STOCK WATCH

Aegis logistic (152.00) owns and operates one of India’s largest private sector liquid terminal located on a 20-acre plot at Trombay having storage capacity of 165,000 KL. With two other terminals it boasts of having a total capacity of around 290,000 KL. Considering the robust future outlook, it is setting up a third terminal in Trombay with a capacity of nearly 55,000 KL by FY10. On the other hand it also imports, markets and distributes bulk propane, propylene and LPG to a variety of industrial customers in the western region and is one of the largest private sector suppliers in India. Lately company has ventured into lucrative business of marketing and retailing of LPG thru auto gas dispensing stations under the brand name ‘AEGIS Autogas’. From the present 38 retail outlets across five states, company intends to open 100~150 more such stations in next couple of years. Recently company took over Hindustan Aegis LPG and became the owner of 20,000 MT fully refrigerated LPG terminal. For FY09 it may clock a turnover of Rs 475 cr and profit of Rs 35 cr i.e. EPS of Rs 18 on equity of Rs 19.90 cr. Accumulate at declines.

Being the Asia’s largest manufacturer of air compressors Elgi Equipment (48.00) is involved with the design, development and production of exhaustive range of electric and diesel powered, centrifugal, reciprocating, borewell, railway air compressors etc. As air compressors are used in a wide range of applications, company caters to almost all sectors of industry. Besides it also derives 20% revenue from providing total service station solutions through the supply of a range of equipment and tools for two, three & four wheelers. Ironically company deals in or manufactures more than 128 equipments generally required by full-fledged garage. Of late to cash on its rich experience company also started offering end to end mechanical engineering solutions and contract manufacturing services of precision engineered part to clients who are looking for cost-effective, subcontracting solution. For FY09 it is expected to report a topline of Rs 485 cr and bottomline of Rs 36 cr i.e. EPS of Rs 6 on equity of Rs 6.30 cr having face value of Rs 1/- per share. To concentrate on each business segment company is hiving off its automotive equipment business into a separate wholly owned subsidiary called ATS-Elgi Ltd. Keep accumulating at sharp declines.

Part of B M Thapar group, Greaves Cotton (158.00) is enaged in production of diesel/petrol/LPG engines for power generation, agro equipment & atumotive apart from manufacturing gensets, agro equipment and construction equipment Besides, it is also engaged in marketing high technology systems for marine, aviation and electronic applications. Last year, to increase its presence in global market it acquired, Bukh Farymann Diesel GmbH (renamed as Greaves Farymann Diesel GmbH) which is engaged in the manufacture and marketing of single cylinder diesel engines and parts for Rs 25 cr. For FY08 it may clock a turnover of Rs 1400 cr and PAT of Rs 115 cr i.e. EPS of Rs 24 on current equity of Rs 48.80 cr. Of late Piaggio Group's Indian subsidiary signed a 8 year agreement with the company for purchase of mono-cylinder diesel engines for application on the three-wheeled vehicles manufactured by them. This implies that company will continue to be a single source supplier of such mono-cylinder diesel engines to Piaggio. Secondly few months ago company inaugurated its new manufacturing facility for compaction equipment at Gummidipoondi, Tamil Nadu. Recently it has also formed a 100% subsidiary to take up some new business in future. For FY09 it may clock a turnover of Rs 1500 cr and NP of Rs 100 cr i.e. EPS of Rs 20 on equity of Rs 48.85 cr. Only long term investors are advised to buy at declines.

Hind Rectifiers (140.00) is one of the leading manufacturers of locomotive transformers, rectifiers, inverters, and power electronics like diodes and thyristors (types of semiconductor devices) etc which are basically used in converting the current from AC to DC and vice versa. Incidentally, it derives more than 50% of its revenues from railways and 20% from power industry. Offlate, company has set up two new units in tax free zone of Uttranchal, which started commercial production only from June 2008. Moreover, in Oct 2007 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. Although company didn’t report encouraging nos for the June quarter still it is expected to register sales of Rs 125 cr and profit of Rs 15 cr i.e. EPS of Rs 20 on tiny equity of Rs 1.51 cr with face value as Rs 2/- per share. Company has recently declared 1:1 bonus and the scrip is still trading cum bonus. Investors can buy at current levels as it can appreciate 50% in 12`15 months.

