STOCK WATCH

Once again Micro Technologies (235.00) has announced excellent result for the June’08 qtr. Total revenue as well as net profit shot up 65% to Rs 58 cr and Rs 17.50 respectively. Thus it posted an EPS of Rs 16 in this single quarter itself. For FY08 it had recorded an EPS of Rs 48 with NP of Rs 53 cr on total revenue of Rs 171 cr. Company is a global provider of security, safety and life-support solutions with its first of its kind and innovative products for security of home, office, shop, vehicle, laptop, mobile etc. It also has a business agreement with MTNL as well as Airtel to offer Lost Mobile Tracking system to their customers. Few weeks ago it introduced a GPS based product called Buddy tracking system to know the real time location of users. According to share market condition, company has again reset the FCCB conversion price downwards by 18% from Rs 304 to Rs 250. Although this indicates that bondholders as well as company are very much interested in conversion and not redemption, but this will lead to further equity dilution by 45 lakh shares. For FY09 it is expected to report a topline of Rs 250 cr and bottomline of Rs 70 cr i.e. EPS of Rs 54 on fully diluted equity of Rs 13 cr. Even at modest discounting by 8x times, share price has the potential to hit a new high of above Rs 400 in 12~15 months.

Recently, Ramsarup Industries (120.00) has come out with decent set of nos for the June quarter. Sales grew by 10% to Rs 383 cr but NP increased by 25% to Rs 15.80 cr on the back of better operating margin. Company is engaged in manufacturing of various grades of steel wires (mainly used by power industry) and TMT Bars. To cater the rising demand company is expanding its total wire manufacturing capacities from 233,000 tonnes to 600,000 tonnes including the production of Low Relaxation Pre-stressed Concrete (LRPC) wires over the next two years. It has acquired 60 acres land in West Bengal and major plant and machinery are being imported from Italy. Importantly, to get access to cheaper and regular raw material supply, last year company took over Balasore Minerals Co, which has iron ore, limestone and dolomite mines located in neighboring Orissa state. But more importantly company is merging its other group company called Ramsarup Loha Udyog which is emerging as an integrated steel producer with captive production of sponge iron, pig iron, billets, power etc. As no official figures are available for the group company, so on a standalone basis company is expected to clock a turnover of Rs 1750 cr and PAT of Rs 65 cr for FY09. This translates into EPS of Rs 37 on current equity of Rs 17.50 cr. Post merger equity is expected to get diluted to roughly around Rs 35 cr.

Gujarat Apollo Industries (175.00) is into manufacturing and after sales service of equipments for road building industry like asphat plants, pavers finishers, wet mix plants, bitumen sprayers, compaction equipment, road making machineries, crushing & screeing machines etc. It controls more than 60% of the market in the product segments in which it operates, with over 1,400 customers and an equipment population of around 3,500 units. To consolidate its position, it has been making investments in its associate companies and has already made Apollo Earthmovers and Apollo Industrial Products Ltd as its subsidiaries. In current year, another group company called Apollo Construction Equipments Ltd is expected to come under its fold. For the June’08 quarter, it registered an NP of Rs 7.15 cr on consolidated sales of Rs 61 cr. Accordingly for full year, it may post an sales of Rs 280 cr and PAT of Rs 33 cr which works out to an EPS of Rs 30 on diluted equity of Rs 11.05 cr. Share price has the potential to move up to Rs 240 in short term once the sentiment improves. Accumulate at every decline.

