STOCK WATCH

Cera Sanitary (110.00) is the third largest company in the organized sanitaryware segment with over 20% market share in domestic market. It has wide product range including WC’s, wash basins, whirlpools, bath tubs, shower panels, shower cubicles, shower temples, bath fittings, kitchen sinks, tiles etc. It even has a strategic tie-up with Pozzi-Ginori, an Italian designer sanitaryware for importing premium sanitaryware and marketing it in India. Presently, companys derives 40% revenue from intitutional sales whereas the major 60% comes from retail sales. Hence company has a strong distribution network with 400 dealers, 4000 retailers, 9 depots and 14 zonal offices across the country along with CERA bath studios at eight locations. To take the benefit of rapidly increasing demand, it has recently expanded its production capacity to 24,000 MTPA from 16,500 MTPA. And interestingly, company is not only planning to increase its own production of sanitaryware, it is also planning to establish itself as bathroom solutions provider, by offering all durables that go into a bathroom. For FY08, it is expected to clock a turnover of Rs 125 cr and PAT of Rs 8.50 cr on a conservative basis. This translates into EPS of Rs 14 on current equity of Rs 3.10 cr with a face value of Rs 5/- per share. Couple of months ago company made a pref allotment of 8 lac warrants @ Rs 162 to promoters. Considering the strong brand value and robust fundamentals, it is available extremely cheap at an enterprise value of Rs 100 cr.

Numeric Power (550.00) is India’s No 1 manufacturer of uninterrupted power supply (UPS) systems, stabilizers and power conditioners. It also undertakes turnkey projects and offers end to end solution for SCADA/EMS package, large network of industrial process, power transmission support systems and distribution management. Last year, company entered into a joint venture with the French UPS major SOCOMEC SA to distribute, market and service the 3 phase range of UPS systems (greater than 10 KVA) products to customers in India. Ironically, around 75% of the ATMs in the country are fitted with UPS supplied by the company. With India's significant power deficits and the ubiquitous outages and voltage fluctuations; company’s products still have significant market potential in the country. For FY08 it may report sales of Rs 375 cr and profit of Rs 38 cr i.e. EPS of 75 Rs on equity of 5.05 cr. At a reasonable discounting by 12x times, share price can shoot upto Rs 900 within a year. Secondly, with an estimated reserve of more than Rs 125 cr on tiny equity of Rs 5 cr, scrip is fully ripe for liberal bonus as well.

Asian Granito (60.00) 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.

Led by Mr Malvinder Singh- “Mushroom Rattan” award winner, Agro Dutch (28.00) is the worlds largest producer and exporter of mushrooms even surpassing the Royal mushroom of France. Last year company has set up new facility to produce 14,000 tonnes of frozen mushrooms thereby taking the total mushroom capacity to whopping 50,000 tonne per annum. Remarkably, company alone accounts for nearly one fourth of total US imports of mushroom. And more importantly it is fully integrated mushroom company with inhouse composting, inhouse processing and own can manufacturing plant. Further company is setting up new easy-open-ends can unit and a six colour metal printing line in Tamilanadu with an investment of Rs 55 cr. To fund this company has already made a pref allotment of 1 crore warrants @ Rs 27.50 to promoter group. For FY08 it is estimated to clock a turnover of Rs 225 cr and a healthy PAT of Rs 26~27 cr on back of huge other income from Visheh Krishi Gram Udyog Yojana Scheme. This translates into EPS of Rs 7 on fully diluted equity of Rs 39.50 cr. Although it’s a non dividend paying company coupled with some promoter concern, still aggressive investors can take a punt on it for handsome gains in medium term.

Small & Beautiful (Guj)

