"S A A R T H I" - The Guiding Star: 2008-01-13

Saturday, January 19, 2008

Indo Asian Fusegear Ltd - 165.00 Rs

From a modest beginning in 1958 by Mr. V.P. Mahendru, Indo Asian Fusegear Ltd (IAFL) has today, grown into a multi-product, multi-location company specializing in manufacturing and marketing a wide range of high-tech electrical products used for distribution, protection, control and conservation of electrical energy. Infact it enjoys the status of being the first company in India - to introduce miniature circuit board in homes, to produce residual current-operated circuit breakers with internationally recognized CB certification, to manufacture energy efficient compact fluorescent lamps and the only one to produce ROHS (Restriction of Hazardous Substances) compliant i.e. less mercury CFLs. Broadly, company deals in two segments - switchgear and lighting of which former contributes around 80% of the revenues and the balance 20% comes from lighting segment. Under switchgear division, it produces hundred of products such as MCB, MCCB, RCB, distribution boards, SPD, HRC fuses, cubicle switch, onload changeover, rewireble switches, feeder pillars, modular switches, wiring accessories etc. It also manufactures special application products like time switches, contactors, MPCB, relays, plug & socket etc. Under lighting category it deals in CFL, FTL (Fluorescent Tubular Lamps), domestic luminaires and commercial luminaires. Notably, IAFL is the largest manufacturer of CFLs and MCB’s in India. Besides, it is among the largest exporter of circuit protection equipments and CFLs to European countries including UK, Germany etc and Middle East, South Africa, Srilanka and Australia. As on today, exports contribute round about 20% of total sales.

IAFL boast of having eight plants across Punjab, Haryana, UP, HP and Uttrakhand out of which five are dedicated for switchgear production, two for lighting business and one for wires & cable. Importantly, its new CFL & switchgear plant in tax free zone of Haridwar with a capacity of 10 & 15 million units respectively has started production recently only. With commencement of these facilities company has enhanced its production capacities substantially and expects to grow at a CAGR of 75~80% for next 2~3 years. It has entered into various technical and strategic tie-ups with international majors like Indo Kopp, Nordex Lighting, Theben, Woertz, Lovata electric etc. Notably, its brands like “Indo Asian”, “Indo Kopp” “Ecolite” & “Hausmann” are associated as quality products and are very well accepted not only in domestic market but globally as well. To compliment this, company has a wide geographical market coverage including 30 offices across India, 850+ distributors, 35000+ electrical retail outlets and overseas offices in Dubai & Germany. To tap the nearby countries, company has made some arrangement with the local players to distribute its products in Nepal and Srilanka. On the other hand, earlier it made a tie up with Brilliant AG-Germany for marketing their complete range of modern style indoor and outdoor lighting equipments, fittings & accessories in India.

As a part of diversification, IAFL is venturing into cables & wires manufacturing business and has recently promoted a subsidiary to implement Rs 100 cr project in phases. Further it has set up another wholly owned subsidiary to undertake power distribution projects on behalf of state electricity boards, corporations and utilities on franchise basis and has already secured two contracts for a period of three years aggregating to Rs 50cr from the electricity board of Madhya Pradesh for distributing power in Jabalpur. Meanwhile, company has set up a JV (51:49) with Simon-Europe to manufacture and market high quality wiring accessories, building automation and intelligent switching systems, especially for industrial and commercial use. This will be one of its kind plants in India which is being set up in Uttrakhand at an initial project cost of Rs. 30 cr and is estimated to commence operation by mid 2008. Moreover it is also putting up a facility in Saudi Arabia - in joint venture with Saudi National Glass, for manufacturing of CFLs and high intensity discharge lamps (HID Lamps), with an investment of Rs 20 cr.

In short, to leverage the burgeoning opportunities in the Indian and global power industry, IAFL has aggressively ramped up its production capacity and is diversifying into emerging business opportunities like home & building automation products, power distribution projects & wires/cable business. It is at the inflexion point and will report bumper nos for the FY09 on back of increased capacity and improved capacity utilization. Meanwhile for FY08, on a conservative basis it is estimated to clock a turnover of more than Rs 300 cr and PAT of Rs 20 cr i.e. EPS of Rs 14 on current equity of 14.60 cr. But it has the potential to post Rs 24 EPS for FY09. However company is looking to raise nearly Rs 200 cr thru equity route to fund its future growth plans which may dilute the equity substantially going forward. Despite this, investors are advised to buy at current levels for a price target of Rs 250 (50% appreciation) in 9~12 months.

