STOCK WATCH

After ending FY08 on quite a buoyant note, Patels Airtemp (58.00) 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.

Although experts are skeptical about the future prospects of real estate sector due to low demand and high supply, still Kolte Patil (65.00) can be bought as a contrarian bet. It reported satisfactory nos for Q1FY09 as it earned a PAT of Rs 31.50 cr on total revenue of Rs 97 cr on consolidated basis. Company is 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. consisting of 10 residential complexes, 11 commercial development, 5 IT parks, 1 integrated township & 1 service apartment. In addition, it has entered into MOU or has acquired development rights for another 22 million sq. ft. of saleable area 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 massive 40 million sq. ft. Ironically it has chalked out a project cost of roughly about Rs 3650 cr to be spent in coming 7~9 yrs. For funding the projects KPDL has entered into a joint venture agreement with ICICI Venture Funds, K2 Properties etc. Despite the anticipated fall in real estate prices, company is estimated to maintain round about same bottomline for FY09. At current market cap of Rs 500 risk reward favors bull.

Last week Liberty Phosphate (20.00) 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. In the last one and half years promoters have increased their stake to 45% from 35% by preferential allotment @ Rs 25. Recently to fund their working capital requirement company is again making preferential allotment of 28 lac warrants to promoter/non promoter group which will be converted @ Rs 18 per share. 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 50% within a year.

Royal Orchid (80.00) 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.

India Glycols Ltd - Rs 215.00

Belonging to the Delhi based Bhartia family, promoters of Jubilant Organosys group, India Glycols Ltd. (IGL) is engaged in the manufacture of glycols, ethylene oxide & its derivatives, performance chemicals, ethanol, ethyl alcohol (potable), ENA, guar gum powder, and industrial gases like oxygen, nitrogen, argon etc. Remarkably, it is the first and only company in the world to produce ethylene oxide / mono ethylene glycol (MEG) from molasses against the conventional route of producing it thru crude. Hence in context to current crude oil prices, IGL is the cheapest producer of MEG in the world. Almost 50% of total revenue of company is derived from the sales of glycols. The current domestic demand of MEG stands around 12 million tonne with total domestic supplies of around 9 million tonne and the rest being imported. Catering to more than 1,000 customers in various end-use industries such as textile, agrochemical, oil & gas, personal care, pharmaceuticals, brake fluids detergent, emulsion polymerization & paints, IGL is also exporting to South East Asia, Middle East, Europe, Australia and USA with nearly 20% revenue coming from exports. Recently company has ventured into purification and marketing of carbon di-oxide (CO2), a by-product produced in the distillery which has application in food, beverage and other industrial usage. It has also diversified into the field of herbal extraction to meet the requirement of growing international market for high value nutraceutical herbal extracts having utility in the pharmaceuticals, food and food supplements. Incidentally, IGL is also one of the largest producers of Ethanol in the country, but same is consumed for captive production of glycols. Lately, company has started shifting its focus from commodity chemicals to speciality chemicals where margins are comparatively higher compared to MEG margins.

IGL has two manufacturing plants in Uttar Pradesh – one at Kashipur and other at Gorakhpur. After the recent debottlenecking at the Kashipur plant, IGL has enhanced its installed capacity by 20% to 150,000 MTPA of MEG. Due to its special process technology, IGL boast of being an integrated manufacturer having all in-house facility for converting molasses into MEG. In order to further integrate backward and reduce its dependence on purchasing the molasses from outside, IGL has recently acquired Shakumbari Sugar & Allied Industries (SSAI) having crushing capacity of 3,200 tonne per day along with a modern distillery of 40 kilo litres per day and an internal bagasse-fired co-generation plant of 3 MW. Now, IGL is planning to expand this crushing capacity to 5500 TCD initially within this calendar year and then eventually to 10,000 TCD by 2010-11. That means by Dec’08, 25% of company’s molasses requirement will be met by captive production at SSAI, whereas 40% will be met by 2010-11. At the same time, IGL is also increasing SSAI’s distillery capacity to 240 KLPD by March’09. To supplement its entire increased power requirement, IGL is putting up two power plants - 20MW at SSAI and 22 MW at Kashipur and Gorakhpur combined, both to be operational by end of this fiscal. Of this company is estimated to sell around 10 MW of power and consume the rest for captive use.

