetra, Narnaul, Yamuna Nagar & Panchkula in Haryana, Ajmer & Alwer in Rajasthan, Muzzaffer Nagar & Jhansi in UP, Parwanoo & Poanta Sahib in HP. At the same it also has ongoing projects in Mumbai metro whereby it is building two towers under the name “Whispering Meadows” and “Ansal Heights” at Mulund and Worli respectively. Company also intends to develop Holiday Homes in Shahpur - Thane spread over 150 acre. Couple of weeks back, it launched a new residential group housing project named “Ansal’s Woodbury Apartment” at Zirakpur near Chandigarh.

Currently, AHCL has a rich land bank of 2500 acres with about 50% under its own name while the rest under firm collaborators agreement. And more importantly the acquisition cost of these lands is reasonably low, for which company has been able to register better profit margin compare to its peers. Financially, its topline increased by 60% to 199 cr and PAT more than doubled to 42.75 cr for FY07, posting an EPS of 25 Rs on equity of 16.80 cr. Incidentally, AHCL follows the percentage of completion method of accounting and hence the revenue is recognized in proportion to the actual cost incurred. It reported encouraging result for the June qtr registering a healthy OPM of 40%. Conservatively, 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. The consolidated nos will be much better with an EPS of more than 32 Rs. However, against order book of 2500 cr, company is available at market cap of 350 cr. With 52 week H/L as 405/190 Rs, it is one of the safe bet in real estate sector. Investors are strongly recommended to buy at current levels as scrip can easily appreciate 50% in a year’s time.