MUHURAT Picks (MT)

HBL Power System (150.00) 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.

Aban offshore (750.00) is engaged in providing oil field services for offshore exploration and production of hydrocarbons in India and abroad. With 21 offshore assets it is among the top ten offshore drilling asset owners in the world. It possesses fifteen jack-up offshore drilling rigs, three drill ships, one floating production platform and a jack-up rig & drill ship each on bareboat charter. It is among the few global companies to facilitate oil exploration at water depths ranging from 250 ft to 7000 ft and drilling depths ranging between 20,000 ft and 30,000 ft. Having its footprint globally across 10 nation, company boast of serving leading global and domestic E&P companies such as ONGC, Shell Brunei, Shell Malaysia, Cairn Energy, Petronas Carigali, Exxon Mobil, Chevron, Hardy Exploration, Oriental Oil Dubai, ROC Oil China, and GSPC to name a few. Due to new vessel deployment and higher charter rate, it may clock a consolidated turnover of Rs 3250 cr and NP of Rs 500 cr. This translates into EPS of Rs 129 cr on diluted equity of Rs 7.75 cr. Meanwhile, maybe due to distress selling by FII’s share price of company has tumbled down to Rs 1000 levels from a high of Rs 5500 in Jan’08. Hence currently scrip is trading at a P/E multiple of merely 8x times which is grossly cheap for a company with such caliber. Keep accumulating at sharp declines.

Emco Ltd (45.00) is the third largest manufacturer of transformers in India and a leading player in electronic energy meters and turnkey electrical projects It offers widest transformers range from 5 kVA, 11kV right up to 315 MVA, 400 kV for power generation, transmission & distribution. It is one of the leading players in manufacturing special application transformers like furnace transformers (for Steel Industry), large rectifier transformers (for Chemical Industry) and traction and locomotive transformers (for Railways). With acquisition of Urja Engineers Limited, company can now construct EHV Power Transmission Lines upto 765 kV on a total turnkey basis and boasts of having a tower manufacturing facility up to 45000 MT/Annum. To maintain its growth momentum, company has decided to set up a transformer manufacturing plant in South Africa to meet the growing demand in the African region and neighboring countries. Presently company has an impressive order book position of Rs 1300 cr. For the latest Sept qtr sales grew by 25% to Rs 231 cr and net profit improved by 10% to Rs 11.30 cr. Accordingly it is expected to clock a turnover of Rs 1250 cr and PAT of Rs 70 cr for FY09. This translates into EPS of Rs 12 on current equity. At a modest discounting by 8x times share price can double within a year.

Bharati Shipyard (70.00), second largest private shipyards in India is engaged in design and construction of bulkers, cargo/container ships, tankers, dredgers, passenger vessels, chemical carriers etc. It has special expertise in construction of offshore support vessel required for oil exploration industry and is the sole Indian player with order of an oil rig. Currently, company boast of having an all time high order book position of Rs 4800 cr which is almost 7x times its FY08 revenue, thereby ensuring a strong revenue visibility. Apart from operating thru four shipyard as of today, company in the midst of Greenfield expansion of setting up two new yards at Dabhol (Maharashtra) & Mangalore (Karnataka) with an investment of more than Rs 1000 cr. Besides, it has entered into a 50:50 JV with the diversified Apeejay group to set-up a 250,000DWT large scale shipyard on the east coast of India catering primarily to cargo vessels. To fund its expansion plan, during 2005 BSL raised around Rs 450 cr in two tranches thru FCCB route to be convertible into equity at the rate of Rs 422 & Rs 498 respectively. Out of these more than 50% has already been converted and considering the current market price the chances for conversion of the balance bonds in near future are quite bleak. For FY09, BSL is estimated to clock a turnover of Rs 825 cr and PAT of Rs 65 cr without taking govt subsidy into consideration. This translates to an EPS of 24 on current equity of Rs 27.60 cr.

