STOCK WATCH

For the June’08 quarter, Jupiter Bioscience (120.00) reported 20% growth in sales to Rs 29 cr and 10% rise in NP to Rs 7 cr. Notably it registered an operating margin of 53% for the quarter. Company is operating in a very niche segment and is among the few companies in the world to have competency in synthesis of peptides. It is poised to become a global peptide solutions group having a broad canvas of peptide chemistry products, peptide reagents, coupling reagents, protective agents and supplier of key ingredients used in peptide based pharmaceuticals. Earlier company entered into a 10-year product purchase agreement with Ranbaxy on peptide pharmaceutical for gloabal market and as per contract allotted 31.77 lakh warrants @ Rs 147. It has also finalized to acquire a manufacturing facility of Merck Life Sciences, Switzerland and has even signed a long term business contract with them. Recently it has entered into licensing agreement with California based GI Logics Inc for development/sales for the use of Diamox for diagnostic & eradication of H. pylori bacterium. Last fiscal it raised 100 cr thru QIP route @ Rs 153 per share. Further it cancelled the 27.50 lakh equity shares allotted to promoters and instead issued 40 lakh warrants @ Rs 182 to strategic investors. For FY09, on a standalone basis it is estimated to clock a turnover of Rs 175 cr and PAT of Rs 40 cr which works out to an EPS of Rs 18 on fully diluted equity of Rs 22.50 cr. One of the safest bet in current market sentiment.

Post the amalgamation of Rain Calcining with itself, Rain Commodities (220.00) has been posting encouraging nos on a consolidated basis. Currently, it is one of the largest producers of Calcined petroleum coke with 7 plants in USA and one plant in India and having total installed capacity of 2.40 million tonne of CPC. Besides, it also produces cement at its 1.60 million tonne cement plant in South India and sells it under the “PRIYA” brand. For the Q2 ending June’08 it posted a net profit of Rs 94 cr on net sales of Rs 1081 cr. This is despite the fact company provided Rs 42 cr on restatement of foreign currency loan as per June exchange rate. Remarkably, its OPM stood at more than 25% and with CPC price trading above US$ 350 per tonne its margin are expect to increase in H2FY08. In order to maintain its growth momentum in future and cash on the robust CPC demand, company is setting up two additional facilities for another 0.6 million tonne of calcined coke which will be operational by 2010. Meanwhile for CYFY08, it may report consolidated sales of Rs 4250 cr and NP of Rs 350 cr i.e. EPS of Rs 46 on fully diluted equity of approx Rs 76 cr. Keep accumulating at sharp declines.

Belonging to FAG group of Germany, FAG Bearings (390.00) is among the largest player in the Indian Bearing industry commanding nearly 13% share of total bearing market. It is a leading OEM supplier to the automotive industry, mechanical and electrical engineering industry, besides the Railways. Notably, company is the market leader in the spherical roller bearing segment with a market share of nearly 60%.Despite rising input cost and slowdown in auto industry, for the June’08 quarter its sales improved by 15% to Rs 179 cr and PAT grew by 10% to Rs 23 cr. To maintain its market share company, company is contemplating Rs 350 cr expansion plan for needle bearing in near future. Although no spectacular growth is expected in coming years, still this debt free MNC is available at a cheap valuation compare to its fundamentals. For CY08 it is estimated to report a topline and bottomline of Rs 700 cr and Rs 85 cr respectively which leads to an EPS of Rs 51 on equity of Rs 16.60 cr. Hence at current market cap of Rs 650 cr scrip is discounted by less than 8x times although historically it hasn’t traded much below 14x times. So, it seems all the negatives have been factored in the CMP and the share price is poised to move upwards only as and when the general sentiment improves. Secondly, company is having free reserves of more than Rs 300 cr on such a tiny equity which makes it bonus candidate as well.

