Uni Abex Alloy Products Ltd - 115.00 Rs

Incorporated in 1972 and belonging to professional Neterwala group, Uni Abex Alloy Products Ltd (UAAP) is a pioneer in alloy steel casting. It produces static, centrifugal castings and assemblies in heat, wear and corrosion resistant alloys. It supplies majority of its products to core sector industries like petroleum, petrochemical, fertilizer, iron & steel, manufacturers of decanters, valves, heat-treatment plants, galvanizing plants and engineering industries. Its product range includes reformer tubes, catalyst tubes, air injection tubes, radiant tubes, harp assemblies, bowl cylinders, glendon coils, sink rolls etc. UAAP is one of the major suppliers of decanter components to Alfa Level, which is also its biggest client. On the international front, company has been exporting to USA, France, Germany, Denmark, Japan, Italy, China and Canada.

Located at Thane-Mumbai and having a production capacity of 1500 tons, UAAP’s manufacturing plant is equipped with modern manufacturing & testing facilities. Earlier it had technical collaboration with Abex Corporation, USA and with SCHMIDT Clemens, Germany in development of heat, corrosion and wear resistant alloys for various industrial applications. While company has mastered the manufacturing skill from its technology partners, it has its own in-house R&D department as well, which helps it develop new products for its clients. Notably, UAAP is an approved manufacturer of reformer/catalyst tubes by Engineers India Ltd and is also considered as a premier source for high nickel and chromium alloys. It is among the few to have the process capability to manufacture static castings up to 1000 kgs single piece, horizontal centrifugal castings of 75-650 mm diameter & 6000mm length and vertical centrifugal castings upto 1200 mm diameter and 1000 mm length. Last year it developed TX-63 for air injector tube for high temperature application upto 1010°C.

On the back of strong industrial growth, UAAP is augmenting the existing capability and capacity through capital investment in new plant and machinery and through expanding/developing its sub-contractor/vendor network. It intends to take its capacity to 2000 tons in phased manner by 2008. UAAP also wanted to enter a joint venture with EU company for manufacturing reformer tubes. But nothing has been materialized till now. Meanwhile it will continue to concentrate on lucrative export market and is expected to derive nearly 50% revenue from it in FY08. Considering the healthy order book position, encouraging Q1FY08 nos and assuming an operating margin of approx 13%, company is expected to end FY08 with sales of 75 cr and NP of 5.50 cr. This works out to an EPS of 28 Rs on a tiny equity of 1.98 cr. At a reasonable discounting by 7x times, scrip has the potential to touch 200 mark (i.e. 75% return) in 12~15 months. However, the rising cost of inputs like nickel, ferro alloys and steel scrap and fluctuations in Euro and US $ exchange rate may have negative impact on margins.

Orient Ceramics & Industries Ltd - 51.00 Rs

Orient Ceramics and Industries Limited (OCIL), was incorporated on 18th May, 1977 for the manufacture of ceramic tiles with an installed capacity of 5,000 TPA at Sikandrabad, 40 kms from Delhi. Since then it has emerged as one of the reputed and high quality ceramic tile manufacturer in North India with present capacity of 2,20,000 TPA. OCIL today possesses the most state of the art technology, which enables a finished tile to be packed untouched by hands within 2 hours from ceramic powder. It produces wall as well as floor tiles under the brand name “Orient” and offers one of the largest range by way of designs, colors, sizes, choice of surface finishes such as satin matt, vellum matt, high gloss & rustic finish etc. It also makes special tiles under various collections branded as Artline, Midline, Vivaldi, Novista, Goemetricos & Egyptian Rustic collection. Each of this collection is unique based on some theme, finish, pattern, cost etc. Besides, company has created a niche for itself thru “Rangoli” - its designer collection which is fusion of tradition with modernity. Although marginally company’s products are exported to Europe, South East Asia, Middle East and the SAARC countries.

In order to cater the rising demand, OCIL has last fiscal only increased the production capacity from 120,000 to 220,000 MT per annum without any cost escalation and contingency. For FY07 it worked at 100% capacity utilization with 141,642 MT of production which is expected to move up to 200,000 MT this year. Secondly, with the introduction of latest machinery, company is now able to produce high value glazed and polished vitrified tiles from current fiscal. Further, it has converted all manufacturing lines to fuel saving single fast firing technology. Hence, despite pressure on the selling price, it continues to maintain high operating efficiency by way of reduced wastage, fuel efficiency and lower inventory. OCIL is also expanding its product portfolio with long-term contract manufacturing agreements in India and China. Within this fiscal, it is expected to add approximately 20 per cent of its topline via outsourced products including ceramic, vitrified tiles and bathroom fittings under the brand name Iris. To focus more on the South, the company has opened a regional distribution centre in Bangalore recently and is now planning to further strengthen its primary retailer network to 750 and secondary retailers to 2,500 from the present 600 and 2,000 respectively. There is also noticeable increase in activity outside the Tier A cities which provides an opportunity for company to leverage its strong pan-India distribution.

