APW President Systems Ltd. (Code:590033) Rs.114

APW President System Ltd. (APW) originally began as a small-scale partnership firm in 1981 but was bought over in 1998 by Applied Power Inc of USA in 1998, which has a chain of manufacturing and distribution facilities in more than 70 countries. Collaborating with a worldwide leader in the enclosures industry enabled APW to access not only the latest product designs but also state-of-the-art manufacturing technologies and other group resources. Today, APW is one of the few manufacturers in India offering enclosures to every segment of the electronics industry. Although the major source of its revenue is from its racks and cabinets division but its technology product division is also growing at a phenomenal pace of more than 50%. In fact, this division was recently awarded the ‘Top Sales Growth' trophy for the Asia Pacific region by Avocent, who are the worldwide market leaders for KVM Products and high end Server Switches for large enterprise networks.

APW’s manufacturing facilities located in Pune and Bangalore are fully integrated plants inclusive of a hot phosphating pre-treatment line, wet-paint and powder-coating paint shops, chemical evaluation laboratory, digitally controlled machinery and huge storage, assembly and shipping areas. To meet the increasing demand, the company is regularly expanding its production capacities and the expansion underway at Pune is expected to be completed shortly in few weeks. Of late, APW has also made progress in Contract Manufacturing resulting in a spate of good orders, which kept both its plants operating at near optimal levels. Last fiscal, its Bangalore plant was visited frequently by very large multinational companies who discussed contract manufacturing opportunities and assessed the company's capabilities and manufacturing systems. Moreover, the company is regularly exporting its products to the Middle East markets, South East Asia and USA. The enormous growth in the IT and Telecommunication sectors augurs well for APW as its sales growth is directly linked with the major players in these two sectors investing in and upgrading their infrastructure or setting up new networks. Also, increased activity in the banking sector has led to high offtake of its products related to ATM parts.

For FY06, its sales grew by 40% to Rs.77 cr. but net profit jumped 75% to Rs.6.30 cr. However, it may not be able to maintain the same growth going forward as local manufacturers apart from facing stiff competition from Chinese cabinet manufacturers copy its products. Hence for FY07, it is estimated to report total revenue of Rs.90 cr. with profit of Rs.7 cr. This works out to an EPS of Rs.12 on its equity of Rs.6.05 cr. With foreign promoters holding 40% stake, the company deserves much higher valuation. Investors are advised to buy at sharp declines around Rs.100 levels as the scrip has the potential to appreciate 40% in 12-15 months.

Torrent Cables - Rs.131.00

Torrent Cables Ltd. (TCL) was incorporated as Mahendra Electricals Ltd. in 1960 but was taken over by the Torrent group in 1989 and renamed thereafter. Since then, TCL has emerged as the market leader in High Tension XLPE power cables and is one of the fastest growing cable companies in India. It manufactures XLPE insulated cables, PVC insulated cables, Rubber insulated cables and Specialty cables. It manufactures XLPE insulated cables in the voltage range of 1.1KV to 132 KV, Low-Tension power cables up to 1.1KV and High-Tension power cables up to 11KV. It also produces EHV, TRS flexible cables, welding cables, lift cables, colliery cables and specialty cables in the form of fire resistant low smoke cables (FRLS), railway-signalling cables, mining and trailing cables.
TCL has an integrated manufacturing facility at Nadiad in Gujarat, which is equipped with the most advanced Nitrogen Dry-Cured continuous catenary vulcanizing line in technical collaboration with M/s John Royle of USA. The products manufactured are BIS certified and comply with IEC standards. It has a very well equipped R&D centre and in house facility to cater to all routine type acceptance and special tests. It’s also the first company in the cable industry to get ISO 9001:2000 certification. Last fiscal, it invested in a wire drawing machine, wire armouring machine and material handling equipment to de-bottleneck capacities in certain areas and reduce the cycle time. Since the plant is operating at full capacity, the company is evaluating new expansion plans. TCL has a very exhaustive customer base spread over State Electricity Boards, Utilities, EPC Contractors, government/semi-government companies, private companies, dealer network, consultants and many more. Apart from the SEBs, its clientele includes biggies like Tata Power, L&T, BHEL, ABB, Siemens, Alstom, Jindal, Reliance, Essar, Suzlon, NTPC, Railways, Powergrid, SAIL, Torrent Power etc.
Government initiatives on power sector reforms have resulted in increased in demand for power related products including cables. Rural electrification programme has been to ensure electrification of all villages by 2009 apart from continuous efforts to upgrade and modernize the power distribution network. Hence the future outlook of TCL is quite promising. For FY06, its turnover grew by 15% to Rs.146 cr. whereas net profit increased by 20% to Rs.17.75 cr. registering an EPS of Rs.24 on its equity of Rs.7.48 cr. TCL is near a debt-free company and hasn’t diluted its equity in the last 10 years. Although it was a BIFR case earlier, it made a smart turnaround in 2004. However, due to rise in input costs of Aluminium, Copper and Insulating materials, its profit margin may remain under pressure. Hence for FY07, it is expected to report total revenue of Rs.160 cr. with PAT of Rs.16 cr. i.e. EPS of Rs.21. With its 52-week high/low as Rs.296/ Rs.94, the scrip has the potential to cross Rs.175 (35% appreciation) in 12 months.

