STOCK WATCH

Shree Ganesh Forgings (40.00) 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. Last year company had 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 for FY08 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.

Last week, TNPL (98.00) came out with decent ste of nos for the March qtr. Sales improved by 10% to Rs 250 cr and PAT increased by 25% to Rs 27.40 cr. For the full year also it registered 10% growth in turnover to Rs 939 cr and 30% rise in net profit to Rs 113 cr, thereby posting an EPS of Rs 16 on equity of Rs 69.20. Despite having significant debt on its book, company follows good dividend payout ratio and declared 45% dividend (incl. interim) for FY08 giving a yield of 4.5% on CMP. Notably, company has completed the phase-I of its mill development plan and its current production capacity stands at 260,000 TPA for pulp and 245,000 YPA for paper. By putting up a turbo generator of 20 MW and taking its total power generation capacity to 86 MW, company has made itself sel-reliant for entire power needs including additional power requirements for anticipated growth for the next few years. In order to further de-risk its exposure to volatile wood pulp prices, company is estimated to have raised its pulpwood plantation by another 12000 acres thereby taking the total to around 31000 acres. Moreover it is setting up a mini cement plant having a capacity of 400 tpd for producing high grade cement using the lime sludge and fly ash generated in the process of manufacture of paper. It is also contemplating to construct an IT Park measuring an office area of 4 lakhs sq. ft. on its surplus land in suburb of Chennai. A good bet in paper sector.

SEAMEC (150.00) is expected to register good growth in revenue for FY08 ending Dec 2008, as there will be no dry dock and all vessels will be working. Its first vessel is deployed with Dolphin offshore for two years @ US$ 23,333 per day, third vessel is hired by M/S Superior Offshore @ US$ 55,555 per day whereas fourth vessel has been let out @ US$ 105,555 per day to M/s Sime Darby Engineering, Qatar. However its second vessel is under dry dock due to explosion / fire and is expected to be ready shortly. Meanwhile company has reported poor performance for the first qtr ending March 2008 as it reported a loss of Rs 17 cr with a decline in revenue by 40% to Rs 35 cr. Still it is expected to register total revenue of Rs 250 cr and PAT of Rs 55 cr on conservative basis for CY08. On the back of robust outlook company is planning for 1 more acquisition of vessel by end of this calendar year. Due to strong cash flow and debt free status funding the acquisition is not an issue for the company. 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. keep accumulating at sharp declines

Pondy Oxides (23.00) is one of the India's leading metallic oxides and plastic additives producers. It is basically engaged in manufacturing of Zinc oxide, Lead sub Oxide, Litharge Red lead and solid and liquid stabilizers of PVC. Infatc it boasts of number one position in the industry with a market share of about 30% in Plastic Additives division. Recently company declared robust nos for the March quarter. Sales jumped up 30% to Rs 41 cr whereas net profit increased by 60% to Rs 1.30 cr. Accordingly it ended FY08 with sales of Rs 170 cr and PAT of Rs 4.50 cr registering an EPS of Rs 4.50 on equity of Rs 10 cr. To concentrate on its core business it has decided to dispose of its battery unit in Tamilnadu. Last year company got itelf backward integrated by setting up manufacturing unit for Lead smelter thereby minimizing the cost of input to the optimum level. For FY09 it may clock a turnover of Rs 200 cr and profit of Rs 6 cr i.e. EPS of Rs 6 on current equity. Its trading fairly cheap at an EV of around 40 cr.

Kolte-Patil Developers Ltd - 110.00 Rs

Founded by Mr. Milind Kolte & Mr. Rajesh Patil in 1991, Kolte-Patil Developers Ltd. (KPDL) is a well known real estate development company in India that develops and constructs properties mainly in Pune and Bangalore. Till now it has developed and constructed 25 projects (22 in Pune and 3 in Bangalore) which constitutes 16 residential complexes, 4 commercial complexes, 3 commercial cum residential use and 2 IT parks covering a total of approximately 4 million sq. ft. of saleable area. As on today, it has presence in the entire gamut of construction ventures like residential projects, integrated townships, IT parks, commercial complexes and hospitality sector. Infact, company has even received the Government of Maharashtra’s First Prize for “Best IT Infrastructure in the State of Maharashtra” for its GigaSpace IT Park project in Viman Nagar, Pune.

