International Combustion (India) Ltd - 390.00 Rs

Established in 1936, International Combustion India Ltd (ICIL) is recognized to be a leading manufacturer of sophisticated plant and machinery for core sector industries such as mining, steel, cement, petrochemical, construction, sugar, power, textile, paper, rubber, pharma, chemicals etc. From a modest beginning as a trading house, ICIL today boasts of manufacturing specialized range of engineering products under technical collaboration and license agreement from various global leaders. According to its product profile, company has broadly segmented its revenue model into following two divisions:-

I. Heavy Engineering Division :

This is the main division as nearly 80% of total revenue comes from it whereas it contributes more than 95% of earnings. This division has been further divided into following three categories:-

a. Vibrating equipments: ICIL manufactures and markets a wide range of mechanical and electro-magnetic vibrating screens, feeders, sizers, & conveyors which can handle all types of bulk solids, whether large lumps or very fine grains, wet or dry, or whether abrasive such as scrap, flux and sinter. As accessories it also makes exciters, DC brake unit & monitoring system for vibrating machines.

b. Bulk Material Handling: Under this category, ICIL deals in spiralling belt elevators, scooping belt conveyers, girdle pocket elevators, apron feeder, mining haulages etc. as an intelligent solutions to suit even difficult to handle materials.

c. Grinding, Classfication and Drying system: ICIL offers complete grinding mill systems designed to pulverise and classify various kinds of material, including non-metallic minerals, fertilisers, chemicals and many other manufactured products. Importantly, it markets ‘Raymond” American brand roller mill, pulverisers, grinding mills, mechanical air separators and flash drying system, which can reduce many products by 95~98% or refine them below 10 microns

II. Gear Motors & Gear Box Division

Under license from Danfoss Bauer, Germany, ICIL offers a comprehensive range of geared motors, gear boxes and electric motors manufactured on specially designed inter-linked CNC production lines. It also exports these products to neighboring markets including Iran and Sri Lanka. Besides company has been chosen as the outsourcing partner by Danfoss Bauer itself and has even started exporting cast iron machine parts to them.

Currently, ICIL is having three fully equipped manufacturing facilities spread across Calcutta, Nagpur and Aurangabad. To have a cutting edge technology for manufacturing premium quality equipment, ICIL has made several tie-ups with international majors like Danfoss Bauer(Germany), Mogensen(Germany), IMS Engineering(South Africa), Alstom Power(USA), Gummi Kuper (Germany) and Tredomen Eng (UK) for each product group. Offlate, it has also entered into a license agreement with Ecutec(Spain) to manufacture microfine classifiers. Ironically, all the players in user industries are ramping up their capacities translates into a huge opportunity for company's products. To meet the increasing demand, an expansion programme has been initiated by the company for augmenting the manufacturing capacity of the gear box/geared motor division. It is also upgrading the manufacturing capacity of the Heavy Engineering Division. On the back of its wide product range and high engineering skill, ICIL is contemplating to enter the lucrative turnkey project segment in foreseeable future.

Fundamentally, ICIL is on a strong footing with expected reserves of around Rs 45 cr i.e. book value of nearly Rs 200 by end of this fiscal. Besides being a debt free company it has an impressive ROCE of 40% and ROE of 25%. Financially, ICIL has recorded 20% growth in sales to Rs 66 cr and 50% increase in PAT to 8.25 cr for nine months ending Dec’07. Accordingly for this fiscal it is expected to clock a turnover of Rs 95 cr and profit of Rs 11.50 i.e. EPS of Rs 48 on a tiny equity of Rs 2.40 cr. Hence with expected CEPS of more than Rs 60, and EV/EBIDTA of less than 5x, company is available fairly cheap at current market cap of merely Rs 95 cr. For FY09, company has the potential to register an EPS of around Rs 60. So investors are strongly recommended to buy at current levels as at a reasonable discounting by 14x times against FY09 earning, scrip can double in 15~18 months. Moreover scrip is a strong bonus candidate as well.

