STOCK WATCH

Transformer & Rectifiers (135.00) whose IPO issue @ Rs 465 per share got over subscribed by 91x times in Dec 2007 is finding no buyer at Rs 150 now. Company is one of the leading manufacturers of power & distribution transformers, furnace transformers, rectifier transformers and specialized transformers. It currently manufactures transformers up to 220 kV class and has an installed capacity of 7,200 MVA transformers per annum. 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 by March’09 would be capable of manufacturing transformers upto 756kV class, though the company initially intends to manufacture transformers of 220kV and 400kV classes. As of now, company has order book position of Rs 383 cr, out of which 70% comprises of power transformers. For the latest Sept’08 qtr, its sales as well as net profit increased by 60% to Rs 114 cr and Rs 12.70 cr respectively. Accordingly it may end FY09 with sales of Rs 400 cr and NP of Rs 36 cr i.e. EPS of Rs 28 on current equity of Rs 12.90 cr. However, it will report substantial growth in FY10, as new plant will begin operation.

Last week Vakrangee Software (48.00) announced encouraging set of nos for the Sept’08 quarter. Revenue shot up 60% to Rs 91 cr whereas profit increased by 50% to Rs 19 cr posting an EPS of Rs 9 for the single quarter. Accordingly for H1FY09, it has registered 70% growth in topline to Rs 153 cr and 65% rise in profit to Rs 30 cr. Despite such impressive performance its share price has tumbled down to sub Rs 50 levels from high of Rs 300 in May’08 due to distress selling by FII’s. Company has emerged as the only provider of document management and printing management solutions in the organized sector. With more than 15 years of experience in servicing various government organizations, company forayed into the private sector for the first time during last fiscal, which includes large companies from the BFSI, retail and telecom sector in both its DMS and PMS vertical. It digitized various inbound documents (including application and KYC forms) and developed customized software for each project. To meet the growing customers need in the print management segment, it tied up with Eastman Kodak and installed Asia’s biggest large scale variable color data printers. It is setting up a new hub office at Gurgaon equipped with second printer of same type. Last year it opened 32 new offices and has plans to open 100 more in couple of years. Meanwhile, India is reporting the fastest global growth in e-governance, catalyzed by the implementation of the RTI Act, which makes it mandatory for all government departments to digitize their physical documents. It may end FY09 with sales of Rs 300 cr and profit of Rs 58 cr leading to an EPS of Rs 27 on current equity of Rs 21.40 cr. As FII’s hold huge chunk scrip may continue to underperform in short term.

Once again Mazda Ltd (35.00) has come out with flying colours for the Sept’08 qtr. Its net sales as well as net profit grew by 40% to Rs 22 cr and 2.30 cr respectively. It has already posted an EPS of more than Rs 10 for H1FY09. So for entire FY09, it is slated to register sales of Rs 80 cr and profit of Rs 8 cr i.e. EPS of Rs 19 on small equity of Rs 4.25 cr. Company is among the few engineering companies in the world, manufacturing very specialized, high technology and critical equipments for various industries like power, refineries, fertilizers, chemicals, nuclear, sugar, paper, food, pharma etc. Broadly its product profile is segmented into vacuum system, valve division, air pollution control equipment, crystallizers and evaporators. Notably, it has a technical collaboration with world renowned Croll-Reynolds Inc. USA, who holds 12% stake in the company. Fundamentally, company is on a strong footing with very low debt equity ratio and good reserves leading to a book value of Rs 61. Moreover HSBC is holding nearly 8% stake even as on 30th Sept and hasn’t sold any share in this carnage. At an Enterprise value of merely Rs 20 cr scrip and at a P/E multiple of harly 2x times, scrip is trading damn cheap. A screaming buy.