Numeric Power (280.00) is India’s leading manufacturer of uninterrupted power supply (UPS) systems, stabilizers and power conditioners. It also undertakes turnkey projects and offers end to end solution for SCADA/EMS package, large network of industrial process, power transmission support systems and distribution management. It has been ranked as No.1 online UPS manufacturer & power electronic company of the year for the last 15 years in a row by Soft Disk journal. It has also been ranked as No 1 offline UPS manufacturer for second consecutive year by the same magazine. Recently, it ventured into solar power generation using Photo Voltaic Modules and initially intends to develop solar hybrid UPS systems. Accordingly, it walked out of JV with SOCOMEC SA of France as it primarily prevented the company to tap the solar 3 phase UPS products. But at the same time it has developed its own products in higher range of 3 phase category which are fairly successful in the market. Considering its robust performance for Q1FY09, it may clock a turnover of Rs 450 cr and profit of Rs 45 cr i.e. EPS of Rs 89 for FY09. Fundamentally, company has very low debt on its book and has huge reserves making it a strong bonus candidate.

Sunil Hitech (65.00) is engaged in the niche segment of fabrication, erection & testing and commissioning of bunkers, ESPs, boilers, TG sets in the power plants, both in private & public sector. With a client list spanning BHEL, NTPC, Reliance Energy, Jindal Steel and Power, the SEBs of Maharashtra, Chhattisgarh and Madhya Pradesh, Sunil Hitech is also engaged in overhauling and maintenance to ensure proper functioning of plants, post-installation. The company also undertakes projects in the transmission and distribution segments. As on today it has an all time high order book position of more than Rs 1300 cr which is 4x times its FY08 turnover. Incidentally, company has an under leveraged balance sheet with a low debt equity ratio of 0.60x times and can raise more debt comfortably. So despite taking into consideration higher interest cost it may end FY09 with a topline of Rs 500 cr and PAT of Rs 20 on conservative basis. This translates into EPS of Rs 16 on current equity of Rs 12.30 cr. Secondly it has huge reserves to the tune of Rs 145 cr on small equity leading to a healthy book value of Rs 128. Against the net current assets of Rs 120 cr, company is available at a market cap of less than Rs 100 cr, making it a steal.

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Special DEEPAVALI Scrips (SI)

Transformer & Rectifiers (135.00) whose IPO issue @ Rs 465 per share got over subscribed by 91x times in Dec 2007 is finding no buyer at Rs 150 now. Company is one of the leading manufacturers of power & distribution transformers, furnace transformers, rectifier transformers and specialized transformers. It currently manufactures transformers up to 220 kV class and has an installed capacity of 7,200 MVA transformers per annum. To cash on the boom in power sector, company is setting up a Greenfield plant in Moraiya, near Ahmedabad with an installed capacity of 16,000MVA. The new plant, expected to be operational by March’09 would be capable of manufacturing transformers upto 756kV class, though the company initially intends to manufacture transformers of 220kV and 400kV classes. As of now, company has order book position of Rs 383 cr, out of which 70% comprises of power transformers. For the latest Sept’08 qtr, its sales as well as net profit increased by 60% to Rs 114 cr and Rs 12.70 cr respectively. Accordingly it may end FY09 with sales of Rs 400 cr and NP of Rs 36 cr i.e. EPS of Rs 28 on current equity of Rs 12.90 cr. However, it will report substantial growth in FY10, as new plant will begin operation.

Savita Chemicals (170.00) specializes in manufacturing of petroleum specialty products like transformer oils, liquid paraffin, petroleum jelly, white mineral oil, automotive and other industrial lubricants. Of the total sales, transformer oil constitutes around 45%, white oil/liquid paraffin’s around 35% and lubricating oil balance 20%. In lubricating oil segment, company is present in both automotive (85% of lubricant sales) and industrial (15% of lubricant sales) segment. It has a tie-up with Idemitsu Kosan, Japan to market its lubricating oils under ‘Idemitsu’ brand name thru network of dealers and auto part shops. Importantly, company enjoys 40% market share in transformer oil, hence will be immensely benefitted with huge capacities planned in power generation. Secondly, the sharp fall in crude oil prices will also boost up its margin as base oil forms its major raw material. Apart from petroleum business, company has also setup wind mills with an installed capacity of 26.3 MW which will be augmented to 34.9 MW in this fiscal. Although company is negatively affected by the rupee depreciation being a net importer, still it may register net sales of Rs 950 and PAT of Rs 58 cr leading to an EPS of Rs 40 on equity of Rs 14.60 cr for FY09. Buy at major corrections.

