STOCK WATCH

HBL Power Systems (300.00) is the leader in design, development and manufacture of industrial & specialized batteries, allied electronic products and DC systems in India. 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 it is among the very few companies in the world making ultra high specialties batteries for military use like thermal, reserve and torpedo batteries. Ironically, it stands 3rd globally for Nicad Passenger aircraft batteries and ranks 2nd for industrial alkaline batteries. Apart from supplying various batteries for train lighting, air conditioned coaches etc, of late company has designed and developed wide range of microprocessor based signaling products and power systems to cater to the needs of Indian Railways. Recently company has put up two new factories at Vizianagaram and SEZ Vizag in Visakhapatnam under a capex of Rs 150. For FY08, it is expected to clock a turnover of Rs 1000 cr and NP of Rs 72 cr leading to an EPS of Rs 30 on equity of Rs 24.30 cr. A solid bet.

For the latest March qtr, JK Lakshmi (112.00) reported 10% growth in sales as well as profit to Rs 291 cr and Rs 68 respectively. Accordingly, for the entire FY08 its sales was up 30% to Rs 1107 cr and PAT increased by 25% to Rs 224 cr. This leads to an EPS of Rs 37 on equity of Rs 61 cr. On this it declared a total dividend of 25% for the year. To maintain its momentum company is expanding its cement capacity to 5 million from 3.6 million tonne by end of this calendar year. On the other hand, it is betting high on its lucrative RMC business and intends to add 5 more RMC plants in the current fiscal thereby taking its total number of RMC units to 14. Moreover it has replaced its high cost debts by cheaper funds and has considerably reduced its interest cost. By 2011, company plans to complete the setting up of 2.70 million tonne Greenfield cement plant at Chhattisgarh under a capex of Rs 1100 cr and has already got the limestone mining lease approval. Despite govt’s interference to control the cement prices, this company is expected to grow at a healthy pace in coming years.

Simplex Casting (71.00) is engaged in manufacturing of heavy engineering castings in various grades for industries like steel, rail, mining, cement, power and other engineering sectors. To derisk its business model company is now moving up the value chain and is venturing into the machined castings. This will improve the margins going forward and will also lead to addition of new clients which seek the machined components. For the March qtr although its sales improved by 10% to Rs 44 cr but PAT declined marginally to rs 2 cr. However for the full year it recorded 10% and 30% growth in sales and NP to Rs 150 cr and Rs 7.40 cr respectively. Hece it posted an EPS of more than Rs 12 on equity of Rs 6 cr. Couple of month back it bagged a prestigious order worth Rs 14 cr from Indian railways for supply of coco bogies and expects to get more such order in future. Currently it has a very healthy order book position of Rs 120 cr which includes export orders worth Rs 30 cr. Interestingly it has plans to venture into project execution and turnkey business of steel plants and also intends to forward integrate into valve manufacturing business, which is a very high margin business. Although rising input cost is a cause of concern, still it’s a decent buy at current levels.

In the last few months, price of newsprint have shot up nearly 40% and is being sold at more than Rs 35000 per tonne. This augurs well for Rama Paper (23.00) as it derives nearly 60% revenue from newsprint segment. Its 6 MW co-generation captive power plant is fully operational now. Further company has undertaken expansion project of putting MG Machine to manufacture Tissue / Poster Paper thru a capex of Rs 24 cr. In the last two years, promoter have infused more than Rs 15 cr of their own money by taking preferential allotment of 45 lac equity shares @ 35 Rs per share. However, despite 500 basis point improvement in operating margin, company reported flat numbers for FY08 due to substantial increase in interest & depreciation cost. Its sales and PBT remained flat at Rs 84.50 cr and Rs 8 cr respectively. But, on the back of lower tax provisioning its PAT was up 90% to Rs 7 cr posting an EPS of Rs 7 for FY08. It is expected to declare 10% dividend which means a good yield at CMP. Buy at sharp declines.

