STOCK WATCH

Once again Shakti Metdor (155.00) has come out with encouraging set of nos for the March quarter. Sales improved by 25% to Rs 21 cr and PAT shot up 40% to Rs 3 cr. For the entire year it registered a growth of 15% in sales to Rs 73 cr and 20% rise in profit to Rs 12.50 cr thereby registering an EPS of Rs 45 on a very tiny equity of Rs 2.75 cr. However, for FY08 company has announced a dividend of 30% same as last year with a poor divided payout ratio of less than 7%. Company is a market leader in making special scientific doors, fire doors, stainless steel doors and general doors. In short it is one shop stop for total door solutions. It primarily caters to infrastructure industry, information technology, ITES, BPO, pharma and healthcare sector. To maintain its leadership, company is regularly expanding its manufacturing capacity and is contemplating to triple its capacity to 200,000 units of door from 60,000 units currently. 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. Despite the rise in steel prices, company is estimated to maintain its bottomline to around Rs 13 cr on sales of Rs 85 cr i.e. EPS of Rs 47 for FY09. Secondly with a huge reserve of around Rs 35 on such a small equity, scrip is ripe for bonus as well. Accumulate at declines.

Last week International Combustion (375.00) announced decent set of nos for the March quarter as sales grew by 20% and profit increased by 25% to Rs 29 cr and 3.50 cr respectively posting an impressive EPS of Rs 14.50 for the single quarter. For the entire year sales was up by 20% to Rs 95 cr and PAT was up by 40% to Rs 11.75 cr. This translates into EPS of Rs 49 on a very small equity of Rs 2.40 cr. It has declared 50% dividend same as last year. Company is recognized as a leading manufacturer of sophisticated plant and machinery for core sector industries such as mining, steel, cement, petrochemical, construction, sugar, power, textile, paper, rubber, pharma, chemicals etc. It is engaged in manufacturing of heavy engineering equipment, geared motors and gear boxes, vibrating screens and feeders, bulk material handling equipment, rubber/polyurethane screen decks and liners, Raymond grinding mills, air classifiers and flash drying system etc. On the back of its wide product range and high engineering skill, it is contemplating to enter the lucrative turnkey project segment in foreseeable future. It may end FY09 with sales of Rs 110 cr and NP of Rs 13.50 cr i.e. EPS of Rs 56 on current equity. Besides being a debt free, it also has an impressive ROCE of 40% and ROE of 25%. At a reasonable discounting by 12x times scrip can shoot up Rs 675 in 12~15 months.

Couple of days back HBL Power (248.00) declared excellent result for the March qtr. Sales shot up 70% to Rs 287 cr and PAT more than doubled to Rs 22.50 cr. Although it reported lower profit on QOQ basis but importantly company has been able to achieve and maintain the higher operating margin of 19% due to lower production cost. Even on the full year basis, company has more than doubled his bottomline to Rs 67 cr on 90% higher sales of Rs 973 cr. Hence it posted an EPS of Rs 28 on equity of Rs 24.30 cr and declared only 15% dividend, as last year which is below expectation. At the same time company has announced a right issue in the ratio of 1:25 at a concessional rate of Rs 150 only. However, it doesnt make any rationale for the company to raise such a minscule amount nor its going to benefit shareholders in significant way. Incidentally, company has put up two new factories at Vizianagaram and SEZ Vizag in Visakhapatnam under a capex of Rs 150. 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. For FY09, it is expected to clock a turnover of Rs 1350 cr and NP of Rs 95 cr leading to an EPS of Rs 39 on current equity of Rs 24.30 cr. A scrreaming buy.

For the latest March’08 quarter Roto Pumps (48.00) registered 30% growth in sales to Rs 14 cr whereas its net profit zoomed up 80% to Rs 1 cr. For the twelve months ending March 08 its turnover grew by 25% to Rs 42 cr and PAT jumped up 50% to Rs 3 cr on back of better price realization. Notably, company recorded a remarkable improvement in OPM to 15% in FY08 from 12% last fiscal. It even declared high dividend of 20% for FY08. Company is a reputed manufacturer of progressive cavity pumps and twin screw pumps which have very wide application in agriculture, domestic and industrial sector. Besides India, it has warehouse cum marketing office in Australia and U.K. and also good network of distributors spread across the globe. Company is in the midst of expanding its manufacturing facility and may register a topline of Rs 50 cr and bottom-line of Rs 3.75 cr for FY09. This translates into EPS of Rs 12 on a small equity of 3.09 cr. At the current enterprise value of Rs 20 cr, scrip is trading fairly cheap. Scrip can double in medium term.