Panoramic Universal (65.00) derives more than 80% of revenue from hospitality business as it owns and operates five hotels in USA and a small motel in New Zealand. Here in India, it has three hotels at Shirdi, Goa and Malvan each. It even manages India’s largest discotheque as well biggest revolving entertainment lounge called ‘Area 51’ in Pune. On the back of rising ARR & occupancy level, company has implemented aggressive expansion plan and is coming up with hotels / resorts at Thane, Pune, Durgapur, Jaipur, Hyderabad, Kerala, and Goa. Earlier in May’07 its subsidiary in USA has purchased 79 acres land in Fort Drum at Watertown, New York, USA for commercial and residential project. Offlate company also made a foray into travel and tourism industry by acquiring 51% stake in Hi-Flyers Travel Services-India and 100% stake in Future Travels-USA. It has also been evaluating a real estate proposal for setting up of township in Jaipur. Besides couple of weeks ago it acquired Rishi garden resort at Panvel, Mumbai. To fund its growth plan, company is considering to raise Rs 55 cr thru 1:2 right issue @ 85 Rs per share and is also slated to come out with FCCB, QIB placement etc. For FY08 it is estimated to register total revenue of 150 cr and PAT of 36 cr i.e. EPS of 28 Rs on current equity of 6.50 cr having a face value of 5/- Rs per share. Scrip is currently available at mouth watering levels.

Most of the analysts have written off cement sector in anticipation of huge supply coming up in 2009 and more importantly government’s interference to control cement prices. Despite this, JK Lakshmi Cement (110.00) looks extremely good as all the negatives have already factored in and there is negligible downfall from current levels. For the first three quarters 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. Moreover. company has replaced high cost debts by cheaper funds to the extant of Rs 325 crores, which will reduce interest costs. Accordingly it has come out of the Corporate Debt Restructuring (CDR) purview. For FY08, it is 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 screaming buy.

Accurate Transformers (104.00) is engaged in manufacturing of power as well as distribution transformers ranging from 1 MVA to 160 MVA - in up to 220 KV class. 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, despite having installed capacity of more than 8000 MVA company is working at very low capacity utilization of less than 50% due to mounting debtors and shortage of funds. However on the back of ongoing boom in power sector and robust demand for transformers, situation has now improved considerably. Due to better operating efficieny and higher realization company company is expected to improve its profit margin going forward. It may even grow at CAGR of 50% for next three years as far as bottomline is concerned. On a conservative basis, it can clock a turnover of more than Rs 200 cr and PAT of Rs 8 cr for FY08. This works out to an EPS of Rs 27 on current equity of Rs 2.96 cr. As per unconfirmed reports, SEBI has halted its preferential issue of 31 lac warrants @ 56 Rs, hence now it has to go for fresh fund raising program as per SEBI guidelines. A solid bet.

To take the advantage of the increased demand of Indian pharmaceutical products in the international market, Ahlcon Parenterals (45.00) - manufacture of life saving Intravenous Fluids and medical disposals, has off late made arrangements with several international agencies for increasing the base of export markets. It has 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. As company is facing competition in domestic market, it may end FY08 with sales of 55 cr and NP of 7.50 cr i.e. EPS of 10 Rs on equity of 7.20 cr. But with new capacity becoming operational and increase revenue from exports it has the potential to report an EPS of Rs 14 for FY09. Keep accumulating at every decline.

Kamanwala Housing Construction Ltd - Rs 90.00

Kamanwala Housing Construction Ltd (KHCL) was originally incorporated in 1984 as Kamanwala Housing Development Finance Company mainly to cater middle class buyers by constructing low cost housing and financing it at nominal rates. Attar Apartments and Kamanwala Nagar at Virar were built under this program. Subsequently it also ventured into acquiring few old building and tenements and then transferring the ownership to tenants at reasonable rates after carrying out repair and renovation. Later in 1995, company diversified into manufacturing of steel ingots for own construction requirement and got renamed as Kamanwala Industries Limited. However, company does not undertake this activity any longer. And hence in 2006 it finally changed its name KHCL, to reflect the focus on its core activity i.e. construction. Today, from the low cost housing projects it started out with, the company has now transitioned itself to executing prestigious projects of high quality in prime locations.

Having a track record of more than two decades, KHCL have completed the execution of 18 projects in Mumbai, with saleable area totaling more than one million square feet. Few of its well known constructions are Manavsthal-Andheri, Krishna Kunj-Goregaon, Mukta Apartment-Khar, Manavsthal I & II-Goregaon, Vaibhav Apartment-Bandra, Maker Kundan Garden-Anderi etc. However till now company was only into residential segment and that too in a small scale. But off-late, on the back of boom in real estate sector, company has entered into commercial segment as well and has drawn up ambitious expansion plan on a much larger scale. In the last couple of years, it has acquired good land bank in Mumbai for future projects. Its ongoing and future projects are:

Manavsthal - Saki Naka, Andheri(E): This project emerged as premier project which helped KHCL to come out of difficult times. It’s a residential project divided into three phases consisting of 240 Flats. Phases I and II have already been completed and sold off. Phase III is now on a completion stage with 70% area sold off.

