Stone India Ltd - 135.00 Rs

Incorporated in 1931 and a part of well known Duncan Goenka group, Stone India Ltd (SIL) is a multi-product engineering company and is basically serving the Indian railroad industry for over seven decades. Being a pioneer in brake systems and train lighting alternators, SIL is today the undisputed leader in locomotive brake systems and has a huge range of mechanical and electrical products for the railroad industry. It also manufacture few critical products for defence tanks and armoured vehicles. Currently, company generates about 90 per cent of its revenue from railways and has a market share of about 25-30 per cent. Broadly, company has segmented its product profile into following three categories:-

Carriage business group: SIL manufactures and deals in pneumatic equipments like distributor valves, brake cylinders, angle cocks, dirt collectors, hoses, slack adjuster apart from compact air braking system of carriage & freight stock for railway rolling stock operation. Recently it has developed its own patented beam mounted brake system for all types for freight wagons.

Locomotive business group: Under this category it produces & markets brake systems, centrifugal lube oil filter and regenerating type 'Vaporid' air dryers for Diesel and Electric Locomotives. In addition the company specializes in conversion of vacuum to air brake system in locomotives.

Train Power business group: SIL manufactures and supplies brushless alternators, electronic rectifier regulators and pantographs. Alternators are actually power generators used in the coaches and pantographs are used in the electric locomotives & electric multiple units to draw power from the overhead traction.

Other than the corporate office and the manufacturing facilities in Kolkata, SIL has branches and service centres located at all major towns and cities of India. To diversify its product portfolio, it has set up a greenfield facility at Nalagarh, Himachal Pradesh which is likely to go on stream this fiscal itself. Besides, it intends to put up a third plant somewhere in south. As company manufactures sophisticated & critical components involving high precision and accuracy, it has collaborated with several global industry leaders for its high technology products. Faiveley S.A. of France, SAB of Sweden, WABTEC Corporation of USA, SAB WABCO of France etc are to name a few. Off late, SIL has also ventured into the railway electronics business through introduction of a slew of high value power electronic products like inverters, converters and power supply system for coaches, locomotives, EMUs and metros. Accordingly, it made a technical collaboration with SMA Technologies AG, Germany for producing 180 kilovolt-amps (KVA) auxiliary power converter for railways. The other product of this new division viz end of train telemetry device is also been approved by railways. Earlier, SIL entered into an exclusive understanding with ZRJC, Guangzhou, China for manufacturing & supply of air conditioning system along with microprocessor based control system for passenger coach rolling stock & metro coaches.

In order to de-risk its business model, company is looking to increase the revenue from projects & services area for which it is executing a huge order for refurbishment and up gradation of 1115 wagons from ministry of defence. Notably, SIL is the only private company selected to execute this order which was earlier done by Indian railways. Moreover, company has already entered the Asian rail market and has appointed Telewira Tegas SDN BHD, Malaysia, as an exclusive agent for turnkey project work relating to freight car, passenger coach and locomotive up gradation and maintenance for Malaysian railways. It has also been exporting air brake system to internationally reputed wagon manufacturer in China. And importantly, couple of weeks back, SIL partnered with Sumitomo group Japan to gain the technical know-how for manufacturing of air springs which are technically far superior to the existing mechanical suspension system.

To conclude, the on going major restructuring of Indian Railways and large capacity expansion of its network augurs well for SIL which is well poised to take on all the future opportunities in line with its strength & core competencies. Indian Railways are planning an investment of gigantic Rs 5,00,000 crores in next few years, out of which Rs 1,00,000 Crores is meant for rolling stock & Rs 2,00,000 crores in private-public partnership projects. Hence, SIL will continue to grow at a scorching pace in future as well. For H1FY08, sales grew by 60% to 41 cr and NP increased by 70% to 6.90 cr. Despite such excellent performance, share price has tumbled down sharply from a high of Rs 220 Rs in Dec’06 to current levels. This may be because of the delay in commencement of new plant in HP and also due to the fact that in April 2006 warrants holders didn’t exercise their right to convert 14,32,000 warrants even at the low of price of 97 Rs as they had got the allotment in 2005. Well for FY08, company is expected to register sales of 100 cr and PAT of 13.50 cr i.e. EPS of Rs 18 on equity of 7.60 cr. Investors are strongly recommended to buy at current levels with a price target of 220 Rs (i.e. 60% appreciation) in a year’s time.