In the recent meltdown, share price of TIL Ltd (165.00) has been reduced to just 20% from its high of Rs 825 in Jan 2008. Company is engaged in three business segment namely construction and mining solutions (55%), material handling solutions (25%) & power systems solutions (20%). It has long term technical and strategic alliances with leading equipment manufacturers in the world- Caterpillar Inc, Manitowoc crane Group, USA Famak S.A, Poland and Paceco Corp, USA. Pioneering the manufacture of mobile cranes in India, company produces rough terrain, truck mounted, yard and industrial cranes, reachstackers, electric level luffing cranes, articulated lorry loaders, generator sets, equipment for specialized Defense applications at its Kolkatta plant apart from marketing imported equipment and spares of reputed global manufacturers. For the Sept’08 qtr, it reported 50% growth in sales and PAT to Rs 264 cr and 9 cr respectively. To cater the global clients effectively it has set up subsidiaries in Singapore, Nepal, Myanmar etc which are doing well. Further company is putting up a Greenfield plant in West Bengal under a capex of Rs 175 cr for which it has made a pref allotment of 30 lac warrants to promoters and others to be converted into equity @ Rs 326 per share. On a consolidated basis company is estimated to clock a turnover of Rs 1400 cr and PAT of Rs 50 cr. This translates to an EPS of Rs 50 on current equity of Rs 10 cr whereas the diluted EPS works out to Rs 39 cr on enhanced equity of Rs 12.75 cr. A solid bet.

Small & Beautiful

Last week Vakrangee Software (48.00) announced encouraging set of nos for the Sept’08 quarter. Revenue shot up 60% to Rs 91 cr whereas profit increased by 50% to Rs 19 cr posting an EPS of Rs 9 for the single quarter. Accordingly for H1FY09, it has registered 70% growth in topline to Rs 153 cr and 65% rise in profit to Rs 30 cr. Despite such impressive performance its share price has tumbled down to sub Rs 50 levels from high of Rs 300 in May’08 due to distress selling by FII’s. Company has emerged as the only provider of document management and printing management solutions in the organized sector. With more than 15 years of experience in servicing various government organizations, company forayed into the private sector for the first time during last fiscal, which includes large companies from the BFSI, retail and telecom sector in both its DMS and PMS vertical. It digitized various inbound documents (including application and KYC forms) and developed customized software for each project. To meet the growing customers need in the print management segment, it tied up with Eastman Kodak and installed Asia’s biggest large scale variable color data printers. It is setting up a new hub office at Gurgaon equipped with second printer of same type. Last year it opened 32 new offices and has plans to open 100 more in couple of years. Meanwhile, India is reporting the fastest global growth in e-governance, catalyzed by the implementation of the RTI Act, which makes it mandatory for all government departments to digitize their physical documents. It may end FY09 with sales of Rs 300 cr and profit of Rs 58 cr leading to an EPS of Rs 27 on current equity of Rs 21.40 cr. As FII’s hold huge chunk scrip may continue to underperform in short term.

For the latest Sept’08 quarter, sales of Ind Swift Lab (25.00) increased by 35% to Rs 146 cr and PAT improved by 45% to Rs 10.50 cr. Hence it has already posted a NP of Rs 20.50 for six months ending Sept’08 against a PAT for Rs 31 cr for entire FY08. Notably, company has started exporting to USA in a big way after getting USFDA approval in Sept 2007 for its API manufacturing facility at Derabassi Punjab for Clarithromycin. It is now expecting to get a second USFDA approval in 2009 which will further boost the export revenue. Presently, exports constitute around 40% of sales with company having presence in 45-50 countries across globe. For future growth the company has a robust product pipeline of 25 products which includes few blockbuster drugs as well. It has successfully filed over 72 DMFs with the US, Canadian, UK and European Drug Authorities. Hence company has been aggressively expanding its capacity and has increased the gross block by almost five times to Rs 470 cr from 100 cr in 2005. For FY09 it may report sales of Rs 550 cr and NP of Rs 30 cr i.e. EPS of Rs 11 on diluted equity of Rs 27.50 cr. To fund its growth plan, company made a pref allotment of 28 lac warrants @ Rs 70 in March 2007 and recently allotted another 25 lac warrants @ 70 to promoter group. With a book value of whopping Rs 97 and expected CEPS of 18~20 Rs, scrip is trading relatively cheap at a P/E ratio of less than 2~3x times. Although company has an high debt on its books, still it a good bet at current levels