Pinnacle Corporate Park – Bandra Kurla Complex: This is a commercial project comprising of 75,000 sq. ft. out of which 43,000 sq.ft. area has already been sold. It is expected to complete by 2008 and will enhance the image of the company in the construction Industry.

Rishi Tagore - Santacruz (W): Being in a prime location, company is planning to develop this into a luxurious 60,000 sq ft residential complex for which the land cost alone is 35 cr.

Residential Project - Malad (W): This project is being taken up at Marve Road under the Slum Rehabilitation Authority (SRA) scheme. Architectural plans for this Rs.33 cr project have already been approved, and financing obtained. Implementation is in full swing, and the project of 2,03,000 sq ft is slated for completion in September 2009.

Vallabh Terrace - Opera House: KHCL has purchased an existing building at Opera House admeasuring about 15,000 sq. ft. area for redevelopment/upliftment and subsequent conversion of tenancy rights into ownership rights. It will be completed during the current year.

Commercial cum Residential Project - Versova, Andheri(W): The total cost for this project is Rs. 40.50 cr for developing 1.00,000 sq. ft. area. As soon as the architectural plans are approved by the concerned authorities, the construction work will commence.

To de-risk the business model further, KHCL has undertaken geographical diversification as well and entered into a joint venture agreement having 20% share with M/s. Prajay Engineers & others for the development of a land admeasuring 35 acres at Patancheru, Hyderabad. It has also purchased additional 2 acre land in Hyderabad for 1.60 cr to construct commercial / residential buildings. Moreover KHCL has acquired some land in Mahim under SRA scheme. In a 33% joint venture with Aspen Property Pvt. Ltd., it is developing a property at the famous Filmistan Studio, comprising both residential and commercial units. Meanwhile it is negotiating for few projects at 4 bunglow, Andheri Kurla Road, Mulund, & BKC phase-II.

To conclude, KHCL has entered into an exponential growth trajectory and market is bound to re-rate this company sooner than later. For FY07 it made a strong turnaround for FY07 with sales of 83 cr (against 11 cr) and NP of 13 cr (against 0.50 cr) posting an EPS of 26 Rs on equity of 5 cr. To fund its working capital requirement, KHCL made pref allotment of 15.84 lakh equity shares and 19.95 lakh warrants @ 98 Rs per share in Dec 2006. Recently, company has amalgamated its subsidiary called M/s. Doongursee Diamond Tools Ltd with itself. Notably, this subsidiary is holding one lakh FSI for the Malad project. Meanwhile for nine months ending Dec 2007, its topline remained flat at Rs 67.50 cr but bottomline shot up 80% to Rs 15 cr. 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. Accordingly for FY08 it is estimated to report total revenue of Rs 90 cr and PAT of Rs 18 cr. This works out to an EPS of Rs 25 on fully diluted equity of Rs 7.20 cr. Although its profit margin seems too high and company has a debt of more than 50 cr, still it has the potential to give handsome return over a period of time. Considering its 52 week H/L as Rs 229/68, investors are advised to buy at current levels as it can easily give 50% return within a year.

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Smart Investments (Guj)

La Opala RG Ltd

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Greaves Cotton Ltd

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HBL Power System Ltd - Rs 260.00

Founded in 1977, HBL Power Systems Ltd (HBL) is an acknowledged leader in design, development and manufacture of industrial & specialized batteries, allied electronic products and DC systems in India. DC power systems are used across the world for a variety of application where the traditional power supply system cannot be sustained/supported. It is specifically required in mobile (non-stationary) applications like rail coaches, aviation etc. Therefore company focuses mainly on five key sectors namely telecom, aviation, railways, defense and other industrial segment including oil & gas, power, petroleum, steel etc. In these applications the usage of conventional sources of power / electricity is not possible and DC power supplied thru batteries is to be relied upon. Notably, HBL offers a diverse portfolio of product which has been classified into following three segments