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Elgi Equipment Ltd
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Amar Remedies Ltd
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Small & Beautiful (Guj)

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On year on year basis, March’08 quarter nos of Tera Software (50.00) looks very disappointing as revenue declined by nearly 50% to Rs 16 cr and PAT fell by 40% to Rs 3 cr. But if we see quarter on quarter basis it reported highest sales among all the four quarters of FY08. So it implies that company may have completed some big e-governance project in last March ’07 quarter. Still for the entire FY08 company has posted marginal growth in revenue to Rs 59 cr and 15% increase in PAT to Rs 12.25 cr after making highest tax provisioning of 38%. It reported an EPS of Rs 11 on equity of Rs 12.50 cr and is expected to declare 25% dividend for the fiscal. Of late, 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. Looking at its strong order book position it may end FY09 with sales of Rs 75 cr and profit of Rs 16 cr i.e. EPS of Rs 13. Secondly, as per reliable source company is looking to dispose off its 20 acre surplus land in Hyderabad which is worth Rs 40 cr. Once the deal is finalized, share price will shoot up vertically.

Hind Rectifiers (130.00) is one of the leading manufacturers of locomotive transformers, rectifiers, inverters, and power electronics like diodes and thyristors (types of semiconductor devices) etc which are basically used in converting the current from AC to DC and vice versa. Incidentally, it derives more than 50% of its revenues from railways and 20% from power industry. Offlate, company has set up two new units in tax free zone of Uttranchal and has just begun the commercial production at these plants. Moreover, recently company has signed a technical collaboration agreement with M/s. Infineon Technologies AG, Germany for manufacturing of IGBT based primeSTACK which will complement its existing products. 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. Importantly, company is estimated to report an EPS of nearly Rs 20 for FY09 and at a modest discounting by 12x times share price can double in 12~15 months.

Gontermann Piepers Ltd (60.00), 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 up to Rs 100 in 6~9 months.

Indo Asian Fuse Gear (98.00) 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 distribution business on behalf of state electricity board 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 current equity of Rs 15.30 cr. At an EV of Rs 225 cr its available fairly cheap.

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ANG Auto Ltd - 95.00 Rs

ANG Auto Ltd (ANG) was established in 1991, primarily as a merchant exporter in the name of ANG Exports, to market automotive component to some of the USA based companies. Subsequently, it set up a plant to manufacture brake pins & rollers, camshafts, brake shoes and other critical components like dummy axles, gear sets, slack adjusters etc. Later in 2005, it further widened its product portfolio by merging two of the group companies namely ANG Auto pvt ltd and ANG Automotive Industries pvt ltd with itself. Today, under the dynamic leadership of Mr. Premjit Singh, ANG 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. It boasts of having a portfolio as vast as 15 different products with expertise in two critical auto-component families i.e. braking system and transmission system for heavy commercial vehicles, trailers and other vehicles. Notably, with the commencement of its trailer plant in April 2007, ANG has become the largest trailer manufacturing company in India with a capacity of 3600 trailers per year, against a cumulative competing capacity of 600 trailers per year.

As on today, ANG has eight world class manufacturing facilities with five units in Noida, one in Nalagarh-HP, one in Faridabad-Haryana and latest trailer manufacturing unit in Sitarpur-Uttranchal. From July 2007, company started producing trailer axles based on a new friction welding technology which is first of its kind in India. Off late, it also launched two unique products viz. the automatic slack adjuster and the single piece dummy axle which have become the major growth drivers for the company. Its automatic slack adjusters offers a continuous running life of 75,000 km (before adjustment) compared with the prevailing industry standard of about 20,000 km and has even got a US patent for that. Now, ANG is among the selected companies in the world, having a patented Auto Slack that too developed and engineered by its in-house technical team. However the biggest achievement by the company is its trailer manufacturing plant set up by ANG Auto Tech, a 75% subsidiary in collaboration with FUWA Engineering of China. Unbelievably the entire trailer, except for the tyre, rim and spring leaf is manufactured in-house, enhancing asset utilization, cost management, quality control and superior return on employed capital. Hence, within four months of the commencement of operations, ANG possesses the expertise to offer 18 trailer variants in multiple configurations (24 ft, 32 ft, 36 ft and 40 ft) and customized around different payloads with different structures and attachments for diverse applications. In order to be the largest trailer manufacturer in Asia, ANG is augmenting its capacity to 6000 trailers per year with an investment of 36 cr and is expected to operating in the current year. This product commitment resulted in Ashok Leyland selecting the company for an alliance partnership whereby ANG would manufacture trailers and Ashok Leyland would market them as a co-branded product. This five year contract is valued at 1500-1800 cr, which is a huge breakthrough for ANG.