In the recent meltdown, share price of TIL Ltd (165.00) has been reduced to just 20% from its high of Rs 825 in Jan 2008. Company is engaged in three business segment namely construction and mining solutions (55%), material handling solutions (25%) & power systems solutions (20%). It has long term technical and strategic alliances with leading equipment manufacturers in the world- Caterpillar Inc, Manitowoc crane Group, USA Famak S.A, Poland and Paceco Corp, USA. Pioneering the manufacture of mobile cranes in India, company produces rough terrain, truck mounted, yard and industrial cranes, reachstackers, electric level luffing cranes, articulated lorry loaders, equipment for specialized Defense applications at its Kolkatta plant apart from marketing imported equipment and spares of reputed global manufacturers. Under the power system, it sells generator sets in the 180 KVA-2250 KVA range, using Caterpillar diesel engines and Hindustan Power Plus engines as a base. For the Sept’08 qtr, it reported 50% growth in sales and PAT to Rs 264 cr and 9 cr respectively. To cater the global clients effectively it has set up subsidiaries in Singapore, Nepal, Myanmar etc which are doing well. Further company is setting up a Greenfield plant in West Bengal under a capex of Rs 175 cr for which it has made a pref allotment of 30 lac warrants to promoters and others to be converted into equity @ Rs 326 per share. On a consolidated basis company is estimated to clock a turnover of Rs 1400 cr and PAT of Rs 50 cr. This translates to an EPS of Rs 50 on current equity of Rs 10 cr whereas the diluted EPS works out to Rs 39 cr on enhanced equity of Rs 12.75 cr. A solid bet.

Once again Mazda Ltd (35.00) has come out with flying colours for the Sept’08 qtr. Its net sales as well as net profit grew by 40% to Rs 22 cr and 2.30 cr respectively. It has already posted an EPS of more than Rs 10 for H1FY09. So for entire FY09, it is slated to register sales of Rs 80 cr and profit of Rs 8 cr i.e. EPS of Rs 19 on small equity of Rs 4.25 cr. Company is among the few engineering companies in the world, manufacturing very specialized, high technology and critical equipments for various industries like power, refineries, fertilizers, chemicals, nuclear, sugar, paper, food, pharma etc. Broadly its product profile is segmented into vacuum system, valve division, air pollution control equipment, crystallizers and evaporators. Notably, it has a technical collaboration with world renowned Croll-Reynolds Inc. USA, who holds 12% stake in the company. Fundamentally, company is on a strong footing with very low debt equity ratio and good reserves leading to a book value of Rs 61. Moreover HSBC is holding nearly 8% stake even as on 30th Sept and hasn’t sold any share in this carnage. At an Enterprise value of merely Rs 20 cr scrip and at a P/E multiple of harly 2x times, scrip is trading damn cheap. A screaming buy.

Smart Investments

Bharati Shipyard Ltd

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PBA Infrastructure Ltd

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Indotech Transformers Ltd - Rs 165.00

Established in 1976, Indotech Transformers Ltd (ITL) is primarily engaged in manufacturing of power & distribution transformers, furnace transformers & special transformers upto 100 MVA / 220 kV class. It is amongst the few companies who have the technology to manufacture mobile sub-station transformers upto 60 MVA/220 kV class adhering to American Standards. Lately, company has also ventured into manufacturing of open ventilated dry type transformers which have higher realization and lucrative margins. Till date, ITL boast of supplying over 56,000 transformers of various capacities to over 3900 customers in India. Besides, it also exports various transformers to USA, UK, Canada, Nigeria, Germany, Egypt, Singapore, Qatar, Abu Dhabi, Saudi Arabia, Sri Lanka, Japan, Switzerland etc. Primarily, company derives the revenue from sale of transformers to state electricity boards, EPC contractors, industrial & corporates customers etc with more than 70% of total revenue coming from various SEB’s and has a market share of around 15% in the southern states.

Till last year, ITL was operating thru two manufacturing facilities spread across Palakkad in Kerala & Thirumazhisai in Chennai with combined production capacity of 3450 MVA. But recently it has set up a state-of-the-art Greenfield plant in Kancheepuram with a name plate capacity of 4000 MVA. Though originally conceived with an installed capacity of 2400 MVA, company decided to revise it to 4000 MVA to cater to anticipated demand. So as of now the total transformer production capacity of the company stands at 7450 MVA. Secondly, this Extra High Voltage transformer plant which commenced commercial operation from Feb 2008, is equipped to manufacture large power transformers upto 315 MVA, 400KV class. Earlier in July 2007, ITL has commissioned a dry type 100 MVA transformer plant for which it has signed a MOU with DuPont (USA). Hence it now also manufactures dry transformers between 100KVA/11kV & 2500KVA/33kV class. These transformers are environmental friendly, maintenance free, very safe, with low operating cost & with overloading capability. The dry type transformers are specifically used in urban areas such as residential complex, malls, software technology parks, office complexes, in addition to other special application areas such as petroleum refineries, in ships and in areas where there is a risk of fire.