JK Cement Ltd - 135.00 Rs

JK Cement Ltd (JKCL), an affiliate of the well known JK Organization was formed in November 2004 as a result of slump sale of cement division of JK Synthetics Limited (JKSL), a BIFR registered sick company. Since then JKCL made a smart turnaround with lower cost of production by setting up captive power plant and today its among the largest grey cement manufacturers in North India and the second largest manufacturer of white cement in the country. It manufactures ordinary portland cement (OPC) and portland pozzolana cement (PPC) and markets them under its own brand names such as JK Cement, Sarvashaktiman, JK Super, JK White and Camel which are very popular brands. PPC’s margins per ton are generally higher compared to OPC as each ton of PPC requires approximately 0.75 tons of clinker, 0.05 tons of gypsum and 0.20 tons of fly ash. On the other hand each ton of OPC requires approximately 0.95 metric tons of clinker and approximately 0.05 metric tons of gypsum. JK Water Proof & JK Wall Putty are other premium products being marketed by the company. Incidentally, company also exports white cement to a number of countries, including South Africa, Nigeria, Singapore, Bahrain, Bangladesh, Sri Lanka, Kenya, Tanzania, United Arab Emirates and Nepal.

JKCL has three manufacturing plants in Rajasthan which are producing cement since 1975. Two plants at Nimbahera and Mangro are producing grey cement and one at Gotan is manufacturing white cement. Presently company has a combined installed capacity of 4 million tonne of grey cement and 0.4 million tonne of white cement. Of late company has acquired Nihon Nirmaan facility from IDBI for Rs 42 crore and is now expecting to start the production of grey cement soon with an initial capacity of 0.40 million tonne which will enhance the total cement manufacturing capacity of company to 4.4 million tonne. Moreover, company has successfully installed a total of 43MW captive power generation facilities consisting of 13.2 MW under waste heat recovery system, 20 MW under pet coke based thermal plant and 10 MW coal-fired thermal plant. This has led to substantial saving of power cost to the company in addition to generating some revenue thru carbon credit. On the other hand, JKCL has access to large reserves of high quality limestone for both grey and white cement operations and that too within close proximity to its plant.

To maintain its growth momentum and capture new markets, JKCL has formed a wholly owned subsidiary called Jaykaycem Ltd which is setting up 3 million tonne Greenfield grey cement plant with split grinding unit in the state of Karnataka. It will have 2.25 million tonne clinker capacity accompanied by a 40MW captive power unit and will primarily produce blended (PPC) cement. This 1000 cr project is being funded thru a debt of 525 cr and balance by internal accrual and is expected to become operational by mid 2009. Further, company is contemplating to set up a grey cement plant at Fujairah in the UAE at an estimated cost of Rs 1,400 crore. The company has already entered into a 90:10 joint venture agreement with the Fujairah government, as per which JK Cement will be holding a 90% stake in the joint venture.

Fundamentally, JKCL is doing satisfactorily and has recorded 20% growth in sales to Rs 1458 cr and 50% increase in PAT to Rs 265 cr. The sharp improvement in bottomline is due to tax benefit availed by the company under Sec 80IA and thus lower tax cost for FY08. Hence it posted an EPS of Rs 38 on equity of Rs 69.90 cr and declared 50% dividend which gives a yield of nearly 4% at CMP. Couple of weeks back JKCL decided to merge JayKaycem Ltd with itself which will just an accounting procedure - being it a wholly owned subsidiary. With rising input cost and anticipated fall in cement prices, JKCL is expected to clock a turnover of Rs 1500 cr and profit of Rs 225 cr on conservative basis i.e. EPS of Rs 32 on current equity. Despite this, at a modest discounting by 6x times, scrip can shoot up to Rs 200 in 12~15 months.