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Lloyd Electric & Engineering Ltd - 178.00 Rs

Lloyd Electric and Engineering Ltd (LEEL) was incorporated in 1988 primarily as a backward integrated unit of Fedders Lloyd Corp, the leading group company to manufacture coils for air conditioners. Hence it specializes in the custom design and manufacture of heating and cooling coils including 'U' bend and return bend tubes for heat exchanger coils, system tubing, header line etc and sheet metal items for air-conditioning and refrigeration applications. Over the year it has emerged as India’s largest manufacturer of evaporator and condenser (E&C) coils with around 60% market share. E&C coils are critical components in AC manufacturing next only to the compressor and account for approximately 20% of the cost of manufacture. Offlate, company has got itself forward integrated into lucrative business of contract manufacturing of window / split air conditioners for various multi national companies in India. Thus company is an OEM supplier to almost all AC manufacturers in India and its clientele includes Samsung, Electrolux, Carrier, Haier, Voltas, Blue Star, LG, Hitachi, Whirlpool, Diakin to name a few. Importantly, LEEL has also ventured into manufacturing of roof mounted packaged unit i.e. packaged AC for railway coaches on turnkey basis which includes designing, manufacturing, supplying, installation and maintenance. Hence it has set up service station all around India like at New Delhi, Mumbai, Chennai, Bangalore, Hyderabad, Lucknow, Jaipur, Guwahati and Culcutta specially for maintaining the AC package units installed on the railway coaches. Presently, LEEL derives roughly 60% revenue from coils, 30% revenue from contract manufacturing of AC’s and balance 10% from railways.

Earlier, LEEL was operating thru two manufacturing facilities located at Bhiwadi in Rajasthan and Kala-Amb in Himachal Pradesh, but from last fiscal it commenced operation at its new plant in Dehradun (Uttaranchal) with an installed capacity of 2,00,000 coils & 2,00,000 airconditioners. Thus its total manufacturing capacity stands enhanced to 12,25,000 coils whereas assembling capacity got doubled to more than 4,00,000 ACs. The biggest positive for the company is that it enjoys a 10 year excise duty and income tax exemption at its Kala-Amb and Dehradun facilities and would be paying sales tax at a concessional rate. To expand its product range further, company is now diversifying to produce roll bond and frost free coils for refrigerators and has tied up with a Korean company, Hanyung Alcobis for the same. With this it would become the first manufacturer in India, as the entire requirements of these coils are generally met thru imports and that too mainly from Korea. Hence to maintain its future growth LEEL is in the process of setting up a Greenfield plant near JNTP port on Mumbai-Pune highway with an initial capacity to produce 2,00,000 frost-free refrigeration coils, 4,00,000 AC coil and 2,00,000 units of air conditioners. It has already acquired 25 acres land and is looking to start the plant by mid 2009. Meanwhile, LEEL has signed a MoU with Air International Transit Pty Limited, an Australia-based company for designing, manufacturing and supplying of AC package units to metro rail in India. Accordingly, company is actively pursuing Delhi Metro Rail Corporation (DMRC) Phase 1 extension and Phase 2, for the metro coach air conditioners and expects to get substantial orders in future. Besides company is also exploring the possibilities of export of coils and components for the new metros coming overseas.

To fund its expansion plan company been regularly raising capital thru equity route may it be GDR or preferential allotment of shares/warrants. After raising Rs 50 cr thru allotment of 40 lakh shares @ 125 Rs earlier, company has recently allotted 50 lakh warrants to be converted @ Rs 225 per share thereby making arrangement to get fund to the tune of Rs 100 cr in future. Further it is contemplating to raise Rs 200 cr thru QIB route which combine may lead to 40% equity dilution. However, in a continuing climate of economic buoyancy, the domestic market for Heating, Ventilation, Air-conditioning and Refrigeration industry (HVACR) is growing at a healthy pace. Secondly, with the increase in disposable income, change in lifestyle and easy availability of finance at low rate of interest has led to the sharp growth in air conditioner segment. Fundamentally, company is doing exceedingly well and has recorded 40% growth in topline as well as bottomline for H1FY08. In view of that it is expected to end FY08 with sales of Rs 650 cr and NP of Rs 58 cr i.e. EPS of Rs 19 on current equity of Rs 31 cr. However, frequent equity dilution may cap the upside potential of the share price. Still investors are recommended to buy at current levels with a price target of Rs 275 (60% appreciation) in 15 months.

