Lokesh Machines Ltd - 94.00 Rs

Established in1983 and promoted by Mr. Lokeshwara Rao - first generation entrepreneur & technocrat, Lokesh Machines Ltd (LML) is engaged in the design, development and manufacture of custom built special purpose machines(SPM) and general purpose CNC (computerized numerical controls) machines along with their components. From a modest beginning by handling job works, today company has emerged as an integrated machine tool manufacturer with operations in two main business segments namely machine tools and auto parts. Over a period LML has developed various range of SPMs including single and multi spindle machines, shuttle type, way type, linear and rotary indexing machines, linear transfer lines etc. Under the CNC segment, it manufactures horizontal and vertical machining centre, turning centre, milling and boring machines etc. And in the auto component sector, it has been concentrating on manufacturing / machining auto components like cylinder blocks, cylinder heads etc to original equipment manufacturers. Hence LML primarily caters to customers in the auto OEM, auto ancillaries and general engineering space. Presently, company derives 70% revenue from machining division whereas rest 30% comes from auto component division.

LML has five manufacturing units all located in Andhra Pradesh and under technical association with Grob Gmbh-Germany, Fagima-Italy, SCMS-Japan, AVM Angelini-Italy, Wenig Wemas-Germany & IMT Intermato-Italy. In the domestic market company supplies mainly to M&M, Ashok Leyland, Force Motors, Cummins, Tata Motors, Bajaj Auto, Bharat Forge, Kirloskar Oil Engines, Everest Kanto Cylinders etc. LML has a capacity for machining and supply of 1,20,000 units per annum each of cylinder blocks and cylinder heads, especially for M&M. And recently, it has set up an additional facility for machining of 40,000 units per annum each of cylinder blocks and cylinder heads, especially for Ashok Leyland. After successful trial runs, the production at this facility has commenced only from April 2007. Off late, LML has also made a foray in the overseas markets with orders from M/s FPT Industries Spa-Italy, Honda Motorcycles-Japan and HOWA-Japan. Further, its technical partner Wenig Wemas-Germany has also placed initial order of 100 machines worth 20 cr. So going forward company is looking to gradually increase its share from international market as well.

In April 2006, LML came out with an IPO at Rs.140 per share and raised Rs.42 cr. This entire proceed has been utilized for setting up new facility for Ashok Leyland and also to meet the cost of modernization and to upgrade the existing facilities for the manufacture of CNC machine tools. Financially, company is doing well and reported a sales and NP of 90 cr and 10.80 cr respectively for FY07. Hence it posted an EPS of more than 9 Rs on equity of 11.80 cr. For Q1FY08, it recorded 35% growth in sales to 19 cr whereas NP increased by 25% to 2.90 cr. The continuing growth in the domestic demand for machine tools both in the capital goods and auto component sectors offers an opportunity for further progress. Accordingly for FY08 it is expected to clock a turnover of 110 cr and PAT of 15 cr i.e. EPS of 13 Rs on equity of 11.80 cr. Therefore, the scrip is currently trading at a P/E ratio of merely 7x times which is extremely cheap for such a fast growing engineering company. Considering its 52 week H/L as 181/79 Rs and IPO price of 140 Rs the downfall risk is minimal from current levels. Investors are strongly recommended to buy at current levels as at a modest discounting by 14x times scrip can double in 12~15 months.

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Led by Mr. Ajoy Khanderia of Global Asia Partners, ORG Infomatics Ltd (85.00) has emerged as the niche player in converged IT and telecom space with expertise in various telecom technology domains such as CDMA, GSM, IPTV, DTH, Wi-Max & IP based solution. Company believes in inorganic growth and has been on acquisition spree for quite some time. It took over DGIT Solutions (Singapore) and Unified Technologies (Bangalore) apart from taking 18% equity stake in Six Dee Telecom Solutions. Besides, ORG Telecom, ORG DTH, ORG Singapore, ORG FZE (UAE) & ORG Inc (USA) are few of its other subsidiaries. Recently, it got a major breakthrough as it signed an agreement to acquire the satellite based business of Belgacom Group, Belgium which is the country’s national operator. To fund its growth plan, company intends to raise around 140 cr thru equity route in near future. On a consolidated basis it may end FY08 with total revenue of 375 cr and PAT of 20 cr excluding the recent takeover of Belgium business. This translates into EPS of 12 Rs on current equity of 17 cr. Although its equity will get diluted substantially going forward but the growth will be equally fast. A good bet for medium to long term/

Last week GM Breweries (95.00) came out with very encouraging set of nos for the Sept quarter. Although, sales improved by only 10% to 45 cr but NP shot up 60% to 4.70 cr on back of lower raw material cost. It recorded a healthy OPM of 18% against 14% last year. It is the single largest manufacturer of country liquor in the state of Maharashtra and enjoys virtual monopoly in the districts of Mumbai, Navi Mumbai and Thane. 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. Hence 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. That means at CMP scrip is trading extremely cheap at a P/E ratio of merely 6x times against industry average of more than 50x times. Having a gross block of whopping 68 cr, low debt equity ratio, strong cash flow, decent margins etc, the company deserves much better discounting. At the current enterprise value of 100 cr it’s a screaming buy. Scrip has the potential to double in a year’s time.

Accurate Transformers (128.00) is engaged in manufacturing of power as well as distribution transformers ranging from 25 KVA to 50,000 KVA in upto 220 KV class. It also carries out rural electrification project which involves the complete setting up of electricity in remote areas including the laying of lines, poles and substations. Unfortunately, despite having installed capacity of more than 8000 MVA company is working at very low capacity utilization due to mounting debtors and shortage of funds. However, to cash on the boom in the power sector, management has now become very aggressive and is raising fresh capital to the tune of 17 cr thru equity route. Secondly, due to increasing demand of transformers and better operating efficiency, company is expected to improve its profit margin going forward. It may even grow at CAGR of 50% for next three years as far as bottomline is concerned. On a conservative basis, it can clock a turnover of 225 cr and PAT of 8 cr for FY08. This works out to an EPS of 27 Rs on current equity of 2.96 cr whereas EPS of 13 Rs on fully diluted equity of 6 cr. For FY09, it can report an EPS of 20 Rs which means scrip is discounted by only 6x times against its FY09 earnings. Long term investors are strong recommended to buy at current levels as share price can double in a year’s time.

Vakrangee Software (190.00) has expertise in document management service, printing management service and IT & IT enabled services. It has been handling election related projects for Election Commission of India for over a decade. It maintains records and issues electoral photo identity card for Maharashtra, MP, UP, Gujarat etc. For TCS, the company is doing Registrar of Companies (ROC) database management at 32 locations. With govt organizations moving rapidly towards computerization, company is now concentrating mainly on e-governance which has huge potential going forward. It reported stunning nos for the Sept qtr as its topline increased by 85% to 56 cr but PAT jumped up 165% to 12.75 cr posting an EPS of 6.50 Rs on current equity of 19.15. Currently, it has an order book of 170-180 crore to be executed over next 12 months. The company's aggressiveness can be judged from its gross block, which has tripled in FY07 to 160 cr from 53 cr last year. For FY08 it is estimated to report revenue of 200 cr and NP of 40 cr i.e. EPS of 19 Rs on fully diluted equity of 21.40 cr. Buy at sharp declines.