Hind Rectifiers - Rs 725.00

Established in 1958, with the collaboration of Westinghouse, Brake & Signal, U.K. (who still holds 16% equity stake as on today), Hind Rectifiers Ltd (Hirect) has a rich experience in developing, designing, manufacturing and marketing power semiconductor, power electronic equipments and railway transportation equipments. Currently company derives 50% of its revenue from railways, 20% from power sector and the rest 30% from various industries like telecommunication, electronics, defence, aviation, R&D organizations, electro-chemical, steel, cement etc. Basically, its business is segmented into following four divisions:-

A. Equipment division: manufactures power supply equipments for R&D, Defence & Aviation, DC power system for electrochemical plants, rectifier for metal finishing, battery chargers and dischargers etc. It also offers specialised services such as customisation, automation and optimisation of controls and safety. Notably it has a technical tie-up with M/s Friem S.P.A., Italy in design & technology transfer of high current water cooled rectifier system for Electro-chemical applications.
B. Semi Conductor division: manufactures power diodes, power modules, thyristors & assemblies apart from supplying special devices and assemblies on request. To complement this, a full range of heatsink assemblies using IEC circuit configuration as well as custom design is also manufactured. These semi-conductors find use in industrial, military and transportation applications.
C. Railway Transportation division: manufactures transformer for rolling stock, auxiliary converter and inverter, track side DC substation equipment, rectifier for rolling stock etc. Out of 50% revenue from railways, 10% comes from locomotive transformers, 20% from rectifiers and rest 20% from invertors. Hirect has a technical collaboration with M/s Transtechnik, GmbH of Germany for design and development of inverter and auxiliary converters for traction application. In Collaboration with M/s. Nieke, Germany, company has upgraded its technology and infrastructure for manufacture of main transformer for AC/DC Dual Voltage EMU and BG AC EMU. It also has a tie-up with M/s Microelettrica Scientifica of ITALY for supply of resistors for railway application.
D. Trading division: Hirect has a separate small trading division under which it imports and markets semi-conductor fuses from BUSSMANN-Denmark, capacitors from ICAR-Italy and resistors from MICROELETTRICA SCIENTIFICA, Italy.

Hirect has two manufacturing plants spread across Mumbai and Nasik. Its Equipment division has an ISO 9001 & Semiconductor division has an ISO 9002 quality system. Although railway is its major customer, still it has a huge and reputed clientele including HLL, Indian Navy, Ordnance factory, ISRO, Bhabha Atomic, Hindustan Aeronautical, Nuclear Power Corp, BSNL, BHEL, BEML, Grasim, L&T, Tata Steel, Hind Zinc, Siemes, ABB, Crompton Greaves etc. The products are also exported to Australia, Bangladesh, Canada, Columbia, Italy, Malaysia, Middle East, Pakistan, South Africa, South Korea, Spain, Sri Lanka, Thailand, UK and USA.

Recently, Hirect has modernized all its plants in Mumbai and has setup green-field plants in tax free zone of Uttaranchal for manufacturing of equipment, semiconductor and the railway transportation system where it will enjoy 16% excise duty and 30% tax benefit. The commercial operation at Uttranchal plant has begun only in April 2007 hence the impact of this will be visible from coming quarters. Meanwhile, the railway budget and the recent semi conductor policy, both are quite favorable for the growth of the company. Hirect is expected to end FY07 with sales of 85 cr and profit of 11.50 cr ie EPS of 76 Rs on tiny equity of 1.50 cr. Due to revenue from new plant and tax benefit it may clock a turnover of more than 105 cr and PAT of 15 cr which means EPS of 100 Rs on current equity. Investors are strongly recommended to buy at current levels as share price has the potential to double in a year’s time. Moreover company is in its 50th year of operation, hence chances of declaring a liberal bonus and stock split is quite high. Secondly, in future management intends to completely shifts its Mumbai plant to Uttranchal and develop its Bhandup property which may be worth more than 25 cr.

Associated Profiles & Aluminium - Rs.40.35

Incorporated in 1987, Associated Profiles and Aluminium Ltd (APAL) belongs to the reputed and three decade old “ASSOCIATED” group which has expertise in manufacturing aluminium alloys ingots, aluminium door and window frames, designer aluminum grill, aluminium flooring, surface coating, structural glazing system and curtain wall system i.e. complete glass exterior for building structures. Infact one of the group company namely “Elesar Focchi” which has technical collaboration with ‘Focchi’ of Italy has a strong goodwill in the market with brands like Deco Frame, Deco-grille, Deco floor, Deco-tech, Elvisia and El-quadra. However APAL is engaged in manufacturing of only electrical grade wire rods which is eventually used by conductor manufacturers for distribution and transmission of electricity. Moreover these aluminium EC wire rods are also used for redrawing into wires/strips for manufacture of cables, conductors, transformer wires/strips and in various hardware or general engineering components. In short company’s fortune is dependent on growth of power ancillary industry which means ultimately on power sector.

APAL’s manufacturing facility namely ‘Hind Aluminum’ is located in industrial belt of Silvassa in Union territory of Dadra & Nagar Haveli. Incidentally company is the largest secondary producer of aluminum wire rods with the present capacity of 25000 tonnes for the melting of aluminium ingots, cold rolling and making of these wire rods. Due to higher margin, company is constantly exploring the possibilities of exporting its products and hence is keeping regular touch with various customers around the world. Although negligible presently, but in future export sales is expected to rise gradually. In the year 2005-06 APAL diversified into bauxite mining sector and is now doing full fledge mining activity in Village Mahadevia of Jamnagar district, Gujarat. Infact it has already made shipments of Bauxite ore to its customer in China. Besides, company has setup a Wind Turbine Generator project in Nandurbar district, Maharashtra with an annual installed capacity of 1250 KW. Few weeks back it has purchased another 1500 KW Wind Turbine Generator for Rs 9 cr which is located at Sangali district, Maharashtra. That means the revenue from its power generation business is expected to double in current fiscal. To conclude company has smartly de-risked its business by diversifying into mining as well as power generation.

