STOCK WATCH

Vivimed Labs (71.00) is a speciality chemical manufacturer catering to segments including oral care, sun care, skin care, hair care, natural extracts, preservatives, anti microbial, anti oxidants, anti-aging molecule etc. Infact it is world’s 2nd largest manufacturer of Triclosan - an antibacterial used for oral care and one of the top three companies for Avis – a chemical which improves UV absorbing ability of Sunscreen. Couple of months back it acquired 100% stake in M/s James Robinson,UK which is an international manufacturer and supplier of speciality chemicals used in hair dyes, pharmaceuticals and photographic films/prints to ophthalmic sunglasses. Organically as well company has been expanding its capacity and has chalked out Greenfield expansion plan in Uttaranchal and Hyderabad. Considering its Q1FY09 nos and acquisition of UK company, company is estimated to report a consolidated sales of more than Rs 225 cr and net profit of Rs 17 cr. This leads to an EPS of Rs 18 on current equity of Rs 9.40 cr whereas diluted EPS works out to Rs 13 on diluted equity of Rs 12.65 cr. Accumulate at declines.

Hitachi Home & Life Solutions (108.00), a 68% subsidiary of Hitachi-Japan is amongst the top airconditioning companies in India with an installed capacity of 250,000 units per year. It maufactures high technological home and commercial air conditioners like window AC, split AC, concealed splits, ductables, chillers and specific telecom cooling solutions. To capitalize its brand equity and strong distribution network in India. company has also ventured in the business of trading for the refrigerators and washing machines. Its plant at Kadi, Gujarat is among the seven Hitachi room air conditioner facilities worldwide. Being a technology driven company, it has introduced several innovative products such as “ACE, IOTA, ATOM Square, Takumi” which are doing extremely well in the market. Its refrigerator and washing machines sales are also picking up. 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. Although its June quarter nos were not that encouraging still it is expected to end FY09 with sales of Rs 525 cr and PAT of Rs 42 cr i.e. EPS of Rs 18 on equity of Rs 23 cr. At current levels its trading reasonably cheap and can by bought for a target of Rs 180 in medium term.

Graphite India (58.00) is one of the few players globally manufacturing graphite electrodes as it’s a closely guarded technology. With the present installed capacity of 78,000 tonne, company boasts of producing nearly 8% of the total global graphite output. To cater the rising demand, it is implementing a capex at Durgapur plant to increase the graphite electrodes capacity by 10,500 tonne to be operational by end of FY09. Being backward integrated, it has the facility to produce 30,000 mtpa of calcined petroleum coke apart from generating 33 MW of power through Hydel and Multi-fuel routes. Further it is contemplating to enhance its captive power generation by 100 MW in next two years. Earlier in Oct 2005 company raised nearly Rs 175 cr thru FCCB route which is yet to be fully converted @ Rs 55. Despite hit by forex losses it posted decent result for the June quarter and accordingly is estimated to end FY09 with consolidated sales of Rs 1500 cr and NP of Rs 155 cr which works out to an EPS of Rs 9 on fully diluted equity of Rs 36 cr having face value as Rs 2/- per share. With a dividend yield of nearly 5% this is one of the safe pick with minimal downward risk.

SKF India (220.00) is India’s largest bearing manufacturer commanding more than 30% market share across the country. It manufactures all types of roller bearing, ball bearing, bearing units, bearing housing, plain bearing etc in hundred of sizes thereby having an extensive product range and literally providing solution for any and every conceivable application. Last fiscal it launched power transmission products as a new product range to capture the growth in the energy sector. Of late, SIL also got engaged into marketing, sales and distribution of large size bearings for industrial segment being produced by another group company. For future growth company is putting up a new plant in Haridwar, Uttarakhand with a capacity of 48 million pieces of bearing which will cater to two wheeler market segment. The plant is expected to start commercial production by mid 2009. Due to rise in input cost and stiff competition coupled with pressure from customers, company may not be able to maintain its CY07 EPS of Rs 30 and may end CY08 with sales of Rs 1725 cr and profit of Rs 145 cr i.e. EPS of Rs 27. Despite taking de-growth into consideration, this debt free MNC is available fairly cheap. Buy at declines.

Small & Beautiful

JK Lakshmi Cement is a leading and reputed cement manufacturer in the northern and western markets with an installed capacity of 3.65 million tonne. Last year it commissioned two pet coke based captive power plants of 18 MW each to bring down it power cost. Importantly, company is also betting on lucrative RMC business and intends to add 5 more RMC plants in the current fiscal thereby taking its total number of RMC units to 14. At the same time it is looking at enhancement in the clinkerisation capacity and setting up of a split location grinding plant in Gujarat which will take its cement capacity to 4.75 million tonne by end of 2008. It has also initiated steps towards setting up of a new Greenfield composite cement plant at Durg in the State of Chattisgarh with annual capacity of 2.7 million tonne of cement. Meanwhile due to steep rise in input cost, company reported disappointing nos for the June qtr and is expected to end FY09 with sales of Rs 1250 cr and PAT of Rs 190 cr i.e. EPS of Rs 31 on equity of Rs 61.20 cr. At a current EV of less than Rs 1200 cr it seems all the negatives have already been discounted, hence it is comparatively trading cheaper than its peers. A good contrarian bet.

