STOCK WATCH

C&C Construction (200.00) is primarily engaged in construction of airfield pavements-rigid and flexible, state and national highways, city and rural roads, bridges and culverts and other infrastructure projects in India & Afghanistan. It also specializes in laying of optic fibre cables, maintenance of telecom network, electric transmission network, microwave tower and manufacturing & erection of telecom antennas. Presently C&C boast of having an order book of more than Rs 1000 cr, which are entirely road projects and to be fully executed by June 2009. Besides, couple of weeks ago it bagged an addional massive EPC order of Rs 574 cr from Jaypee associates for the construction and development of a four lane road from Zirakpur to Parwanoo, passing through the states of Himachal Pradesh, Haryana and Punjab. For FY08 ending June’08, C&C is expected to clock a turnover of Rs 425 cr and profit of Rs 35 cr i.e. EPS of Rs 19 on equity of Rs 18.30 cr. Whereas for FY09, it can earn a profit of Rs 40 cr on a topline of Rs 1000 cr which works out to an EPS of Rs 22 on current equity. Buy at sharp declines only.

Sujana Towers (105.00) is basically engaged in manufacturing of galvanized steel towers used in the power transmission and telecom tower sectors. Besides it also offer various services including engineering and consultation, turnkey installations, inspection and maintainance of towers etc. Ironically it has set up two large scale units at Hyderabad to emerge as India's largest galvanized steel tower manufacturing company. It has expanded its towers capacity at Hyderabad from 28,125 TPA of galvanized towers to 128,125 TPA. In the light of fast growing demand for supply of power transmission and telecom towers and associated services within the country as well as in the neighboring countries, it is in the midst of setting up another 100,000 TPA manufacturing facility at Chennai in order to cater to the domestic and export market. It also intends to set up / acquire subsidiaries in the Middle East/ South East Asia in the area of power transmission and telecom infrastructure services. To fund its growth plans, company has made preferential allotment of 80 lac warrants @ Rs 140 and is planning to raise nearly 300 cr thru FCCB/GDR route. It is expected to report total revenue of Rs 600 cr and profit of Rs 50 cr for FY08. This leads to an EPS of Rs 13 on current equity of Rs 19.50 cr whereas Rs 11 on diluted equity of Rs 23.50 cr. A solid bet

Indo Asian Fuse Gear (105.00) manufactures wide range of electrical circuit protection equipment including distribution boards, switch boards, switch panels, fuse switches, MCCBs, HRC Fuses, MCBs, RCDs, etc. Besides, it’s one of the largest manufacturers of CFLs and MCB’s in India. To capitalize the ongoing boom, it is diversifying into power sector business and will undertake distribution projects on behalf of state electricity boards, corporations and utilities on franchise basis. Meanwhile, it has forayed into cables & wires manufacturing business as well with a planned investment of 100 cr in phases. For the higher end segment, company is setting up a plant in Haridwar under a joint venture with Simon Holding (Spain) for manufacturing home and building automation products for the first time in India. At the same time it is putting up a facility in Saudi Arabia thru a tie up with Saudi National Glass for production of Compact Fluorescent Lamps (CFLs) and High Intensity Discharge Lamps (HID Lamps). For FY08 it is expected to clock a turnover of Rs 280 cr and PAT of Rs 16 cr on a conservative basis which works out to an EPS of Rs 10.50 on equity of Rs 15.30 cr. However company has the potential to post an EPS of around Rs 15~16 for FY09. Few weeks back, company has finalized to issue 19 lac warrants to promoters and others. At a reasonable discounting by 12x times against FY09 earning share price can move upto Rs 180 in medium term.

Royal Orchid (92.00) operates in hospitality sector with major presence in Bangalore. Currently it manages eight properties including five star hotels, budget, resort, serviced apartments etc with a total room strength of around 655 rooms. Interestingly, company follows a unique “Asset light” business model of taking properties on lease or entering into a contract for managing & operating the existing hotel instead of owning them outright. This has helped the company manage its funds efficiently, have lower payback period on its projects & earn attractive operating margins. In the next few months, it is planning to open “Royal Orchid Central” – four star category hotels at Pune (120 rooms) and Hyderabad (65 rooms) to cater the business class. Subsequently it has plans to open five star hotels at Mumbai, Bangalore and Delhi. But for major growth, company wants to target the lower end of the hospitality pyramid and has plans to set up a chain of 50 budget hotels across India under the brand ‘Pepper Mint’ in next 3 to 5 years. Recently it bought 30 acre property in Tanzania and also formed a joint venture with Parsvanath to develop 10 hotels at an investment of Rs 500 cr. Couple of days back company also acquired 50% stake in Galaxy Beach Resort (65 rooms) in Goa. For FY08, it may report total revenue of Rs 140~150 cr and NP of Rs 35 cr on consolidated basis i.e. EPS of Rs 13 on equity of Rs 27.25 cr. A decent bet in hospitality sector.

Smart Investment (Guj)

Simplex Castings Ltd

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ABM Knowledgeware Ltd

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Small & Beautiful (Guj)

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Led by Mr Malvinder Singh- “Mushroom Rattan” award winner, Agro Dutch (30.00) 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.

