STOCK WATCH

Being India’s largest manufacturer of evaporator and condenser (E&C) coils with around 60% market share, Lloyd Electric & Engineering (115.00) 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.

Recently, Bihar Caustic (78.00) came out with disappointing nos for the March qtr. Sales increased by 25% to Rs 47.50 cr but PBT improved by only 5% to Rs 13.70 cr. It seems company is facing the heat of rising input cost of coal etc as it recorded lower OPM of 37% for the quarter. It declared 15% dividend for FY08 which was again below expectation. However due to lower tax cost company has been able to report healthy bottomline. For entire FY08 sales grew by 20% to Rs 174 cr whereas PAT shot up 45% to Rs 49 cr posting an EPS of Rs 21 on equity of Rs 23.40 cr. To maintain its growth, company is in process of expanding capacity of its caustic soda plant by 20% to 265 TPD by addition of electrolysers as well by debottlenecking. It has recently commissioned the stable bleaching powder plant with installed capacity of 60 TPD. Moreover its aluminium chloride project with a capacity of 12000 TPA is doing extremely well. In future company is expected to reduce its total debt which will bring the interest cost substantially. To conclude, company is still expected to maintain its EPS of Rs 20 for FY09 and is trading extremely cheap with Cash EPS of Rs 30, EV/EBIDTA of less than 4x times and expected book value of more than rs 75. Only long term investors should accumulate at declines.

Gontermann Piepers Ltd (65.00), an Ispat Group company is one of the leading manufacturers of Cast rolls and Forged rolls which find application primarily in steel industry. Not only in India, its products are widely appreciated in USA, Canada, China, South Africa, Taiwan, South Korea, Thailand, Indonesia and many more countries. Considering the future trend of business globally, company is giving thrust for new product development i.e. enhanced carbide rolls in ICDP variety and High Speed Steel Rolls. With domestic as well international steel industry adding capacity at fast pace, company has recently undergone expansion-cum-modernization plan of Rs.40 cr. to enhance its production capcity to 18,000 MT of fininshed roll from 12,000 MT. Further company is planning for some big expansion in future as it is contemplating to raise nearly 200 cr thru private placement/FCCB/GDR route. It is also scouting for inorganic growth opportunities in Europe to capitalize on current boom in steel industry and cater to European and US markets. For FY08 it is estimated to clock a turnover of Rs 175 cr and profit of Rs 15 cr i.e EPS of Rs 11 on current equity of Rs 13.90 cr. Scrip can shoot upto Rs 100 in 6~9 months.

Notably, Ind Swift Lab (52.00) has already received the USFDA approval in Sept 2007 for its API manufacturing facility at Derabassi Punjab for Clarithromycin. For other API’s, FDA inspection is expected to be done shortly. Presently, exports constitute around 45% of sales with company having presence in 45-50 countries - principally European countries, Asian countries, Latin American countries and Middle East. For future growth the company has a robust product pipeline of 25 products which includes few blockbuster drugs as well. It has successfully filed over 72 DMFs with the US, Canadian, UK and European Drug Authorities. The DMF filing will facilitate the launching of the drugs by the company upon the patent expiry in those countries. Hence company has been aggressively expanding its capacity and has quadrupled its Gross Block to nearly 400 cr from 100 cr two years back. Accordingly it may end FY08 with sales of Rs 450 cr and PAT of Rs 25 cr i.e. EPS of Rs 11 on current equity of Rs 22.80 cr. To fund its growth plan, company made a pref allotment of 28 lac warrants @ Rs 70 in March 2007 and recently allotted another 25 lac warrants @ 70 to promoter group. With a book value of whopping Rs 93 and expected CEPS of 18~20 Rs, scrip is trading extremely cheap at a P/E ratio of less than 5x times. A screaming buy at is has the potential to double in 12~15 months.