Easun Reyrolle (45.00) is engaged in field of power management encompassing protection control products, automation systems, automatic metering products & switchgears. Lately it has also ventured into EPC and turnkey business of erection of substations and the entire T&D projects. Notably, company has now fully absorbed the technology of 61850 domain in which only players like ABB, Siemens and Areva are present. 61850 domain is a protocol, which ensures connections in-between hybrid and complex substations so that the power transmission and distribution happens smoothly. For future growth it is aggressively eyeing companies in Europe and US, which are strong in technology. For this It raised round about Rs 250 cr in Jan’08 thru GDR & FCCB route to be converted into equity at the rate of Rs 315 and Rs 400 per share respectively. It hasn’t made any major acquisition and is still sitting on huge cash. With order in hand of nearly Rs 200 cr, it may end FY09 with sales of Rs 250 cr and profit of Rs 25 cr i.e. EPS of Rs 12 on current equity of Rs 4.15 cr having face value as Rs 2/- per share. Investors are strongly recommended to buy as scrip can double within a year.

Being Asia’s largest manufacturer of air compressors, Elgi Equipment (32.00) is involved with the design, development and manufacture of exhaustive range of electric and diesel powered screw air compressor (oil free, portable, world’s smallest etc), centrifugal air compressor, airends, reciprocating air compressors, borewell compressors, bare compressor pumps etc. Besides it also manufactures railway compressors and a variety of equipment solutions for railway applications. It can manufacture all these types of compressors covering a range from 0.75HP to 1500HP for volumes from 1.8 cfm (cubic feet per minute) to 80000 cfm. On the other hand it derives nearly 20% revenue by providing total service station solutions through the supply of a range of equipment and tools for two, three & four wheelers. Moreover, having rich experience of four decades and state-of-the-art infrastructure, company has 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 future growth company is setting up a compressor manufacturing facility in China and warehousing facility in middle East and Brazil. On a conservative basis it may report a turnover of Rs 450 cr and PAT of Rs 35 cr i.e. EPS of Rs 5.50 for FY09. Accumulate at declines.

SKF India (170.00) is country’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 1700 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. A very safe bet in current market sentiment.

International Combustion (165.00) is among the very few engineering companies which have been recording consistent and healthy growth in the last five years but still remains to be poorly discounted by the market players. Even for FY08 it registered 20% and 40% growth in sales and net profit respectively thereby posting an EPS of Rs 49. Currently its available at EV/EBIDTA of merely 2x times which is extremely cheap by any standard for this debt free and dividend paying engineering company. It is engaged in manufacturing of heavy engineering equipment, geared motors and gear boxes, vibrating screens and feeders, bulk material handling equipment, rubber/polyurethane screen decks and liners, Raymond grinding mills, air classifiers and flash drying system etc. Hence it makes sophisticated plant and machinery for core sector industries such as mining, steel, cement, petrochemical, construction, sugar, power, textile, paper, rubber, pharma, chemicals etc. Recently it reported satisfactory nos for the Sept’08 quarter and is poised to end FY09 with sales of Rs 110 cr and NP of Rs 12 cr i.e. EPS of Rs 50 on tiny equity of Rs 2.40 cr. Due to small equity, it also has an impressive ROCE of 40% and ROE of 25%. More importantly it has huge reserve of nearly Rs 45 cr which leads to a book value of Rs 192, making it a perfect bonus candidate. It’s a risk free bet which can give handsome return in the long run.

