STOCK WATCH

Diamond Power Infrastructure Ltd (90.00) registered 10% rise in sales to Rs 140 cr and 20% jump in NP to Rs 16 cr for the Dec’08 qtr. However the nine months figures are much encouraging as sales are up by 60% to Rs 493 cr and profit before tax has shot up by 70% to Rs 56 cr. However company hasn’t made any tax provision and will do at the end of the year. It is a leading manufacturer of transmission & distribution conductors, power & control cables & speciality cables. After the acquisition of Western Transformers in March’07 and Apex Electricals in July’07, company has also ventured into transformer production with installed capacity of 7500 MVA for power transformer and 5000 MVA for distribution transformer. To cater the rising demand and increase it export revenue, company is setting up power equipment park spread across 110 acre in Vadodara which would have manufacturing facilities for 50,500 Mt of conductors, 48000 Mt transmission tower plant, 25,000 kms of LT cables, 3200 kms of HT cables and 3000 kms cables of EHV cables. The park expected to go on stream by Dec 2009, will also have space for setting up 50 ancillary units for power equipment manufacturers. Company has already achieved the financial closure for this 260 cr capex plan. Partners. Meanwhile for FY09 it may clock a turnover of Rs 675 cr and profit after tax of Rs 60 cr i.e. EPS of Rs 29 on current equity of Rs 21 cr. Incidentally, company has recently repaid the short term loan to the tune of Rs 40 cr to Clearwater Capital.

As TATA group is witnessing some liquidity crunch, share price of all group companies are trashed like anything. Share price of TRF Ltd (230.00) which is a pioneer in providing solutions for bulk material handling/ processing systems and equipments and port and yard equipments has also been reduced to one tenth from the high of Rs 2100 in Jan 2008. For Dec’08 qtr it reported excellent set of nos as its sales zoomed up by 140% to Rs 141.50 cr and PBT shot up by 190% to Rs 24 cr. However due to extraordinary item of Rs 13.30 cr on reversal of earlier sales its net profit recorded only 20% growth to Rs 6.70 cr. Else it would have recorded a PAT of Rs 16.50 cr i.e. EPS of Rs 30 for the single quarter. Despite slowdown company has been regularly bagging huge order and recently got Rs 100 cr order from Andhra Pradesh Power Generation Corporation Ltd. Few months back it was awarded more than Rs 400 cr order by Damodar Valley Corporation. Presently company boast of having a very strong order book position of more than Rs 750 and hence it has set a vision to grow five times in next five years. It also owns a subsidiary, York TEA-Singapore, which produces and distributes trailer undergears, and has a market presence in 27 countries. A solid bet.

In the current sentiment even the blue chips are getting hammered badly. Share price of Thermax Ltd (155.00) which hit a high of Rs 950 during early 2008 is now available for Rs 150. Company is a global solution provider in energy and environment engineering. It offers products and services in heating, cooling, waste heat recovery, captive power, water treatment and recycling, waste management and performance chemicals. It caters to host of key industries and has presence across the globe. Financially company has been doing satisfactorily and reported marginal decline in sales and NP for the Dec’08 qtr. Thus, for first three quarters it has reported flat sales of Rs 2309 cr and marginal fall in net profit to Rs 193 cr. Recently company has won a Rs 450 crore order for setting up a 60 MW captive power plant in AP. Energy intensive industries such as iron & steel, petrochemicals, paper and cement, are increasingly utilizing the company's waste heat recovery expertise to keep their energy costs down. It may end FY09 with EPS of Rs 22 on current equity. Once the situation improves, the share price can shoot up by 50% in short term. Keep accumulating at declines.

