STOCK WATCH

From the recent high of Rs 370 in Jan’08, Bilpower (160.00) has crashed more than 50% in last two months. It is one of the well known players in the field of manufacturing transformers of all types, electrical laminations, stampings and cores. Besides it’s a leading trader of CRGO & CRNGO and produces the largest range of transformer cores in India. For future growth, it tookover a private company namely Tarapur Transformers for 3.40 cr which has an installed capacity of 1500 MVA for repair of power transformers up to 200 MVA, 220 KV Class. Soon company is expected to start manufacturing power transformers also of its own. Besides, it amalgamated Sun Transtamp Private Limited, a company involved into manufacturing of electrical lamination. Importantly, Bilpower is foraying into transmission & distribution segment of power sector as it has been qualified as the ‘turnkey contractor’ for the EPC business by Maharashtra State Electricity Distribution Company Ltd. Further it is in the midst of setting up manufacturing activities for motor stampings in Wada. As per market rumors company has is likely to enter a joint venture with NTPC which will change its fortune. Recently company allotted 20 lac warrants to be converted @ Rs 350 to promoters. For FY08 it is estimated to clock a turnover of Rs 300 cr and PAT of Rs 21 cr i.e. EPS of Rs 23 on current equity of Rs 9 cr. And for FY09 it can report an EPS of Rs 28 on fully diluted equity of Rs 12.50 cr. Keep accumulating at declines.

Belonging to IFB Group, IFB Agro (55.00) is engaged in the production of Extra Neutral Alcohol (Rectified Spirit), IMFL and Marine Products. It boasts of having very successful and leading brands like Volga Vodka, Gold Cup Brandy, Blue Lagoon Gin & IFB Select Whisky under the IMFL segment. Company is also a pioneer in 50* UP category with bestselling brands like Baluba Rum, 3 Cheers Whisky & Russki Vodka. In order to reduce its dependence on molasses and for providing better quality of potable spirit, company had undertaken a project to produce spirit from the grains. This project recently got completed and commenced its operation from Sept 2007. On the other hand its marine division last year launched its first ready to fry product "PRAWN POPS" and has plan to introduce more such products in the ready to cook and ready to eat segment. Infact its marine division is poised to become an integrated business and serve all the inputs from the farm to the final consumer. Although it reported poor nos for Dec qtr still for the first nine months sales increased by 15% to Rs 156 cr and NP stood at Rs 6.40 cr. Hence it may end FY08 with topline and bottomline of Rs 200 cr and Rs 10 cr respectively i.e. EPS of Rs 13 on equity of Rs 7.70 cr. But at sharp declines.

Sundaram Brake Lining (245.00) - part of a TVS group, is engaged in manufacturing of automotive, non-automotive and industrial friction materials with specialization in asbestos-free brake linings and pads. Its products are extensively used in commercial vehicles, passenger cars, tractors (agricultural) and motor cycles. Apart from being the preferred supplier to some of the well known axle manufacturers as original equipment it also services the Indian aftermarket through more than 140 TVS owned wholesaler outlets spread across major towns. Moreover to service the US and Canadian markets instantly and establish a brand recognition, company has a warehouse facility in North America along with a business representative in USA who works closely with the US/Canadian brake re-builders and distributors. In view of changing trends, from drum brake linings to disc brakes for commercial vehicles the company is giving special focus on CV Pad business and in the process has created a wide range of 39 references and are aggressively marketing the same worldwide. With more and more countries banning use of asbestos based friction material products, the future prospects of company, being a pioneer looks promising. For FY08 it is estimated to report total sales of Rs 190 cr and profit of Rs 14.50 cr i.e. EPS of Rs 54 on very tiny equity of Rs 2.70 cr. Good opportunity to buy at such cheap valuations.