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Small & Beautiful (Guj)

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After hitting a recent high of Rs 75, Gujarat Intrux (48.00) has corrected sharply to less than 50 levels giving a good opportunity to buy for long term. It’s a small company based in Gujarat and is mainly engaged in the production of stainless steel, alloy steel and non-alloy steel castings. Apart from catering to domestic market it has been exporting its product to Israel, U.K., Spain, Germany, U.S.A., and Australia. Due to robust demand for its product, company is planning to enhance its production capacity by 3600 MTPA. Whereas it’s existing production capacity is merely 1800 MTPA. Financially, it’s a debt free company and has been making highest tax provisioning of around 35% of PBT. For H1FY08, it registered 20% growth in topline to Rs 14 cr but NP was almost flat at Rs 1.40 cr. Hence it may clock a turnover of Rs 28 cr and profit of Rs 2.75 for FY08 i.e. EPS of Rs 8 on small equity of Rs 3.40 cr. However the huge fluctuation in the price of raw materials i.e. Scrap and Ferro alloys is a cause of concern. Still considering company’s expansion plan and management’s capability it can be added at declines.

Shilp Gravures (70.00) is undisputed leader in electro-mechanical engraving, with a substantial market share of around 40% for flexible packaging industry in India. In simple terms it manufactures electronically gravure/engraved cylinders which are eventually used for rotogravure printing. It has a 300-strong client list which includes India's most reputed names like HLL, Britannia, Amul, Nestle, Cadburys, Tata Tea, Pepsi Foods, Haldiram, P&G, Reliance, ITC, Colgate, Mcdowells etc thereby having a pan India presence. On the back of retail boom and strong demand from FMCG sector, company is doing exceedingly well. It has reported very encouraging nos for first two quarters because of higher realization and increased volume. Sales jumped up 45% to Rs 18 cr whereas PAT more than doubled to Rs 3.50 cr thereby registering a very healthy OPM of 44%. Interestingly its H1FY08 profits have already surpassed the entire FY07 net profit of Rs 2.90 cr. Hence accordingly it may end FY08 with sales of Rs 38 cr and NP of Rs 7.50 cr which leads to an EPS of Rs 12 on equity of Rs 6.15 cr. Keep accumulating at declines.

Span Diagnostic (90.00) is a pioneer and trend-setter of high quality products used by pathology & clinical laboratories in the diagnostics industry and also one of the largest manufacturers of diagnostic reagents. Hence it supplies variety of instruments and consumables besides reagents and kits required by modern clinical laboratory. To strengthen its market share in overall diagnostic market, it has recently formed a new subsidiary especially for R&D of instruments. It has exclusive tie-ups with reputed companies worldwide for marketing, distributing and servicing diagnostic products in India. Moreover company also undertakes contract manufacturing of a wide range of quality reagents and kits in bulk for private labels. For six months ending Sept’07 it has reported excellent nos with sales up 55% to Rs 32 cr and PAT up 130% to Rs 2.50 cr. Importantly it has been able to improve its operating margin to 14% against 11% last fiscal. So it may end FY08 with total revenue of Rs 70 cr and PAT of Rs 4.25 cr. This translates into EPS of Rs 13 on small equity of Rs 3 cr. Again buy at sharp declines only.

Sukhjit Starch (155.00) is mainly engaged in manufacturing edible and non edible maize starch, dextrine, liquid glucose and dextrose monohydrate. It also produces sorbitol, maize oil, maize gluten, maize husk, high maltose syrup, oxidized/pregelatinized starch etc. Notably, it is the only multi-locational group in India as of now with a combined installed capacity of 1,50,000 tons corn grind per annum. It is expected to report encouraging nos for Dec qtr as it started commercial production at its new Himachal Pradesh plant in July 2007. This new plant has enhanced the capacity by nearly 25% and is dedicated for high margin starch and derivative products especially for pharmaceutical industry taking shape in Baddi, HP. Company has an impressive clientele including corporates like Britannia, Dabur, Colgate, HLL, Heinz, Ballarpur, Berger paints, JCT, Mahavir Spinning, Wockhard etc. On a conservative basis, it is expected to end FY08 with sales of 175 cr and NP of 18.50 which translates into EPS of 25 Rs on equity of 7.40 cr. A safe bet in current market sentiment.

