Shakti Met-Dor Ltd - 170.00 Rs

Incorporated in 1988, Shakti Met-Dor Ltd (SMDL) has established itself as India’s leading manufacturer of Performance Steel Doors. It offers a total door set solution, which includes design manufacturing, supply and installation of steel door sets. It primarily caters to infrastructure industry, information technology, power, textile, hotel, ITES, BPO, pharma, food processing and healthcare sector. Company’s product line includes complete range of general doors, scientific doors, fire doors, pure stainless steel doors, commercial doors and other special application doors that have been developed in consultation with leading architects, consultants and specifiers. By offering effective use of vision panels, hardware, ironmongery and unlimited range of paint finishes, SMDL products are far superior to other doors using traditional materials. Its special stainless steel doors are designed to meet harsh environmental exposure to chemicals, water, steam, laboratories, bottling plants, food processing plants, hospital surgery rooms and all humid environments. On the other hand their scientific door surpasses the most stringent requirements associated with industries like pharmaceuticals, hospitals and at the same time being aesthetic also. This is proven by the fact that Shakti doors are installed in the plants/offices of corporate biggies like Pfizer, Cadilla, Shanta Bio, Dr. Reddy’s, Cipla, GE Shipping, Nuclear Power Corp, HSBC, Citibank, DLF group, British High commission, Oberoi Hotels, Holiday inn, Bank of America etc. Incidentally, it has also been exporting Shakti Doors to other countries in the Middle East, Sri Lanka, Madagascar, Kenya Cyprus etc.

SMDL’s manufacturing plant is located at Gagillapuram, Andhra Pradesh. The company began operations with technical assistance from Martin Roberts of UK, however, since 1999, it has charted its own independent course. Today it possesses the technical expertise, innovative design capability and manufacturing facilities to fully satisfy every customer requirement. To maintain its leadership, company is regularly expanding its manufacturing capacity. After doubling the capacity to 40,000 units in FY06, company further augmented its installed capacity by 50% to 60,000 units in FY07. Due to robust outlook, it is now contemplating to take it to 200,000 units in couple of years. Notably, this ISO 9001: 2000 certified company is stream lining its operations by implementing ERP from SAP business software. Last fiscal it also commissioned the R&D centre and facilities training centre. On the export front, company is looking at South Asia, among other regions, as a possible growth area for its product and is actively exploring it. For future, SMDL is examining the feasibility of introducing new products to cater to the building industry which are wood substitutes and would also compliment the current products. Moreover, after getting expertise in various projects, company now provides consultancy for recommending suitable ironmongery and accessories to others.

The government’s special emphasis on infrastructure and the increase in FDI investments expected in this area as well as other industry segments, would result in a large market for company's products. Secondly, the aggressive growth plans of the pharma, healthcare and Information Technology industries will also help company in maintaining its growth over the next few years. Considering its first three quarter nos, it is expected to clock sales of Rs 70 cr and PAT of Rs 12 cr for FY08 which works out to an EPS of Rs 44 on a very tiny equity of 2.75 cr. Ironically, company hasn’t raised or diluted the capital since its public issue in 1994. At the CMP, scrip is trading at P/E ratio of merely 4x times. With 52 week H/L as Rs 378/160 and expected book value of Rs 125, scrip can easily shoot up Rs 275 (i.e. 60% appreciation) within a year. Moreover it’s a strong bonus candidate as well. Hence investors are strongly recommended to buy at current levels.

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STOCK WATCH

Elgi Equipment (55.00) is the market leader and Asia's largest manufacturer of air compressors and automobile service station equipment. Recently, it has reported very encouraging performance for March qtr. Sales improved by 20% to Rs 126 cr whereas PAT shot up 75% to Rs 10 cr. Accordingly, it registered a Net profit of Rs 39.50 on sales of Rs 421 cr for entire FY08. This leads to an EPS of Rs 6 on equity of Rs 6.30 cr having a face value as Rs 1/-. Against this it declared total dividend of 120% for FY08. To concentrate on each business segment company is hiving off its automotive equipment business into a separate wholly owned subsidiary called ATS-Elgi Ltd. For FY09 it is estimated to post an EPS of Rs 7 which means scrip is currently discounted by less than 8x times against its FY09 earnings. A solid buy for medium to long term.