As of today, ITL has an order book of nearly Rs 120 cr and is expecting to get further Rs 50 cr in near future. In coming years, company finds huge opportunity as far as business from SEB, power projects, public utilities, industrial customers and exports are concerned. Besides govt’s rural electrification programme to electrify all villages in the country is expected to substantially boost the demand for transformers. Moreover a good demand for transformers is anticipated from the power-intensive sectors like cement, metals, chemicals, oil and gas where massive investments are planned in the coming years. With power being a major input, all the companies are looking at captive power plants to achieve cost efficiencies and assured availability. The dry type transformers will also be in great demand as their application increases in shopping malls, hotels and other commercial set-ups. Apart from domestic demand, the power sector in the developing regions of the world like the Middle East, Africa and Asia is on the growth path and this would be a huge opportunity for the players in the industry to export profitably.

Fundamentally as well financially, ITL is on a strong footing. Recently, it came out with excellent set of nos. Sales improved by 30% to Rs 65 cr and net profit jumped up 40% to Rs 14 cr posting an EPS of Rs 13 for the single quarter. For H1FY09 it has already registered an EPS of Rs 23 against Rs 16 for the same period last year. However, the raw material cost forms around 75% of the pricing of a transformer. So any sharp movement in the prices of the raw material, on either side, may put pressure on the margins of the company. Secondly, if the major raw materials like copper and CRGO continue to correct sharply, this would lead to lower realization for the company. Despite all such concerns, ITL may clock a turnover of Rs 240 cr and profit of Rs 40 cr for FY09. This translates into an EPS of Rs 38 on current equity of Rs 10.60 cr. To conclude, considering company’s very low debt equity ratio and impressive profit margin, investors can buy at current levels for a price target of Rs 280 (i.e. 70% return) in 9~12 months.

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MUHURAT Picks (MT)

HBL Power System (150.00) is the engaged in design, development and manufacture of industrial & specialized batteries, allied electronic products and DC systems in India. Infact it is the market leader in VRLA (valve regulated lead acid) and NCPP (nickel cadium pocket plate) batteries and enjoys 50% market share of domestic telecom market. Moreover it is among the very few companies in the world making ultra high specialties batteries for military use like thermal, reserve and torpedo batteries. Ironically, it stands 3rd globally for Nicad Passenger aircraft batteries and ranks 2nd for industrial alkaline batteries. Apart from supplying various batteries for train lighting, air conditioned coaches etc, of late company has designed and developed wide range of microprocessor based signaling products and power systems to cater to the needs of Indian Railways. Recently company has put up two new factories at Vizianagaram and SEZ Vizag in Visakhapatnam under a capex of Rs 150. After posting an EPS of Rs 28 for FY08, company is set to clock an EPS of Rs 45 for FY09 with sales of around Rs 1250 cr and PAT of Rs 110 cr. It’s a screaming buy at current levels.

Aban offshore (750.00) is engaged in providing oil field services for offshore exploration and production of hydrocarbons in India and abroad. With 21 offshore assets it is among the top ten offshore drilling asset owners in the world. It possesses fifteen jack-up offshore drilling rigs, three drill ships, one floating production platform and a jack-up rig & drill ship each on bareboat charter. It is among the few global companies to facilitate oil exploration at water depths ranging from 250 ft to 7000 ft and drilling depths ranging between 20,000 ft and 30,000 ft. Having its footprint globally across 10 nation, company boast of serving leading global and domestic E&P companies such as ONGC, Shell Brunei, Shell Malaysia, Cairn Energy, Petronas Carigali, Exxon Mobil, Chevron, Hardy Exploration, Oriental Oil Dubai, ROC Oil China, and GSPC to name a few. Due to new vessel deployment and higher charter rate, it may clock a consolidated turnover of Rs 3250 cr and NP of Rs 500 cr. This translates into EPS of Rs 129 cr on diluted equity of Rs 7.75 cr. Meanwhile, maybe due to distress selling by FII’s share price of company has tumbled down to Rs 1000 levels from a high of Rs 5500 in Jan’08. Hence currently scrip is trading at a P/E multiple of merely 8x times which is grossly cheap for a company with such caliber. Keep accumulating at sharp declines.