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Hind Rectifiers Ltd - Rs 135.00 Rs

Established in 1958, with the collaboration of Westinghouse, Brake & Signal, U.K. (who still holds 16% equity stake as on today), Hind Rectifiers Ltd (Hirect) has a rich experience in developing, designing, manufacturing and marketing power semiconductor, power electronic equipments and railway transportation equipments. Currently company derives 50% of its revenue from railways, 20% from power sector and the rest 30% from various industries like telecommunication, electronics, defence, aviation, R&D organizations, electro-chemical, steel, cement etc. Basically, its business is segmented into following four divisions:-

A. Equipment division: manufactures power supply equipments for R&D, Defence & Aviation, DC power system for electrochemical plants, rectifier for metal finishing, battery chargers and dischargers etc. It also offers specialised services such as customisation, automation and optimisation of controls and safety. Notably it has a technical tie-up with M/s Friem S.P.A., Italy in design & technology transfer of high current water cooled rectifier system for Electro-chemical applications.

B. Semi Conductor division: manufactures power diodes, power modules, thyristors & assemblies apart from supplying special devices and assemblies on request. To complement this, a full range of heatsink assemblies using IEC circuit configuration as well as custom design is also manufactured. These semi-conductors find use in industrial, military and transportation applications. Recently, company has signed a technical collaboration agreement with M/s. Infineon Technologies AG, Germany for manufacturing of IGBT based primeSTACK which will compliment its other products. These stacks will also be used for inhouse consumption for manufacture of equipments.

C. Railway Transportation division: manufactures transformer for rolling stock, auxiliary converter and inverter, track side DC substation equipment, rectifier for rolling stock etc. Out of 50% revenue from railways, 10% comes from locomotive transformers, 20% from rectifiers and rest 20% from invertors. Hirect has a technical collaboration with M/s Transtechnik, GmbH of Germany for design and development of inverter and auxiliary converters for traction application. In Collaboration with M/s. Nieke, Germany, company has upgraded its technology and infrastructure for manufacture of main transformer for AC/DC Dual Voltage EMU and BG AC EMU. It also has a tie-up with M/s Microelettrica Scientifica of ITALY for supply of resistors for railway application.

D. Trading division: Hirect has a separate small trading division under which it imports and markets semi-conductor fuses from BUSSMANN-Denmark, capacitors from ICAR-Italy and resistors from MICROELETTRICA SCIENTIFICA, Italy.

Hirect has two manufacturing plants spread across Mumbai and Nasik. Its Equipment division has an ISO 9001 & Semiconductor division has an ISO 9002 quality system. Although railway is its major customer, still it has a huge and reputed clientele including HLL, Indian Navy, Ordnance factory, ISRO, Bhabha Atomic, Hindustan Aeronautical, Nuclear Power Corp, BSNL, BHEL, BEML, Grasim, L&T, Tata Steel, Hind Zinc, Siemes, ABB, Crompton Greaves etc. The products are also exported to Australia, Bangladesh, Canada, Columbia, Italy, Malaysia, Middle East, Pakistan, South Africa, South Korea, Spain, Sri Lanka, Thailand, UK and USA.

Recently, Hirect has modernized all its plants in Mumbai and has setup green-field plants in tax free zone of Uttaranchal for manufacturing of equipment, semiconductor and the railway transportation system. Although this new plant is ready, still Hirect is completing the earlier orders from its old plant in Mumbai and Nagpur in order to get the Cenvat paid on raw material. However the new orders booked by the company will be manufactured at Uttranchal plant, hence the excise and income tax benefits will be visible from FY09. Based on the first three quarter nos, it may end FY08 with sales of Rs 95 cr and PAT of around Rs 11 cr i.e. EPS of Rs 15 on a very tiny equity of Rs 1.50 cr having a face value of Rs 2/- per share. But importantly, company is estimated to report an EPS of more than Rs 20 for FY09. So investors are strongly recommended to buy at current levels as at a fair discounting by 14x times share price can double in 12~15 months. Moreover company is in its 50th year of operation, hence chances of declaring a liberal bonus is also high.