Vakrangee Software Ltd - 155.00 Rs

Incorporated in 1990, Vakrangee Software Ltd (VSL) is a leading provider of complete document and data management solutions encompassing large-scale data capturing & management, scanning, digitization and printing. It has three business segments, viz - document management services, printing management services and IT enabled services catering to various verticals like the central and the state government, banking and financial services industry, telecom, power, retail, aviation and others. Importantly, VSL has the largest scanning and variable data printing capacity in India with 5.6 million pages per day and 2.40 million pages per day respectively. Besides, company is a pioneer in multi-lingual application software and has developed versatile document management software, which can be used in 13 regional languages. After its Voters Identity Card software, Electoral Roll software, Voters Data entry Package, Cyber Saver etc, company is now in the advanced stage of developing Human Capital Management software & School ERP software which have tremendous potential in domestic market. Currently, VSL derives 75% of revenue from government business while the balance comes from private sector. Hence its clientele comprises of various election divisions, government & semi-government organizations, public authorities & local bodies, business associates and other private organizations.

Earlier, VSL was mainly into election commission work and database management but now the focus of the company is on e-Governance including document management projects and further to printing management projects. It boast of successfully completing land record digitization project of Ghaziabad development authority, digitization of patent records at Indian patent office, public facilitation office under MCA-21 and various other election projects for the state of Maharashtra, Rajasthan, Chhattisgarh, Gujarat & UP. It has around 25 delivery centers in major cities across India. Apart from being an outsourcing partner to TCS & CMC, company has a tie up with Godrej & Boyce for jointly executing large election related projects at national and state level. In Dec 2006, VSL imported world’s fastest printing system - Kodak Versamark VT3000 which can print customized design from page to page. This machine has not only helped the company to execute all election commission related work in house but also enabled it to get more business from the emerging opportunities like printing documents (including bills) for telecom companies, electricity supply companies, retail groups etc. Recently it has entered into a strategic alliance with Eastman Kodak company to offer mass customization & personalization of customer communication practices in India and has been granted with the Kodak Gold Plus accreditation status. Maintaining records and issue of voter’s identity card for Maharashtra, MP, UP, Gujarat etc is an ongoing process for the company. For TCS, it is doing Registrar of Companies database management at 32 locations. To conclude, VSL presently has an order book of 175 cr to be executed in next one year.

Today, e-Governance is the fastest growing business opportunity as well as a major social responsibility initiative in India. It is further fuelled by the implementation of Right to Information Act (RTI) by govt of India, which makes it mandatory for all govt departments to have all the information in digital form. This includes not only conversion of historical data but also to keep present as well as future information in digital form. In view of the innumerable ministries, departments, offices at center and state level and other authorities, e-Governance has emerged as a huge opportunity for the IT industry in general and for the company in particular. Hence VSL with a rich experience and excellent track record is all set to capitalize this in coming years. On the back of stunning performance for Sept quarter, it may end FY08 with total revenue of 200 cr and PAT of 40 cr i.e. EPS of 19 Rs on fully diluted equity of 21.40 cr. Interestingly, despite doing a low skill work, company enjoys an OPM of more than 40% & NPM of 20% consistently. Accordingly for FY09 it can post an EPS of 26~28 Rs. So at a reasonable discounting by 12x times against the FY09 earnings, scrip has the potential to touch 320 Rs (i.e. 100% return) in 15~18 months.