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Small & Beautiful

Few retail investors are concerned that Anjani Portland (28.00) has come out with poor performance for the March quarter as its NP declined by 35% to Rs 2.60 cr. But actually company has announced robust nos as its cement sales jumped up 60% to Rs 34 cr and PBT doubled to Rs 6 cr from Rs 3 cr last year. But as company made the full year tax provisioning in the single last quarter it reported lower net profit. Similarly for the entire FY08, its turnover grew by 55% to Rs 103 cr and profit before tax shot up 85% to Rs 23 cr. After tax provisioning of Rs 6.75 cr (i.e. 29% of PBT), its net profit increased by 30% to Rs 16.30 cr posting an EPS of Rs 9 on equity of Rs 18.40 cr. It declared 15% dividend which gives an yield of more than 5% at CMP. The higher tax cost may be due to company losing the status of mini cement plant and hence also the exemption and tax benefit enjoyed by that status. Notably, company has a captive limestone mine, captive power generation unit and state-of-the-art technology from Nihon of Japan. With rising input cost and anticipated fall in cement prices, company is estimated to clock a turnover of Rs 100 cr and profit of Rs 12 cr i.e. EPS of Rs 7 on conservative basis for FY09. Accumulate only at sharp declines

For the latest March’08 quarter Roto Pumps (48.00) registered 30% growth in sales to Rs 14 cr whereas its net profit zoomed up 80% to Rs 1 cr. For the twelve months ending March 08 its turnover grew by 25% to Rs 42 cr and PAT jumped up 50% to Rs 3 cr on back of better price realization. Notably, company recorded a remarkable improvement in OPM to 15% in FY08 from 12% last fiscal. It even declared high dividend of 20% for FY08. Company is a reputed manufacturer of progressive cavity pumps and twin screw pumps which have very wide application in agriculture, domestic and industrial sector. Besides India, it has warehouse cum marketing office in Australia and U.K. and also good network of distributors spread across the globe. Company is in the midst of expanding its manufacturing facility and may register a topline of Rs 50 cr and bottom-line of Rs 3.75 cr for FY09. This translates into EPS of Rs 12 on a small equity of 3.09 cr. At the current enterprise value of Rs 20 cr, scrip is trading fairly cheap. Scrip can double in medium term.

Recently, Hind Rectifiers (150.00) has announced encouraging set of nos for the March qtr. Topline as well as bottomline increased by 30% to Rs 34 cr and Rs 4.10 cr respectively. For the full year it recorded modest growth of 15% in sales to Rs 102 cr and 10% increase in profit to Rs 12.30 cr. This translates into EPS of Rs 16 on a very tiny equity of Rs 1.51 cr with a face value of Rs 2/- per share. Incidentally, being in the golden jubilee year of operation, company has declared 1:1 bonus. It announced 100% dividend, as last year. But finally, the new plant of company at Uttarakhand has started commercial production from June 2008. This plant is expected to contribute around Rs 10~15 cr for FY09. Notably, company derives more than 50% of its revenues from railways and 20% from power industry. Of late, 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. Accordingly it may end FY09 with sales of Rs 125 cr and PAT of around Rs 15 cr i.e. EPS of Rs 20 on current equity. As share price has shot up on bonus news, investors are advised to accumulate at sharp declines around Rs 120 levels only.

NCL Industries (38.00), the flagship company of the NCL group is engaged in four business segments namely cement, cement bonded particle boards, prefab and hydel power. Presently cement contributes 75% of revenue board and prefabs contribute 20% and balance comes from hydel power. On the back of agressive expansion company has doubled its cement manufacturing capacity to 630,000 TPA and is further looking to triple it to 20 million TPA within couple of years. It has also set up a new particle board manufacturing facility in Himachal thereby taking the total capacity to 80,000 TPA. On the other hand, its prefabricated structures division is witnessing good demand and has bagged huge order worth 50 cr couple of months back. Fundamentally, it recorded 30% growth in sales to Rs 193 cr whereas PBT grew by 45% to Rs 43 cr. Due to high tax provisioning its NP improved marginally by 7% to Rs 29.50 cr posating an EPS of Rs 9 on current equity of Rs 32.50 cr. With rising input cost and interfearance of govt on cement prices, company is estimated to report a topline of Rs 275 cr and maintain its profit of around Rs 30 i.e. EPS of Rs 9 on fully diluted equity of Rs 34.90 cr.