A. Batteries
HBL is a technology focused manufacturer of several ranges of specialized application batteries i.e. nickel cadmium (pocket, fibre, and sintered plate), lead acid (VRLA, Tubular, LMLA), silver oxide zinc, lithium, thermal, etc. Infact it is the market leader in VRLA (valve regulated lead acid) and NCPP (nickel cadium pocket plate) batteries and enjoys 50% market share of domestic telecom market. Moreover HBL is among the very few companies in the world making ultra high specialties batteries for military use like thermal, reserve and torpedo batteries. It also produces passenger and military aircraft batteries which are mainly for export. Notably, HBL is making a selective and focused entry to supply high quality pure lead tin batteries to the vehicles of road transport corporations. It is also working with manufacturers of electrical vehicles to design advanced technology batteries for these future products. To encourage use of green, non-polluting power fast growth is expected in the solar power and as each equipment based on solar power needs batteries to store and supply the power, the potential in this area is very substantial

B. Railway Electronics
Traditionally HBL has been supplying various batteries for train lighting, air conditioned coaches, locomotives, signaling and communications. But off late, company has designed and developed wide range of microprocessor based signaling products and power systems to cater to the needs of Indian Railways. It now offers integrated power supplies for railway stations and does turnkey signaling works contracts including design, installation and commissioning. It even has a dedicated division to execute end-to-end turnkey railway signaling works, starting from yard design, estimation, procurement, installation and commissioning. Company is now also working closely with IRISET, RDSO and other agencies to showcase and implement its other innovative electronics products like data loggers, automatic train charting systems, high frequency track circuits, solid state interlocks, digital axle counters, etc. In short this segment is expected to be the major growth driver in coming years, since the railways have embarked upon the modernization programmes of signaling systems all over the country in a phased manner.

C. Defence Electronics
HBL boasts of supplying several specialized, tailor made batteries to the Army, Navy and the Air Force. Infact it is most dependable supplier to defence for critical application areas like torpedoes, missiles, aircraft starting, ground power units etc. where no other major manufacturers can cater. Besides, HBL also deals in several electronic products which are used in defense sector like electronic warfare, radar, field telephone exchanges, electronic proximity, time fuzes, radio relays, laser weapon sights, night vision devices, opto electronics, thermal imagers, simulators, mine and grenade electronics etc. Unlike batteries and railway products where almost all development was done in house, HBL has collaborated with IAI - ELTA of Israel for most of the defence electronics products. Their joint venture has already bid for two defense contracts worth Rs 500 cr to be finalized at end of this calendar year.

Apart from above, HBL also manufactures other power electronics such as thyristor controlled rectifiers, earth leakage monitors, battery monitoring systems, industrial chargers, uninterrupted power systems, distribution boards etc. To meet the rising demand, HBL has been constantly expanding and modernizing its production facilities at Hyderabad, Manesar (Delhi) and Haridwar. Recently it has put up two new factories at Vizianagaram and SEZ Vizag in Visakhapatnam under a capex of Rs 150 cr. Ironically, HBL stands 3rd globally for Nicad Passenger aircraft batteries and ranks 2nd for industrial alkaline batteries. It derives nearly 15% of total revenue from exports to Europe, USA, Gulf, China, South East Asia etc. Incredibly, HBL has developed strengths in areas of limited competition and focused on direct marketing to chosen customers / market segments. The direct sales approach through a network of more than 10 branches in India with a growing team of sales and service engineers has enabled the company to own selected customers and become their preferred supplier.

Fundamentally as well as financially, HBL is on a strong footing and doing extremely well. For the nine months ending Dec 2007 it has recorded 100% growth in sales to Rs 688 cr whereas PAT zoomed up 125% to Rs 47.50 thereby surpassing the entire FY07 net profit of Rs 32 cr by huge margin. Accordingly it is expected to end FY08 with sales and NP of Rs 1000 cr and Rs 72 cr respectively. This works out to an EPS of Rs 30 on equity of Rs 24.30 cr. Hence scrip is currently trading at a P/E ratio of less than 9x times against its FY08 earnings. At a reasonable discounting by 14x times share price can touch Rs 425 (i.e. 60% return) in 12~15 months. Moreover with cooling of nickel and lead price HBL’s margin is expected to improve a bit going forward and accordingly it is estimated to post an EPS of more than Rs 40 for FY09. To conclude investors are strongly recommended to buy at current levels and add at every decline. A solid bet.

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