Murudeshwar Ceramics (58.00) is one of the leading manufacturers of vitrified tiles, ceramic tiles and granites in India with its popular brand 'NAVEEN’. Importantly, company derives nearly 80% of revenue from sales of vitrified tiles which enjoy higher margin than the rest two. On the back of constant expansion, its present capacity stands at 6.3 million sq mtr of vitrified tiles, 2.7 million sq mtr of ceramic tiles and only 72,000 sq mtr for granites. Notably, institutional clients constitute 60% of total sales and retail clients constitute balance 40%. This is backed by a strong marketing network with 6 distributors, 74 show rooms, 45 depots and about 400 dealers spread across India. With the ongoing boom in construction sector, increasing mall culture and strong demand for hi-tech commercial complexes, the future prospect of the company is quite promising. It is expected to report a topline of Rs 240 cr and bottomline of Rs 26 cr on conservative basis for FY08. This works out to an EPS of Rs 15 on equity of Rs 17.50 cr. Notably, its Cash EPS stands at whopping Rs 30. As current fiscal being a silver jubilee year for the company, it may declare liberal bonus or special dividend for its shareholders. At CMP, scrip is trading at a P/E ratio of less than 4x times and is available at an EV of 300 cr which is well below its gross block value of Rs 470 cr. However, icing on the cake is the 20 acres surplus land owned by the company near electronic city where it intends to develop IT park. A screaming buy

Small & beautiful (Guj)

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Crew Bos Products (54.00) is primarily engaged in exporting lifestyle fashion accessories & home decoration products made from fabrics, leather, metal, wood etc. Company has broadly segmented its product portfolio into four divisions - fashion bags and wallets division, belts and footwear division, home goods division and the watch strap division. Its product range represents the international pulse of fashion as it supplies to some of the world’s best and most renowned international brands and retail chains such as Accessorize, Monsoon, Fossil, Marks & Spencer, Esprit, Next, GAP, Old Navy, Zara, Banana Republic, Tesco, H&M, Chico’s, Fat Face, Debenhams, J Jill, AEO, Armani to name just a few. Being very optimistic on the footwear segment has purchased 6 acres of land at Mahindra World City SEZ at Chennai where it is setting up a new plant to produce 10,000 pairs of full shoes per day. Moreover for future growth company has acquired 30 acres of land at Neemrana in Rajasthan for the expansion of its capacities for fashion accessories. It is expected to post an EPS of Rs 11 on diluted equity of Rs 14.07 for FY08. A wonderful opportunity to buy at such cheaper price.

Belonging to well known Ruchi group, National Steel (24.00) has a cold rolling mill and a modern state-of-the-art colour coating line which produces sophisticated and unlimited range of coloured steel with high corrosion resistance. It manufactures galvanized corrugated & plain steel sheets as well as coils under the brand name “APPU” and currently has a capacity of 2,10,000 tonnes of galvanized steel, 2,40,000 tonne of cold roll steel and 80,000 tonne of colour coated line. For FY08 it is expected to clock a turnover of Rs 2000 cr and PAT of Rs 22 cr i.e. EPS of Rs 7 on equity of 32.60 cr. Notably, company has been making highest tax provisioning of more than 35%. However its share price has crashed 50% in this recent carnage and is available fairly cheap at a market cap of around Rs 75 cr. Considering its book value of 58 Rs, scrip has the potential to double in 15`!8 months.

From the recent high of Rs 74 in Jan’08, share price of Anjani Portland (26.00) has almost become one third in last two months. Technically, scrip seems to have bottomed out and can witness a smart recovery as and when sentiment improves. Under the leadership of Mr. K V Vishnu Raju, company has made a strong turnaround in FY07 and is further growing at a healthy pace in FY08. Notably, it has a captive limestone mine, captive power generation unit and state-of-the-art technology from Nihon of Japan. In line with its modernization and diversification plans, company acquired a grinding unit in an open auction conducted by A.P.I.D.C which has further augmented its grinding capacity. On the back of robust performance, company gave maiden dividend of 10% for FY07. For the first three quarters it has already registered 50% growth in sales to Rs 82 cr and 60% rise in NP to 13.70 cr. On an estimated OPM of around 28%, it can record a PAT of Rs 15.50 cr on topline of Rs 115 cr for FY08. This works out to an EPS of Rs 8 on equity of 18.40 cr. A safe bet for 50% return within a year