Currently 70% of revenue, ANG derives from exports to quality conscious US and European markets in addition to Australia, Brazil and Mexico, among others. Going ahead, company has drawn out a blueprint to extend one step further to the manufacture of suspension systems and is also looking for backward integration to set up a forging unit at Bhiwadi, Rajasthan at capex of Rs 37. To consolidate its operations further, company has decided to merge ANG Auto Tech also with itself. Incidentally, the market for trailers in India is virtually unexplored although it forms a major mode of logistic solution in developed economies due to cost and various other factors. Therefore with the massive investment & rapid developments taking place in road infrastructure, the future prospect of trailers is mind boggling. Earlier in May 2007, company raised around 50 cr thru FCCB route to be converted into equity shares @ 325 Rs per share. However due to industrial slow down & rising input cost, it may end FY08 with sales of Rs 120 cr and PAT of Rs 16 cr on standalone basis. This translates into EPS of Rs 13 on current equity of 11.90 cr where diluted EPS works to Rs 12. Meanwhile, as ANG Autotech has started commercial production of trailers from last fiscal only, future prospects looks promising. Finding the valuations very cheap, management has taken 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, but is yet to begin the actual buying. Hence, investors are recommended to buy at current levels as scrip has the potential to appreciate 50% from hereon in a year’s time.

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Patels Airtemp India Ltd - 58.00 Rs

Incorporated in 1973, Patels Airtemp (India) Ltd (PAL) is one of the leading designers, manufacturers and suppliers of the complete range of heat exchangers such as shell & tube type, finned tube type and air cooled heat exchangers, pressure vessels, columns & air-conditioning and refrigeration equipments like coils, air handling units, fan coils, fans & blowers, condensers & chillers etc. It also makes Dow therm condensers, inter coolers & after coolers, oil coolers, air heaters, HP & LP feed water heaters, LPG bullets etc. All these industrial process plant equipments are supplied to leading industrial sectors like power projects, refineries, fertilizers, cements, petrochemicals, engineering, pharmaceuticals, textiles, chemical etc. Importantly, the company also undertakes turnkey projects in the highly specialized and related area of Humidification, Ventilation and Air-Conditioning i.e. HVAC. Its expertise in HVAC project includes industrial air conditioning, pharmaceutical plant air conditioning, textile humidification, pressurization and ventilation systems, evaporative cooling systems etc. Besides, it also undertakes project work for air-conditioning multiplexes, offices, educational institutions, halls, theaters, hospital etc.

PAL has two manufacturing units in Gujarat – one at Mehsana and another at Ahmedabad. It has technical collaboration with M/s. TEK FINS Inc., USA, for design and manufacture of air-cooled heat exchangers. To support its turnkey HVAC projects, the company has even backward integrated its facility to manufacture package air conditioners, ductable air-conditioners, split air-conditioners, window air-conditioners etc. to cater to the domestic industrial segments. Importantly, all the products that it manufactures in the plant are designed in-house using the most advanced software. The company is accredited by the American Society of Mechanical Engineers (ASME) and the National Board of Boilers & Pressure Vessels. Hence its products have the coveted ASME `U' Stamp authorization. It maintains quality standards to satisfy third party inspections from leading agencies such as Lloyds, EIL, BVIS, IBR, CCOE, PDIL, LINDE, H&G, Technimont ICB, UHDE, CHEMTAX, BAXCOUNSEL etc. For updating its heat transfer technology, it has also become member of HTRI (Heat Transfer Research Inc., USA). It caters to a very huge clientele including leading companies from across the industry and is an approved supplier for most of them. Although miniscule, it also exports equipments to Germany, Italy, Indonesia, Srilanka, UAE, Jordan UK, Ukraine etc.

Due to strong industrial growth and the fast growing economy, this engineering fabrication company is doing extremely well. For the first nine months ending 31st December 2007, its sales improved by 20% to Rs 36 cr but its Net profit shot up 130% to Rs 3.70 cr on back of better operating efficiency and lower interest cost. Accordingly it is expected to end FY08 with a topline of Rs 50 cr with bottomline of around Rs 5 cr. This works out to an EPS of Rs 10 on its equity of Rs 5 cr. Considering its healthy order book position company is estimated to register 20~25% growth in FY09 which means an EPS of Rs 12~13. Currently this fast growing engineering company is trading fairly cheap at a P/E multiple of less than 6 and is available at a market cap of merely Rs 30 cr. Investors are strongly recommended to buy this scrip at current levels with a price target of Rs 100 within a year.

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