Techno Electric (60.00) is a large engineering, procurement and construction (EPC) contracting company primarily focused on the Indian power sector. Ironically, it has worked in one capacity or other in setting up of more than 50% of the power generating capacity in the country i.e. more than 50,000 MW. It has presence in all the three segments of power sector i.e. generation, transmission and distribution. It is among the very few Indian companies to have license to execute electrical installations upto 400 kV. As a part of its diversification strategy, TEECL has ambitious plan to be a major power producer in the field of non-conventional energy through setting up of biomass power generating units all over the country. Presently it boast of having an unexecuted order book position of more than Rs 600 cr. For FY09, TEECL is expected to report total revenue of Rs 500 cr and PAT of Rs 55 cr i.e. EPS of Rs 10 on equity of Rs 11.42 having face value as Rs 2 per share. It is not only a debt free company but a cash rich company having liquid investment worth Rs 150 cr and cash balance of Rs 25 cr as on 31st March 2008 which is equivalent to almost Rs 30 per share. Investors can safely buy this scrip at current levels

MIC Electronics Ltd - Rs 22.00

Incorporated in 1988, MIC Electronics Ltd (MIC) is a pioneer in design, development, manufacture & supply of true color LED Video Displays, LED Lighting products and solution. Infact, it is the only integrated LED display manufacturer in India with design-to-manufacture capabilities. Hence it has virtually a monopoly in LED business in domestic market. An LED (light-emitting diode) is usually a small area of less than 1 mm2 light source, often with optics added directly on top of the chip to shape its radiation pattern and assist in reflection. The technology behind LED is based on semiconductor technology, which is also the basis of modern computers. Importantly, MIC has collaboration with Nichia Corporation Japan, which is the global leader in LED technology with 33% market share worldwide. Apart from LED business, MIC also deals in high end electronics and telecommunication equipments and is also engaged in development of telecom software. Presently, company is deriving more than 65% of revenue from LED division where as the balance comes from electronics and telecommunication division. Notably, the company is more of embedded software and solutions company and less of an hardware company as it imports most of its hardware requirement. Based on the application, MIC has broadly segmented its operation into following three categories

· LED Display: This segment comprises the development, production and sales of video displays, text, graphic & animation displays. Its outdoor and indoor portfolio ranges from display sizes of 90 inch to video walls/large format display size of 512 inch. LED displays are immensely popular because of their programmability, making targeted marketing and interactive interfacing possible. Like websites, they can be networked and updated remotely with fresh and topical content. These displays find vast application in outdoor/indoor advertising, railways, malls, banks, sports events, live entertainment, award functions & stock exchanges. Company even offers LED displays for rentals during election rally meetings, music concerts and weddings on a small scale. It has launched a huge 120 inch LED TV for close viewership, primarily targeting malls and corporate boardrooms. Other products include LED/LCD based 3D display systems.. Remarkably, it has introduced "Mobile LED Video Display" concept in INDIA and has its premier product named as 'DigiWheel' which is now available in trailer model and truck model. Company is also into LED signage business where, display is used to show the direction of arrows, kms, distance etc. It is already executing an order for LED Variable Message Signs (VMS) for highway projects in Andhra Pradesh & Tamil Nadu worth 8 cr.

· LED Lighting Solutions: LEDs represent the most energy and cost-efficient lighting source, consuming 10 times less power than CFLs (compact florescent lamps). Moreover the annual running cost of LED lighting is 50% lower than CFLs, with no replacement required for a minimum 11 years. With increasing volume and improving technology the manufacturing cost of LED is coming down sharply. So undoubtedly this is the future technology for lighting solutions. As per estimates, by 2025 more than 50% of the existing lighting will be replaced by LED lighting around the world. With the first mover advantage, MIC is targeting grid-based and non-grid based lighting, rural and urban street lighting, solar-powered lights, commercial and residential lighting. It is also looking to mark its presence in automotive/aircraft cabin & brake lights, road traffic signal lights etc which is a huge market in itself. Besides Indian railway offers a massive opportunity as LED lighting can be used to replace coach lighting, signal lighting, door and path way lighting, platform lighting, yard lighting, emergency lamps, railway colony lighting etc. Importantly, MIC has provided the LED lighting for all the aero planes of Kingfisher airlines, which proves the capability and growth potential of the company