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STOCK WATCH

Krone Communications (120.00) is a 62% subsidiary of US based ADC Telecommunications, which is world leader in communications network infrastructure and has presence in over 150 countries worldwide. Thus, Krone provides the connections for wireline, wireless, cable, broadcast and enterprise networks in India. Its innovative network infrastructure equipment and professional services enable high-speed Internet, data, video, and voice services to residential, business and mobile subscribers. Besides structured cabling solution, it also offers Wi-Fi and Wi-max solutions. In addition, the company enables wireless carriers to get more from their networks with its Digivance™ radio frequency transport solutions and ClearGain® tower-mounted amplifiers. Because of its hi-tech professional service its clientele includes corporate giants like Bharti Televentures, Reliance Infocom, Tata Teleservices, Siemens, HFCL Infotel, TCS, Alcatel, Cognizant, Lucent, etc to name a few. For FY07 ending Oct 2007, it reported 15% growth in topline as well as bottomline to Rs 93 cr and Rs 8 cr which translates into EPS of Rs 17 on small equity of 4.60 cr. Even for Q1 FY08, it registered 20% growth in NP despite 35% lower sales. Accordingly it is expected to post an EPS of Rs 20 for FY08. That means this debt free MNC is available at a very cheap discounting of 6x times.

Belonging to Duncan Goenka group, Stone India (98.00) is undisputed leader in locomotive brake systems and has a huge range of mechanical and electrical products for the railroad industry. It boasts of having its own patented beam mounted brake system for all types for freight wagons. Off late, it has ventured into the railway electronics business through introduction of a slew of high value power electronic products like inverters, converters and power supply system for coaches, locomotives, EMUs and metros. Currently, company generates about 90 per cent of its revenue from railways and has a market share of about 25-30 per cent. It has appointed Telewira Tegas SDN BHD, Malaysia, as an exclusive agent for turnkey project work relating to freight car, passenger coach and locomotive up gradation and maintenance for Malaysian railways. Recently, it has partnered with Sumitomo group Japan for manufacturing of air springs which are technically far superior to the existing mechanical suspension system. Importantly, to diversify its product portfolio, it has set up a greenfield facility at Nalagarh, Himachal Pradesh which is likely to go on stream shortly. Hence for entire FY08 it is expected to register sales of 100 cr and PAT of 13.50 cr i.e. EPS of Rs 18 on equity of 7.60 cr. Scrip has the potential to double in 12~15 months

Promoted by Delhi based Bali family, Mount Shivalik (65.00) specializes in production of strong as well as mild beer and markets then under various brands across India. ‘Thunderbolt’, ‘Torpendo’, ‘Punjab Extra Strong’& ‘Stroh super strong’ are its popular brand under strong beer category, whereas ‘Golden Peacock’ & ‘Stroh’s Premium Lager’ are its mild beer brands. It also has the privilege to brew and market “Cobra” beer which is one of the most popular beer brands in the UK. With an intalled capacity of 300,000 hecto litres per annum it is the single largest manufacturing unit of beer in Rajasthan. Looking at its first nine months performance, company may this fiscal with sales of Rs 100 cr and PAT of Rs 6 cr. This translates into EPS of Rs 10 on current equity of Rs 6.05 cr. Despite such strong brand value and encouraging performance, company is available at an enterprise value of less than Rs 50 cr. Moreover, several foreign and domestic majors are looking to acquire majority stake in Mount Shivalik group and hence to get better valuation company is considering to restructure and consolidate its brewery business and may even merge its unlisted entity with itself. Keep accumulating at declines

Tera software (48.00) is one of the leading e-governance solution providers, undertaking data entry/scanning works for digitization of information maintained under Right to Information Act. It also undertakes short-term projects like issue of photo ID cards, ration cards and election commission cards. In consortium with Electronics Corporation of India Ltd, company has bagged huge e-governance order, taking its total order book position to around 250 crore to be executed in next five years. Recently, company has been selected as empanelled vendor for rollout of IT services in govt sector through National Informatics Centre Services Inc. for a period of one year which can be extended for another one year. Considering its excellent nine month figures, company is estimated to report total revenue of Rs 75 cr and PAT of Rs 16 cr i.e. EPS of Rs 13 on equity of Rs 12.50 cr for FY08. Whereas for FY09 it has the potential to report an EPS of Rs 16. Despiite such strong fundamentals investors are selling the scrip in fear of rupee appreciation without knowing that company derives 100% of its revenues from the domestic markets. Hence it is totally unaffected by any sort of rupee appreciation against US dollar. Moreover company has few acres of surplus land in Hyderabad, which it plans to either sell or enter into JV with infrastructure company. A total risk free bet at current levels.