For the June qtr, Lokesh Machines (55.00) reported almost flat nos with NP of Rs 3.10 cr on sales of Rs 20.50. But importantly it reported a higher operating margin of 37% which indicates company may be able to maintain its profit going forward. Secondly gave has declared an dividend of 25% which gives an yield of nearly 5% on CMP. Company is engaged in the design, development and manufacture of custom built special purpose machines and general purpose CNC (computerized numerical controls) machines along with their components. It derives 70% revenue from machining division whereas rest 30% comes from auto component division. It primarily caters to customers in the auto OEM, auto ancillaries and general engineering space. Hence it supplies mainly to Tata Motors, Bajaj Auto, Force Motors, Cummins, Bharat Forge, Kirloskar Oil Engines, Everest Kanto Cylinders etc with separate dedicated facilities for M&M and Ashok Leyland. Although it concentrates mainly on domestic market, but lately it has also made a foray in the overseas markets with good orders. On a conservative basis, for FY09 it can report sales of Rs 110 and PAT of Rs 11 cr i.e. EPS of Rs 9 on equity of Rs 11.80 cr. At a reasonable discounting by 8x times share price may shoot up to Rs 75 within a year

Small & Beautiful

At the time where most of the its peer companies are finding it difficult to maintain the topline as well as margin, Asian Granito (52.00) came out with flying color for the June qtr. Due to commencement of production at wall tile unit, its sales zoomed up 70% to Rs 73 cr and NP shot up to Rs 9 cr posting an EPS of more than Rs 4 for the single quarter on a standalone basis. Company is one of the largest producers of vitrified tiles in India under the brand name “Asian Tiles”. Recently, it has expanded its vitrified tile capacity to 16,000 sq mtr from 14,000 sq mtr tiles per day and also started new wall tile plant having a capacity of 9,300 sq mtr per day. Besides, its 100% subsidiary Asian Tile Ltd which is getting merged with itself, is into the business of manufacturing ceramic floor tiles with a capacity of 7,000 sq mtr per day. So on a consolidated basis, company is estimated to register a turnover of Rs 350 cr and PAT of Rs 32 cr for FY09. This works out to an EPS of Rs 15 on equity of Rs 21 cr. Even a average PE ratio of 5x times scrip can appreciate 50% in a year

For the June quarter, Mazda Ltd (58.00) reported 70% growth in sales to Rs 17.50 cr whereas its net profit zoomed up 160% to Rs 2 cr. Importantly it recorded an healthy OPM of 20% for the quarter. It is among the few engineering companies in the world, manufacturing very specialized, high technology and critical equipments for various industries like power, refineries, fertilizers, chemicals, nuclear, sugar, paper, food, pharma etc. Broadly its product profile is segmented into Vacuum system, Valve division, Air pollution control equipment, Crystallizers and Evaporators. Notably, company has a technical collaboration with world renowned Croll-Reynolds Inc. USA, who holds 12% stake in the company. To cater the increasing demand, it is setting up a third unit with an investment of approximately 5 to 6 cr. For FY09 it is expected to clock a turnover of Rs 70 cr and PAT of Rs 7.25 cr, assuming it to record an OPM of 18%. Is translates into EPS of Rs 17 on small equity of Rs 4.25 cr. At an Enterprise value of Rs 30 cr scrip can easily double from current levels. A screaming buy.

Belonging to well known Ruchi group, National Steel (24.00) is one of the steel company reporting consistent performance irrespective of commodity price movement. For the June qtr as well its registered 15% growth in sales to Rs 590 cr and 20% increase in NP to Rs 7.30 cr. It is engaged into manufacturing of galvanized corrugated & plain steel sheets as well as coils under the brand name “APPU”. It also has a cold rolling mill and a modern state-of-the-art colour coating line which produces sophisticated and unlimited range of coloured steel with high corrosion resistance. To cater to the increasing demand, company has been constantly expanding, and currently has a capacity of 2,10,000 tonnes of galvanized steel, 2,40,000 tonne of cold roll steel and 80,000 tonne of colour coated line. For FY09 it may post an EPS of Rs 9 with net profit of Rs 28.50 cr on sales of Rs 2500 cr. Notably, company has been making highest tax provisioning of more than 35% but despite being profit making company has never declared dividend in last 10 years. Fundamentally it looks cheap with a book value of Rs 64, PE ratio of less than 3x times and market cap of Rs 80 cr.

