STOCK WATCH

Man Industries (35.00) is one of India's largest producers and exporter of large diameter Longitudinal submerged arc welded (LSAW) pipes and Helically submerged arc welded (HSAW) pipes. Infact it is the only company in India to manufacture 18 mtr long HSAW pipe. Recently, company has started a new production line for HSAW pipes with a name plate capacity of 200,000 MTPA thereby equalizing the total production capacity to 500,000 MTPA each for LSAW as well as HSAW. Remarkably it has also bagged new orders to the tune of Rs 1100 craking the current order book position to Rs 1500 cr. To become a global player, company is setting up a HSAW pipe manufacturing plant with an capacity of 300,000 MTPA in USA under a capex of Rs 400~450 cr. Despite company posted disappointing nos for Q1FY09, still on the back of expanded capacity it may report a topline of Rs 1650 cr and bottomline of Rs 60 cr i.e. EPS of Rs 11 on current equity of Rs 26.60 cr. As FCCB is convertible at much higher price than the CMP, bond holders may not opt for conversion thereby eliminating the risk of equity dilution in near future. With the high of Rs 177 in Jan’08, scrip is now available at cheap valuation with a market cap of less than Rs 200 cr

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.

For the Sept’08 qtr, JMC Projects (55.00) reported 75% rise in revenue to Rs 323 cr and 60 increase in operating profit to Rs 24.70 cr. But due to higher interest and depreciation cost, PAT remained flat at Rs 6.80 cr. Being a part of Kalpataru group is among the top seven players for building and factory construction in India & has also been recognized as India’s sixth fastest growing company by the latest “Business Today” June’08 edition. It has successfully ventured into fields of turnkey execution involving civil, mechanical, electrical, HVAC, fire fighting, architectural and landscaping works. Lately, it has started focusing on infrastructure and power projects and is aggressively bidding for contracts to construct bridges & flyovers, roads & highways, railways stations, marine work, water supply & irrigation projects and construction of power plant. This has resulted into massive order in hand position of more than Rs 2000 cr as on March 2008 which is twice its FY08 turnover. For H1FY09 it has already posted an EPS of Rs 8 with 75% rise in sales to Rs 636 cr and 20% increase in NP to Rs 14.70 cr. In future company intends to up railways, airports and water management projects on an EPC basis which will further add to its bulging order book. For FY09 it may clock a turnover of Rs 1350 cr and profit of Rs 25 cr for FY09 leading to an EPS of Rs 14 on current equity of Rs 18.14 cr. A screaming buy.

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.

Small & Beautiful

With over four decades of experience, the real estate portfolio of Ansal Buildwell (20.00) includes residential complexes, townships, commercial buildings, group & row housing projects, hospitality and various other infrastructural projects. Although company’s activity is mainly concentrated in Gurgaon but gradually it has spread its wings across the length and breadth of the nation in Banglore, Kochi, Dehradun, Moradabad, Punjab, Jhansi, Gwalior, Jammu and across the border in Kathmandu (Nepal). Presently it is developing integrated township under the banner “Ansal City” in several tier –II cities including Kochi, Gwalior, Jaipur, Amritsar, Jhansi etc. Company also specializes in constructing luxurious row houses and has dozen of projects going on in Gurgaon and Ernakulam. Ironically, company holds an Island (52 acres) at Vachoor, which is about 40 kms away from Cochin down town. On the hospitality front its Harmony Club & Florence Club is fully operational whereas the Riverdale Club in Kochi is under construction. Recently, it has also launched commercial complexes project called 'Boom Plaza' and 'Boulevard Centre' in Gurgaon. Notably, its debt equity ratio stands at 1.2x which is relatively not very high. Considering its track record and ongoing project, company is trading grossly cheap at a market cap of merely Rs 15 cr.

