STOCK WATCH

Jupiter Bioscience (40.00) 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. It is operating in a very niche segment and is among the few companies in the world to have competency in synthesis of peptides. The technology focus of the company has enabled it to develop more than 400 products in its catalogue and establish a leadership position in the peptide business internationally. For H1FY09 it has already clocked an EPS of Rs 9 as it reported 15% growth in sales to Rs 60 cr and 10% increase in PAT to RS 14 cr. Last year company invested considerable resources in developing the processes for manufacture of generic peptide APIs. 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. Besides 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. Last fiscal it raised 100 cr thru QIP route @ Rs 153 per share. Further it has allotted 40 lakh warrants to be converted @ Rs 182 to strategic investors. For FY09 on a standalone basis, it can report sales of Rs 150 cr and NP of Rs 30 i.e. EPS of Rs 20 on current equity of Rs 15.40 cr. A strong buy.

Currently, Godawari Power (60.00) is the 4th largest manufacturer of coal based sponge iron and also one of the leading manufacturers of mild steel in India. It completed its Phase-II expansion in Sept 2007 and boasts of having an installed capacity of 495,000 TPA for sponge iron, 400,000 TPA for steel billets, 120,000 TPA for HB wire rod alongwith 53 MW of captive power plant. Due to adverse market condition company has temporarily cut down the steel billets and ferro alloys production and has decided to sell the entire surplus power in open market. It has also dropped down the buy-back plan which was approved earlier. Importantly, company has acquired mining license for iron ore and coal in Chhattisgarh. Couple of days back it got the in-principle approval from govt for diversion of 110 hectares of forest land for iron ore mining at Chhattisgarh. For which it expected to begin mining activities by June 2009. It has also made investments in two JV companies - Chhattisgarh Captive Coal Mining Ltd and Raipur Infrastructure Company Ltd for development of coal mines and setting up railway sliding for captive use. Recently company has decided to venture into cement production along with executing backward integration plan which includes setting up of 0.6 mtpa iron ore Pelletization plant, 0.1 mtpa iron ore Beneficiation plant, 1.2mtpa iron ore Crushing plant etc. Although company has already earned an EPS of Rs 25 for the first two quarters of FY09, but considering the sharp drop in sponge iron prices it may report disappointing nos for the next two quarters. Accumulate at sharp declines

From a high of more than Rs 1000 early this year, share price of KLG Systel (70.00) has become one fifteenth and is still hitting new lows. Company specializes in offering technological solution for entire business life cycle i.e. right from concept and creation, through plant design, project execution and management operations & optimisation to expansion/ revamp. It also provides on-line IT solutions to distribution utilities, using its self-developed software Vidushi, SG61 Technology and solution for determining the transmission & distribution losses, fixing the areas of power theft, on-the spot billing & cheque collection, increasing revenue collection efficiency of the utilities and addressing consumer grievances. Recently it has demerged the power systems solutions business into a new subsidiary named KLG Power in which IBM group company has invested Rs 12 cr for taking 1.20% stake, thereby putting the valuation of KLG Power Ltd to whopping 1000 cr. Ironically against this, KLG systel - the parent company which is holding the rest 98.80% is available at a market cap of Rs 90 cr. For FY09 on a standalone basis it is expected to clock a turnover of Rs 240 cr and profit of Rs 30 cr i.e. EPS of Rs 24 on current equity of Rs 12.60 cr.

WS Industries (25.00) is a leading manufacturer of high voltage electro-porcelain transmission insulators and sub-station insulators. It deals in other products as well like dropout fuses, isolators, lightning arresters, coupling capacitors, capacity voltage transformers, instrument transformers, line traps and reactors. To cater the rising demand, company is setting up a Greenfield plant in Visakhapatnam to double the manufacturing capacity of substation insulators to 16,000 tons. The project is almost completed and may start commercial production in this fiscal itself. Besides, its transmission insulator unit with installed capacity of 8,000 tonne is running at full capacity. Lately company has also ventured into turnkey project execution i.e. designing, execution and construction work of transmission lines of below 220 KV. Meanwhile, its subsidiary company has completed the construction of the 1st phase (300,000 sq ft) of the Software Technology Park in association with TCG group. Due to sudden liquidity crisis and slowdown, company may report a turnover of Rs 225 cr and profit of Rs 11 i.e. EPS of Rs 5 for FY09. Scrip can appreciate 50% as soon as market sentiment improves.