Small & Beautiful (Guj)

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Grauer & Weil (110.00) is one of the very few metal finishing houses world over, capable of offering an integrated package of chemicals, plants, effluent treatment systems and waste recovery techniques from spent solutions. Besides, its 125,000 sq ft hi-tech mall called GROWEL 101 in Kandivali-Mumbai is doing extremely well. To cash on the burgeoning lease rental prices, it is aggressively constructing the Phase II, comprising a huge area of 300,000 sq ft. This is expected to get ready within this calendar year and is estimated to be leased out at an average rate of Rs 100 per sq ft per month. Further, it is planning to develop additional 300,000 sq ft under Phase-III to be ready by early 2010 thereby taking the total mall size to massive 625,000 sq ft. However it is expected to report total revenue & profit of Rs 185 cr and Rs 13 cr for FY08 which can shoot up to Rs 220 cr and Rs 20 cr for FY09. That translates into EPS of Rs 10 and Rs 16 respectively. At a reasonable discounting by 12x times against its FY09 earning scrip can shoot up to Rs 200 within a year. However only long term investors are advised to buy as any delay in construction of mall may restrict the short term rise in share price.

KIC Metalics (45.00) is primarily engaged in production of pig iron and iron casting having an installed capacity of 110,000 and 18,000 MTPA respectively. Further, it has a coke oven plant with 144,000 MT capacity for conversion of coking coal to met coke. Although on a small scale, it also produces and markets Portland slag cement under the brand name “KAJARIA” and has a capacity of 33,000 MTPA. Off late, company has installed hot stoves in the blast furnace to bring down met coke consumption and is further looking to put up sinter plant to use low priced iron ore fines. Besides, for last couple of years company is looking to set up a 4 MW captive power plant using its waste blast furnace gas. In near future, it has plans for installation of electric steel making facility to produce steel billet initially and subsequently putting up finishing rolling mills. Hence, company intends to become a mini integrated steel manufacturer of sizeable capacity to produce cheapest steel. On the back of higher pig iron prices company is estimated to register sales of Rs 200 cr and PAT of Rs 6 cr for FY08. This works out to an EPS of Rs 11 Rs on fully diluted equity of Rs 5.60 cr. At current enterprise value of merely Rs 55 cr its worth a punt, as share price can shoot up to Rs 75 in 6~9 months.

Shree Ganesh Forgings (52.00) specializes in producing complete line of stainless steel, carbon steel and alloy steel forgings for various industries including automotive. Infact it boasts of making more than 2500 varieties of specialized items on piecemeal production and manufactures different variety of flanges and fittings weighing from 0.5 kg to 1000 kg. Recently company has acquired 100% stake in Hertecant N V Belgium & ELFE France from Outo Kumpu – Sweden which are reportedly doing well. Importantly its project to double the capacity from 11,000 tonnes to 22,800 tonne is almost completed. Two press machines with 2500 tonne and 4000 tonne capacity and 48 computer numerically controlled (CNC) robotic machining lines has been already installed. On a consolidated basis company is estimated to clock a turnover of Rs 225 cr and bottomline of Rs 17 cr thereby posting an EPS of Rs 14 on current equity of Rs 12.50 cr. Scrip has corrected sharply from a high of Rs 135 and hence can easily appreciate 50% from current levels. Despite being a commodity scrip buy and hold it patiently.

Andhra Petrochemicals (23.00) is the only producer of Oxo-Alcohols in India with a production capacity of 42,000 MTPA. The market demand for Oxo-Alcohols is currently estimated at 143,000 MTPA, out of which company caters to 30% demand and the balance 70% is met through imports. To secure a greater share of the market and meet the growing demand, company is in undergoing expansion and modernization programme to increase its production capacity to 73,000 MTPA. However, the enhanced capacity is expected to be operational only by Sept 2009. Incredibly, company has been able to save a massive Rs 12 cr per annum only on power cost as it has installed and commissioned 2400 KVA uninterrupted power supply system and discontinued the operation of D.G.Sets from last fiscal. After an impressive turnaround in FY07 along with maiden dividend, company is now estimated to clock a turnover of Rs 300 and profit of Rs 45 cr for FY08. This translates into a healthy EPS of Rs 5 on equity of Rs 85 cr. At CMP the dividend yield itself works out to more than 4%. Accumulate at declines.