STOCK WATCH

Couple of months back Ind Swift Lab (54.00) has received the USFDA approval for its API manufacturing facility at Derabassi Punjab for Clarithromycin. For other API’s, FDA inspection is expected to be done shortly. Presently, exports constitute around 45% of sales with company having presence in 45-50 countries - principally European countries, Asian countries, Latin American countries and Middle East. For future growth the company has a robust product pipeline of 25 products which includes blockbuster drugs like Clopidogrel (Anti-Cholestrol), Pioglitazone (Anti-Diabetic), Letrozole & Anastrozole (Anti-Cancer) Venlafaxine (Anti-Depressants) Quetipine & Aripirazole (Anti-Pshychotic). It has successfully filed over 72 DMFs with the US, Canadian, UK and European Drug Authorities. The DMF filing will facilitate the launching of the drugs by the company upon the patent expiry in those countries. Hence company has been aggressively expanding its capacity and has quadrupled its Gross Block to nearly 400 cr from 100 cr two years back. Considering the robust half yearly nos, it may end FY08 with sales of 450 cr and PAT of 22 cr. This translates into EPS of 9 Rs on fully diluted equity of 25.25 cr. With a book value of whopping 93 Rs and expected CEPS of 16~17 Rs, scrip is trading extremely cheap at a P/E ratio of merely 6x times. A screaming buy at is has the potential to double in 12~15 months.

Orient Ceramics (52.00) 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 etc. It also makes special tiles under various collections branded as Artline, Midline, Vivaldi, Novista, Goemetricos & Egyptian Rustic collection which are unique and 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. With the introduction of latest machinery, it has started producing high value glazed and polished vitrified tiles from current fiscal. Further, it has converted all manufacturing lines to fuel saving single fast firing technology. To increase the presence in south, it has opened a regional distribution centre in Bangalore apart from strengthening its dealership network. Fundamentally also company has been successful in maintaining its profit margin despite intense competition. On the back of expanded capacity to 220,000 TPA, it is estimated to clock a turnover of 240 cr and NP of 13 cr i.e. EPS of 12 Rs on equity of 10.50 cr. Which means the scrip is currently available at a discounting of hardly 4x times. Moreover, a company having a gross block of 157 cr, is available at an enterprise value of merely 115 cr which is extremely cheap by any standards. It’s an indirect bet on infrastructure play.

FCS Software (75.00) is basically providing customized software solutions to the clients based in US. Its revenue model is segmented into four divisions viz. IT consulting (55%), e-learning & digital consulting (25%), application support (10%) and infrastructure management services (10%). Apart from Sun Microsystems it is also a Microsoft certified solution provider. As US firms feel more secure in doing legal contracts with a fully US entity and in order to service its client more effectively, company has set up a subsidiary called FCS Software Solutions America Limited, incorporated in America in 2006. Here in India, company is increasing its overall capacities by putting up world class development centers at Chandigarh, Dehradun and two new centers in Noida at Sector 73 and Noida Special Economic Zone (SEZ). To summarize, currently it has 32,000 sq. ft. of space with 850 seats and additional 45,500 sq. ft. is under construction that would provide 1125 seats. To fund this expansion company is also looking to raise capital thru equity route in near future. On the flip side, it does not have any protection for US $ fluctuations against Rs as it doesn’t provide for any hedging of US $. Hence conservatively, on an estimated OPM of 14% (although it has registered 20% for H1FY08) it can earn a net profit of 20 cr on topline of 200 cr for FY08 on a consolidated basis. This works out to an EPS of 14 Rs on equity of 14.25 cr. With promoter holding of 69%, dividend yield of more than 3%, book value as 64 Rs and P/E ratio of 5x, it’s a value buy at current levels.

Rajendra Mechanical Industries (92.00), part of the Mumbai based REMI group, is a pioneer in manufacturing of stainless steel welded and seamless pipes & tubes. These pipes and tubes are used extensively in critical process industries such as refineries, petrochemicals, paper and pulp, fertilizers, pharmaceuticals, nuclear plants, etc. IOCL, IPCL, GNFC, IFFCO, Madras refineries, Mangalore refineries, Ranbaxy Laboratories are few among its reputed clientele. It has also developed specialized stainless steel tubing especially for critical power industry. To cash on increasing demand, company has been constantly expanding its production capacity which now stands at 7500 MTPA from 4500 MTPA in 2005. Notably, company has also ventured into power generation thru wind mill and has total installed capacity of 2.25 MW. With the expansion effect kicking it, company has reported stunning nos for the both the quarters of H1FY08. For the Sept qtr, sales jumped up 90% to 55 cr whereas NP tripled to 2.30 cr. Accordingly it can register a NP of 6.50 cr on sales of 200 cr for FY08 which leads to an EPS of 14 Rs on equity of 4.80 cr. However this profit is excluding extraordinary item of 1.50 cr - profit on sale of property. Otherwise the EPS works out to 17 Rs. Moreover it has the potential to earn an EPS of 20 Rs for FY09 from business operations only. A good bet for medium to long term