Smart Investment (Guj)

Honda SIEL Ltd

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Vakrangee Software Ltd

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Small & Beautiful (Guj)

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Roto Pumps (55.00) is a reputed manufacturer of progressive cavity pumps and twin screw pumps which have very wide application in agriculture, domestic and industrial sector. Besides India, it has warehouse cum marketing office in Australia and U.K. and also good network of distributors spread across the globe. On the back of strong industrial growth and robust demand for its product, company has undertaken an expansion cum modernization plan at its manufacturing facilities. It recorded 20% growth in sales to Rs 28 cr and 40% rise in net profit to Rs 2 cr for nine months ending Dec’07. Accordingly it may register a topline of Rs 40 cr and bottom-line of Rs 3 cr for fiscal year 2008. This translates into EPS of Rs 10 on a tiny equity of Rs 3.09 cr. Moreover for FY09, company has the potential to post an EPS of more than Rs 12. At the current enterprise value of Rs 23 cr, scrip is trading fairly cheap.

Blue Bird (40.00) is one of the leading manufacturers of paper based notebook products and office stationery products like executive notepads, diaries, arch-lever files, registers, filler papers and folders. Although notebook forms the core business with more than 80% revenue, company has also ventured into publishing academic textbooks and self study books for children apart from general publications in subjects such as ayurveda and biographies. It also offers commercial printing under which it designs and prints annual reports, brochures, catalogues, calendars, greeting cards, magazines, text books, publications etc. In order to cater the central and south India market efficiently, company has recently put up two new plants at Indore and Bangalore apart from having its main plant in Pune. It is also expanding its distribution network and has ambitious growth plans for publication division. For FY08 it is expected to register sales of Rs 485 cr and PAT of Rs 28 cr i.e. EPS of Rs 8 on equity of Rs 35 cr.

Asian Granito (55.00) is one of the largest producers of vitrified tiles in India under the brand name “Asian Tiles” offering a wide range including glazed, unglazed, rustic, matte, homogenous and non-homogeneous body, water jet cutting and tailor made designs as per clients requirement. In July 2007, company raised around Rs 68 cr thru IPO @ Rs 97 per share for setting up a wall tile unit and expanding its vetrified tile capacity. Accordingly, it has recently expanded its vitrified tile capacity to 16,000 sq mtr from 14,000 sq mtr tiles per day. Importantly, company has even started the trial run in Jan’08 at its new wall tile plant having a capacity of 9300 sq mtr per day. On the other hand its wholly owned subsidiary Asian Tile Ltd is into the business of manufacturing ceramic floor tiles with a capacity of 7,000 sq mt per day. Financially, it is expected to clock a turnover of Rs 200 cr and net profit of Rs 26 cr i.e. EPS of Rs 12 for FY08. For FY09 it is estimated to post 15 Rs EPS. Considering its brand value and future prospects, it is available fairly cheap at an EV of Rs 175 cr.

PBA Infrastructure (74.00) is engaged in execution of civil engineering projects and specializes in construction of highways, dams, runways and heavy RCC structures, bridges and other infrastructure projects of various govt bodies. It is executing projects from Kashmir to Kanyakumari and has taken up new works like toll collection and quarrying to augment its income. For the first three quarters its revenue increased by 45% to Rs 270 cr and NP increased by only 20% to 11.50 cr. Notably, company has been regularly bagging new orders and its current order book position is around 700 cr. Fundamentally, company is having a huge debt of 170 cr due to which its interest cost is very high. However, to fund its working capital requirement and reduce the high cost debt, company has finalized to make pref allotment of 30 lac warrants to promoter and promoter group. Meanwhile it is estimated to clock a turnover of Rs 375 cr and PAT of Rs 13.50 cr for FY08. This translates into EPS of Rs 10 on current equity of Rs 13.50 cr. Although share price can fall further, still its good to start accumulating from current levels.

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