Mahalaxmi Seamless (23.00) is the leading manufacturers of carbon & alloy steel cold drawn seamless tubes / pipes. With a production capacity of 10,000 MTPA company specializes in heat exchangers / boiler tubes, hydraulic / fuel injection tubes, precision automotive / mechanical tubes etc. It boasts of manufacturing from 4 mm to more than 100 mm outer diameter tubes. Its products are used in various industries like petroleum, chemicals, fertilisers, thermal power plants besides in oil processing, sugar mills and automobile industries. For the first nine months its sales jumped up 40% to Rs 26.50 cr whereas profit shot up 90% to Rs 2.60 cr. Accordingly it is estimated to end FY08 with sales of Rs 35 cr and NP of Rs 3.25 cr leading to an EPS of Rs 6 on equity of Rs 5.30 cr. Share price has come down sharply from the recent high of Rs 71 and is hitting new lows. Although rising steel price is a cause of concern still it’s a good bet at current levels.

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Tera Software Ltd - 45.00 Rs

Founded in 1994, Tera Software Ltd (TSL) is one of the leading e-governance solution providers. It undertakes data entry/scanning works for digitization of information maintained under Right to Information Act. It focuses mainly on long term projects under BOOT/BOOR/BOMT for providing the end-to-end solutions to the different public interface departments for effective e-governance and good governance. It also undertakes short-term projects like issue of photo ID cards, ration cards and election commission cards. Currently, TSL caters to transport, land registration, revenue management for distribution and supply companies of electricity and water, sales tax, education and public distribution systems. Company also helps in creating IT infrastructure, facility management (maintaining database) and logistics operations. Its customers include the most prominent state governments active in the e-governance space like government of Karnataka, Andhra Pradesh, Kerala, Goa, Maharashtra, West Bengal and Bihar. Besides it also serves to various public sector enterprises, govt. of India undertakings and many large organizations spread across the India including Indian Railways, BHEL, BESCOM, NRSA, NIC, SARC, Zee Telefilms, Shantha Bio to name a few.

Although major revenue comes from e-governance, TSL also offers IT enabled services, software development and consultancy, system integration and networking which contributes nearly 20% of revenue. For this it has entered into strategic partnership with companies like CISCO, EPSON, HP, Wipro, IBM, D-Link, EMC etc. It even operates an in-bound as well as out-bound BPO service in a small scale at Hyderabad. However in consortium with Electronics Corporation of India Ltd (ECIL), TSL has bagged huge e-governance order, taking its total order book position to around 250 crore to be executed in next five year. Its current project includes:

• Complete automation of department - Road Transport Authority, Kerala and AP
• Capturing beneficiary information and printing of Biometric ration cards - Civil Supplies Dept, AP.
• Computerization in schools and high school - Directorate of Education, Goa
• Supply and installation of spot billing machines along with software – MSEB, Pune
• Computerization of sales tax department – Maharashtra
• Total revenue management solution for electric company – Karnataka, Maharashtra & WB

Importantly, TSL has bid for number of other projects like issue of ration card in the state of MP, Jharkhand & Orissa, computerization of transport dept – Karnataka, Punjab & Bihar, sales tax automation in Goa and West Bengal, land computerization in the state of Kerala, contract for Nagaland, revenue management for electricity boards in Orissa and Rajasthan. Moreover, couple of months back company has been selected as empanelled vendor for rollout of IT services in govt sector through National Informatics Centre Services Inc (A Government of India Enterprise under NIC), Ministry of Communications & Information Technology for a period of one year which can be extended for another one year. This will boost the topline by another Rs 15~20 cr per annum. In short the future earning visibility is very strong and with government increasing the budget allocation every year for computerization and e-governance, TSL is bound to grow at a healthy CAGR of around 30% for next few years.

Notably, TSL derives 100% of its revenues from the domestic markets and is therefore unaffected by the recent rupee appreciation against US dollar. It recorded 70% growth in its topline to 60 cr and net profit was up 90% to 11.70 cr for FY07 thereby registering an EPS of 10 Rs. For the first nine months, its revenue increased by 45% to Rs 44 cr whereas profit increased by 35% to Rs 9 cr. Accordingly, for FY08 it may report total revenue of 75 cr and PAT of Rs 14 cr which translates into EPS of Rs 11 on equity of Rs 12.50 cr. And for FY09 it is estimated to register an EPS of Rs 14. Secondly, TSL has 20 acres of land with 1.60 lakh square feet constructed area, which it plans to either sell or enter into JV with infrastructure company. Once this long pending decision is taken, it will trigger the share price to new high. Meanwhile at a very modest discounting by 8x times against FY08 earnings, share price can go up to Rs 90 in 9~12 months.