· Electronics and Telecommunication Solutions: This division provides software solutions as well as electronic hardware and products to telecom service providers. It has diversified products including the digital loop carrier on optical fibre on synchronous digital hierarchy ring, broadband DLC for triple play (voice/video/data) applications; CDMA/GSM based WLL terminals and phones, hand-held computers with in-built GSM/CDMA modems. The company is importing most of these products, but provides the after sales and maintenance service. To compliment the hardware it also provides various software services like interconnecting billing service, CDR data collection systems, teleconference solutions, prepaid calling card services, automatic payment reminder services, automatic telephone bill enquiry, fax services and such other I- Computer technology services. However MIC is gradually reducing its focus on this business vertical, in view of its low margins and extended receivables cycle. Couple of years back it represented around 65% of total revenue, but in the latest Dec’08 qtr its share has come down drastically to 20%

To become a true global player, MIC is also enhancing its presence in the international market and has a direct presence in the North American, Korean and Australian markets thru wholly owned subsidiaries. It also has arrangement with local importer in Middle East & South Africa. Moreover along with Latin America Futbol Corporation, USA a sports management company, MIC has formed a 50:50 joint venture company called Sports LED Media (SLM), which has won a contract for LED Display in 50 stadiums in Latin America. Importantly, it is estimated that SLM would buy LED screens from MIC for US$ 50 million over next couple of years. MIC is in talks with Lamar Advertising, the second largest US outdoor advertising company to provide end-to-end display screen solution. Earlier it entered into a strategic partnership with LEDSTAR of Canada to deploy Intelligent Transportation Systems (ITS) and LED Variable Message Signs (VMS). Recently MIC has also entered into an MOU with a renowned lighting company in Italy which enabled the access to European markets and others like Russia, Morocco & Eastern European countries. To increase its market share and cash on the huge opportunity, MIC commissioned a state of the art fully automated manufacturing line at Hyderabad on 29th October 2008. With this EOU facility, company has doubled the production capacity of LED display to 2400 modules from 1200 modules earlier. Company is further contemplating to take its total capacity to 3600 modules. To maintain its growth momentum, MIC is setting up of manufacturing unit for LED true colour displays, LED lighting solutions and solar based LED lighting products at Fab City SEZ near Hyderabad for which it has already been allotted 50 acre of land on lease.

Last week, MIC got the RDSO (Research and Design Standard Organization) approval for its unique & innovative video cum train info display system thereby becoming the first and only company to get such approval. This fully automatic system takes data using satellite, displays station specific train information and simultaneously makes the announcement. Notably, railways have the aggressive plan to install 100 such boards in A & B category stations. Besides, increased focus of the Indian Railways on advertising has created a significant business for the display market. They would be coming out with a tender for LED display at 100 stations i.e. 600 screens. MIC has already made presentations to the Railways and is expected to get good order. Earlier, it received an order and license from Delhi Metro for installation and maintenance of 25 nos of full color day and night LED Video display boards at 8 metro stations worth Rs 45 cr. On the other hand, company has identified the market of worth more than Rs 1000 cr for LED lighting in railways. It is negotiating in a big way with the railway department to allow the LED lights in all the long distance trains. MIC is also targeting the forthcoming elections and would be investing about Rs 30 cr on 60 screens which could take the rental income to Rs 3 cr per month. Company is also entering the entertainment business through self owned digital theme parks and theatres.