Small & Beautiful

Tantia Construction (68.00) boasts of having presence in roads and highways, railways, tunnels, bridges and flyovers, urban instructure, sewerage and drainage, civil & housing construction etc. Lately, it also ventured into the lucrative marine infrastructure space, power transmission and distribution segment and aviation infrastructure. Infact, it is among the five Indian companies capable of providing ‘foundation-to-finish’ for mega railway bridges spanning 2-km or more. More importantly, company has a very strong presence in the eastern and north-eastern region which gives it an edge, as very few players are interested in bidding in these regions due to difficult terrain. Presently, it has diversified and massive order in hand position of more than 1000 cr to be executed in next 24 months. In near future company intends to foray into BOT & BOOT projects to boost up its margin. For Q1FY09 it recorded 40% rise in topline as well as bottomline to Rs 99 cr and Rs 5 cr respectively. Hence for entire FY09 it may clock a turnover of more than Rs 450 cr and profit of Rs 20 cr i.e. EPS of Rs 12 on diluted equity of Rs 16.30 cr. Relatively, a safer bet in infrastructure space.

Hitachi Home & Life Solutions (110.00), 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 it is trading reasonably cheap and can be 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.

Although experts are skeptical about the future prospects of real estate sector due to low demand and high supply, still Kolte Patil (58.00) 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 cr risk reward favors bull.

Indag Rubber Ltd - Rs 56.00

Established in 1978, Indag Rubber Ltd (IRL) was formed as a joint venture company between Khemka group and Bandag Inc-USA for the manufacture and marketing of pre-cured retreads. Today, it is one of the largest players in tyre retreading business and operates thru franchisee business by offering the technology, specialized equipment, retreading material, technical back up etc to the franchisee. It also sets up captive retreading plants for various state road transport corporations. Retreading is basically a process of bonding a new flap of pre-vulcanized rubber in place of the worn-out flap which increases the tyre life. Retreading can be done either thru conventional hot process or the new advanced precured cold process. Cold process has various advantages, mainly improving the fuel efficiency and increased tyre life & performance in comparison to hot process. Notably, IRL is among the very few, offering the 'genuine' cold process precured retread in India.

IRL has a state of the art manufacturing unit at Bhiwadi, Rajasthan to produce precured tread rubber along with allied items like rubber cement, cushion gum, extrusion gum, envelopes, other accessories and specialized equipment for retreading. Of late it has set up a new plant in Nalagarh, Himachal Pradesh to increase its market share. Presently, company has a capacity to produce nearly 800 tons of pre cured rubber per month. It supplies the precured tread regularly to its more than 100 franchisee outlets, who eventually carry out the retreading operation at their place. The company is concentrating on utilizing the full potential of the existing franchisees and is setting up new franchisees in unrepresented areas so as to have a larger and more efficient network of franchisees. It also has a training center to impart high quality on-the-job training to its license customers. As there are very few organized players in this business, IRL enjoys a good branding and a dominant position especially in northern India. In the recent past, the joint venture between Indian promoters-Khemka’s and foreign promoters-Bandag Inc, USA has been mutually terminated and accordingly Khemka’s have acquired the latter’s stake thereby taking their total holding to 81%.