PBA Infrastructure (54.00) is engaged in execution of civil engineering projects and specializes in construction of highways, dams, runways and heavy RCC structures, bridges and other infrastructure projects of various govt bodies. It is executing projects from Kashmir to Kanyakumari and has taken up new works like toll collection and quarrying to augment its income. For FY08 it posted an EPS of Rs 11 with 30% rise in sales as well as PAT to Rs 371 cr and 14.60 respectively. However for the June quarter it reported de-growth as revenue fell by 15% to Rs 84.50 cr and profit decreased by 30% to Rs 3.35 cr. But, company has been regularly bagging new orders and its current order book position is quite impressive at around Rs 700 cr. Fundamentally, company is having a huge debt of 170 cr due to which its interest cost is very high. Hence to fund its working capital requirement and reduce the high cost debt, company is contemplating to make pref allotment of 30 lac warrants to promoter and promoter group. Meanwhile for FY09 it is estimated to clock a turnover of Rs 425 cr and PAT of Rs 17 cr. This translates into EPS of Rs 13 on current equity of Rs 13.50 cr. Scrip can easily appreciate 50% within a year as and when the market sentiment improves.

Although small, Ram Informatics (13.50) is one such company which has been regularly bagging e-governance orders from last few months. It has completed various IT projects especially for different divisions of govt of Andhra Pradesh like computerized administration of sales tax, tourism, state road transport corporation, AP housing board etc. Besides company has designed, developed and maintains several govt portal like BangaloreOne(Karnataka), eSuvidha (UP), iSetu (Maharastra), Eseva, Sales Tax and Fire Service(AP) etc. For FY08 it reported 25% jump in revenue to Rs 12.75 cr whereas the NP increased by 40% to Rs 3 cr thereby posting an EPS of Rs 2.70. In the last few months it has bagged good long term orders from the various govt bodies of Andhra Pradesh as well as Karnataka. It has also got couple of orders from small co-operative banks for its own developed smart software products for automation in banking. Considering its Q1FY09 nos, company may report total revenue of more than Rs 20 cr and profit of Rs 3.25 cr i.e. EPS of Rs 2.9 on equity of 11.25 cr. Aggressive investors can buy at current EV of Rs 16 cr as it can give fast return once the sentiment turns positive. However, on the flip side it has invested whopping Rs 32 cr in its US subsidiary called Aravali Technologies Inc which has not yielded much returns.

For the June’08 qtr, Micro Technologies (218.00) total revenue as well as net profit shot up 65% to Rs 58 cr and Rs 17.50 respectively thereby posting 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.

Smart Investments

Hitachi Home & Life solutions

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Liberty Phosphate Ltd

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J Kumar Infraprojects Ltd - Rs 85.00

Established in 1980, J Kumar Infraprojects Ltd (JKIL) is a civil engineering and infrastructure development company whose primary focus is on development of roads, flyovers, bridges, railway over bridges, irrigation projects, commercial and residential buildings, railway buildings, sports complexes and airport contracts. For smooth functioning, it has broadly divided its project work into four segments namely transport engineering, civil construction, irrigation projects & pilling work. Among these segments JKIL has developed strong expertise in transport engineering space like undertaking design & construction of roads & flyovers on a turnkey basis, widening of highways etc. It is also among the few construction companies implementing innovative construction techniques such as RCC box jacking, volumetric & panelized construction, insulating concrete framework (ICF), flexible concrete pavement technology etc. However JKIL’s operations are largely confined in the state of Maharashtra and that too especially Mumbai. Notably, it is a class IA contractor with PWD, Government of Maharashtra and has been a preferred government contractor over the past years.

Over the years, the company has earned many accolades for timely & quality execution of its projects. Few of its well known projects include Konkan Bhavan Flyover at Navi Mumbai, Ghatkopar Cheddanagar flyover, Aurangabad flyover, Goregaon sports complex, Residential quarters of AAI staff, Bandra Terminus Bldg etc apart from various projects for road widening, irrigation and pilling. Interestingly, JKIL prefers to execute the whole project independently and also ensures to bag the contract directly from the govt agencies and developers. With substantial order coming from govt dept its main and renowned clientele includes MSRDC, MMRDA, PWD, MCGM, Mumbai Rail Vikas Corporation, Indiabulls Real Estate, SMC Infrastructures & Sarthak Developers. Nevertheless, JKIL has also formed strategic alliances with other private contractors like Era Construction, Indiabulls, Nagarjuna etc. with whom it has entered into project specific JVs & subcontracting relationships for specific purposes. Importantly, to complete the project effectively and on time, company owns a large fleet of modern construction equipments like hydraulic piling rigs, putmiester, mobile boom placer concrete pump and stationery concrete pumps, transit mixers, various capacity cranes, poclains, front end loaders, JCBs and tippers. It also has a ready mix concrete plant for captive use as well as to supply to third parties. Of late company has been putting more thrust to expand the lucrative business of pilling and RMC.