To conclude, demand for the LED based products is expected to be shoot up significantly in the coming years on account of growing spending by the advertising agencies (specially outdoor), Indian railway, rural electrification, malls, airports, event managers among the others. And MIC with proprietary technology and increased capacity is all set to cash on this opportunity. Operationally company is doing well as it registered 30% growth in topline to Rs 312 cr whereas PAT doubled to Rs 66 cr for year ending June 2008. Even for the six months ending Dec’08, net profit has shot up 70% to Rs 40 cr despite marginal fall in topline. This is due to the fact company has reduced its high volume low margin telecommunication business and is now focusing solely on LED based segment. Thus it clocked an OPM of 35% in the current year against 20% in the corresponding previous year. To fund its expansion plan, in July 2008 MIC issued 1.75 cr convertible share warrants at Rs 122 each on preferential basis and has already collected Rs 38 cr (18% instead of 10%). However looking at the current market price and general sentiment, warrant holders may not opt for conversion. But being highly under leveraged with a debt equity ratio of 0.1x times, MIC can comfortably raise debt to fulfill its requirement. Conservatively for FY09 ending June’09 it is estimated to clock a turnover of Rs 275 cr and PAT of Rs 65 cr on a standalone basis. This works out to an EPS of Rs 6.50 on current equity of Rs 20 cr having face value as Rs 2/- per share. The estimated fully diluted EPS works to Rs 5. On the other hand, on a consolidated basis MIC can report a NP of Rs 75 cr i.e. EPS of Rs 7.50 on current equity. Thus a company operating in such a fast growing industry and having a high OPM, NPM, ROCE & ROE is trading grossly cheap at an EV of Rs 300 cr. On the flip side, high debtors indicate company’s incapability to manage receivables. Ironically, scrip is trading below its April 2007 IPO price of Rs 30 (adjusted for Rs 150 with face value as Rs 10) Thanks to the global turmoil and vertical crash in stock market, its share price has become one tenth in matter of few months. Investors are strongly recommended to buy at current levels for a price target of Rs 60 in 12~15 months.

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STOCK WATCH

ABG Shipyard (80.00) is one of India’s largest private sector shipbuilding companies & established manufacturer and service provider of a variety of ships, including bulk carriers, interceptor boats, diving support vessels, anchor handling supply ships, dynamic positioning vessels, anchor handling tugs & other multipurpose vehicles. Till date it has delivered 104 ships and has further order book position of nearly Rs 10,000 cr to be executed in next 4~5 years. Few months back it bagged its first rig order from Essar Shipping. For the Dec’08 quarter, company has reported 80% rise in sales to Rs 489 cr but due to very high interest cost, PAT remained flat at Rs 46 cr. Although there is high probability of company witnessing huge order cancellation in short term because of slowing down of world economy, still the Indian ship building industry has a tremendous growth potential ahead. According to new international shipping norms, single-hull tankers have to be phased out by 2010 & ships that are over 25-year old have to be scrapped. Meanwhile, the ship-building activity has shifted from Europe to Asian countries like Korea, China and India due to cost and other factors. Notably, it is the first ship building company in private sector to actually receive the subsidy to the tune of Rs 19 cr from govt last year. It is estimated to clock a turnover of Rs 1400 cr and profit of Rs 150 cr i.e. EPS of Rs 29 on current equity of Rs 51 cr. Incidentally company hasn’t pledged any share as of now.

Investors shouldn’t sell Sunil Hitech (68.00) although it posted loss at the net level. Actually it recorded 90% growth in revenue to Rs 148 cr and 40% increase in profit to Rs 7 cr, but due to provisioning of notional loss in mutual fund investments to the tune of Rs 13 cr, it registered net loss of Rs 6 cr. Although company hasn’t bagged any major order of late, but it boast of having an massive order book position of Rs 1300 cr. Company specializes in niche segment of fabrication, erection & testing and commissioning of thermal power plants including doing individual works under balance of plant. It also undertakes projects in the transmission and distribution segments including commissioning of EHV lines for substations, errection of turbine generators etc. It has 125,000 TPA of steel fabrication capacity and 100,000 TPA of equipment installation capacity in power plants. Incidentally, company has an under leveraged balance sheet with a low debt equity ratio of 0.60x times and can raise more debt comfortably. It may end FY09 with a topline of Rs 525 cr and PAT of Rs 25 (excluding notional loss on investment). This translates into EPS of Rs 20 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. Aggressive traders can buy for short term gain.

