Pricol Ltd - Rs.37.00

Establised in 1972, Pricol Ltd. (Pricol), formerly known as Premier Instruments and Controls Ltd., is a reputed manufacturer and supplier of automotive instruments enjoying more than 50% share in the domestic market. In fact, it is the undisputed leader in the dashboard industry with current capacity of more than one crore units. Apart from dashboards, it also manufactures speedometers, cables, switches, sensors, control valve assemblies, oil pumps, windshield washer motor kits, heater ventilation, air condition control units, disc brakes and other precision machined components. Pricol, this produces 14 products catering to the two-wheeler segment, 16 products for cars and MUVs segment, 7 products for trucks segment and 16 products for the tractors and other vehicles segment. The two-wheeler segment contributes about 48% of its revenue followed by cars and MUVs at 34%. Its clientele includes all the leading auto players such as Ashok Leyland, Eicher, Bajaj Auto, GM, Hero Honda, LML, Maruti, M&M, Tata Motors, Toyota, TVS, Yamaha etc.

Pricol has five huge plants spread across India with three plants near Coimbatore, one at Pune and one at Gurgaon. Importantly, Japanese auto component giant, Denso Corporation, is the joint venture partner and has invested 12.5% in the equity capital of the company. Pricol also exports about 12% of its turnover to USA, Canada, Mexico, South America, Europe, Turkey, Egypt, Middle East, Asia, Australia, New Zealand, etc. To cash in on the growing demand in the automobile sector, Pricol is expanding its capacity by setting up a plant in Indonesia and Uttaranchal. The Uttaranchal plant, which may be ready by January’07 will manufacture 10 lakh sets of speedometers, oil pumps, fuel sensors and gear systems for Bajaj Auto in the two-wheeler category and around one-lakh sets of instruments and field sensors for Tata Motors and Mahindra and Mahindra in the cars and MUV segment. The Indonesian plant is expected to start production by December’06 and will produce around 8,50,000 sets out of which around 2,50,000 sets will be supplied to TVS Motors and Bajaj Auto. Pricol also plans to set up a unit in Iran to supply instrument clusters.

Due to stiff competition in the domestic market, the company is concentrating on garnering overseas business. It is also in the process of opening marketing and sales offices in Europe and USA. For FY06, inspite of a rise in the top-line by 7% to Rs.482 cr., its net profit declined by 20% to Rs.33 cr. However for June’06 quarter it reported a decent set of numbers with sales registering 20% rise to Rs.133 cr. and profit improved by 30% to Rs.9.60 cr. Hence for FY07, it may post a turnover of Rs.525 cr. with net profit of Rs.40 cr. on its equity of Rs.9 cr., which will translate into an EPS of Rs.4.50 against the Re.1 face value of its share. Although the share price may not see a phenomenal rise in future, still 50% appreciation i.e. a price target of Rs.50 can be expected in 12-15 months.

ABC Bearings - Rs.124.00

Promoted by M.I. Patel Group, ABC Bearings Ltd. (ABL) was established in 1960 by setting up a plant in Lonavala in collaboration with Steyr Diamler Puch of Austria. Today, ABL is the market leader in tapered bearings with its main area of focus on roller bearings for commercial vehicles and tractors. The company’s revenues are predominantly from domestic sales with 75-80% of it coming from OEM supplies and the rest through aftermarkets. Its client list includes most of the auto and tractor players such as Tata Motors, Mahindra & Mahindra, Escorts, Eicher, Ashok Leyland, Punjab Tractors etc. In the international market its products are exported to USA, Canada, Dubai, Peru, Italy, Singapore, Indonesia, Bangladesh, Sri Lanka etc.

Earlier, the company had two plants one in Gujarat and other in Maharashta. But since October’05, it stopped manufacturing activities in Lonavala, Maharashtra and shifted the machineries to its Bharuch plant. This has led to savings in labour cost and other incidental expenses besides concentration of manufacturing at one place. Presently, it has an installed capacity of 6.4 million bearings per annum. ABL also has a long-term licensing and technical assistance agreement with NSK to upgrade its manufacturing process and improve the quality of its products. To expand its presence in industrial bearings and increase exports, ABL is undergoing expansion to double its capacity to 12 million bearings by 2010. Moreover, to reduce its dependence on the original equipment segment, the company has recently shifted its attention towards the lucrative replacement market. Importantly, the company has a wholly owned subsidiary by the name MIPCO Seamless Rings Ltd. engaged in the production of ring manufacturing & forgings for captive consumption by ABL.