Small & Beautiful

Voltamp Transformer (310.00) has special expertise in production of dry type vacuum resin impregnated (upto 3 MVA/11 kV class) and cast resin transformers (upto 7.5 MVA/33 kV class) apart from manufacturing regular oil filled power & distribution transformers, induction furnace transformers & unitized substations. Infact, company is the market leader in dry type transformers with around 40% market share. Currently company is in the midst of putting up a Greenfield plan with an installed capacity of 4000 MVA thereby taking the total transformer manufacturing capacity to 13000 MVA. This plant being set up with an investment of Rs 35 cr is expected to get ready by April 2009. For the Sept’08 company reported 15% growth in sales to Rs 170 cr whereas PAT jumped up 50% to Rs 27 cr. Incidentally it has already posted an EPS of Rs 50 for H1FY09. And with the recent fall in copper prices, its margin is expected to improve which will positively impact the bottomline going forward. So for the entire FY09 it may clock a turnover of Rs 650 cr and profit of Rs 85 cr i.e. EPS of Rs 84 on equity of Rs 10.10 cr. Being debt free and having huge reserves of more than Rs 150 cr, liquid cash worth Rs 60 cr, ROCE of 95% and ROE of 60% it’s a screaming buy.

Shanthi Gears (30.00) is the second largest player in industrial gear segment with 20% market share and at the same time is the undisputed leader in the customized product segment where the manufacturing is as per clients’ requirements. Remarkably, it is also the only listed manufacturer of gears for helicopters and light combat aircrafts to Hindustan Aeronautics Ltd. Of late, company has even started manufacturing gearboxes of 250 KV for windmills. For six months ending Sept’08, it recorded nearly 15% growth in sales and NP to Rs 126 cr and 23 cr respectively. Incidentally, the recent fall in steel and other metals will reduce its input cost considerably and may give a good fillip to its bottomline in coming qtrs. Accordingly it may end FY09 with sales of Rs 260 cr and PAT of Rs 40 cr i.e. EPS of Rs 5 on fully diluted equity of Rs 8.60 cr having face value as Rs 1/- per share. Moreover if rumors are to be believed then India’s largest windmill manufacturer Suzlon, through its subsidiary Hansen Transmission (world’s fifth largest maker of gearbox), was interested in taking a stake in SGL. If it happens, this may lead to re-rating of the company and share price may see a vertical rise

Elecon Engineering (35.00) is a leading manufacturer of bulk Material Handling Equipment (MHE) and Asia’s largest producer of industrial gear with 26% market share in India. For more than five decades, it has been supplying hi-tech equipment to core sectors such as steel, fertilizer, cement, coal, petrochemicals, lignite and iron are mines, power stations, defense and port mechanization in India and abroad. With a strategy of diversification, last fiscal company started a new business of setting up of Wind Turbine Generator (WTG) farms and manufacturing of WTG gear boxes. It has started manufacturing of WTG gear box having capacity of 1 MW to 2 MW, which is the import substitute, thereby becoming the first Indian company to manufacture gearboxes of such sizes. As on 30th Sept 2008, it has an pending order in hand of Rs 1772 cr comprising of Rs 1527 cr for MHE division and Rs. 245 cr for gear division. On the back of satisfactory H1FY09 nos, it is estimated to clock a turnover of Rs 950 cr and net profit of Rs 55 cr for FY09. This translates into EPS of almost Rs 6 on current equity of 18.60 having face value as Rs 2/- per share. Moreover the promoters are constantly buying shares from open market to increase their stake thru creeping acquisition. A solid bet.

Jyoti Structure (55.00) has an expertise to take on turnkey projects for transmission lines from 33 kV to 800 kV and substations upto 400 kV irrespective of terrain, location and requirements of power utilities within and outside India. In order to provide end-to-end solutions company has two manufacturing facilities which are capable of making proto types, fabricating and galvanizing transmission towers and structures, microwave towers, wind mill tower, railway electrification structures, etc up to 76,000 MTPA. Besides, its wholly owned subsidiary JSL Structures is having a capacity to manufacture another 19800 tons of transmission line towers. On the back of huge flow of investments in the power transmission and distribution segment, its current order book stands at an all time high value of more than Rs 3500 cr. Meanwhile, company has reported encouraging set of nos for both Q1 & Q2, and is expected to end FY09 with topline of Rs 1650 cr and PAT of Rs 75 cr leading to an EPS of Rs 9 on current equity of Rs 16.20 cr with face value as Rs 2/- per share. Apart from above company is betting on international market and has formed a couple of joint venture companies in UAE and South Africa. Keep accumulating at sharp declines.

