Small & Beautiful

Diamond Power infrastructure Ltd (95.00) is a leading manufacturer of transmission & distribution conductors, power & control cables & speciality cables. After the acquisition of Western Transformers in March’07 and Apex Electricals in July’07, company has also ventured into transformer production with installed capacity of 7500 MVA for power transformer and 5000 MVA for distribution transformer. Recently company announced fantastic result for the Sept qtr. It doubled its topline as well as bottomline to Rs 175 cr and 20.80 respectively. Even for six months ending Sept’08 it has registered more than 100% growth in sales to Rs 353 cr and profit to Rs 40 cr. To cater the rising demand and increase it export revenue, company is setting up power equipment park spread across 110 acre in Vadodara which would have manufacturing facilities for 50,500 Mt of conductors, 48000 Mt transmission tower plant, 25,000 kms of LT cables, 3200 kms of HT cables and 3000 kms cables of EHV cables. The park expected to go on stream by Dec 2009, will also have space for setting up 50 ancillary units for power equipment manufacturers. Company has already achieved the financial closure for this 260 cr capex plan. Meanwhile for FY09 it may clock a turnover of Rs 650 cr and PAT of 55 cr i.e. EPS of Rs 31 on current equity of 17.60 cr.

Ahlcon Parenterals (13.00) - manufacture of life saving Intravenous Fluids and medical disposals, has made arrangements with several international agencies for increasing the base of export markets. It has been regularly adding many new foreign customers to its existing list and is putting special thrust to increase direct and indirect exports. It has already filed product dossiers in both the regulated as well as unregulated markets and the registration formalities with more than fifteen countries are in progress. Accordingly company has upgraded its production facilities to conform to latest GMP standards as per international guidelines and specific requirement of the giant pharma customers. Since the plant is working at 100% capacity utilization, company is undergoing aggressive expansion to almost triple the small volume parenteral capacity from 59 million units to 162 million units. At the same time, it will continue to produce 32 million units of large volume parenteral. For the latest Sept qtr, its sales increased by 15% to Rs 11.60 cr but PAT fell marginally to Rs 1.30 cr posting an EPS of nearly Rs 2 for the quarter. However for entire FY09 it may register sales of Rs 45 cr and profit of Rs 3.50 cr leading to an EPS of Rs 5 on equity of Rs 7.20 cr. With 61% promoter holding, book value of Rs 38 and Net Block of nearly Rs 30 cr, scrip is available fairly cheap at an EV of around Rs 20 cr. Only patient and long term investor should buy.

Panama Petrochem (70.00) manufactures specialty petroleum products for diverse user industries like printing, textiles, rubber, pharmaceuticals, cosmetics, power and other industrial oil. The product portfolio of the company consists of transformer oil, liquid paraffin, petroleum jelly, cable jelly, ink oil, rubber process oil and antistatic coning oil. It manufactures more than 80 product variants with major supplies to corporate’s like BPCL, Micro Inks, Alok Industries, Merck, Bayer Cropscience, JBF, Usha Martin, Cipla, government ordinance factories to name a few. Recently, company has developed a new product called mining oil for mining industry which is in its testing stage and is expected to be launched in the market soon. To maintain its growth momentum, company is in the midst of huge expansion whereby it more than doubling its production capacity to 159,000 MT from 69,000 MT currently. But most importantly the drastic fall in the crude oil prices is a big positive for the company as base oil forms the major part of input cost. Considering the encouraging performance for first two quarters, company may end FY09 with net sales of Rs 350~375 cr and PAT of Rs 15 cr i.e. EPS of Rs 32 on current equity of Rs 4.80 cr. With a dividend yield of more than 5%, book value of Rs 121 and PE multiple of merely 2x times, it’s one of the safe bet in current market sentiment.

Austin Engineering (48.00) is the leading manufacturers of all types of antifriction bearings namely ball, tapered roller, spherical roller, needle roller and thrust bearing. Despite being relatively small in size, it offers widest range of bearings from 50 gms to over half a tone. Infact it is among a handful of customized bearing manufacturers worldwide to produce bearings with 1200 mm diameter. It supplies bearings to the different category of buyers like automobiles, defence, state road transport corporation, steel plants, thermal plants, cements plants, sugar and paper industries, fan and pump industry and material handling equipments. Beating all the expectations it reported 30% growth in sales to Rs 23 cr and 60% jump in PAT to Rs 2.60 cr for the Sept’08 quarter. Incidentally, company derives 40% of its revenue from export to most quality conscious markets like USA & European countries. It has even setup 100% subsidiaries in USA and Italy, which act as marketing front-end. In near future company intends to venture into manufacturing of geared slewing rim bearings for heavy earth moving and construction equipment and special bearings for aerospace application. Moreover the recent fall in steel and other metal prices will give some relief to the company on the margin front. Thus, although there is slowdown in industrial growth and auto sector is going thru a bad phase, still this small bearing company can register a topline of Rs 75 cr and bottomline of Rs 5.50 cr. This works out to an EPS of Rs 16 on tiny equity of Rs 3.50 cr. Accumulate at sharp declines.