Last week, Pitti Lamination (40.00) reported encouraging set of nos for the June qtr. Sales jumped up 50% to Rs 52.50 cr whereas PBT increased by 40% to Rs 2.85 cr. However due to higher tax provisioning its NP registered only 20% rise to Rs 2 cr. Company 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. It even produces small laminations via High Speed Press for compressors. With its installed capacity of 25,000 MTPA, company is presently working at 70% capacity utilization leaving ample scope for future growth. Besides in Jan 2008 it has completed its forward integration plan and 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. This will result in value addition and considerable improvement in the margins. With rupee stabilizing above Rs 42 levels, company is expected to clock sales of Rs 200 cr and profit of Rs 8 cr i.e. EPS of more than Rs 8 on equity of Rs 9.50 cr. Moreover company has declared 20% dividend which gives a yield of 5% at CMP. Scrip can shoot upto Rs 70 within 9~12months

Bharat Gears Ltd - Rs 40.00

Incorporated in 1971, Bharat Gears Ltd (BGL) - belonging to well known Raunaq group is a major global supplier of automotive gears and heat treatment furnaces. It manufactures a wide range of ring gears and fpinions, transmission gears and shafts, differential gears, gear boxes majorly for the automotive industry. Its a leader in India for supply of gear components for heavy / medium commercial vehicles, utility vehicles and tractor segment. The products profile includes hypoid/spiral gears, bevel, straight bevel and transmission gears, complete automotive transmissions, gearbox sub-assemblies, differential assemblies to name a few. On the other hand its furnace division which hardly makes any production now, builds a variety of furnaces such as sealed quench, continuous gas carburisers, rotary hearths etc and even constructs its own tailor made furnaces for manufacture of its own product. Currently, company derives around 15% revenue from exports to Europe, China, USA and also Middle East countries. BGL's customer list includes almost all the players in the automobile industry like Tata Motors, M&M, Ashok Leyland, Bajaj Auto, TAFE, Escorts, Hero Motors, VST Tractors, Hindustan Motors, BEML, JC from India whereas Dana Corporation, TDI & EATON (USA), ZG Group, John Deere group etc are among its international customers.

BGL’s modern manufacturing facilities are located at Mumbra near Mumbai and Faridabad near Delhi. Earlier company was having technical cum financial collaboration with ZF Friedrichshafen AG of Germany. However only couple of years back it got over and now Indian promoters are holding 52% of stake themselves. But over the years, company has developed the technical excellence to manufacture a variety of automotive gears both for domestic and export consumption. Today it is internationally reputed for its cutting edge technology, established quality processes, and capabilities. OEMs and exports account for around 80% of the total customer portfolio, the balance being the replacement market. Incidentally, the opportunities in India are attracting major international OEMs as they have started sourcing components from Indian manufacturers. Further, existing Indian OEMs have stepped up operations to cater to domestic and export requirements. These all augurs well for the company. Besides, as a part of regular up gradation of technology, induction of new state of art equipment to maintain global competitiveness and renovation of critical equipment, BGL has chalked out a capex plan of Rs 35 cr for FY09. This will be funded partly funded by a term loan of Rs 14 cr and balance from internal accrual.

As Indian auto industry especially Commercial/tractor segment is expected to continue its growth momentum going forward, BGL too is estimated to do well in coming years. Although no spectacular growth is anticipated in the company but still it can report a healthy double digit growth. Infact for June’08 quarter it registered 30% growth in topline to Rs 65 cr whereas its profit shot up 160% to Rs 3.20 cr posting an EPS of Rs 4/- for the single quarter. Even for FY08 it reported 20% and 15% growth in sales and net profit respectively. Notably it declared 10% dividend and returned to dividend paying list after a gap of 7 years. Because of its rich experience of nearly four decades, company is able to protect its profit margin despite rising input cost and pressure from OEM at the same time. Accordingly it may maintain its sales of Rs 250 cr and PAT of Rs 10 cr for FY09 i.e. EPS of Rs 13 on current equity. With its gross block of Rs 180 cr and reserves of Rs 35 cr, scrip is trading grossly cheap at market cap of Rs 30 cr or at an EV of merely Rs 80 cr. Investors can buy it as a contrarian scrip which can give 50% return in 9~12 months