For the Dec’08 quarter Madhucon Project (50.00) announced satisfactory result. Revenue grew by 15% to Rs 227 cr and NP increased marginally to Rs 14 cr. Accordingly for the first three quarters it recorded 40% growth in topline to Rs 710 cr and 20% rise in PAT to Rs 41.50 cr thereby posting an EPS of more than Rs 11 till date. Company is engaged in execution of infrastructure projects, such as construction of national highways, fly-overs, dams, tunnels, aquaducts, bridges, coal handling plants, railways projects, power projects, workshops, and residential cum commercial ventures. Company boast of having an order book of more than Rs 5000 cr. Few months ago it bagged a single EPC order of nearly Rs 1000 cr for setting up two thermal plant of 135 MW each in Andhra Pradesh. Besides it has entered into MOU with Jharkhand govt for setting up 1000 MW thermal power plant at total cost of Rs 4800 cr. It has also been awarded 2 hydel power project of 315 MW in Arunachal Pradesh. Moreover, company has a strong portfolio of BOT projects with four NHAI toll based road projects of 330 km. It has also diversified by operating one coal mine of 3200 hector in Indonesia and second coal mine of 19000 hector is in exploration stage. For FY09 company may report total revenue of Rs 950 cr and profit of Rs 45 cr leading to an EPS of Rs 12 on current equity of Rs 7.40 cr with face value as Rs 2/- per share. Although funding its massive projects will be a challenge for the company, still it seems a good bet at EV of less than Rs 400 cr.

Aban offshore (440.00) declared satisfactory result for the Dec’08 quarter. Its consolidated sales shot up 40% to Rs 837 cr whereas net profit quadrupled to Rs 256 cr on the back of higher other income (forex gain) of Rs Rs 162 cr. Notably it recorded an OPM of 56% and posted an EPS of Rs 68 for the single quarter. Effectively for the nine months ending Dec’08 it has recorded 75% rise in turnover to Rs 2410 cr and 800% jump in PAT to Rs 648 cr i.e. EPS of Rs 170 till date. Incidentally this includes other income to the tune of Rs 340 cr. Company 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. Although company may witness a sharp fall in charter rate due to slowdown in E&P activities and lower demand, still may to do well with improved capacity utilization on the back of deployment of all its vessels. Despite being an over leveraged company, its worth a punt at current levels

HBL Power System Ltd - Rs 110.00

Founded in 1977, HBL Power Systems Ltd (HBL) is an acknowledged leader in design, development and manufacture of industrial & specialized batteries, allied electronic products and DC (direct current) systems in India. DC power systems are used across the world for a variety of application where the traditional power supply system cannot be sustained/supported. It is specifically required in mobile (non-stationary) applications like rail coaches, aviation etc. Therefore company focuses mainly on five key sectors namely telecom, aviation, railways, defense and other industrial segment including oil & gas, power, petroleum, steel etc. In these applications the usage of conventional sources of power / electricity is not possible and DC power supplied thru batteries is to be relied upon. Notably, HBL offers a diverse portfolio of product which has been classified into following three segments

A. Batteries: This is the core business of company deriving more than 90% of total revenue. HBL is a technology focused manufacturer of several ranges of specialized application batteries i.e. nickel cadmium (pocket, fibre, and sintered plate), lead acid (VRLA, Tubular, LMLA), silver oxide zinc, lithium, thermal, etc. 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. Ironically, HBL is the world’s second largest player in nickel cadium alkaline batteries and stands 3rd for Nicad Passenger aircraft batteries. 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. It also produces passenger and military aircraft batteries which are mainly for export.