Due to high prices of tyres, retreading of tyres has become all the more necessary. Tyres retreaded with quality material and retread process give about the same mileage as new tyres, at a much lower cost per mile and are environmental friendly. Not only do they consume two-third less petroleum products, but every retreaded tyre also saves a tyre from going to a landfill. Importantly, retreading is becoming popular in India as well. Moreover due to increase in level of radialization in tyres, increase in share of multi-axle trucks and aggressive road infrastructure development, tyre retreading in the commercial vehicle segment holds huge potential. However the sharp increase in basic raw material prices such as PBR, natural rubber, carbon black and rubber chemicals have put pressure on both – tyre industry as well as retreading business. Despite this IRL is expected to do well in coming years. Financially, company made a smart turnaround in FY07 and continued its strong growth in FY08 as well. It reported 20% growth in top line to Rs 74 cr whereas PAT doubled to Rs 8.30 cr thereby posting an EPS of Rs 16 for the year ending March 2008. Notably, it declared maiden dividend of 20% against that. For Q1FY09 it registered double digit growth and is expected to clock a turnover of Rs 85 cr and PAT of Rs 7.50 cr on a conservative basis. This translates into EPS of Rs 14 on equity of Rs 5.25 cr. That means at current market cap of Rs 29 cr, scrip is trading at a PE ratio of less than 4x times. Investors are recommended to buy at current levels as share price can appreciate 50% in a year’s time.

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Smart Investments

Vivimed Lab Ltd

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Tanfac Ltd

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Tanfac Industries Ltd - Rs 54.00

Incorporated in 1972, Tanfac Industries Ltd (TIL) is a joint sector company promoted by Tamilnadu Industrial Development Corporation (TIDCO) and Aditya Birla group. TIDCO is still holding 26% stake whereas 25% is held by Aditya Birla group of companies. Today, TIL is one of the largest suppliers of fluorine chemicals in India. It is mainly engaged in the manufacture of inorganic chemicals and fluorine based chemicals such as aluminium fluoride (ALF3), anhydrous hydro fluoric acid (AHF), sodium silico fluoride, ammonium bifluoride, sulphuric acid, potassium fluoride, gypsum, cryolite and various chemicals. These products have vital applications in industries as varied as aluminium smelting, petroleum refining, refrigerant gases, steel re-rolling, glass, ceramics, sugar, fertilizers, heavy water, etc. Besides it also produces organic fluorides & speciality fine chemicals which are used as intermediates in the manufacture of pharmaceuticals and agrochemicals.

TIL’s manufacturing plant and facilities are spread over 60 acres in the chemical complex of SIPCOT at Cuddalore near Pondicherry. It has technical collaborations with Davy Process (formerly BUSS AG), Switzerland for ALF3 and Chenco, Germany for hydrofluoric acid. Currently, company has an installed capacity of 15600 tpa each for ALF3 & AHF, 75000 tonne for sulphuric acid and 3400 tonne for specialty fluorides. It also has an ISO 9001, 14001, & TPM certification. Being an Aditya Birla group company, Hindalco is its major customer apart from NALCO. Besides, nearly 30% of the production is being exported to to countries across the globe including USA, Europe, Australia, New Zealand, Singapore, Thailand and Middle East. Notably, aluminium industry worldwide has been growing at a fast pace and this has led to a significant improvement in demand for aluminium fluoride. Since 60% of company’s revenue comes from ALF3, this augurs well for TIL. Further, it is expected to maintain its growth momentum in coming years as it has undertaken new market initiatives, new products launch, capacity expansion of existing production and cost savings from process improvement schemes. In the current year, company is planning to launch four new value added products. Meanwhile, one of its projects has been already registered under CDM and company is expected to start trading in carbon credits from this fiscal, which will generate additional revenue.

Financially, after making a strong turnaround in FY07, TIL maintained its growth for FY08 as it registered 35% increase in sales to Rs 165 cr and 80% jump in PAT to Rs 12.25 cr thereby posting an EPS of Rs 12. It declared 17.50% dividend for FY08. Importantly, company was able to improve its OPM in FY08 to 12% against 5% in FY06. Even for June’08 quarter as well, it reported stunning performance. Sales grew by 50% to Rs 47 cr and net profit shot up by 150% to Rs 3.30 cr. Accordingly for FY09 it may clock sales of Rs 200 cr and profit of Rs 13.50 cr i.e. EPS of Rs 14 on equity of Rs 9.98 cr. Besides, company has significantly reduced its total debt to Rs 16 cr from Rs 42 cr in 2005. It is currently available fairly cheap at an EV/EBIDTA of less than 3x times. Scrip can shoot up 50% as and when market sentiment improves. Moreover in case Tamilnadu government opts for divesting its stake, the share price can shoot up sharply.

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