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Smart Investments (Guj)

Jindal Polyfilms Ltd

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WS Industries Ltd

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Graphite India Ltd- Rs 58.00

Incorporated in 1963, Graphite India Ltd (GIL) part of Bangur Group, Kolkatta is one of the few players globally manufacturing graphite electrodes and supplying to leading steel makers worldwide. Presently, company boasts of producing nearly 8% of the total global graphite output. A truly global company, GIL exports around 65% of its production overseas with a customer base of over 150 in 50 countries. Being a closely guarded technology, it acts as an entry barrier and hence company faces very less competition. Infact in India there are only two producers of graphite electrodes with HEG being the other company. Graphite electrode is basically used in electric arc furnace (EAF) based steel mills for conducting current and is a consumable item for the steel industry. Apart from strong global demand, even the Indian steel policy has set a higher target of 150 million metric tons steel production by 2015 and major steel producers in India are in the midst of expanding their capacities. And more importantly, the share of EAF route is growing rapidly due to its various economic and other benefits. Hence in turn the demand for Graphite Electrodes is also robust and the GIL is well positioned to leverage this growth cycle.

As of today, GIL has a total electrode capacity of 78,000 tonne spread over four plants - Durgapur (34,000 mtpa), Bangalore (12,000 mtpa), Nashik (14,000 mtpa) and Germany (18,000 mtpa). The loss making plant in Germany was acquired in 2004 and is now running profitably under company’s leadership. To cater the rising demand of graphite electrode, GIL is implementing a capex at Durgapur plant to increase the graphite electrodes capacity by 10,500 tonne to be operational by FY09 end. Remarkably, GIL has also done backward integration in the manufacturing chain by putting up a 30,000 mtpa calcined petroleum coke facility. Moreover company has an installed capacity of 33 MW of power generation through Hydel and Multi-fuel routes and has also invested in an exclusive transmission line to get the benefit of low cost power in one of its plants. Further it is contemplating to enhance its captive power generation by 100 MW in next two years. Incidentally, apart from the core activity of manufacturing graphite electrodes which contributes 85% of revenues, GIL also has following three divisions:

· Graphite Equipent Division (5%): The Impervious Graphite Equipment (IGE) division is engaged in manufacturing and marketing of heat exchangers, ejectors, pumps and turnkey plants at Nashik. These equipments have wide application in corrosive chemicals industries such as pharmaceutical, agro-chemical, chloro alkali and fertilizer industries.
· Coke Division (5%): This division in Barauni, is enaged in the manufacture of Calcined Petroleum Coke (aluminium & graphite both), electrode paste and tamping paste. CPC is a raw material used in the manufacture of regular and high power grade graphite electrodes and Impervious Graphite Equipment. Electrode Paste is used in ferro alloy smelters and Tamping Paste is used as a lining material in steel and aluminium smelters.
· GRP PIPES & TANKS (5%): This division is engaged in manufacturing and marketing of GRP Pipes and Tanks. It converts users of conventional pipes to GRP through re-engineering, strategic marketing, superior product quality, competitive pricing and value added services.

Financially, company is doing extremely well as for FY08 it reported 30% growth in sales to Rs 1099 cr whereas PAT increased by 40% to Rs 133.65 cr posting an EPS of almost Rs 9 on equity of Rs 30.20 cr having face value as Rs 2/- per share. On consolidated basis it reported an EPS of Rs 10, against which company declared a dividend of 150% (i.e. Rs 3/- per share) which gives a yield of more than 5% at CMP. Earlier in Oct 2005 company raised nearly Rs 175 cr thru FCCB route which is yet to be fully converted @ Rs 55. It reported satisfactory nos for the June’08 quarter (although hit by forex loss to the tune of Rs 5 cr) and is expected to end FY09 with consolidated sales of Rs 1500 cr and consolidated profit of Rs 155 cr. This works out to an EPS of Rs 9 on fully diluted equity of around Rs 36 cr. Considering the current market sentiment, investors can accumulate this scrip at declines with a price target of Rs 75 in 9~12 months.

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