Meanwhile, company has completed the development and test marketing of pure lead tin (PLT) Batteries for diesel engine starting (gensets, trucks etc) and has even entered into agreements with a reputed company for sale under their label. This marks the entry of HBL into the gigantic automotive industry. It is also working with makers of EKO battery operated electrical vehicles to design & manufacture advanced technology batteries for these future products. To encourage use of green, non-polluting power fast growth is expected in the solar power and as each equipment based on solar power needs batteries to store and supply the power, the potential in this area is very substantial

B. Railway Electronics: Traditionally HBL has been supplying various batteries for train lighting, air conditioned coaches, locomotives, signaling and communications. But off late, company has designed and developed wide range of microprocessor based signaling products and power systems to cater to the needs of Indian Railways. It now offers integrated power supplies for railway stations and does turnkey signaling works contracts including design, installation and commissioning. It even has a dedicated division to execute end-to-end turnkey railway signaling works, starting from yard design, estimation, procurement, installation and commissioning. Company is now also working closely with IRISET, RDSO and other agencies to showcase and implement its other innovative electronics products like data loggers, automatic train charting systems, high frequency track circuits, solid state interlocks, digital axle counters, etc. In short this segment is expected to be the major growth driver in coming years, since the railways have embarked upon the modernization programmes of signaling systems all over the country in a phased manner.

C. Defence Electronics: Although HBL derives hardly 5% revenue from this division but it boasts of supplying several specialized, tailor made batteries to the Army, Navy and the Air Force. Last year it supplied battle tank batteries to three NATO countries. Infact it is most dependable supplier to defence for critical application areas like torpedoes, missiles, aircraft starting, ground power units etc. where no other manufacturers can cater. Besides, company also deals in several electronic products which are used in defense sector like electronic warfare, radar, field telephone exchanges, electronic proximity, time fuzes, radio relays, laser weapon sights, night vision devices, opto electronics, thermal imagers, simulators, mine and grenade electronics etc. Unlike batteries and railway products where almost all development was done in house, HBL has collaborated with IAI - ELTA of Israel for most of the defence electronics products. Their joint venture has already bid for two defense contracts for electronics worth Rs 500 cr. The tender is expected to be opened and finalized during the current fiscal.

Apart from above, HBL also manufactures other power electronics such as thyristor controlled battery chargers, earth leakage monitors, battery monitoring systems, industrial chargers, uninterrupted power systems, distribution boards etc. To meet the rising demand, HBL has been constantly expanding and modernizing its production facilities at Hyderabad, Manesar (Delhi) and Haridwar. Recently it has put up two new factories at Vizianagaram and SEZ Vizag in Visakhapatnam under a capex of Rs 150 cr. Now it is setting up a small facility in Mahape, New Mumbai. Last fiscal it commenced production at the modern printed circuit board assembly and test facility which has been specially designed for small volumes of high quality. For the next two years it has a capex plan of Rs 240 cr to augment the capacity of its VRLA & NCPP batteries by further 15~20%. Maintaining its philosophy of 'We do not forget the batteries we have sold', HBL has doubled the after sales service centre to 80 and is further expected to take it to 120 in the current year. Incredibly, HBL has developed strengths in areas of limited competition and focused on direct marketing to chosen customers / market segments.

Fundamentally as well as financially, HBL is on a strong footing and doing extremely well. For the nine months ending Dec 2008 it has recorded 40% growth in sales to Rs 958 cr whereas PAT zoomed up 65% to Rs 73 cr thereby surpassing the entire FY08 net profit of Rs 67 cr by decent margin. This is despite the fact that company’s margin has taken a hit due to sharp rise in raw material cost in the last two quarters. However, prices of lead, nickel, copper, tin and other metals has fallen considerably which may improve the operating margin of company in coming quarters. Still on a conservative basis, it may end FY09 with sales of Rs 1250 cr and PAT of Rs 80 cr i.e. EPS of Rs 33 on equity of Rs 24.30 cr. Incidentally company has a debt of Rs 350 cr leading to a debt equity ratio of 1.2x times. In order to fund its expansion, company had planned a preferential allotment as well as a right issue, but due the stock market sentiment, had to shelve it off. Importantly, with telecom, power, railway & defense being its focus market, HBL isn’t much affected by the ongoing recession. And in case if it witnesses any slowdown in domestic demand it can always cater to international market and increase its export revenue which is currently around 10% of total sales. Considering all the factors investors are strongly recommended to buy at current levels with a price target of Rs 240 in 12~15 months.

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