Hind Rectifiers (35.00) operates in the niche space of power electronics and DC wound products with two major product segments namely equipment and components. The equipment division having products like rectifiers, invertors, converters and traction transformers and components includes semiconductors like diodes and thyristors 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. Since company caters to Railway segment as well as power generation and pollution control capital equipment segment, the future prospect looks good. Infact, it boasts of having an all time high order book position of more than Rs 80 cr. However, as it didn’t report encouraging nos for the H1FY09 it is expected to register sales of Rs 110 cr and profit of Rs 11 cr i.e. EPS of Rs 7 on tiny equity of Rs 3 cr with face value as Rs 2/- per share for entire FY09. Scrip can easily appreciate 50% within 9~12 months

On the back of encouraging Sept’08 quarter nos, Roto Pumps (30.00) has registered 40% rise in topline to Rs 25 cr and 30% growth in profit to Rs 1.50 cr for H1FY09. Company is a reputed manufacturer of progressive cavity pumps and twin screw pumps which have very wide application in agriculture, domestic and industrial sector. Besides India, it has warehouse cum marketing office in Australia and U.K. and also good network of distributors spread across the globe. Couple of months ago, it bagged approx Rs 4 cr order from L&T which is the single largest value order in the history of the company. To maintain its growth momentum, company is implementing an expansion cum modernization program for which it has been recently allotted an industrial land of 20,000 sq mtr by Greater Noida Industrial Development Authority in Sector ECOTECH – XII. For FY09 it may register a topline of Rs 50 cr and bottom-line of Rs 2.75 cr which translates into EPS of Rs 9 on a small equity of 3.09 cr. At the current enterprise value of Rs 15 cr, scrip is trading fairly cheap.

IMP Power (48.00) is engaged in manufacturing of entire range of power & distribution transformers, electrical & digital measuring instruments, testing equipments etc. It has been manufacturing transformers ranging from 10 KVA to 100 MVA upto 220 kV class. It has vendor approval from almost all the State Electricity Boards, major turnkey EPC contractors and the only transformer company in India to be in zero sales tax zone enjoying 15 year sales tax holiday which shall continue till year 2012. Secondly, it has achieved backward integration through manufacturing of OLTC & RTCC in house thereby emerging as one of the lowest cost manufacturer of transformers. To cater to the rising demand and increase its market share, company has recently doubled its production capacity from 3600 MVA to 7000 MVA. With this company mow list among the top 10 EHV and power transformers manufacturing companies in India. Besides last fiscal, company has also upgraded its Kandivali plant to manufacture complete range of analog meters such as ammeter, voltmeter frequency meter, dynamometer type watt meter, power factor meter, phase sequence indicator, KVA Meter etc. in addition to high end meters like maximum demand indicator, trivector Meter, multifunctional and kWh Meters. After ending FY08 on quite a buoyant note, it has reported terrific nos for the Q1FY09. For the year ending June’09 it may clock a turnover of Rs 185 cr and PAT of Rs 11 cr i.e EPS of Rs 16 on current equity of Rs 7 cr. Scrip may shoot upto Rs 75 within a year.

Smart Investments

Gremach Infrastructure Equipment & Projects Ltd
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JK Paper Ltd
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Gremach Infrastructure Equipment & Projects Ltd - Rs 22.00

Incorporated in 1991, Gremach Infrastructure Equipment & Projects Ltd’s (GIEPL) main activity is to provide rental of construction/earthmoving machineries to medium & large construction companies who are engaged in the business of infrastructure developments like constructing of roads, airports, dams, power projects, mining activities, housing & civil construction and other related activities. GIEPL’s business is flourishing rapidly as it makes business sense for the construction companies to take these costly construction equipments on a rental basis instead of blocking their capital in procuring equipments which may not be used for executing other projects. The other advantage of taking the equipment on rental basis is the availability of quality equipments without the hassle of their maintenance. Thirdly, with rapid technological developments, the cost of replacement of these equipments is also very high and hence the developers now prefer to take equipments on rent rather to own them. Over the year, GIEPL has pursued a strategy of diversifying the selection of machinery/equipment according to different business segments in the infrastructure sector. In addition to renting its owned equipments, company also hires equipments owned by other parties and rent it out to its own clients. Infact, GIEPL has been deriving majority of revenue from renting of equipment which are exclusively owned by third parties. This is possible due to the fact that, company has established a very strong network so as to have a geographical reach as well as a diversified industrial and project segment.