Real Estate sector is booming and the key demand driver is four main sectors including residential, office space, retail & hotels. Although capacity in the residential & office space sectors has been steadily increasing over the past few years, there has been an unprecedented growth in the retail sector. Huge multi storey malls as well mid size shopping malls have been mushrooming all across India which presents a compelling opportunity for OCIL to increase its sale of larger format tiles. With the approach of the Commonwealth Games 2010 and further increase of tourism exposure to India, many new hotels are expected to be built. Moreover the government's much needed thrust towards improving infrastructure like airport, railways etc is also expected to directly benefit companies like OCIL. In short, the demand for ceramic tiles will continue to grow substantially in coming years. On the back in increased capacity company is expected to clock a turnover of 240 cr and PAT of 13 cr which translates into EPS of 12 Rs on expanded equity of 10.50 cr. Moreover, a company having a gross block of 157 cr, is available at an enterprise value of merely 110 cr which is extremely cheap by any standards. Hence investors are strongly recommended to buy at current levels with a price target of 75/- Rs (i.e. 50% appreciation) in 9~12 months.

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Aro Granite (90.00) is one of the largest manufacturer and exporter of modular granite tiles and slabs with the share of more than 5% of India’s total export of granite products. Company has recently expanded its tile capacity to 5,40,000 sq mtr from 1,80,000 sq mtr, whereas slab capacity has been enhanced to 3,90,000 sq mtr from 2,95,000 sq mtr. This means overall it has augmented its production by 100%. To meet its raw material requirement company has started importing rough granite blocks from Saudi Arabia, Norway, Brazil & Finland etc. Besides there is also an improvement in the availability of raw material in the domestic market which was not the case earlier. Notably, the company has bagged the special export award from CAPEXIL for the sixth time in the year 2005-06. Company has managed to report satisfactory nos for the June qtr and is expected to report a topline of 150 cr and PAT of 19 cr for FY08. This leads to an EPS of 26 Rs on small equity of 7 cr. In order to increase the liquidity, the equity shares of the company have also been listed in NSE with effect from 24.04.2007. In case rupee continues to appreciate sharply in future, company’s margin may come under pressure.

Panoramic Universal (103.00) erstwhile IT Microsystem derives more than 80% of revenue from hospitality business as it owns and operates five hotels in USA and a small motel in New Zealand. Here in India, it has three hotels at Shirdi, Goa and Malvan each. It also manages India’s largest discotheque as well biggest revolving entertainment lounge called ‘Area 51’ in Pune. On the back of rising ARR & occupancy level, company has implemented aggressive expansion plan and is coming up with hotels / resorts at Thane, Pune, Durgapur, Jaipur, Hyderabad, Kerala, and Goa. Earlier in May’07 its subsidiary in USA has purchased 79 acres land in Fort Drum at Watertown, New York, USA for commercial and residential project. In short, from the present 918 rooms under operation, the company targets to own and operate 1846 rooms in the next two years. To fund its growth plan, company is raising 55 cr thru 1:2 right issue @ 85 Rs per share and is also slated to come out with FCCB, QIB placement etc. Meanwhile it acquired 4.46% stake in Inter-connected Stock Exchange of India Ltd (ISE) at a bid price of Rs 250/- per share. For FY08 it is estimated to register total revenue of 150 cr and PAT of 36 cr i.e. EPS of 28 Rs on current equity of 6.50 cr having a face value of 5/- Rs per share. However the huge equity dilution and appreciating rupee is cause of concern.

On the back of boom in housing sector and strong demand for commercial property, Ansal Housing (190.00) is aggressively expanding and has launched residential townships branded as “Ansal Town” across seven cities namely Agra, Indore, Jammu, Rewari, Karnal. Meerut and Ghaziabad which are spread over 1400 acres. In all, company has lined up gigantic 56.10 million sq. ft of development (80% in the residential segment) spread over 22 cities in the next five years. It will also be developing an I.T. Park in Bangalore apart from venturing into construction of budget hotels and serviced apartments. Currently, company has a rich land bank of 2500 acres with about 50% under its own name while the rest under firm collaborators agreement. On a standalone basis it may end FY08 with total revenue of 275 cr and profit of 50 cr i.e. EPS of 29 Rs on fully diluted equity of 17.50 cr. Notably, the total value of the projects with the company and under joint ventures is around Rs. 6000 crores. Against this, the company is available at a market cap of merely 350 cr. It’s a screaming buy.

Purely on the fundamental basis, GM Breweries (95.00) is trading fairly cheap at the current enterprise value of 100 cr. Company enjoys virtual monopoly in country liquor in the districts of Mumbai, Navi Mumbai and Thane. Infact, it is the single largest manufacturer of country liquor in the state of Maharashtra. With the installation of additional bottling lines last fiscal, company now has the capacity to process 8.26 crores bulk litres of country liquor per annum. However the capacity utilization was little over 60% which means company has got tremendous potential to utilize the balance capacity by penetrating into interior districts of Maharashtra taking advantage of its brand image. Besides it also has the facilities to manufacture IMFL, which is not being utilized currently. With 68% holding promoters are investor friendly and has an uninterrupted record of dividend payment from the day of listing. It is expected to end FY08 with sales of 190 cr and NP of 15 cr which means an EPS of 16 Rs on equity of 9.40 cr. Having a gross block of whopping 68 cr, low debt equity ratio, strong cash flow, decent margins etc, the company deserves much better discounting. Scrip is bound to get re-rated sooner or later. Hold it patiently.