On the other hand, its carbon-di-oxide purification plant of 80 TPD capacity at Kashipur has started commercial production from April'08 whereas another 80 tonne plant at Gorakhpur is to start shortly. Besides, its herbal extraction project through 100% EOU at Dehradun (Uttarakhand) is slated to complete by Oct’08. For this IGL has already taken 47 acres land on lease from the Uttarakhand government and is looking forward to grow a wide variety of medicinal plants which will be processed at its supercritical fluid extraction facility. Meanwhile its RAB (concentrated sugarcane juice) unit to supplement the ethanol requirement became fully operational last fiscal. On the back of robust demand, IGL has also diversified into the field of value added guar gum derivatives used for the oil field industry and textiles. Another positive factor is that, IGL owns around 3.25 acres of land in Noida which is getting developed into 270,000 sq ft of commercial space and is expected to get ready within this financial year. Out of this, IGL intends to lease out approx 2 lakh sq ft thereby generating around Rs 15 cr from next year as rental income.

Financially, for all the above expansions IGL has chalked out a capex plan of nearly Rs 500 cr, of which more than 50% has already been spent in the current year. The benefit of this will start accruing from FY10. Meantime, company underwent a planned shutdown at Kashipur facility for 21 days in May’08 to carry out a change in catalyst, debottlenecking and the stabilization of the facility. Hence its Q1FY09 performance was affected considerably. Moreover it also faced an unrealized forex loss of Rs 15.50 due to re-statement of foreign currency borrowings, which it didn’t provide in the books. Other concern is that molasses prices have increased in the recent past thereby putting pressure on the input cost. On the other side, despite crude oil price being shot up sharply in last 6 months, international MEG price is on a continuous downfall since Nov’07. Where in Nov’07 it was trading above US $ 1500 per tonne, currently it has cooled off to US $ 900 per tonne. So, entire FY09 figures may not be so encouraging, as it may clock a turnover of Rs 1350 cr and PAT of Rs 140 cr i.e. EPS of Rs 50 on equity of Rs 27.90 cr. But with benefit of backward integration and expansion kicking in from FY10, the situation will improve going forward. Considering, company’s financial nos may not be robust for coming quarters, investors are advised to accumulate this scrip at sharp declines below 200 levels. If crude oil is able to sustain around US $ 120 per barrel this scrip can shoot up to Rs 280~300 levels in 15 months.

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Gontermann Peipers (India) Ltd - Rs.48.00

Established in 1966, Gontermann-Peipers (India) Ltd. (GPIL) was promoted in technical and financial collaboration with Gontermann-Peipers GmbH-Germany, a front-ranker in the manufacture of rolls since 1825. In 1981, the company was taken over by the Ispat Group and has since grown by leaps and bounds. It is the leading producer of cast iron rolls and forged rolls commanding a major share of the domestic market. Cast rolls find application in making of hot rolled steel while forged rolls are used for cold rolled steel. Ironically, GPIL is amongst top 10 roll manufacturers globally and only company in South-East Asia manufacturing rolls for both cold and hot rolled mill under single roof. Segment wise, company derives three fourth of its sales from cast roll while balance one fourth comes from forge rolls. On the export front, its products are widely appreciated in Japan, USA, Canada, China, South Africa, Taiwan, South Korea, Thailand, Indonesia and 25 other countries. Hence company has been able to generate more than 50% of the revenue from exports.

GPIL’s plant is located in West Bengal with an installed capacity of 12,000 MT of cast rolls and 3300 MT of sforged rolls. Incidentally, Tayo Roll is the only competitor in India. But as India's roll production capacity is more than its captive demand, GPIL is focusing on the international market and is constantly exploring untapped area to ramp up export volume. It has been successful in establishing new export market in Malaysia, Italy, spain and other European countries. But most importantly to mitigate the rising input cost, GPIL has taken up necessary steps and introduced the price variation clause in pricing policy in new business dealings wherever possible. Considering the future trend of the business, GPIL has given special thrust to new product development i.e. enhanced carbide rolls in ICDP (Indefinite Chill Double Poured) segment. The R&D Center of the company has taken up adequate steps to develop the product indigenously. These are premium rolls with higher profit margin and also known as Hi-Speed Rolls and Semi-Hi-Speed Rolls. On the other hand, GPIL has drawn up an expansion-cum-modernization plan of Rs 40 cr to enhance production capacity and produce value added cast rolls for the steel industry. This capex is expected to complete by end of this calendar year and post its commencement; company will have an annual production capacity of about 18300 MT finished rolls. Notably, GPIL is among the very companies to have taken modern management initiatives like TQM, Six Sigma, TPM, SCM, ERM, ABC, PMS, JIT etc.