Remarkably from the last three quarters, HBL Power System (275.00) has been posting excellent set of nos. Even for the latest June’08 quarter, its sales shot up 130% to Rs 316 cr whereas NP zoomed up by 450% to Rs 33 cr registering a whopping EPS of Rs 14 for the single quarter. More importantly it reported a very healthy OPM of more than 20%. Company is the engaged 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. After posting an EPS of Rs 28 for FY08, company is set to clock an EPS of Rs 45 for FY09 with sales of around Rs 1250 cr and PAT of Rs 110 cr. It’s a screaming buy at current levels.

Hitachi Home & Life Solutions (India) Ltd - Rs 120.00

Established in 1984, Hitachi Home & Life Solutions (India) Limited (HHLSL) - a subsidiary of world leader Hitachi group, Japan is engaged in the business of manufacturing and sales of air conditioners in India. While the room air conditioners and packaged air conditioners are being manufactured in India under a technical collaboration with Hitachi, Japan, the company sources the higher end of air conditioning systems like chillers, self contained roof top AC and set free from its affiliated companies worldwide. Today, HHLSL is amongst the top air conditioning companies in India with strong nationwide sales, distribution and service network comprising of 14 Branches, 250 sales and service dealers, more than 800 showroom dealers and 350 service points. It also exports air conditioners to the SAARC, Middle East and other tropical countries. Since late 2005 company has also ventured in the business of trading for the refrigerators and washing machines to capitalize its brand equity and strong distribution network in India.

Headquartered in Ahmedabad, Gujarat, HHLSL’s manufacturing facility at Kadi, Gujarat with an installed capacity of 250,000 units is among the seven Hitachi room air conditioner facilities worldwide. It also has another manufacturing facility in Silvassa. HHLSL has always been at the forefront of technology and boasts of being the first to introduce products like hi-wall splits, remote controlled ACs, ACs with plus one technology, to name a few. Last year it launched 'ACE' split AC having auto humidity control technology in it, which is able to reduce the humidity levels by nearly 27%. It also introduced ‘Iota’ in sub one tonne capacity to capture the needs of the people living or working in small apartments/cabins in metros. It also has Atom Square split AC which is a unique product having two indoors with only one outdoor working on. Its Atom & Atom XL are the smallest split AC’s in size with enough cooling power to chill a grand hall or a huge conference room. Interestingly, HHLSL even has a product called ‘Spacemaker’ designed specially to cater air conditioning requirement of telecom industry and is enjoying above 20% of market share in this segment. Recently company is marketing “Vi” series with focus on style & physical appearance along with simple functions and features.

At the same time company has introduced new range of two door refrigerators and new 'Beat Wave Wash' washing machines to increase its market share in these segments as well. On the other hand its commercial air conditioning division is also on a rampant growth mainly due to the retail sector and mall culture expanding in a big way. A trend of having BPOs and R&D centers is also picking up in India. Hence, these and other factors are leading to a significant growth in the commercial air conditioning products like ductable ACs, self contained, setfree (variable refrigerant volume system) and chillers (large air-conditioning application). A preference for the lower running cost over the initial cost is also leading to the rise in inverter based technologies. It is supplying R407C variant in the chillers which is environment friendly refrigerant. Recently it has launched 'Takumi' range of ductables ranging from 3 tonne to 16.5 tonne which is doing extremely well.

To summarize, the air conditioning market is witnessing a growth rate of nearly 25% and with only 2% penetration level for AC’s, the growth is expected to continue for coming years as well providing huge opportunity for all the players. On the back of strong demand for split AC, HHLSL currently derives 40% of revenue from split AC and 60% from window AC. Going forward the ratio is expected to get skewed towards split AC. Financially company made smart turnaround in FY05 and since then it has been able to maintain its growth momentum. For FY08 its sales was up 40% to Rs 447 cr and net profit more than doubled to Rs 42 cr posting an EPS of Rs 18 on equity of Rs 23 cr. Considering its Q1FY09 figures, company is expected to maintain its PAT of Rs 42 cr on higher sales of around Rs 525 cr. So at CMP, scrip is available at PER of less than 7x times which is reasonably cheap for an MNC with such a strong brand value. However, rising import of cheap Chinese products coupled with increasing input cost and cut throat competition is a serious cause of concern for the company. Still investors can accumulate at sharp declines with a price target of Rs 180 in 12~15 months.