As of now, JKIL boasts of having a huge order in hand position of more than Rs 700 cr to be executed in coming 24 months or so. This is 3.5x times its FY08 turnover, thereby ensuring strong revenue visibility for coming years. Importantly, execution across multiple segments has not only enabled JKIL in de-risking its business model, but has also provided a platform to leverage on opportunities emerging from these segments. With massive investment expected to happen in infrastructure segment and govt making higher budgetary allocation, the future of JKIL looks quite promising. It reported 90% jump in revenue to Rs 214 cr and 140% increase in PAT to Rs 19.50 thereby posting an EPS of Rs 9 for FY08. Even for Q1FY09, company has reported encouraging performance and is expected to end FY09 with topline of Rs 400 cr and NP of Rs 28 cr. This translates into EPS of Rs 14 on current equity of Rs 20.70 cr. Thus, at CMP scrip is trading fairly cheap at a PE ratio of merely 6x times against its FY09 earnings. Secondly the scrip is available at 20% discount to its IPO price of Rs 110. Investors are advised to buy at sharp declines with a price target of Rs 120 within a year.

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Cera Sanitaryware Ltd - Rs 128.00

Established in 1980, Cera Sanitaryware Ltd (CSL) is a pioneer in the sanitaryware segment and currently the third largest company in the organised sector with over 20% market share in India. It is the first company to launch innovative designs with a versatile colour range in sanitary ware segment apart from introducing the bath suite concept. The twin flush cistern model which saves upto 50% of water was launched by CSL only. In the last couple of years, company has evolved itself into a total bathroom solutions provider, from a mere sanitaryware manufacturer. It deals in several products from simple ceramic wash basins to ultra hi-tech shower temple. Broadly it has segmented its product profile into five categories - sanitaryware, bath fittings, kitchen sinks, shower temples & whirlpool. Presently it boasts of manufacturing huge range of WC, squatting pan, plastic cisterns, seat covers, bidets, Wash basins, urinals, kitchen sinks, taps, whirlpool, bath tubs etc. In line with todays high technology CSL also provides automatic electronic flushing system, automatic water flow sensor tap, automatic hand dryers/soap dispensers, & perfume sprayer. Especially for the premium class it has sophisticated and elegant shower temples with Jacuzzi feature, shower cubicles & shower panels. It also has a strategic tie-up with Sanitec group, an Italian designer sanitaryware for importing premium sanitaryware and marketing it in India under their brand name - Pozzi Ginori. In short, it has a mix of products that would cater to all types of consumer from lower middle class to elite class. Currently, CSL derives 40% of revenue from institutional sales and the balance 60% comes from retail sales.

CSL’s manufacturing in Kadi, Gujarat uses technology from Germany, Italy, UK and Australia, to produce products that suits Indian conditions. Incidentally, this is the first plant that uses natural gas as feedstock thereby reducing the cost of production considerably. It has a direct connection form GAIL apart from getting natural gas on very cheap rate directly from the ONGC oil fields wherein others are getting imported LNG which is three times costlier. Its plant is equipped with captive power plants and wind turbines. To fulfill the rising demand, company expanded its capacity from 16,500 MTPA (1.3 million pieces) to 24,000 MTPA (2 million pieces) in Oct’07 only. It distribution network comprises 400 dealers, 4000 retailers, 9 depots and 14 zonal offices across the country. To boost up its retail sales, company came up with novel idea of setting up live CERA bath studio where consumers, architectures, interior designers etc can actually see how the premium products will look, feel and function in their homes. With eight such studios across India, company is now putting up Cera Bath Galleries with its retail partners. In coming years, both such formats will be replicated in several other cities and towns. To maintain its growth momentum CSL is planning a major foray into taps as there is only one strong Indian brand, followed by mediocre brands. Secondly, company is also contemplating to enter premium tile segment, through outsourcing.

With increased production capacity, CSL is also looking at export market more seriously and intends to increase its share from 5% currently. For distant future it plans to further increase the capacity to 3 million pieces i.e. approx 35,000 mtpa with an investment of Rs 30 crore by 2010. Apart from ongoing boom in housing, hospitality & retail segment which is expected to sustain for few more years, CSL will also be benefited from the replacement and up-gradation market. With a strong foothold in western and northern India, company is taking initiatives to increase its presence in central and southern India. And having created such a strong brand and goodwill, it won’t be difficult for CSL to have a pan India presence. Financially, CSL has been doing satisfactorily as it registered 20% and 10% growth in sales and net profit to Rs 128 and Rs 10 cr respectively for FY08. It posted decent result for the Q1FY09 as well. Accordingly it can clock a turnover of Rs 160 cr and PAT of Rs 11 cr i.e. EPS of Rs 18 on a tiny equity of Rs 3.10 cr having face value as Rs 5/- per share. Investors can accumulate at declines for a price target of Rs 180 in 12~15 months.

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