J K Paper Ltd - Rs 16.00

Incorporated in 1960, J K Paper Ltd (JKPL) belongs to one of India’s leading business houses – JK organisation, which has a diversified presence in automotive tyres, cement, v-belts, oil-seals, power transmission system, clinical research, food & dairy products, sugar, agri-seeds and pulp & paper. Today with more than dozen of popular brands, JKPL is India’s largest producer of branded papers and commands 40% market share in branded cut size papers. Infact it has played a pioneering role in converting paper from a commodity to a branded product. So apart from being the first to brand paper in Indian market, JKPL is also the first to introduce surface-size woodfree paper. Thus, company is primarily engaged in production of writing & printing paper and has recently ventured into high-end coated packaging boards as well. Notably, it commands top 2 position in most of its segment and the value added products like coated and branded papers constitute more than 70% of its sales. With a broader product basket, JKPL has emerged as a leading one-stop-shop paper company in India.

Office Documentation: It offers a range of office documentation papers from economy to premium grades which include multi purpose papers for use in desktop, inkjet and laser printers, fax machines, photocopiers and multi-functional devices. Company’s “JK Copier” brand is the undisputed leader with “Easy” and “Sparke” as value for money brand and “JK Excel Bond” being in premium category

Uncoated Paper & Board: JKPL manufactures a range of uncoated writing & printing paper for varied needs including premium diaries, Hi end exercise book, notepads, quality books, calendars, maps etc. Apart from this, it also produces MICR cheque paper as well as high-end pulp boards, ledger papers and parchment grades. It “JK Evervite” and “JK Maplitho” paper have been acknowledged in the market for its superior performance and excellent printability.

Coated Paper & Board: During 2005, JKPL commissioned a 46,000 TPA state-of-the-art coating plant and since then offers a range of single sided / two sided coated paper and board made from in-house base paper for better quality control. Its “JK Eco Cote” & “JK Cote” brand are extensively used for making posters, brochures, folders, premium Books, calendars, direct mailer, catalogue, pamphlet etc. It also markets photo paper under the brand name “JK Phtovista’

Packaging Board: Last year in Oct 2007, JKPL also forayed into high-end coated packaging board to exploit opportunities in fast growing segments of the economy like pharmaceuticals, FMCG products, ready to eat food segments etc. and growing exports of cartons to the West. Within months of market launch, “JK TuffCote”, “JK Ultima” “JK PureFil” & “JK Tuffpac” have been accepted as strong brands in the packaging board market. Accordingly, JKPL has already captured 20% market share of this segment in less than one year from production start up.

JKPL operates two integrated plants in India one in the East - in Rayagada, Orissa with a capacity of 125,000 TPA and the other in the West - located in Songadh, Gujarat with a production capacity of 55,000 TPA. Last year it commenced commercial production at its Rs 300 cr state-of-the art multi layer packaging board plant having a name plate capacity of 60,000 TPA, thereby taking the total installed capacity to 240,000 TPA. As of now, all its plants are working at more than 100% capacity utilization. Importantly, JKPL continues to remain self sufficient for its power requirement as it also augmented its power generation capacity by 12MW for the new board plant. To ensure better availability of raw material, JKPL is aggressively pursuing its social forestry programme by distributing nearly 35 million seedlings to farmers annually and has now brought over 65,000 hectares under this project. It also has one of the strongest distribution networks which include 11 warehouse, 140 distributors & 2500 Dealers covering the remotest corners of India. Moreover, it is exporting to more than 40 countries including Sri Lanka, Bangladesh, Middle East, Africa, Australia, Singapore, Malaysia etc.

On the macro front, 8~8.5% demand growth for paper & boards in India is among the fastest in the world. In printing and writing papers, demand is being led by factors like increasing thrust on education, growing requirements from printers and publishers originating from accelerated industrialization, increased economic activity and enhanced advertising and communication needs. Paper based packaging will get a boost with increasing rural demand for FMCG and consumer durables, growing penetration of modern and urban retailing and India's rising exports. In addition, there is a progressive shift in consumption towards branded and value added paper and board products. Despite such healthy growth, the per capita consumption of paper in India is only 7 kg against 324 kg in USA, 20kg in China and 24 kg in Indonesia.