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Small & Beautiful

Rama Paper (19.00) has reported satisfactory nos for the June qtr as its topline as well as bottomline both improved by 20% to Rs 25 cr and Rs 2.50 cr respectively. Although, its 6 MW co-generation captive power plant is fully operational it hasn’t led to much improvement in margins. Secondly the benefit of rise in paper prices has been set off by increase in input cost. Presently, company’s total installed capacity of its 3 units is 44000 TPA, located at Kiratpur, Distt Bijnor in Uttar Pradesh. Incidentally, it derives nearly 60% revenue from newsprint segment. As a part of diversification, company has undertaken expansion project of putting MG machine to manufacture 16320 TPA Tissue / Poster Paper thru a capex of Rs 24 cr. For Fy09 it may register sales of Rs 100 cr and net profit of Rs 8 cr i.e. EPS of Rs 8 on current equity. However company has got the approval for conversion of pref shares into equity which will dilute the equity to Rs 11.50 cr post conversion. Ironically, company has diluted its equity by 100% in last two years whereas its top line has hardly grown by 10% against that. Hence only aggressive investor are advised to buy at current levels as promoters are not trust worthy and possibly playing indirectly in their own scrip.

Last week Liberty Phosphate (19.00) reported terrific performance for the June quarter. Sales more than doubled to Rs 67 cr and net profit multiplied 10x times to Rs 4.60 against Rs 0.42 cr last year. It recorded an all time high EPS of Rs 7 for the single quarter. Incidentally, even after sharp rally post result scrip is still trading at 50% discount to its 52 week high of Rs 40. Company is the largest manufacture of Single Super Phosphate, commanding more than 14% market share. Presently, it has four manufacturing units having total installed capacity of 463,000 MTPA of SSP fertilizers. With good rainfall expected this season and loan waiver scheme for farmers, company is expected to do well in the current year. For FY09 it can register sales of Rs 175 cr and profit of Rs 5.50 cr i.e. EPS of Rs 8 on equity of Rs 6.70 cr. Scrip can easily shoot up 30% in short term. Buy before its too late.

After ending FY08 on quite a buoyant note, Patels Airtemp (60.00) clocked 60% growth in sales to Rs 13.25 cr whereas its Net profit doubled to Rs 1.33 cr for Q1FY09. It 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. Accordingly, for FY09 it is expected to register a topline of Rs 60 cr and profit of Rs 5.50 cr. This leads to an EPS of Rs 11 on current equity of Rs 5 cr. Scrip has the potential to appreciate 50% within a year from current levels. Buy at declines.

Royal Orchid (92.00) operates in hospitality sector with major presence in Bangalore. Currently it manages eight properties including five star hotels, budget, resort, serviced apartments etc with a total room strength of around 655 rooms. Interestingly, company follows a unique “Asset light” business model of taking properties on lease or entering into a contract for managing & operating the existing hotel instead of owning them outright. For the June qtr its revenue shot up 40% to Rs 38 cr but due to high interest and depreciation cost NP was up only 10% to Rs 6.80 cr. To cash on the huge opportunity in this industry, company has chalked out some very aggressive expansion plans for developing/acquiring 5star, 4 star and budget hotels. Of late it bought 30 acre property in Tanzania and also formed a joint venture with Parsvanath to develop 10 hotels at an investment of Rs 500 cr. Couple of months back it acquired 50% stake in Galaxy Beach Resort (65 rooms) in Goa. For FY09, it may report a consolidated revenue of more than Rs 160 cr and NP of Rs 30 cr i.e. EPS of Rs 11 on equity of Rs 27.25 cr. In case company is able to successfully execute as per its plan, then it can give handsome return over long run. Besides, its an excellent dividend yield stock as well.