3i Infotech (125.00) is the fourth largest Indian software products company offering a comprehensive range of software products & solutions primarily for banking, insurance, capital markets, mutual funds, telecom, manufacturing, retail & distribution industries. For the latest March qtr its revenue increased by 70% to Rs 352 cr and net profit jumped up 60% to Rs 50 cr. With significant growth anticipated in the transaction services business in India, company has set up a hub and spoke model spanning across the country with cost efficient delivery capabilities and is into processing of credit cards, insurance applications, contact point verification, soft collections, cheque clearing services, reconciliations, etc. As on date company is having a very healthy order book position of Rs 865 cr. For entire FY08 it recorded 80% and 75% growth in sales and NP to Rs 1223 and Rs 183 cr respectively. This translates into EPS of Rs 14 on current equity of 130.50 cr. However the EPS works to Rs 11 on fully diluted equity (conversion of all FCCB) of Rs 165 cr. Recently company has acquired a strategic stake of 26% in Hyderabad-based Locuz Enterprise Solutions Ltd for an undisclosed amount, with a commitment to acquire remaining stake over a period. A strong and a safe bet.

IMP Power (145.00) is engaged in manufacturing of entire range of power & tistribution transformers, electrical & digital measuring instruments, testing equipments etc. For the March’08 qtr it reported 45% rise in sales to Rs 39 cr whereas PAT increased by 30% to Rs 3.10 cr. To maintain its growth momentum company has undertaken 28 cr capex for expansion of its manufacturing facilities situated at Silvassa from existing 3,600 MVA to 6,000 MVA. It is also contemplating to increase it meter manufacturuing capacity by nearly 50% to 315,000 units. For FY08 ending June 2008, it is expected to report a topline of Rs 150 cr and bottomline of Rs 12.50 cr i.e. EPS of Rs 18 Rs on current equity of Rs 6.80 cr. Whereas the EPS works out to Rs 15 on fully diluted equity (post conversion of all warrants and CCRP) of around Rs 8.50 cr. After hitting a high of Rs 330 in Jan’08 scrip has tumbled down 50% and is available at attractive valuation now. Keep accumulating at declines.

Few days back Honda Siel (240.00) announced decent set of nos as sales grew by 10% to Rs 84 cr whereas PAT increased by 255 to Rs 8 cr. Accordingly for full year it registered 10% growth in sales to Rs 252 cr but the net profit shot up 40% to Rs 24.70 cr on back of higher other income to the tune of Rs 15.50 cr. Hence it posted an EPS of Rs 24 on equity of Rs 10 cr. Being a 67% subsidiary of Honda Motor Co. Japan, company is the undisputed leader in the field of portable generators with its “HONDA” brand commanding more than 70% market share. Infact company boasts of launching India’s first LPG run gensets which is doing extremely well along with its super silent series. To consolidate the manufacturing operations company is shifting its Rudrapur (Uttaranchal) plant to its factory at Greater Noida in Uttar Pradesh. Hence apart from production loss company is also incurring substantial costs which it will provide in coming years. So it is estimated to clock an EPS of Rs 26 for FY09 with sales of Rs 300 cr and PAT of Rs 26.50. At a reasonable discounting by 12x times scrip can shoot upto Rs 320 in 9~12 months

Smart Investments (Guj)

Sundaram Brake Lining Ltd

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Pioneer Distilleries Ltd

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Small & Beautiful (Guj)

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Simplex Casting (72.00) 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. Hence 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.

Amar Remedies (31.00) is one of the well known manufacturer of ayurvedic, herbal and cosmetic dental care, personal care, skin care, beauty care & health care products like tooth paste, toothpowder, shampoo, creams, lotions, shaving gel, balm & pain relieving ointment. Besides, it has successfully developed 24 different ayurvedic and herbal medicines and has also obtained the FDA approval for the manufacture and sale of these medicines, which include medicines for hypertension, diabetes, and heart ailments. It reported excellent figures for the March qtr as sales jumped up 70% to Rs 73 cr and PAT increased by 40% to Rs 5.60 cr. Unfortunately company is yet to start commercial production at its newly set up Dehradun facility as it is awaiting the clearance certificate from pollution control authorities. On the back of aggressive capex it has tripled its gross block from Rs 35 cr to almost Rs 100 cr now. For FY08 ending June 2008, it is expected to register sales of Rs 300 cr and PAT of Rs 20 cr i.e. EPS of Rs 8 on equity of Rs 26.20 cr. A safe bet in current market sentiments.

Bihar Caustic (78.00) recorded disappointing nos for the March qtr as 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 de-bottlenecking. 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.