Remarkably, GIEPL is among the handful of large player in the organized sector, which is presently being dominated by small unorganized players. But as the project location are diverse and the equipment requirement at various sites may vary, only bigger companies with strong financial muscle like GIEL can fulfill the requirement. Secondly, company has an edge over its peers as it has huge asset bank of heavy equipments ranging from compacters, rollers, concrete mixers, dozers, forklifts, loaders to excavators, PTR, dumpers, electronic sensor pavers, kerb laying machine, tunneling boomer, concrete batching and mixing plant. Moreover it also has a vast pool of skilled labour that include mechanical engineers, civil engineers, mechanical experts, technicians, and operators etc. who operate and maintain the equipment. Because of all these factors, GIEPL boats of having a very strong clientele base that includes all the major infrastructure players in the country such as L&T, Punj Lloyd, Shapoorji Pallonji, Gammon India, HCC, Gannon Dunkerley etc. Incidentally, company adopts direct marketing approach and has set-up a separate Tender department to procure contracts from public sector undertaking as well as from private clients. As of now, company has a centralized maintenance department & workshop in Kalamboli, Navi Mumbai spread over an area of 450 sq. mtrs each.

As a part of its diversification plan, GIEPL has taken 75% controlling stake in 11 Coal mine licenses in Mozambique having an aggregate 13,520 hectares (appx. 13,52,00,000 sq. mts) of land in prime region of Moatize, Africa. With the global shortage and crisis of hard coking coal, the future prospect of this business looks terrific. To cash on the real estate boom, company has also ventured into setting up of SEZ and has received formal approval for 100 hectares Metal SEZ at Kolhapur & another at Dhule in Maharashtra. Witnessing a sharp jump in E&P activities across the globe, company has planned to enter into the business of renting of oil & gas drilling rigs. Accordingly it has signed the MOU with China's biggest oil & gas rig manufacturer and has placed order for design and manufacture of four rigs. Although in short term both the above diversification looks a risky venture, but in long term it may emerge as a sustainable and profitable business.

To conclude, with govt’s special emphasis on creating physical infrastructure and massive investment being planned in coming years, GIEPLS core business of renting equipment will continue to do exceedingly well. This concept is growing rapidly and gaining wide acceptance as the penetration level in India is quite low at 2%, compared to UK at 80% and North America at 35%. In order increase its equipment bank, GIEPL has raised almost Rs 200 cr in Feb 2008 thru FCCB route to be converted into equity @ Rs 376 per share. However, considering the CMP, the bond holders may not opt for conversion and hence company has to redeem the bond. The only saving grace is that, redemption is due by Jan 2013. Fundamentally, GIEPL has reported an EPS of Rs 24 for FY08 whereas for H1FY09 it has already earned an EPS of Rs 13. Despite such performance its share price which hit a high of Rs 500 in Jan’08 is not finding any buyer even at Rs 25. The share price of its other recently listed group company “Austral Coke” has also fallen sharply from Rs 300 to Rs 100 presently. Even after taking a slowdown into consideration, GIEPL may end FY09 with topline of Rs 300 cr and NP of Rs 24 cr i.e. EPS of Rs 16 on current equity of Rs 15.20 cr. However company has huge debt on its book despite excluding FCCB of Rs 200 cr. Hence although company doesn’t look cheap at an Enterprise Value of Rs 400 cr still the downfall from current level looks minimal. Only aggressive investors can buy at current levels as share price can double in 12~15 months.

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Orient Paper & Industries Ltd - Rs 18.00

Incorporated in 1936, Orient Paper & Industries Ltd (OPIL), flagship company of the renowned CK Birla Group is a diversified company having interest in papers, cement and electric fans.