Emco Ltd (45.00) is the third largest manufacturer of transformers in India and a leading player in electronic energy meters and turnkey electrical projects 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). With acquisition of Urja Engineers Limited, company 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. To maintain its growth momentum, company has decided to set up a transformer manufacturing plant in South Africa to meet the growing demand in the African region and neighboring countries. Presently company has an impressive order book position of Rs 1300 cr. For the latest Sept qtr sales grew by 25% to Rs 231 cr and net profit improved by 10% to Rs 11.30 cr. Accordingly it is expected to clock a turnover of Rs 1250 cr and PAT of Rs 70 cr for FY09. This translates into EPS of Rs 12 on current equity. At a modest discounting by 8x times share price can double within a year.

Bharati Shipyard (70.00), 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 sole Indian player with order of an oil rig. Currently, company boast of having 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. Apart from operating thru four shipyard as of today, company in the midst of Greenfield expansion of setting up two new yards at Dabhol (Maharashtra) & Mangalore (Karnataka) with an investment of more than Rs 1000 cr. Besides, it has entered into a 50:50 JV with the diversified Apeejay group to set-up a 250,000DWT large scale shipyard on the east coast of India catering primarily to cargo vessels. To fund its expansion plan, during 2005 BSL raised around Rs 450 cr in two tranches thru FCCB route to be convertible into equity at the rate of Rs 422 & Rs 498 respectively. Out of these more than 50% has already been converted and considering the current market price the chances for conversion of the balance bonds in near future are quite bleak. For FY09, BSL 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.

Numeric Power (280.00) is India’s leading manufacturer of uninterrupted power supply (UPS) systems, stabilizers and power conditioners. It also undertakes turnkey projects and offers end to end solution for SCADA/EMS package, large network of industrial process, power transmission support systems and distribution management. It has been ranked as No.1 online UPS manufacturer & power electronic company of the year for the last 15 years in a row by Soft Disk journal. It has also been ranked as No 1 offline UPS manufacturer for second consecutive year by the same magazine. Recently, it ventured into solar power generation using Photo Voltaic Modules and initially intends to develop solar hybrid UPS systems. Accordingly, it walked out of JV with SOCOMEC SA of France as it primarily prevented the company to tap the solar 3 phase UPS products. But at the same time it has developed its own products in higher range of 3 phase category which are fairly successful in the market. Considering its robust performance for Q1FY09, it may clock a turnover of Rs 450 cr and profit of Rs 45 cr i.e. EPS of Rs 89 for FY09. Fundamentally, company has very low debt on its book and has huge reserves making it a strong bonus candidate.

Sunil Hitech (65.00) is engaged in the niche segment of fabrication, erection & testing and commissioning of bunkers, ESPs, boilers, TG sets in the power plants, both in private & public sector. With a client list spanning BHEL, NTPC, Reliance Energy, Jindal Steel and Power, the SEBs of Maharashtra, Chhattisgarh and Madhya Pradesh, Sunil Hitech is also engaged in overhauling and maintenance to ensure proper functioning of plants, post-installation. The company also undertakes projects in the transmission and distribution segments. As on today it has an all time high order book position of more than Rs 1300 cr which is 4x times its FY08 turnover. Incidentally, company has an under leveraged balance sheet with a low debt equity ratio of 0.60x times and can raise more debt comfortably. So despite taking into consideration higher interest cost it may end FY09 with a topline of Rs 500 cr and PAT of Rs 20 on conservative basis. This translates into EPS of Rs 16 on current equity of Rs 12.30 cr. Secondly it has huge reserves to the tune of Rs 145 cr on small equity leading to a healthy book value of Rs 128. Against the net current assets of Rs 120 cr, company is available at a market cap of less than Rs 100 cr, making it a steal.

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