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STOCK WATCH

Q3 results have started flowing in and as usal the companies with encouraging nos will out perform others. In such a scenario Eastern Silk (248.00) looks good. For the Dec qtr, sales have jumped up 35% to 169 cr and NP also increased by 40% to 25.50 cr posting a quarterly EPS of whopping Rs 16. It is among the few integrated players in textile registering an OPM & NPM of more than 20% & 10% respectively. It has recently completed expansion programme at its Anekal’s Unit 2 facility thereby taking the total fabric manufacturing capacity to 18.5 lac metres from 14 lac metres per annum. It is also setting up made-up plant at Bommasandra near Bangalore having an installed capacity of 1500 sets per day with an investment of 18 cr. For entire FY08 it is estimated to register sales of Rs 600 cr and PAT of Rs 80 cr. This translates into EPS of Rs 51 on equity of 15.80 cr. For future growth, company is looking to make some foreign acquisition for which it may raise 240 cr thru FCCB/GDR route. It is also contemplating to split the face value of share to 2/- Rs from 10/- Rs which will improve the liquidity going forward. A good bet in textile space.

Recently, JK lakshmi Cement (168.00) came out with decent set of nos. For the Dec qtr it sales improved by 25% to Rs 282 cr but NP grew by only 10% to Rs 61 cr due to higher interest and depreciation cost. But if we consider year to date figures upto Dec 2007, it has recorded 40% rise in sales to 816 cr and 75% increase in PAT to 203 cr. Interestingly, its nine month profit has already surpassed the entire FY07 profit of 178 cr by huge margin. To maintain its growth company is further expanding its capacity to 5 million from 3.4 million tonne by Oct 2008. On the other hand, it is betting high on RMC business as it has great potential along with high margins. Accordingly for FY08, it is now estimated to clock a turnover of Rs 1100 cr and net profit of Rs 250 cr which translates into EPS of Rs 44 on current equity and EPS of Rs 41 on diluted equity of Rs 61 cr. For future, it is contemplating to set up a Greenfield cement plant near Bhilai, Chhattisgarh with a capacity to produce 2.5 million tonne and hence looking to apply for limestone mining lease. A solid buy.

Post its Dec results share price of Kamanwala Housing (163.00) has tumbled down sharply as they don’t look so encouraging when compared to Dec’06 nos. Its revenue declined by massive 75% to Rs 16.50 cr whereas profit declined by only 20% to Rs 5 cr. But being in the real estate & construction sector and following the revenue model on sale of agreement basis, company is bound to post erratic and lumpy results on quarterly basis. Hence the picture changes for the combine nine months figures. Till now in this fiscal, it reported flat revenues to the tune of Rs 67.50 cr but profit shot up 80% to Rs 15 cr on the back of rising real estate prices. Copamy is mainly operating in Mumbai and has few good residential projects in Malad & Santacruz and huge commercial project in Bandra Kurla complex. It has several projects lined up for future in Andheri, Mahim, Goregaon etc and even in Hydrabad. Recently it also bought 10,000 sq mtr land in Turbhe for 15 cr. To sum up, company ia available fairly cheap at a market cap of less than Rs 100 cr. It can easily appreciate 50% from hereon.

Few days back Vakrangee Software (248.00) also came out with stunning nos for the Dec qtr. It recorded 100% growth in topline as well as bottomline to Rs 60 cr and Rs 13.50 cr respectively thereby posting an EPS of Rs 7 for the quarter. Effectively, it has already registered an EPS of Rs 17 for the nine months ending Dec 2007. Last year, company has imported world’s fastest printing system - Kodak Versamark VT3000 which can print customized design from page to page. This machine has not only helped the company to execute all election commission related work in house but also enabled it to get more business from the emerging opportunities like printing documents (including bills) for telecom companies, electricity supply companies, retail groups etc. Recently it has entered into a strategic alliance with Eastman Kodak company to offer mass customization & personalization of customer communication practices in India and has been granted with the Kodak Gold Plus accreditation status. Although, offlate there has been news of company losing the Nasik, Aurangabad and other region from its belt still it’s a good bet as company has bid for new orders worth 2500 cr through its alliance with Eastman Kodak Co. It is expected to report total revenue of Rs 200 cr and profit of Rs 41.50 cr for FY08 i.e. EPS of Rs 21 on current equity and EPs of Rs 19 on diluted equity of Rs 21.40. For FY09 it has the potential to post Rs 25 EPS on diluted equity. Accumulate at declines.