Lok Housing & construction (125.00) is having a land bank of whopping 1222 acres across Mumbai, Pune and Bangalore with development potential of 62.5 million sq ft. Most of the land has been acquired long back at very low cost and are located at Ambernath(80 acres), Kalyan(92 acres), Vasai(136 acre), Turbhe(180 acre), Pune(425 acres), Bangalore(240 acres) and balance 69 acre spread across Andheri, Malad, Khar, Thane & Virar in Mumbai. With the recent merger of Lok Shelter, company is now involved into lucrative business of urban rehabilitation and reconstruction projects as well. Hence, it has already submitted a proposal to the state government to rehabilitate tenants of about 300 unsafe cessed buildings in Mumbai and simultaneously develop 6 million sq ft in the heart of the city in association with MHADA. At the same time it has several residential townships under construction at Mulund, AMbernath, Khar, Virar, Thane, Kalyan, Marol etc. Importantly, it has recently made pref allotment of 50 lac warrants @ Rs 354 to promoters. Scrip is available at mouth watering levels.

Being India’s largest manufacturer of evaporator and condenser (E&C) coils with around 60% market share, Lloyd Electric & Engineering (110.00) has got itself forward integrated into lucrative business of contract manufacturing of window / split air conditioners for various multi national companies in India. It is also 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. Interestingly, 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. To maintain its future growth company is in the process of setting up a Greenfield plant near JNTP port. Meanwhile, it 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. For FY08 it may clock a turnover of Rs 650 cr and PAT of Rs 58 cr i.e. EPS of Rs 19 on current equity of Rs 31 cr. Simply buy and hold.

ANG Auto (95.00) is among the few companies in the world to be completely integrated – from the manufacture of components to sub-assemblies and assemblies and finally to vehicles. Today it the largest trailer manufacturing company in India with a capacity of 3600 trailers per year and will soon be No. 1 in Asia as it is augmenting the capacity to 6000 trailers. Notably, company has entered into a five year contract with Ashok Leyland for trailers, which is valued at 1500-1800 cr. Secondly, its patented automatic slack adjuster and the single piece dummy axle is witnessing strong demand from all over the world. Going ahead, it intends to manufacture suspension systems and is also setting up a forging unit at Bhiwadi, Rajasthan at capex of Rs 37. To consolidate its operations company has merged ANG Auto Tech, its 75%subsidiary with itself. On a standalone basis for FY08, it is expected to clock a turnover of Rs 120 cr cr and profit of Rs 16 cr i.e. EPS of Rs 13.50 on current equity of Rs 11.90 cr. Being the conversion price as high as Rs 325, its FCCB of Rs 50 cr may not get converted into equity. Moreover, finding the valuation very cheap, management has got the approval for buy back of equity shares up to 24.30% of the total paid up equity capital at a maximum price of Rs 215 per share. Only long term investors are advised to buy at current levels as scrip may not move in short term.

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SEAMEC Ltd - Rs 150.00

South East Asia Marine Engineering & Construction (SEAMEC) is a 78.24% subsidiary of Coflexip Stena Offshore Mauritius Ltd which in turn is owned by Technip S.A of France, the largest oilfield engineering, construction and service group in Europe. SEAMEC operates multi-purpose support vessels (MSV) for diving and provides underwater/subsea engineering and construction, maintenance, inspection of under-water structures, rescue-operations and fire-fighting and other support services for offshore oil/gas installations located in India or abroad. Hence it is a pure play of charter hiring of MSVs, which are more specialized vessels than Offshore Supply Vessels (OSV) as they are equipped with Dynamic Positioning (DP) system and can go underwater for repair & maintenances of underwater pipelines. Notably, there are just about 30-35 MSVs operating in the world and Technip is the undisputed leader with 17 of them. In India, SEAMEC is a leader with 4 out of 6 vessels whereas the balance two are with ONGC.

Earlier, SEAMEC owned three vessels viz., Seamec-I with 1700 DWT, Seamec-II with 2100 DWT, Seamec-III with 2100 DWT but offlate it has acquired fourth vessel ‘Seamec Princess’ which has been upgraded and deployed to work from March 2008 only. This vessel is quite huge and technically more advanced compared to the existing three vessels. Hence it has been hired at charter rate of whopping US$ 105,555 per day by M/s Sime Darby Engineering, Qatar for nine months. After that it would be deployed with M/s. Workboat International FZCO, Dubai towards early Decemebr at a charter rate of US$ 68,333 per day. In short this vessel will give a strong fillip to company’s revenue as well as earning this fiscal. Notably, its SEAMEC-I is deployed with Dolphin offshore at charter rate of around @ US$ 23,333 per day and SEAMEC-III is hired by M/S Superior Offshore @ US$ 55,555 per day. Meanwhile its SEAMEC-II is under statutory dry dock at Curacao dry dock yard, Netherland Antilles since September 2007 and is expected to get ready by mid of this year. With prices of crude oil rising higher, exploration activity has increased manifold across the globe Now it has become profitable to extract oil reserves from deep undersea deposits as well. There has also been a spurt in undersea pipe laying to reduce transportation costs of oil & gas. All these factors have lead to a sharp increase in the charter rates for MSV’s.