Financially company has been doing well and has reported 40% growth in sales to Rs 546 cr for H1FY09. However the PAT remained flat at Rs 19 cr due to provisioning of unrealised foreign exchange loss of Rs 8.40 cr during the six months ended September 30, 2008. At the same time company didn’t recognize Mark to Market unrealised gains on currency and interest rate swaps amounting to Rs 13.50 cr. Although the recent softening of pulp prices is likely to have positive impact on company’s margins in coming quarters still its availability and volatility in price remains an impediment in the growth of the industry. Accordingly for FY09 it may clock a turnover of Rs 1100 cr and net profit of Rs 35 cr leading to an EPS of Rs 4.50 on current equity of Rs 78.20 cr. At the same time it may post a Cash EPS of more than Rs 15. Well as of today, FCCB of approx Rs 20 cr is outstanding and may come up for redemption in 2011 as the bondholders may not opt for conversion @ Rs 95 per share. To conclude, although its debt equity ratio and interest cost is alarmingly high, still investors can accumulate at sharp declines as it can appreciate 50% within a year.

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Smart Investments

Ratnamani Metals & Tubes Ltd
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Transformer & Rectifiers Ltd
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Transformer & Rectifiers India Ltd - Rs 125.00

Incorporated in 1994, Transformer & Rectifiers India LTD (TRIL) is one of the few manufacturers in the country manufacturing the entire range of transformers namely power generation, transmission and distribution transformers, industrial transformers such as furnace transformers, and special transformers such as mobile substation, rectifiers, testing transformers etc. Infact, company is among the largest manufacturer of furnace transformers in India. Notably, TRIL has developed the products based on its in-house design and engineering capabilities, without any third party technical collaboration or assistance. Company caters to a wide spectrum of transformer users in various industries such as petrochemicals, oil refining, cement, paper and pulp, pharmaceuticals, automobiles, steel, alloy plant, power plant, railway applications, mining, minerals, among others. Presently, it derives nearly 70% of revenue from sales of transformers to utilities and the balance 30% comes from direct sales to industrial clients. TRIL’s clientele includes SEB’s of Gujarat, Rajasthan, Maharashtra, Tamilnadu, MP & AP, PowerGrid Corp, NTPC, IRCON, Siemens, ABB, Jindal Steel & Power, AIA Eng, Suzlon, Rohit Ferro etc. Besides, company also exports to countries such as the England, Canada, United Arab Emirates, South Africa, Saudi Arabia and Indonesia. Till date, company boasts of installing round about 5000 transformers across the globe.

Currently, TRIL is operating through two manufacturing units - Changodar & Odhav in Ahemdabad with an installed capacity of 6000 MVA and 1200 MVA respectively and has the capability to manufacture transformer upto 160 MVA in 245 kV class. In order to backward integrate the operations, company recently acquired stakes in two group companies namely Transweld Mechanical Engineering Works Limited and Transpares Limited. One is engaged in manufacturing of transformer tanks and core channels whereas other is manufacturer of pressed steel radiators, which is one of the key components involved in transformer manufacturing. Further, to cash on the huge opportunity in power sector and fulfill the rising demand for transformers, TRIL is undergoing an aggressive capex of nearly Rs 70 cr to triple its production capacity. It is in the process of setting up a Greenfield plant in Moraiya, near Ahmedabad with an installed capacity of 16,000MVA. The new plant which is 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. And as higher kV category transformers command better realization, company’s margin is bound to improve going forward. Moreover, in future TRIL is also contemplating to take up turnkey projects for setting up of sub-stations, that form a part of the power transmission and distribution networks, where it has developed in-house engineering capabilities. As of now, company has order book position of Rs 383 cr, out of which 70% comprises of power transformers.

To fund its expansion plan and part finance the incremental working capital requirement, during Dec 2007 TRIL came out with an IPO of 29.95 lac equity shares at a price of Rs 465/- per share aggregating to Rs 139 cr. Remarkably, the issue got an overwhelming response from the public as it was oversubscribed by 91x times. And more interestingly, the same share is now available at 75% discount to its issue price. This is despite the fact, company has been doing exceedingly well. Even 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. For H1FY09, it has already clocked an EPS of Rs 17 as it recorded 55% growth in sales to Rs 195 cr and 75% jump in PAT to Rs 22 cr. With company now focusing on higher kV category transformers coupled with drastic fall in copper prices, the future prospect looks promising. Meanwhile 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. But importantly, once its Moriya plant becomes operational it will report substantial jump in sales & net profit for FY10. Hence long term investors are strongly recommended to buy at current levels as share price has the potential to double in 12~15 months.

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