Smart Investments

Aban Offshore Ltd

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Elecon Engineering Ltd

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Supreme Infrastructure India Ltd - Rs 45.00

Incorporated in 1983, Supreme Infrastructure India Ltd (SIIL) is predominantly engaged in construction of roads, highways and other allied projects for clients like NHAI, MCGM, MMRDA, MSRDC, MUTP, PWD, BMC, AAI, BPT, TMC and also private agencies like Hiranandani, K. Raheja, Pratibha Ind, RCF, BARC, Sadbhav Eng, Mundra Port etc. Its area of operation is mainly concentrated in Mumbai region and few parts of Maharashtra & Bangalore. Although company’s core competency lies in construction/widening of roads & highways etc it also undertakes other infrastructure projects like integrated nallah development, drainage work, laying of railway tracks, construction of minor bridges, development of IT Park, residential tower, RCC building, strengthening of sea wall and laying of tetra pods etc. As SIIL is registered with PWD & BMC, it is eligible to bid for their tenders without any restriction in terms of value. Infact company is also eligible to bid for tenders of construction of runways at airports, for jobs related to tidal area projects, construction of small jetties and port connectivities which require special skills. Remarkably, till now no penalties have been levied on the company for any of the projects due to any delay in completion on its part. For executing all types of civil works, company even possesses various latest machinery like vibratory rollers, sensor pavers, excavators, road rollers, paver finishers, tippers, motor grader, compressors, weigh bridge, concrete pumps etc.

Notably SIIL is among the few companies of its size having its own captive ready mix concrete plant, asphalt mix plant, quarrying and crushing unit & paver block manufacturing unit. Apart from consuming these for its own projects, company also produces & supplies to other contractors as per order. Brief summary of the plants are:

· Asphalt Mix plant: SIIL has three asphalt plants spread across Powai (Mumbai), Padgha (Thane) & Chitradurga (Bangalore) with a combined production capacity of 330 MT per hour. The plants are equipped with machineries from Lingtech, Linoff & Apollo.

· Ready Mix Concrete (RMC) plant: Company has four RMC plants each located at Powai, Padgha, Chitradurga & Thane. These plants have total capacity to produce 180 CUM of concrete per hour. Incidentally two of the plants are capable of producing concrete as well as wet mix macadam

· Wet Mix Plant: Company possesses a Unicon make wet mix macadam plant at Powai, Mumbai with a production capacity of 100 MT per hour.

· Quarrying & Crushing unit: SIIL boast of having four crushing plants – two at Padgha and one each at Powai and Chitradurga having total installed crushing capacity of 470 MT per hour.

· Paver Block unit: Though the concept of paver block is very old its usefulness has been realized recently and hence the manufacturing of paver blocks seems to be a new industry in India. SIIL has set up a paver block manufacturing unit at Padgha and is manufacturing nearly 10,000 sq. mtrs of paver blocks per month for the roads of varying thickness as 60 mm, 80 mm & 100 mm in unipaver shape in grey cement shade and in red colour. It also makes lacquer coated 60 mm paver blocks for the footpaths for which its monthly production capacity is 5,000 sq. mtrs.

Importantly, all the above units have adequate infrastructure in terms of manpower, material handling equipment, machinery/equipment required for transportation of products to various sites, power connection and water. This enables mobilization of the finished products to the various sites in and around Mumbai in a very convenient manner. Because of its strong execution capabilities and excellent track record, SIIL today boast of having a massive order book position of more than Rs 500 cr. Further, company is exploring the possibility of new orders in the range of Rs. 500~800 cr from the Indian railways and also for building construction contracts from private sector players. To cater the increasing demand for RMC, company is contemplating to almost double its RMC capacity to 300 cum. per hour by adding two new RMC plants in Mumbai and other city.

After spending 25 years of focus on road, SIIL is now using its experience and expertise to enter into the entire gamut of infrastructure services. To begin with it is betting high on railway projects and real estate development. During Oct’07 company raised round about Rs 40 cr thru IPO route @ Rs 108 per share. Posting listing scrip went up to hit a high of Rs 224 but has now tumbled down to sub Rs 40 levels. For FY08, SII recorded 100% rise in revenue to Rs 156 cr and 50% jump in profit to Rs 19 cr posting an EPS of Rs 14 on equity of Rs 13.90 cr. It gave 15% dividend which leads to an yield of nearly 4% at CMP. Further for Q1FY09 it declared very encouraging set of nos and recorded an EPS of nearly Rs 7 for the single quarter alone. However considering the ongoing US financial crisis and its impact, SIIL may end FY09 with topline of Rs 225 cr and PAT of Rs 13.50 cr on a very conservative basis. This translates into EPS of Rs 10 on current equity. Investors are advised to buy at current levels as scrip can double within 12~15 months

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