Importantly, despite being in a capital-intensive industry, this MNC is a debt free company. To derisk its business model company is contemplating to bid for exploration and pipe laying engineering contracts on its own going forward. Financially, CY07 was not as good as most of vessels were under dry dock and company had to bear the dry docking expense. But CY08 will be pretty good because it will report bumper result for second half as all its four vessels will be deployed by then. Accordingly it is estimated to report total revenue of Rs 250 cr and PAT of Rs 75 cr for FY08 ending Dec 2008. This translates into EPS of Rs 22 on equity of Rs 33.90 cr. That means scrip is currently available at a P/E ratio of merely 7x times. Although company is operating in a cyclical industry, still it deserves much better valuation and is bound to get re-rated on announcement of its June qtr nos. Ironically share price has crashed 50% from the recent high of Rs 305 Rs and is not available at an enterprise value of merely Rs 500 cr. Investors are strongly recommended to buy at current levels as share price can shoot up to Rs 350 within a year considering a rational discounting by 16x times against FY08 earnings.

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Elgi Equipment Ltd - Rs 50.00

Established in 1960, ELGI Equipment Ltd (EEL) is the market leader and Asia's largest manufacturer of air compressors and automobile service station equipment. As air compressors are used in a wide range of applications, company caters to almost all sectors of industry ranging from mining, defence, transport, pharmaceuticals, power, oil, railways, chemicals, textiles, printing to ship building, paper, electronics, telecommunications, medical, food & beverages and plastics. Of late company has closed down its loss making diesel engine business, hence presently EEL has following three business segment:

I. Compressor: This division constitutes nearly 75% of total sales and is involved with the design, development and manufacture of exhaustive range of electric and diesel powered screw air compressor (oil free, portable, world’s smallest etc), centrifugal air compressor, airends, reciprocating air compressors, borewell compressors, bare compressor pumps etc. Besides it also manufactures railway compressors and a variety of equipment solutions for railway applications. Recently company has developed new generation compressors which are small, light strong, portable and designed for special, customized applications.

II. Automotive Equipment: With around 20% contribution to sales this segment provides total service station solutions through the supply of a range of equipment and tools for two, three & four wheelers. The broad categories of equipments include engine/gas analyzer, head light aligner, AC system service, wheel balancer/aligner, hydraulic lift, collision repair system, painting/denting equipment, auto car washer system, pneumatic tools, lubricating pumps and various other diagnostic equipment. Due to its product quality and commitment, EEL has been approved as a 100% supplier to Toyota and Honda car dealership in India. A full-fledged garage has nearly 128 equipment, and EEL either deals with most of them or manufacturers all of them. Incredibly, EEL is also India’s pioneer and leading manufacturer of mobile service units which are specially designed and equipped with all the facilities for repair / lube, arranged on the platform of a vehicle for easy operation. Mobile workshops are a vital ancillary for repairing and lubricating immovable machineries at construction and mining sites, desert regions and other far-flung work places.

III. Manufacturng and Engineering Solutions: This is a new business segment started by the company recently and presently constitutes hardly 5% of total revenue. Because of rich experience of four decades and state-of-the-art infrastructure, EEL has the advantage of offering end to end mechanical engineering solutions and contract manufacturing services of precision engineered part to clients who are looking for cost-effective, subcontracting solution. The division’s core strength lie in managing long term contracts with large OE clients. It also offer total air solutions for clean and dry air such as moisture separator, refrigerated air drier, air receiver, airmate drains, demand side controller etc.

Presently, EEL has two production facilities in Coimbatore which can manufacture all these types of compressors covering a range from 0.75HP to 1500HP for volumes from 1.8 cfm (cubic feet per minute) to 80000 cfm. Apart from India, company has a presence in more than 50 cr countries across the world covering Europe, North America, Latin America, Africa, Australia, Middle East, South East Asia, West Asia and the Far East. Interestingly, it is setting up a manufacturing facility in China which is expected to commence production from this calendar year. It is also forming a subsidiary in Sharjah and Brazil for trading and warehousing. To concentrate on each business segment company is hiving off its automotive equipment business into a separate wholly owned subsidiary called ATS-Elgi Ltd.

Fundamentally company has recorded very encouraging performance for nine months ending Dec 2007. Sales grew by 20% to Rs 325 cr but net profit shot up 70% to 29 cr on back of better efficiency. Accordingly it is expected to clock a turnover of Rs 450 cr and PAT of Rs 35 for entire FY08. This works out to an EPS of more than Rs 5.50 on equity of Rs 6.30 cr having a face value as Rs 1/-. Notably, due to strong economic and industrial growth EEL is expected to grow at a CAGR of 20~25% for coming three years. Hence it can report an EPS of Rs 7 for FY09, which means scrip is currently discounted by merely 7x times against its FY09 earnings. Apart from being a debt free company, EEL has been consistently paying dividend for over decades. Considering all the factors investors are recommended to buy at current levels with a price target of Rs 80 in 9~12 months.

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