Shakti Met-Dor Ltd - 210.00 Rs

Incorporated in 1988, Shakti Met-Dor Ltd (SMDL) has established itself as India’s leading manufacturer of Performance Steel Doors. It offers a total door set solution, which includes design manufacturing, supply and installation of steel door sets. It primarily caters to infrastructure industry, information technology, power, textile, hotel, ITES, BPO, pharma, food processing and healthcare sector. Company’s product line includes complete range of general doors, scientific doors, fire doors, pure stainless steel doors, commercial doors and other special application doors that have been developed in consultation with leading architects, consultants and specifiers. By offering effective use of vision panels, hardware, ironmongery and unlimited range of paint finishes, SMDL products are far superior to other doors using traditional materials. Its special stainless steel doors are designed to meet harsh environmental exposure to chemicals, water, steam, laboratories, bottling plants, food processing plants, hospital surgery rooms and all humid environments. On the other hand their scientific door surpasses the most stringent requirements associated with industries like pharmaceuticals, hospitals and at the same time being aesthetic also. This is proven by the fact that Shakti doors are installed in the plants/offices of corporate biggies like Pfizer, Cadilla, Shanta Bio, Dr. Reddy’s, Cipla, GE Shipping, Nuclear Power Corp, HSBC, Citibank, DLF group, British High commission, Oberoi Hotels, Holiday inn, Bank of America etc. Incidentally, it has also been exporting Shakti Doors to other countries in the Middle East, Sri Lanka, Madagascar, Kenya Cyprus etc.

SMDL’s manufacturing plant is located at Gagillapuram, Andhra Pradesh. The company began operations with technical assistance from Martin Roberts of UK, however, since 1999, it has charted its own independent course. Today it possesses the technical expertise, innovative design capability and manufacturing facilities to fully satisfy every customer requirement. To maintain its leadership, company is regularly expanding its manufacturing capacity. After doubling the capacity to 40,000 units in FY06, company further augmented its installed capacity by 50% to 60,000 units in FY07. Notably, this ISO 9001: 2000 certified company is stream lining its operations by implementing ERP from SAP business software. Last fiscal it also commissioned the R&D centre and facilities training centre. On the export front, company is looking at South Asia, among other regions, as a possible growth area for its product and is actively exploring it. For future, SMDL is examining the feasibility of introducing new products to cater to the building industry which are wood substitutes and would also compliment the current products. Moreover, after getting expertise in various projects, company now provides consultancy for recommending suitable ironmongery and accessories to others.

The government’s special emphasis on infrastructure and the increase in FDI investments expected in this area as well as other industry segments, would result in a large market for company's products. Secondly, the aggressive growth plans of the pharma, healthcare and Information Technology industries will also help company in maintaining its growth over the next few years. Considering its half yearly nos, it is expected to clock sales of 80 cr and PAT of 13.50 cr for FY08 which works out to an EPS of 49 Rs on a very tiny equity of 2.75 cr. Ironically, company hasn’t raised or diluted the capital since its public issue in 1994. At the CMP of 210 Rs, scrip is trading at P/E ratio of merely 4x times. With 52 week H/L as Rs 305/160 and expected book value of Rs 125, scrip can move up to Rs 290 (i.e. 40% return) in a years time. However in long term, investor can expected much better returns.