Fundamentally as well as financially, APAL is on a strong footing with a professional backing by ASSOCIATED group. Ironically, company has a good track record of un-interrupted dividend payment since last 10 years. For the nine month ending Dec 2006, sales grew by 25% to 146 cr and NP increased by 40% to 4.70 cr. Accordingly, it may end FY07 with net sales of around 200 cr and PAT of around 6 cr which means EPS of 12 Rs on tiny equity of 5 cr. It already gave 12% dividend in March 2007. Hence scrip is available at a P/E ratio of 3x times against its FY07 earning. Considering the increase in revenue from mining and power business in coming years, APAL is estimated to clock a turnover of 220 cr and profit of 7 cr i.e. EPS of 14 Rs for FY08. Investors can buy at current levels as scrip has the potential to double in 12¬15 months

Stock Watch

Gujarat Apollo Inds. Ltd. (Code: 522217) (Rs.124.55) is India's No.1 manufacturer of Asphalt based road construction & maintenance equipment and manufacturers the entire range of equipments for building roads like Asphalt plants, soil stabilization plants, indirect heating equipment, paver finisher, bitumen sprayer, rollers, curb paver and road maintenance equipments like milling machines and recycling machines. For the March ‘07 quarter, its sales grew by 25% to Rs.44 cr. but net profit doubled to Rs.6.55 cr. due to ‘other income’ of Rs.2.60 cr. For full year FY07 sales were up 35% at Rs.141 cr. and net profit increased by 75% to Rs.18 cr. thereby registering an EPS of Rs.17 on its equity of Rs.10.50 cr. To cater to the increasing demand, the company is gradually expanding capacity and has aggressive growth plans for the future. For FY08, it is estimated to clock a turnover of Rs.175 cr. with net profit of Rs.20 cr. i.e. an EPS of Rs.19 on its current equity. Applying a reasonable discounting by 12 times, its share price can go up to Rs.225 in 9-12 months. Moreover, the scrip is expected to get listed in NSE in the near future, which will enhance its liquidity.

Recently, GNFC Ltd. (Code: 500670) (Rs.101) announced encouraging numbers for the March’07 quarter after the merger of Narmada Chematur. On the back of a healthy OPM of 23%, it earned a net profit of Rs.112 cr. on sales of Rs.802 cr. leading to an EPS of more than Rs.7 for the quarter. For the full year FY07, sales and profit stood at Rs.2739 cr. and Rs.326 cr. respectively. This translates into EPS of Rs.21 on its expanded equity of Rs.155.50 cr. The company is working towards converting its Ammonia Feedstock from Low Sulphur Hay Stock (LSHS) to natural gas and will be the first company to do so. Secondly, it is also planning a Nitrous Oxide (N2O) Abatement project under the clean development mechanism, which will fetch an additional Rs.18 cr. through carbon credit. It is gradually ramping up both its methanol plants at an investment of Rs.140 cr. and is putting up a Precipitated Calcium Carbonate plant with a capacity of 100 MTPD. Accordingly for FY08, it may report a total revenue of Rs.3250 cr. and PAT of Rs.410 cr. i.e. EPS of Rs.26 on its current equity. Hence even at a modest discounting by 6 times, its share price can touch Rs.150-160 in the medium-term

Vakrangee Softwares Ltd. (Code: 511431) (Rs.130.80) has been handling election related projects for the Election Commission of India for over a decade. It has got the Electoral Photo Identity card project from the Election Commission, Maharashtra, and also the work of maintaining the Public Facilitation Office under MCA-21 for 20 locations from TCS. The company has also completed a project related to e-governance work for the Registrar of Companies. Couple of weeks back, it reported terrific numbers for the March’07 quarter. Sales jumped up 70% to Rs.38 cr. whereas net profit more than tripled to Rs.10.60 cr. due to higher operating margin. It ended FY07 with topline of Rs.117 cr. (up 130%) and PAT of Rs.24 cr. (against Rs.10 cr.) i.e. EPS of Rs.13 on its diluted equity of Rs.19.15 cr. To fund its growth plans it has issued 22.50 lakh warrants to be converted into equity shares at Rs.241 per share. For FY08, it is expected to earn net profit of Rs.38 cr. on total revenue of Rs.175 cr. i.e. EPS of Rs.18 on its fully-diluted equity of Rs.21.40 cr. Being an operator driven scrip, the share price can shoot up sharply in good market sentiment.

Visu International Ltd. (Code: 590038) (Rs.12.75) is a pioneer in global education and consultancy business is a household name for providing unparalleled coaching and training in pre-requisite tests such as TOEFL, GRE, SAT, GMAT & IELTS. Its core activity lies in assisting students to make the right choice with regard to higher education overseas. Coaching India, its training division with 40 centres across India, successfully trains 30,000 students per annum for pre-requisites tests with very scientific standards. It reported excellent numbers for the March’07 quarter. Its total revenue grew by 20% but net profit doubled to Rs.6.20 cr. due to improved profit margins. For entire FY07, its sales were up 35% to Rs.94 cr. and PAT increased by 125% to Rs.14 cr. i.e. EPS of Rs.4 on its diluted equity of Rs.35.50 cr. For FY08, it may report a topline of Rs.110 cr. and bottomline of Rs.16 cr. i.e. EPS of Rs.4 only on its fully diluted equity of Rs.39.50 cr. the promoters hold only 7% stake and its GDR was issued at Rs.7 per share. Hence it’s a purely a speculative bet.