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Smart Investments (Guj)

Selan Exploration Technology Ltd

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J K Lakshmi Cement Ltd

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Accurate Transformers Ltd - 78.00 Rs

Established in 1987, Accurate Transformers Ltd (ATL) is the flagship company of the Delhi based Accurate group which has diversified interest in transformers, overhead line conductors, energy meters, insulating oils & chemicals. Notably, ATL pioneered the manufacture of transformers at a time when most electrical equipments were imported. With an installed base of nearly 1500 transformers, company is now amongst the foremost manufacturers of transformers. Presently it manufactures power as well as distribution transformers ranging from 1 MVA to 160 MVA - in up to 220 KV class. Power transformers are used to transform power voltage from the generation point to the transmission point whereas distribution transformers are used to transform power voltage from transmission point to distribution of power to the end user. These transformers are mainly supplied to state electricity boards across the country including those of Uttar Pradesh, Rajasthan, Punjab, Maharashtra and West Bengal on a made-to-order basis. As its transformers are in operation for years, the quality and reliability of company’s products is well established. Infact, company boasts of having highest rates of repeat orders from state electricity boards. In addition, it also offers total technical support and customer service throughout the life of the its transformers – may it be spare parts or repairing of transformer in case of breakdown

Being a two decade old company, ATL has set up huge manufacturing facilities spread across Ghaziabad, Sikandrabad, Greater Noida, Dehradun & Haridwar. All its plants have ISO 9001 : 2000 certification from DNV, however two of its plants which are in tax exemption zone i.e. Dehradun and Haridwar plants are relatively new. Although these plants are not equipped with latest hi-technological equipments, still it has a total installed capacity of more than 8000 MVA, which is quite huge. Besides, ATL has recently ventured into fast growing rural electrification project which involves the complete setting up of electricity in remote areas including the laying of lines, poles and substations. It has already implemented two such projects one at Etah district of Uttar Pradesh and another at Nainital District of Uttaranchal. However unfortunately, due to mounting debtors and shortage of funds company has been working at very low capacity utilization of around 50%. Hence it has ample scope to ramp up its operation provided it manages to get sufficient money as working capital. Moreover to cash on the infrastructure boom, ATL has taken forward steps in the business of rural electrification being upcoming and thrust area under the Rajeev Gandhi development program of the central government. Besides, it wants to further diversify in energy sector and has ambitious plans of venturing into power generation & distribution in future.

The government’s rural electrification initiatives such as APDRP, Power for all by 2012 program, restructuring of SEBs, entry of the private sector into the transmission and distribution segment etc, all these have led to substantial jump in demand of transformers. Accordingly, ATL also recorded 20% growth in sales to Rs 180 cr and 40% rise in profit to Rs 6 cr for FY07 i.e. EPS of Rs 20 on tiny equity of 2.96 cr. Notably, ATL is earning very low profit margin compare to its peers and has scope of improving its margin in future. For the first three quarters, sales increased by 10% to Rs 102 cr but NP shot up 50% to Rs 4.50 cr on back of higher margin at operating level. Traditionally the Q4 is the best quarter and on a conservative basis company is estimated to report a turnover of more than Rs 200 cr and PAT of Rs 8 cr for FY08 i.e. EPS of 27 Rs on current equity. This means the scrip is currently trading at P/E ratio of less than 3x times. However as per market rumors SEBI has halted its preferential issue of 31 lac warrants @ 56 Rs, hence now company has to go for fresh fund raising program as per SEBI guidelines. In one way it is positive for shareholders as now the placement will be done at higher price with low equity dilution. Hence a transformer company having an installed capacity of massive 8000 MVA is available for a song at a market cap of merely Rs 23 cr. Therefore, investors are very strongly recommended to buy at current levels as share price can easily double in a year’s time.

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