Crew BOS Products Ltd - 78.00

Incorporated in 1988, Crew BOS Products Ltd (CBPL) designs and manufactures leather and leather-based fashion accessories and footwear. So its primarily engaged in exporting lifestyle fashion accessories & home decoration products made from fabrics, leather, metal, wood etc. Over the years, company has successfully transformed itself from being just a bags and belt manufacturer to a multi-product company. Today, its niche product profile can be broadly segmented into four divisions: fashion bags and wallets division, belts and footwear division, home goods division and the recently started - watch strap division. The fashion bag and wallet division is the largest, contributing more than 40% of revenue followed by belts and straps which accounts for 25%. The fashion footwear division, which started in 2003-04 is growing at a scorching pace and presently adds 20% to the top line. The balance comes from export of finished leather and from home good division. CBPL is constantly looking to broad base its product portfolio in order to keep itself abreast with the latest changes in fashion trends around the world. Recently, it has also entered into production of close shoe footwear. To summarize, company’s business model is based on catering to the outsourcing requirements of the leading international brands in U.S. and Europe.

Being an ISO 9001:2000 certified company, CBPL has six state-of-the-art manufacturing units including a world-class leather finishing unit located at Manesar (Haryana) equipped with hi-end Italian machineries and Italian leather processing technology. It also has a tannery at Jalandhar (Punjab) and is also fast developing an exclusive footwear manufacturing unit at the Mahindra SEZ in Chennai (Tamil Nadu). Notably, it has setup an outsourcing and marketing office in Hong Kong (China), marketing office in Milano (Italy) and a resourcing office in Cairo (Egypt). Company has to its credit the unique distinction of producing cost-effective, international-grade, Italian quality leather which has been very well appreciated in the foreign market. Its product range represents the international pulse of fashion as it supplies to some of the world’s best and most renowned international brands and retail chains such as Accessorize, Monsoon, Fossil, Marks & Spencer, Esprit, Next, GAP, Old Navy, Zara, Banana Republic, Tesco, H&M, Chico’s, Fat Face, Debenhams, J Jill, AEO, Armani to name just a few. To compliment this it has a highly scalable business model and there is tremendous scope for ramping up every individual client account. As CBPL derives 100% revenue thru export, it has formed a subsidiary called Crew Style Works to penetrate Indian market under its own brand name to encash the ongoing domestic retail boom. Company has already formulated strategic marketing plans and is all set to launch two brands ‘TEMPESTA’ and ‘CREW REPUBLICA’ initially by early 2008. It also intends to initiate a multi brand concept i.e. different brands for youth, executives, women, etc.

Being very optimistic on the footwear segment, CBPL has entered into a 51: 49 JV with Leather Crafts - a respected Chennai-based leather exporting house servicing the renowned American brand ‘Hush Puppies’, to manufacture and export all kinds of footwear and footwear components. Accordingly company has purchased 6 acres of land at Mahindra World City SEZ at Chennai where it is setting up a new plant to produce 10,000 pairs of full shoes per day. Part production from this new facility is likely to begin by December 2007 and to be fully operational by December 2008. At the same time, it is also looking to enhance its Manesar shoe unit capacity to 5,000 pairs of full shoes per day form 1800 pairs currently. Moreover for future growth company has acquired 30 acres of land at Neemrana in Rajasthan for the expansion of its capacities for fashion accessories and for the development of state-of-the-art manufacturing plant for closed shoe footwear.

To fund its expansion plan, CBPL is looking to raise 100 cr thru equity route in near future. Besides it has already allotted 12.50 lakh warrants, convertible into equity shares @ 178 Rs on preferential basis to the promoters / private business investors. Because of the continuous rupee appreciation, company’s share price has tumbled down sharply to hit new lows of 77 Rs from 290 Rs in Feb’07. Although rupee appreciation will hit company’s bottomline to some extent but importantly, neither the companys product nor its clients are price sensitive. However company is expected to register lower profit for FY08 since it is consolidating and expanding its operation. But from FY09 it will on a strong growth trajectory and won’t be looking back. It is estimated to clock a turnover of little less than 200 cr and PAT of around 19 cr. Still this translates into EPS of 14 Rs on diluted equity of 14 cr. That means scrip is currently trading at a P/E ratio of less than 6x times making it a screaming buy. Investors are strongly recommended to buy at current levels with a price target of 120 Rs (50% return) in a year’s time.