Ansal housing (205.00) has been the pioneer to introduce the concept of large integrated residential townships in the country and also the first to enter Tier - II & III cities like Ghaziabad, Noida, Allahabad, Lucknow, Ludhiana, Agra, Bhopal, Haridwar etc. Till now company has constructed massive 67.6 million square feet of commercial and residential project across India. Further, it has lined up gigantic 56.10 million sq. ft of development (80% in the residential segment) spread over 22 cities in the next five years. Recently, it has launched residential townships branded as “Ansal Town” across several cities. It will also be developing an I.T. Park in Bangalore apart from venturing into construction of budget hotels and serviced apartments. Currently, company has a rich land bank of 2500 acres with about 50% under its own name while the rest under firm collaborators agreement. Notably, the total value of the projects with the company and under joint ventures is massive 6000 crores. Of late company has made a pref allotment of 17 lac warrants to promoters @ 208 Rs and 29.50 lac warrants @ Rs 225 to others. For FY08 on a standalone basis it may register a topline of Rs 260 cr and bottomline of Rs 55 cr i.e. EPS of Rs 31 on current equity of Rs 17.50 cr. A good bet in real estate sector.

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Pitti Laminations Ltd - 48.00 Rs

Established in 1983 and promoted by Mr Sharad Pitti, Pitti Laminations Limited (PLL) is primarily engaged in manufacture of electrical steel laminations and stampings which form a critical part in all types of industrial motors, alternators, pump sets, aeronautics, windmill generators and DG sets. Besides it also manufactures die cast rotors, press tools, progressive tools, jigs, fixtures and moulds as per customers requirement. IT even produces small laminations via High Speed Press for compressors. It is supplying not only laminations but also value added sub-assemblies involving several operations using castings, aluminium, copper etc. On the domestic front, the company has been catering to some of the biggest and best names in the industry which include Siemens, Areva T&D, Crompton Greaves, ABB, BHEL, KSB Pumps, Bharat Bijlee, Kirloskars, Suzlon etc. On the other hand exports contribute more than 40% of revenue with GE (USA) being one of its major customers. Further, pursuing its goal of broadening the customer base in the overseas market PLL is regularly participating in the exhibitions and negotiations are on at various stages, with a few prospective customers in Europe and USA.

PLL’s manufacturing facilities at Hyderabad; Andhra Pradesh is equipped with all modern support equipment for press shop, notching shop and tool room. After regular expansion and modernization, company’s total installed capacity currently is 25,000 MTPA. However for FY08 it is estimated to have made sales for 18000 MTPA. Meanwhile, to leverage its considerable expertise and competitiveness and move up the value chain, company has implemented certain forward integration measures and activities related to the laminations industry. Earlier it was outsourcing the fabricated and casted stator bodies and was also out sourcing the machinings, but now under Phase III expansion of Rs 48 cr it has put up a project for fabrication of steel stator bodies, machining of stator bodies and dropping of assembled stator core into the stator body. However it will continue to outsource the casted bodies. These forward integration activities were quite complex and demanded a high degree of precision but eventually it will result in value addition and significant improvement in the margins. Notably, this Phase-III expansion was completed only in Jan 2008 and is done basically to cater its GE (USA) client and other big domestic customers. Interestingly, company has taken approval to diversify its business so as to include generation of power by way of wind energy, solar energy, thermal energy, hydro energy, bio energy or any other form or source of energy.

Earlier, to fund the expansion, company raised around Rs 14 cr thru preferential allotment of 12 lakh equity shares @ 120 Rs per share. Now, PLL is having no capex plan for next two years at least as it is having sufficient capacity to fulfill customers demand. For FY08 it is expected to report sales of Rs 160 cr and NP of Rs 7.50 cr. This translates into EPS of Rs 8 on equity of Rs 9.45 cr. Because of the sharp rupee appreciation during the year, company took a hit of almost 300 basis points on its operating margin. But on the back of forward integration with increased volumes and management taking various steps to avoid forex loss, it can report better margins for FY09 and is estimated to clock sales of Rs 200 cr and PAT of Rs 11 cr i.e. EPS of Rs 12. Considering the book value of Rs 55 and market cap of merely Rs 45 cr scrip is available fairly cheap at a PE ratio of 4x times against its FY09 earnings. Moreover company is currently entered into its silver jubilee year and may reward shareholders with bonus or special dividend. Investors are recommended to buy with a price target of Rs 75 (i.e. 50% returns) within a year.

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