Pitti Lamination - Rs.68.70

Established in 1983 and promoted by Mr. Sharad Pitti, Pitti Laminations Ltd. (PLL) is primarily engaged in manufacture of electrical steel laminations and stampings which form a critical part in all types of motors, alternators, pump sets and DG sets. It also manufactures die cast rotors, tools, jigs, fixtures and moulds. It supplies not only laminations but also value added sub-assemblies using castings, aluminium, copper etc. On the domestic front, the company has been catering to some of the biggest and best names in the industry which include Siemens, Areva T&D, Toyo, Denki Power Systems (TDPS), Crompton Greaves, ABB, BHEL, Newage Electrical India, Bharat Bijlee, Kirloskars, Suzlon etc. On the other hand exports contribute more than 40% of its revenue with GE (USA) being one of its major customers.

PLL’s manufacturing facilities are located at Nandigaon village in Andhra Pradesh. Last year, the company completed its Phase II expansion cum modernization plan taking the total installed capacity to 25000 MTPA from 10000 MTPA earlier and started commercial operation in September 2006. For FY07 it is expected to record sales for 15000 MTPA whereas the full impact of expansion will be seen only in FY08. To leverage its considerable expertise and competitiveness and move up the value chain, the company is implementing certain forward integration measures and activities related to laminations. It is outsourcing the fabricated and casted stator bodies and also outsourcing the machining. But now under its Phase III expansion, it is putting up a project for fabrication of steel stator bodies, machining of stator bodies and dropping of assembled stator core into the stator body. These proposed activities are quite complex and demand a high degree of precision. But eventually, it will result in value addition and significant improvement in margins. These integrations will basically cater to GE (USA) and other big domestic customers. The total investment for this Phase III expansion is around Rs.40 cr. and is expected to commence operation by mid 2007 although it has already started the ‘core dropping’ operations. Interestingly, the company has obtained approval to diversify into power generation by way of wind energy, solar energy, thermal energy, hydro energy, bio energy or any other form or source of energy.

To fund the expansion, it has raised around Rs.14.40 cr. through a preferential allotment of around 12 lakh equity shares at Rs.120 per share. The balance is being met through debt and internal accruals. For FY07, it can report sales of Rs.145 cr. with net profit of Rs.10 cr., which may shoot up to Rs.200 cr. and Rs.13 cr. respectively in FY08 on a conservative basis. This translates into an EPS of Rs.11 and Rs.14 respectively. With a 52-week high/low as Rs.130/59, this scrip is available extremely cheap at the current market cap of Rs.65 cr. Investors are strongly recommended to buy with a price target of Rs.110 (60% return) in 12 months.