To capitalize the ongoing boom in the real estate sector, KPDL has very aggressive plans of investing nearly Rs 3650 cr in coming 5~6 years. Currently it’s in the midst of developing 28 projects (24 in Pune and 4 in Bangalore), with a total saleable area of around 18 million sq. ft. (on 22 million sq. ft. of land area) consisting of 10 residential complexes, 11 commercial development, 5 IT parks, 1 integrated township & 1 service apartment. In other way, out of these 18 million, township accounts for 42%, residential projects contributes 35%, commercial adds 11%, IT parks 10% and the rest coming from service apt. Notably, for funding the projects KPDL has entered into a joint venture agreement with ICICI Venture Funds company for development of three of its larger project namely - 400-acre Township at Hinjewadi, Pune, 1.1 million sq. ft. IT Park at Kharadi, Pune and Bungalows scheme in 80 Acres area at Wagholi, Pune. Besides it has formed a joint venture with UK based Real Estate Fund - K2 Property Limited (subsidiary of Yatra Capital) for development of residential properties at Pune. Additionally, it has signed a term sheet with Arora Holdings of UK for setting up of two hotels - one in Pune and other in Bangalore with total investment of Rs. 600 cr. Apart from above 28 projects (18 million sq. ft.), KDPL has also entered into MOU or has acquired development rights for additional 22 million sq. ft. of saleable area on 33 million sq. ft. of land in and around Pune and Bangalore. Although the actual land bank owned by the company is less than 15 acre but the development right is equivalent to whopping 755 acres of land. With this company has a total developable space of almost 40 million sq. ft (18 million + 22 million). These reserves are likely to provide the company secured development pipeline for the next 5-6 years, ensuring the profitability of the company going forward.

For acquisition of development rights & to fund its ongoing project, KDPL raised Rs 275 cr in Nov 2007 via IPO route @ Rs 145 per share. Financially, company is doing extremely well and has ended FY08 on quite a buoyant note. Revenue jumped up 60% to Rs 369 cr and net profit shot up 55% to Rs 129 cr. This translates into EPS of Rs 17 on equity of Rs 75.30 cr. But importantly company is at the inflexion point and is estimated to register phenomenal growth in coming years. For FY09 it has the potential to clock a turnover of Rs 650 cr and profit of Rs 160 cr which works out to an EPS of Rs 21 cr on current equity. Because of the apprehension about sustainability of high real estate prices, most of the housing construction scrips are poorly discounted on the bourses. But at a modest discounting by 8x times against FY09 earnings, scrip has the potential to touch Rs 175 within a year. Investors are recommended to buy at current levels and add on sharp declines.

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Smart Investments (Guj)

Kolte-Patil Developers Ltd

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Shakti Met-Dor Ltd

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Small & Beautiful (Guj)

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Last week, TNPL (98.00) came out with decent set of nos for the March qtr. Sales improved by 10% to Rs 250 cr and PAT increased by 25% to Rs 27.40 cr. For the full year also it registered 10% growth in turnover to Rs 939 cr and 30% rise in net profit to Rs 113 cr, thereby posting an EPS of Rs 16 on equity of Rs 69.20. Despite having significant debt on its book, company follows good dividend payout ratio and declared 45% dividend (incl. interim) for FY08 giving a yield of 4.5% on CMP. Notably, company has completed the phase-I of its mill development plan and its current production capacity stands at 260,000 TPA for pulp and 245,000 YPA for paper with 86 MW power generation facilities. Further company is estimated to have raised its pulpwood plantation by another 12000 acres thereby taking the total to around 31000 acres. Moreover it is setting up a mini cement plant having a capacity of 400 tpd for producing high grade cement using the lime sludge and fly ash generated in the process of manufacture of paper. It is also contemplating to construct an IT Park measuring an office area of 4 lakhs sq. ft. on its surplus land in suburb of Chennai. A good bet in paper sector.

Belonging to well known Firodia group , ZF Steeering (170.00) is market leader in both mechanical and hydraulic power steering gears especially for commercial vehicles and tractor industry. In view of encouraging response from the automobile manufacturers, company is in the midst of further expanding the production capacity to 300,000 units of power steering gears and 150,000 units of mechanical steering gears from 240,000 and 120,000 units respectively. Ironically, ZF has still not tapped the global market which presents a huge opportunity to be explored in future. For FY08 it registered very marginal growth in sales as well as net profit to Rs 223 cr and Rs 27.85 cr respectively. Still this works out to an EPS of Rs 31 on equity of Rs 9.07 cr. Considering its debt free status with healthy cash EPS of Rs 45, huge reserves of Rs 100 cr, strong promoter holding, high dividend yield, company is available extremely cheap at Enterprise value of Rs 155 cr i.e. at an EV/EBIDTA of merely 3x times

Murudeshwar Ceramics (62.00) is one of the leading manufacturers of vitrified tiles, ceramic tiles and granites in India with its popular brand 'NAVEEN’. On the back of constant expansion, its present capacity stands at 6.3 million sq mtr of vitrified tiles, 2.7 million sq mtr of ceramic tiles and only 72,000 sq mtr for granites. It is expected to report a topline of Rs 240 cr and bottomline of Rs 26 cr on conservative basis for FY08 i.e. EPS of Rs 15 on equity of Rs 17.50 cr. Notably, its Cash EPS stands at whopping Rs 30. As current fiscal being a silver jubilee year for the company, it may declare liberal bonus for its shareholders. At CMP, scrip is trading at a P/E ratio of merely 4x times with EV/EBIDTA also around 4 times as the Enterprise value works out to Rs 400 cr which is far below its gross block value of Rs 470 cr. However, icing on the cake is the 20 acres surplus land owned by the company near electronic city where it intends to develop IT park. Share price can easily double in 12~15 months.