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Smart investment (Guj)

SEAMEC Ltd

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TNPL

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Cosmo Films Ltd - 105.00 Rs

Incorporated in 1976 and promoted by Ashok Jaipuria, Cosmo Films Ltd (CFL) is the pioneer and market leader in the manufacture of biaxially oriented poly propylene (BOPP) film which is widely used as a flexible packaging material. Being non-toxic and totally recyclable this wonder thermoplastic material is also preferred for its superior moisture retention, strength, and flexibility, and better optical properties that provided higher visual aesthetics. Remarkably, CFL is one of the lowest cost producers of BOPP films in the world. It produces a wide variety of BOPP films such as transparent, pigmented, pearlised, antifog, speciality, holography, pressure sensitive, synthetic paper films etc. Of late it also started manufacturing value added and high margin products like thermal lamination films and metallized lamination films. Apart from FMCG sector being the major consumer, BOPP films also finds application in various other industries like textile, food processing, stationary, cigarettes over wraps, cosmetic, toiletries, label films, self adhesive tapes, holography/lamination etc. Due of smaller market size and demand supply mismatch in India, company is presently exporting 60% of its production. Infact CFL is the largest BOPP film exporter from India, supplying to over 60 countries across USA, Europe, Middle East and other parts of Africa.

With its manufacturing plant spread across Gujarat & Maharashtra, CFL currently has an installed capacity of 56000 MTPA of BOPP films, 21000 MTPA of thermal lamination films & 3000 MTPA of metallized films. Despite the industry going thru an over capacity scenario in domestic as well as international market, CFL has been working at 100% capacity utilization coupled with regular expansions. It is still confident of future growth and is further expanding its BOPP capacity to 96000 metric tonne by 2009 and 136000 metric tonne by 2010. At the same time, its capacity of thermal and metallized films will be increased 24500 tonne and 6600 tonne respectively by 2009. To maintain and grow its bottomline, CFL is focusing on value growth compared to volume growth by selling more value added specialty products like multi layer barrier laminates and thermal lamination films on paper based products, where margin are much better. On the other hand it is targeting higher end profitable markets to improve its realization and accordingly has set up a wholly owned subsidiary in USA recently. Simultaneously it has been constantly expanding its customer base by providing cost effective innovative packaging solutions to its customers.

Financially, company reported encouraging nos for the March qtr and ended FY08 on quite a robust note. Sales improved by nearly 10% to Rs 585 cr but net profit increased by whopping 80% to Rs 44.50 due to better efficiency and higher other income. It reported a healthy EPS of Rs 23 and declared 50% dividend which gives a yield of almost 5% at CMP. To fund its ongoing expansion company has allotted 31 lac warrants to promoter group to be converted @ Rs 107. Because of organized retailing, increasing mall culture and higher spending capacity, FMCG and food processing industry is witnessing phenomenal growth and hence domestic BOPP market is also growing @ 15~20 % per annum. Moreover, as per capita BOPP consumption in India is much lower compared to western and other Asian countries, the potential for demand growth is quite high. Secondly, company is looking to maintain its 18~20% growth in exports despite the rupee appreciation. However, rising crude oil prices may affect the margin of the company in future. In short, although no extra ordinary growth is expected for FY09, still it can register a topline of Rs 625 cr and bottomline of Rs 45 cr which leads to an EPS of Rs 20 on fully diluted equity of Rs 22.50 cr. Considering company’s leadership position, integrity of management, massive gross block of more than 450 cr, dividend yield, huge reserves etc, scrip is trading fairly cheap at an enterprise value of less than Rs 350 cr. Investors are advised to buy at current levels as scrip has the potential to appreciation 50% in 12~15 months.