Rolls’ being integral to steel production, the demand is directly linked to the growth of the steel industry. With reputed global steel manufacturers planning entry into the Indian steel market as well as aggressive expansion by domestic steel majors, the rise in the demand for rolls is fairly evident. For FY08 it registered 20% growth in sales to Rs 174 cr whereas net profit improved by 25% to Rs 15 cr thereby posting an EPS of Rs 11 on equity of Rs 13.90 cr. It declared 15% dividend against 10% last year. However for Q1FY09, it reported disappointing nos as its PAT declined by nearly 15% to Rs 3.20 cr. Accordingly for FY09 it is expected to maintain its bottomline to Rs 15 cr on sales of Rs 185 cr. This again translates into EPS of Rs 11 on current equity. Hence at a P/E ratio of less than 5x times scrip is trading reasonably cheap at an EV of Rs 125 cr which is even less than its gross block of Rs 178 cr. Its estimated EV/EBIDTA and Market Cap / Sales for FY09 are also very low at 3.5x and 0.35 times respectively. As the scrip has corrected 60% from its high and trading at 52W low levels, investors are strongly recommended to buy at current level with a price target of Rs 75 in 9~12 months.

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Small & Beautiful

Balaji Amines (116.00) is among the few handful manufacturers across the world producing methylamines, ethylamines and their derivatives, as amine manufacturing technology is a closely guarded process. Ironically company is using indigenously developed technology i.e. without any technical foreign collaboration. It also produces specialty chemicals which are import substitutes like Morpholine,hydroxylamine, N-Methyl Pyrrolidone etc and few natural products (herbal extracts) such as solanesol, calcium sennosoid, coleus forskohlii, camptothesin etc. Of late company has seen a good rise in its product prices and hence despite rise in crude oil price it reported stunning nos for the June quarter. Sales shot up by 70% to Rs 73 cr and PBT zoomed up 120% to Rs 7.40 cr. It reported an OPM of 13% which is quite encouraging. However, due to tax provisioning its PAT stood up 70% to Rs 5.10 cr posting an EPS of Rs 8 for the single quarter. Accordingly for the entire FY09 it may clock sales of Rs 260 cr and NP of Rs 15 cr i.e. EPS of Rs 23 on current tiny equity of Rs 6.50 cr.

For the latest June’08 quarter, Manugraph (90.00) has reported 40% growth in sales to Rs 135 cr and 30% increase in PAT to Rs 16.70 cr on a standalone basis. Last fiscal it worked at almost 100% capacity utilization and on the back of robust demand from national as well as international market, company is implementing a capex plan to enhance its installed capacity from 830 print units to 960 print units. Recently it participated in DRUPA 08 exhibition in Germany, where it got tremendous response. However in this fiscal as well, company won’t be able to turn around its US subsidiary Manugraph DGM, due to slowdown in US and as the effect of synergies will materialize in next fiscal. Meanwhile company’s agreement of business co-operation for marketing with MAN Germany ended mutually in July’08. But at the same time its selling agreement with MAN Ferrostaal continues. Considering its good order book position, company may clock a turnover of Rs 475 cr and net profit of Rs 55 cr i.e. EPS of Rs 18 on equity of Rs 6 cr having face value as Rs 2/- per share. Scrip has been consolidating at this level for quite some time now. Being India’s largest manufacturer of web offset and sheet fed offset presses this company deserves much better valuation.

Pioneer Distilleries (45.00) is a distillery manufacturing company engaged primarily in the manufacture of extra natural alcohol (ENA), rectified spirit (RS), denatured spirit (DS), and absolute alcohol (Ethanol). The fine grade of ENA manufactured by it is mostly used as raw material for many brands of renowned liquor manufacturing companies. Due to buoyant economic condition, company is planning to double the installed capacity to 200 KLPD for which statutory permission from the excise has been received. It is also contemplating to increase the capacity of ethanol plant from 30,000 to 130,000 ltrs per day. Besides, its 5 MW bio-gas based power project is expected to begin commercial production from October, 2008 which will also fetch carbon credits. Notably Tata Power has signed a 10 yr purchase agreement to purchase the entire power generated from this unit. Incidentally, company also owns around 300 Acres of land which is being used for agricultural purpose where treated effluent is used for cultivation. Company announced satisfactory result for the June qtr and may clock a revenue of Rs 75 cr and PAT of Rs 12 cr for FY09 i.e. EPS of Rs 10 on diluted equity of Rs 12.50 cr. Moreover at CMP the divd yeild works to more than 4%. A good bet in current sentiment.

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

Smart Investments

Kamat Hotels Ltd

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Graphite India Ltd

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