Small & Beautiful

Last week, Accurate Transformers (30.00) came out with very encouraging set of nos. Although its sales declined marginally by 5% to Rs 32 cr but its operating profit shot up 60% to Rs 5.50 cr. Remarkably, its OPM improved substantially to 16% this quarter against 10% last year. However due to higher interest cost, PAT increased by 25% to Rs 1.40 cr thereby posting an EPS of almost Rs 5 for the qtr. Company is engaged in manufacturing of power as well as distribution transformers ranging from 1 MVA to 40 MVA - in up to 220 KV class. It is looking to venture into manufacturing of higher capacity power Transformers of 160 MVA from FY10. 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 company is working at very low capacity utilization due to high working capital requirement and shortage of funds. Despite this it can clock sales of Rs 200 cr and PAT of Rs 6 for FY09 leading to an EPS of Rs 20 on a very tiny equity of Rs 2.96 cr. It’s a steal at current market cap of merely Rs 9 cr.

At the time when most of the auto ancillary companies are reeling under pressure, Hi-tech Gears (45.00) is constantly churning out encouraging performance quarter after quarter. For the Sept’08 qtr it registered 40% rise in sales to Rs 92 cr whereas net profit jumped up 65% to Rs 4 cr posting an EPS of more than Rs 4 for the single quarter. Even for H1FY09, the topline has improved by 25% to Rs 173 cr and bottomline increased by 35% to Rs 7 cr. With its world class manufacturing facilities at Bhiwadi & Manesar, company is one of the leading manufacturer and exporter of gears and engine/transmission components. Last fiscal company revalued one of its lands situated in Gurgaon, Haryana from its cost price of around Rs 1 cr to nearly Rs. 33 cr thereby crediting approx 32 cr to revaluation reserve. For future growth company is targeting to increase its export substantially and may report total revenue of Rs 325 cr and profit of Rs 8.50 on conservative basis for FY09. This translates into EPS of Rs 9 on equity of Rs 9.40 cr. It may again declare 30% dividend for FY09 which gives a yield of whopping 7% at CMP. Having 52W high as Rs 180, scrip has corrected substantially and can easily appreciate 30~50% in a years time.

Recently, Vivimed Labs (48.00) has reported terrific nos on a standalone basis for the Sept’08 qtr. Its net profit more than doubled to Rs 7.75 cr on 10% higher sales of Rs 44 cr. The OPM for the qtr shot up to 28% in comparison to 19% last quarter. Moreover on the consolidated basis its sales and profit stood at Rs 133 cr and 11.70 cr respectively for H1FY09. However its not clear whether company has re-stated the FCCB amount and made provisions for notional forex loss. Anyway, company is a speciality chemical manufacturer catering to segments including oral care, sun care, skin care, hair care, natural extracts, preservatives, anti microbial, anti oxidants, anti-aging molecule etc. Infact it is world’s 2nd largest manufacturer of Triclosan - an antibacterial used for oral care and one of the top three companies for Avis – a chemical which improves UV absorbing ability of Sunscreen. Few months ago it acquired 100% stake in M/s James Robinson,UK which is an international manufacturer and supplier of speciality chemicals used in hair dyes, pharmaceuticals and photographic films/prints to ophthalmic sunglasses. Organically as well company has been expanding its capacity and has chalked out Greenfield expansion plan in Uttaranchal and Hyderabad. Looking at the CMP, its 60 cr FCCB may not get converted into equity, hence no equity dilution is expected in near future. For FY09 it is slated to report consolidated sales of more than Rs 225 cr and net profit of Rs 17 cr. This leads to an EPS of Rs 18 on current equity of Rs 9.40 cr. A safe bet.

Bharat Gears (30.00) has once again declared excellent result for the Sept’08 qtr. Sales grew by 30% to Rs 74 cr whereas NP shot up 120% to Rs 2.90 cr. Accordingly it has already earned a PAT of 6 cr on sales of 140 cr for H1FY09 against profit of Rs 2.50 cr on sales of Rs 108 cr for H1FY08. Company manufactures a wide range of ring gears and pinions, transmission gears and shafts, differential gears, gear boxes etc which find application in heavy, medium and light duty trucks, buses, tractors, passenger cars, utility vehicles, and forklift trucks, etc. After a gap of 7 years it again became a dividend paying company be giving 10% dividend for FY08. More importantly it has successfully brought its total debt to Rs 50 cr from Rs 80 cr in FY05. However the share price has tumbled down sharply in the recent meltdown and is now become one third from its high of Rs 90 in Jan’08. Despite the slowdown in auto sector, company may report sales of Rs 250 cr and net profit of Rs 10 cr for FY09. This works out to an EPS of Rs 13 on equity of Rs 7.80 cr. With a healthy book value of Rs 46, scrip is trading fairly cheap at an EV of hardly Rs 75 cr and P/E multiple of less than 3x times. Only aggressive investors are advised to accumulate at declines.