STOCK WATCH

In anticipation of rise in steel prices in coming months, steel scrips are gradually coming into action and Modern Steels Ltd. (Code:513303) (Rs.57), manufacturer of alloy steel and special steel seems a good bet at current levels. The company is now putting more thrust on production of value added products including stainless steel. It has installed a Vacuum Degassing plant of Denelli make in its melting shop and a converter was also installed for the production of stainless steel. Also, post rolling facilities of peeling and grinding of bars was commissioned in the last fiscal. For future growth, it is enhancing its melting capacity from 1,00,000 to 2,27,000 MTA and the rolling capacity will be increased from 50,000 to 1,54,000 MTA. For FY07, it may register a turnover of Rs.300 cr. with net profit of Rs.10 cr. i.e. EPS of Rs.21 on its current low equity of Rs.4.80 cr. Scrip has the potential to double in 12-15 months.

Laffans Petrochemicals Ltd. (Code:524522) (Rs.24) engaged in the manufacture of ethylene oxide derivatives such as Ethoxylates, Glycol Ethers, Acetates, Triethonal-amine and Brake fluids is the only Butyl Glycol and Methyl Glycol manufacturer in India along with their respective acetates. Besides, it also produces 'Theic', an unique surfactant for the wire enamelling industry with micron size of less than 100, which is produced by only 3/4 manufacturers worldwide. Recently, it started catering to emulsifiers in the agrochemicals industry and has introduced products based on propylene oxide where the demand is expected to grow. It reported quite encouraging numbers for the June’06 quarter and for the full year FY07, it may clock a turnover of Rs.160 cr. with net profit of Rs.5 cr. i.e. EPS of Rs.6 on its equity of Rs.8 cr. With a book value of Rs.42 and a market cap of less than Rs.20 cr., the scrip is available extremely cheap and can appreciate 50% in 6-9 months.

Tulsyan NEC Ltd. (Code:513629) (Rs.47) is one of the old and reputed manufacturers of TMT bars/ billets and synthetic products such as poly woven sacks/bags. TMT bars meet the demand for construction in housing/infrastructure sectors and poly woven sacks/bags meet the demand for packing of cement/sugar/fertilizers and other bulk-packaging requirement. For the June’06 quarter, it reported stunning numbers with sales improving by 40% to Rs.88 cr. whereas net profit doubled to Rs.1.80 cr. registering an EPS of Rs.3.6 on its small equity of 5 cr. Due to the buoyancy in the metal sector, it has taken on lease a rolling mill with a production capacity of 36000 MTPA at Coimbatore, Tamil Nadu. For future growth, it is installing a new rolling mill of 1,50,000 MTPA and is undergoing capacity expansion of 10,500 TPA in the plastics division comprising of FIBC, PP Bags and fabrics. For FY07, it is estimated to clock a turnover of Rs.350 cr. With net profit of Rs.5 cr. i.e. EPS of Rs.10. At its current market cap of merely Rs.20 cr., this scrip is trading extremely cheap.

Aarti Industries Ltd. (Code:524208) (Rs.36) has already commenced operation at Block–I of its Tarapur USFDA compliant facilities and started exporting validation batches to regulated markets. Meanwhile, it is in the process of completing the work at Block-II, III and IV during the year and may start commercial production in the near future. Further, it is setting up a new project for a downstream product called Para Amino Phenol (PAP) in Gujarat. More importantly, crude oil prices have tumbled down to around $60, which augurs very well for the company, as it constitutes a major part of its input cost. For FY07, it is expected to report sales of Rs.825 cr. with net profit of Rs.55 cr., which translates into EPS of Rs.7 on its fully diluted equity of Rs.37.75 cr. Relatively speaking, it is a safe bet to get 50% return in the medium-term.

The ban on sugar exports is expected to be lifted in October’06 and all sugar scrips are rising smartly. DCM Shriram Industries Ltd. (Code:523369) (Rs.89) is one of the best bets as it has most modern sugar factories at Daurala in U.P apart from a huge alcohol plant of 45,000-kilo litres capacity. It has recently increased its cane crushing capacity to 10,000 TCD from 8000 TCD and is further set to increase it to 12000 TCD along with modernisation of the sugar plant and powerhouse. Moreover, it is also engaged in the business of alcohol, fine chemicals and rayon. It reported encouraging results for June’06 quarter and can clock a turnover of Rs.775 cr. and net profit of Rs.32 cr. for the full year FY07. This will lead to an EPS of Rs.21 on its equity of Rs.15.30 cr. Having a 52-week high/low as Rs.240/Rs.72, the scrip can give 50% return in a years time.