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Grauer & Weil (India) Ltd - 110.00 Rs

Incorporated in 1957, Grauer & Weil India Ltd (GWIL) the flagship company of GROWEL group is one of the very few metal finishing houses world over, capable of offering an integrated package of chemicals, plants, effluent treatment systems and waste recovery techniques from spent solutions. In association and collaboration with renowned international partners like Serfilco-USA, Goema-Germany, Nippon Denro Shamrock-Japan, Hawkings-UK, Manz Galvano-Germany, Utikal-Germany, Sidasa-Spain and such other, GWIL has established a position of undisputed leadership in India with almost 50% share of the Indian electroplating market. It has divided its business model into following two segments.

Chemicals: GWIL produce more than 600 different metal finishing chemicals, spanning one of the widest ranges of applications for surface treatment. In addition it also offera a variety of intermediates used in the manufacture of plating chemicals.
Engineering: Under this division company offers a wide range of electroplating plants and equipments - from conventional stand-alone units to fully automatic programme controlled systems; integrated with effluent treatment, waste water recovery and re-circulation procedures. Be it for general plating, plating of printed circuit boards, continuous plating lines or pre-treatment/cleaning machines, company production programmes caters to all type of requirement for surface treatment.

Currently company is operating thru its four plants located at Vapi(Gujarat), Pune(Maharashta), Dadra and Barotiwala(HP). It is setting up a fifth plant with a capacity of 4000 MT in tax free zone of Jammu which is expected to become operational shortly. It also has full fledged R&D division equipped with sophisticated and analytical equipments and highly qualified / experienced technocrats. In near future, company is looking for diversification avenues in allied fields of surface treatment/finishes e.g. pre-treatment processes as also oils & lubricants.

However, apart from its above core business, GWIL has also ventured into real estate development from late 2003 and has got a 125,000 sq ft hi-tech mall (Growel’s 101) constructed on its own 10 acre surplus land in Kandivali – Mumbai. As on today the mall has become very popular and boasts of having high foot falls from suburbs for shopping as well as entertainment. The space has been leased out to Big Bazaar (Pantaloon) & Cinemax for which company earns a pure rental income of more than Rs 5 cr at the rate of around Rs 35 per sq ft per month. After tasting the success of its first venture and to cash on the burgeoning lease rental prices, company is aggressively constructing the Phase II, comprising a huge area of 300,000 sq ft. This is expected to get ready within this calendar year and will house large and small retail outlets, department stores, designer boutiques, fine dining restaurants, food courts, banqueting facilities, kiddie corners, beauty salons, health care centres, business hubs, ATMs, a cyber café, amphitheatre, and other specialty kiosks. Ironically, Phase – II is estimated to be leased out at an average rate of Rs 100 per sq ft per month. So, company may generate an additional rental revenue of around Rs 30~35 cr from Phase-II. After completion of Phase II, company intends to develop the last phase i.e. Phase - III which will be another 300,000 sq ft of area. So by early 2010, company may boast of developing and earning from 625,000 sq ft of Shoppertainment Mall. Apart from rental income company is also expected to get good revenue from various other promotional activities, advertising/branding inside the mall etc.

For FY08, GWIL is expected to report total revenue of Rs 185 cr and PAT of Rs 13 cr which leads to an EPS of Rs 10 on current equity of Rs 12.80 cr. But with operational of Jammu plant and Phase II, company is expected to register a topline of Rs 220 cr and bottomline of approx Rs 20 cr i.e. EPS of Rs 16 for FY09. Assuming there is no equity dilution; company has the potential to post an EPS of Rs 22 for FY10. Meanwhile at a reasonable discounting by 12x times against its FY09 earning scrip can shoot up to Rs 200 within a year. However only long term investors are advised to buy as any delay in construction of mall may restrict the short term rise in share price.

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