For FY06, its sales increased by 20% to Rs.152 cr. but net profit jumped 40% to Rs.15.70 cr. registering an EPS of Rs.14 on its equity of Rs.11.55 cr. It gave Rs.4 as dividend compared to Rs.3 last year. Although in FY06, profit margin was impacted to some extent by rising metal prices this has cooled off now as evident from its first quarter numbers. For the June’06 quarter, turnover grew by 30% to Rs.48 cr. but PAT increased by 55% to Rs.5.40 cr. Notably, its OPM improved to 21% compared to 14% last year. Company is also one of the best tax payer shelling out nearly 35-40% of PBT as tax. For the full year, it is estimated to report a top-line of Rs.185 cr. and profit of Rs.18 cr. i.e. an EPS of Rs.16. Hence investors are advised to buy only at declines with a price target of Rs.200 (60% appreciation) in 12-15 months.

STOCK WATCH

The share price of Balaji Amines Ltd. (Code: 530999) (Rs.214.50) has crashed severely over the last few days on the back of sanctions imposed by USA on the company. This gives a golden opportunity for long-term investors to buy as the company hardly exports to USA and this sanction will not have any monetary effect on the company. It is a leading producer of specialty chemicals viz. Aliphatic Amines and its derivatives at its plant in Osmanabad District in Maharashtra. For the first quarter ending 30th June’06, its sales increased by 55% to Rs.46 cr. whereas net profit jumped 60% to Rs.4.85 cr. For the full year FY07, it may report sales of Rs.175 cr. with a net profit of Rs.13 cr. i.e. an EPS of Rs.40 on its tiny equity of Rs.3.25 cr. with a 52-week high of Rs.510, it’s a good bet at current levels.

The last fiscal was not good for KIC Metaliks Ltd. (Code: 513693) (Rs.39.50) due to high raw material costs for iron ore and mettalurgical coke and lower price realization for pig iron. But things have improved this fiscal as raw material prices have cooled off from their highs. It already has a 1,44,000 TPA captive coke oven plant and is now setting up a Hot Blast Stove, which will be operational by 31st October’06. For the June’06 quarter its sales improved by 125% to Rs.38 cr. whereas net profit increased by 50% to Rs.2 cr. A few months back, it allotted about 6 lakh shares at Rs.80 on preferential basis. To fund the expansion, promoters are planning to bring in more money by making preferential allotment to themselves. For FY07, it is estimated to clock a turnover of Rs.150 cr. and net profit of Rs.7, which means an EPS of Rs.14 on its current equity of Rs.4.30 cr.

Gujarat Apollo Equipments Ltd. (Code: 522217) (Rs.135.20) is India's No.1 manufacturer of Asphalt based road construction & maintenance equipment and produces the entire range of equipments for building roads like Asphalt plants, soil stabilization plants, indirect heating equipment, paver finisher, bitumen sprayer, rollers, kerb paver and road maintenance equipments like milling machines and recycling machines. For the current first quarter, its sales doubled to Rs.34 cr. and PAT spurted by 130% to Rs.3.20 cr. In spite of being in such a high growth trajectory, the company is available at single digit P/E ratio. Recently, it concluded its 1:2 right issue offer at Rs.100 per share and the share is trading at just 15% premium to that. For FY07, it can register total revenue of Rs.135 cr. and net profit of Rs.13.50 cr. i.e. an EPS of Rs.13 on its expanded equity of Rs.10.50 cr. A risk-free buy which can give 50% return in 12-15 months.

To cater to the increasing demand, Mangalam Cement Ltd. (Code: 502157) (Rs.161.75) is investing around Rs.75 cr. to enhance its cement capacity to 1.6 MT from 1.1 MT and clinker capacity to 8,25,000 lakh tonnes from 6,00,000 lakh tonnes. It is also setting up a captive thermal power plant of 17.5MW capacity, which is expected to be commissioned by June’07. For the June’06 quarter, sales increased by 35% to Rs.113cr. but its net profit zoomed 380% to Rs.19 cr. Interestingly, the company’s OPM has improved substantially to 27% compared to 11% last year due to better operating efficiency and reduction in other expenses. For the full year ending September’06, it may report sales of Rs.400 cr. and profit of Rs.60 cr. i.e. EPS of Rs.21 on its current equity of Rs.28.20 cr. Although most cement scrips are richly discounted, this scrip is trading a market cap to sales ratio of almost 1 and is available at 35% discount from its recent high of Rs.230.

In the paper and newsprint sector, Rama Paper Mills Ltd. (Code: 500357) (Rs.27.50) is trading extremely cheap and at mouth watering levels. It is a reputed producer of newprint/ writing and printing paper with an installed capacity of around 40,000 TPA. For the June’06 quarter, its top-line grew by 20% to Rs.21 cr. whereas its bottom-line registered a gain of 10% to Rs.1.90 cr. The company is implementing a massive expansion for which the promoters have infused their own money to the tune of Rs.9 cr. by making preferential allotment of 25 lakh shares at Rs.35 to themselves. The promoter holding as on June’06 stands at 52%, which imparts confidence to shareholders over the management’s commitment. Its book value has also grown to Rs.26. For FY07, it may report sales of Rs.100 cr. with net profit of Rs.7 cr., which translates into an EPS of Rs.9 on its diluted equity of Rs.7.60 cr. A screaming buy.