Patels Airtemp (60.00) is engaged in the manufacture and sale of extensive range of heat exchangers such as shell & tube type, finned tube type and air cooled heat exchangers, pressure vessels, air-conditioning and refrigeration equipments and turnkey HVAC projects in India & marketing of equipments even outside India. It has technical collaboration with M/S. TEK FINS Inc. USA for design and manufacture of air cooled heat exchangers. It supplies to core industrial sectors like power, refineries, fertilizers, cements, petrochemicals, pharmaceuticals, textiles and chemical Industries. For future growth company is concentrating more on high value added engineering products and has even got its product the coveted ASME `U' Stamp authorization. For Fy08 is expected to register a topline of Rs 50 cr and profit of Rs 5 cr for FY08. This leads to an EPS of Rs 10 on current equity of Rs 5 cr. As scrip has been consolidating for long time it has made a strong base and can shoot up 50% in 6~9 months.

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Z F Steering Gear (India) Ltd - 170.00 Rs

Belonging to well known Firodia group of Kinetic fame, Z F Steering Gear India Ltd (ZF) was incorporated in 1981 to manufacture mechanical - worm & roller and power steering gears in financial and technical collaboration with M/s. ZF Friedrichafen AG Germany, world's largest independent steering gears manufacturer. Today, ZF is market leader in both mechanical and hydraulic power steering gears especially for commercial vehicles and tractor industry. Its product range includes ball and nut power steering gear, rack and pinion power steering gears, worm and roller manual steering gears, intermediate shafts, vane pumps, steering columns, bevel gears box, universal joints, servocom steering gear etc. It has an enviable clientele including all auto majors like Tata Motors, Ashok Leyland, M&M, Eicher Motors, Escorts, Bajaj Tempo, Swaraj Mazda, PunjabTractors, Volvo, L& T John Deere, New Holland etc. Off late, it has entered passenger car segment by supplying rack & pinion power steering gears for ‘Indica’ car. In near future, company is looking to develop new products such as collapsible steering column for cars, telescopic steering columns for HCV, aluminum pump for higher HP engines, pump parts localization etc

ZF’s state-of-the-art manufacturing plant at Pune-Maharashtra is equipped with advanced specially designed machinery from ZF Germany for manufacturing critical components and has its own in-house heat treatment facility consisting of sealed quench furnaces, pit carburised furnaces for case carburising, nitriding etc. To cater the rising demand, company has expanded its installed capacity of power steering fears from 150,000 to 240,000 per annum and of mechanical steering gears from 100,000 to 120,000 per annum at a capital expenditure of approx. Rs. 7 crore. Moreover, in view of encouraging response from the automobile manufacturers, ZF is in the midst of further expanding the production capacity to 300,000 units of power steering gears and 150,000 units of mechanical steering gears. Secondly, it has entered into a 26:74 joint-venture with its collaborator ZF Lenksysteme, GmbH, to promote a new company for developing and manufacturing new products which will be different and not competing with its current product range. Importantly, sales of commercial vehicles are increasing due to improvement in road-infrastructure and also the ruling of Supreme Court to ban overloading of commercial vehicles. It recorded a growth of 33%, producing 520,000 vehicles during 2006-07 compared to 391,083 vehicles in the previous year. On the other hand, tractors also recorded 20% rise in sales on the back of increased focus by the government in providing subsidies. Thirdly, with India emerging as the hub for small-car manufacturing, many players have announced capacity expansions and many new international-players have taken initiative in setting-up their state-of-art production facilities in India. And since ZF’s future prospects are closely linked to the demand for commercial vehicles, multi-utility vehicles and tractors, it is expected to do much better in the coming years.

Financially, ZF is by and large a debt free company. Infact, it has invested around 37 cr in unlisted firms which yields handsome dividend in form of other income. Promoters currently hold about 72% of the equity, of which German collaborator is holding 26% stake and Bajaj Tempo holding nearly 10% stake. Management of the company is very professional and investor friendly with an impeccable track record of uninterrupted dividend payment since last two decades. For FY08 they have again announced 80% dividend which gives a yield of almost 5% at CMP. Ironically, ZF has still not tapped the global market which presents a huge opportunity to be explored in future. At the same time with zero revenue from exports it is not affected by the sharp rupee appreciation unlike other auto ancillary companies. For FY08 it registered very marginal growth in sales as well as net profit to Rs 223 cr and Rs 27.85 cr respectively. Still this works out to an EPS of Rs 31 on equity of Rs 9.07 cr. Considering its debt free status with healthy cash EPS of Rs 45, huge reserves of Rs 100 cr, strong promoter holding, high dividend yield, company is available extremely cheap at Enterprise value of Rs 155 cr i.e. at an EV/EBIDTA of merely 3x times. However import of cheaper power steering gears from China and steep rise in raw material cost is a big threat to the company. Investors are advised to buy for a price target of Rs 240 (i.e. 40% return) in 12~15 months.

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