· CEMENT DIVISION (60%):- OPIL’s main cement plant is located at Devapur, Andhra Pradesh, and a split grinding unit in Jalgaon, Maharashtra, leveraging the proximity to limestone, coal and fly ash sources on the one hand and fast-growing markets of Maharashtra, Andhra Pradesh and Gujarat on the other. With current installed capacity of 3.40 million tonne, it manufactures and markets portland pozzolana cement under the brand 'BIRLA A1 and ordinary portland cement under the brand name of 'ORIENT GOLD'. Ironically, cement contributes 60% to total revenue but more than 90% of the company’s profit comes from this division only. Incidentally, company cement division is amongst the most cost-efficient units in the country with one of the highest EBIDTA percentage. Hence to take advantage of the market growth and success of its brands and distribution network, company is in the midst of further augmenting its capacity to 5 million TPA by April 2009. As demand supply situation for cement is favorable in Maharashtra and Andhra Pradesh, cement prices are expected to remain stable with no substantial correction. It is also setting up a 50 MW captive power plant at Devapur plant to achieve further economy in the cost of energy consumed. This is also expected to become operational by April 2009. Meanwhile, last year company generated more than Rs 10 cr on sale of 107353 units of CERs and is entitled to get similar CERs each year until 2012 based upon its performance under the CDM project.

· PAPER DIVISION (20%):- OPIL manufactures a wide range of writing and printing paper specially photocopying and office paper category apart from being a market leader in tissue paper with more than 40% market share. Its paper mill is located at Amlai in M.P having an installed capacity of 95,000 TPA. Notably, the demand for tissue paper is growing at around 15% per year and to meet this rising demand, company is expanding its tissue paper manufacturing capacity from current 10,000 TPA to 30,000 TPA by April 2009. To provide sustainability in raw material availability, the company has been undertaking farm-forestry programmes across 18 proximate districts of Madhya Pradesh and Chhattisgarh. Last year it assisted 4500 farmers to plant 5 lac clonal plants and 128 lac seed rooted plants in a land area of over 5000 hectares. It recently constructed sixth mist chamber is contemplating to further build two more mist chambers to double the clonal propagation capacity to 20 lac seedlings. Oh the other hand, its second plant in Orissa at Brajrajnagar which is spread across 850 acres is non operational since 1999. If disposed off it can fetch revenue of Rs 100 cr.

· ELECTRICAL APPLIANCES (20%):- OPIL is India’s largest manufacturer of electric fans in terms of in-house manufacturing capacity with its two plants at Kolkata and Faridabad having an installed capacity of 35 lakhs fans per year. Having a market share of over 17% in the organized sector, it offers entire product chain including fans, portable fans and exhaust fans - across price points, colours and designs with its ‘ORIENT PSPO’ brand as one of the most visible and respected names. Having global presence across 20 nations such as USA, Egypt, South Africa, Saudi Arabia etc, company enjoys the status of being the largest exporter of fans from India. Interestingly, company has expanded its product range by launching lighting products in few states from Feb 2008 and intends to gradually expand its reach across the country. In the meantime, it is setting up a modern manufacturing facility for Compact Fluorescent Lamps at its Faridabad plant.

To summarize, OPIL is implementing a total capex of around Rs 800 cr for all its expansion plan. Out of this company raised Rs 160 cr thru right issue in the ratio of 3:10 @ 360 per share. The balance amount will be funded thru internal cash generation and a minor debt from bank, if required. Importantly, in the last two years company has repaid most of its loan and has significantly brought down its total debt to Rs 165 cr from Rs 435 cr in 2006. As a result, it has a very healthy debt equity ratio of 1: 0.16 as at 31st March 2008. Due to sharp rise in input cost of coal, metals, chemicals, wood pulp etc, OPIL has reported dismissal performance for H1FY09. But with the recent sharp fall in the price of all these raw materials, OPIL may clock a turnover of Rs 1350 cr and PAT of Rs 150 cr for FY09. This leads to an EPS of Rs 8 on equity of Rs 19.30 cr having face value as Rs 1/- per share. As company is available fairly cheap at an EV of Rs 525 cr, investors are recommended to buy at current levels for a price target of Rs 30 in 9~12 months.

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