Krone Communications Ltd - Rs 110.00

Incorporated in 1988, Krone Communication Ltd (KCL) belongs to the world renowned ADC Krone group - which has sales, manufacturing and development offices in more than 35 countries and sells into more than 150 countries. In 2004, ADC group (USA) took over the Krone group (Germany) and today ADC Krone group is one of the leading international players in communication networks as it designs and manufactures global network infrastructure products and services. These infrastructure solutions are the foundation of every network to enhance the speed, bandwidth and quality of Internet/data, video, and voice transmissions. Fibre and copper connectivity components designed for wireline, wireless, broadcast, enterprise, and cable networks serve as the critical junction and connection points that tie networks together and link sophisticated electronics to each other. Its digital cross connects, fibre termination and outside plant equipment, small-form-factor connectors, fibre and copper management systems, remote test and monitoring products, and structured cabling solutions enable network technicians to organise, connect, manage, and test assets for maximum network performance.

KCL, being part of the group is engaged in the same business but catering 100% to Indian clients. Its manufacturing plant is located in Peenya, Bangalore where about hundred product lines of ADC Krone's networking and telecom equipment are manufactured. Apart from these, KCL also enjoys the privilege of marketing parent company’s various innovative and patented products like OmniReachTM, Fibre-to-the-Premises solutions, FibreGuide® Raceway, Ethernet Distribution Frames, RF Worx Signal Management Platforms, DSX1/3, PowerWorx® Fuse Panels etc. It also provides solutions for the Enterprise market segment. Its new TrueNet® structured cabling system is an integrated portfolio of industry-leading enterprise network solutions. This system combines proven cable, connectivity, and cable management solutions for fibre, 10 Gigabit Ethernet over UTP copper, and Category 6/5e from the data centre to the desktop. In addition, the company enables wireless carriers to get more from their networks with its Digivance RF Transport solutions. Digivance allows wireless service providers to enhance their networks by extending coverage and distributing capacity where it is needed in a cost-effective manner. Wireline offerings include LoopStarTM line-powered Wi-Fi solutions that provide a low-cost and easy-to-deploy approach in building a network of Wi-Fi hotspots. In addition, the new LoopStar 800 SONET access system for business services and the SG-1 Service Gateway that enables the delivery of value-added, revenue-generating, IP-based services are the latest additions to the Wireline product portfolio.

Due to constant decline in wireline segment, KCL has been concentrating on wireless segment and is always looking forward to introduce more ADC’s wireless product like coverage & capacity solutions and core fiber solutions for the wireless market. Notably, KCL has a very strong clientele including biggies like Rcom, Tata Tele, Bharti Tele,Siemens, HFCL, Lucent, TCS, Alcatel, Cognizant, Ericson, Neyveli Lignite, Hexaware etc. On the financial front KCL has its year ending in the month of October and for FY07 it registered 15% rise in sales and NP both to Rs 93 cr and Rs 8 cr respectively thereby posting a healthy EPS of Rs 17 on small equity of Rs 4.60 cr. It has an impeccable record on uninterrupted dividend payment since last 15 years. In 2005, the ADC group came out with statuary open offer to acquire 23% stake at Rs 92, but didn’t get any response from shareholders as prevailing price at that time was Rs 130 on the bourses. In the current fiscal for the six month ending April 2008, its sales has declined by 15% to Rs 37.50 cr but PAT has improved by 15% to Rs 3 cr despite huge volatility in raw material price like copper and plastic. Accordingly, it may clock a turnover of Rs 90 cr and net profit of Rs 8.50 cr for FY09 which translates into EPS of Rs 18. Hence this debt free MNC is trading fairly cheap at market cap of merely 50 cr, discounting its current year’s estimated earnings by merely 6x times. Secondly with 62% stake, there is also a possibility that parent company may come out with buy back at higher price and try to delist the company. Long term investors can buy it at current price with a price target of around Rs 175 (i.e. 60% appreciation) in 15~18 months.

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Smart Investments

SKF India Ltd

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Allahabad Bank

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