Smart Investments (Guj)

Prime Property Development Cosporation Ltd

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Associated Alcohold & Breweries Ltd

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Godawari Power & Ispat Ltd - 188.00 Rs

Incorporated in 1999, Godawari Power & Ispat Ltd (GPIL) a flagship company of Raipur-based Hira Group of Industries, is an integrated steel manufacture having dominant presence in the long products segment, mainly mild steel wire. In the process, company manufactures sponge iron, billets, ferro alloys, captive power, wires rods and steel wires. Over the last few years, it has not only scaled up its capacity five-fold but has also got itself backward as well as forward integrated to emerge as an end-to-end manufacturer of mild steel wires. Today, GPIL boast of being the third largest producer of coal based sponge iron in India and is one of the largest players in the mild steel wires segment. Remarkably, company has also been awarded rights for iron ore and coal mining for captive consumption, as a result of which, it has managed to traverse the entire value chain (i.e. raw material to final product) and is now a fully integrated manufacturer.

GPIL’s manufacturing facilities are located in Siltara industrial estate, near Raipur in Chattisgarh. It produces steel via the sponge iron route and generates captive power from waste gases produced at the kilns to feed its induction furnaces for making billets. Post the completion of its Phase-II expansion in Sept 2007, company is currently having an installed capacity of 495,000 TPA for sponge iron, 400,000 TPA for steel billets, 150,000 TPA for HB wires along with 53 MW of captive power plant. Besidies it also has two subsidiaries, RR Ispat and Hira steel which are also engaged in manufacturing of wire rods and HB wire. Currently, GPIL generates power only for captive consumption - of the installed capacity of 53 MW, it uses the waste gas from its sponge iron plant as feedstock to generate 42 MW and the rest is generated from coal rejects. Because of this, company will earn nearly 150,000 to 175,000 carbon emission receipts (CER) under the clean development mechanism (CDM) project.

Significantly, in 2005 GPIL was awarded two iron ore mines in Chattisgarh, one at Boria Tibu (reserve of approx 8 mn tonne) and another one in Ari Dongri (reserve of approx 7 mn tonne), both about 150km away from the existing plant. But only last week company got the in-principle approval from the forest department for mining iron ore from 107 hectare land at Ari Dongri in Chhattisgarh. For the other mine forest approval is still waited. In addition, company has also been allotted prospective license for iron ore mines over 754 hectares land at Dhalli Rajhara in Durg District of Chhattisgarh during Jan 2008. Besides, GPIL has also been allotted captive coal blocks of Nakia I and II in Madanpur, Chhattisgarh by the Ministry of Coal in consortium with 4 other partners. Its share is worth 63mn tons in the total reserves of 243mn tons. The mining activities are under progress and company is estimated to start getting the benefit not before FY10. So accordingly, GPIL is executing backward integration plan under a capex of Rs 235 cr which includes setting up of 0.6 mtpa iron ore Pelletization plant, 0.1 mtpa iron ore Beneficiation plant, 1.2mtpa iron ore Crushing plant etc. In addition, it has acquired 75% stake in Ardent Steel Ltd, which is a newly formed company and is under the process of setting up 0.6mtpa pelletization plant in Orissa. All this projects are slated to complete in the calendar year 2010.

Meanwhile, GPIL reported spectacular result for the March qtr and ended FY08 on quite a buoyant note. Sales and NP both increased by more than 80% to Rs 829 cr and Rs 95 cr respectively thereby posting an EPS of Rs 34 on current equity of Rs 28 cr. As the Phase II expansion got completed during Q3FY08, the full benefit of it will be visible in FY09. Accordingly it is estimated to operate at 70~80% capacity utilization and produce 350,000 tonne of sponge iron and 275,000 tonne of steel billets. On the back of higher sponge iron prices and better profit margin GPIL t is expected to clock a turnover of Rs 1200 cr and PAT of Rs 125 cr i.e. EPS of Rs 45 on current equity for FY09. Investor are advised to accumulate at declines for a price target of Rs 300 in 12~15 months.

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