STOCK WATCH

J Kumar (65.00) is a Mumbai based EPC company with a primary focus on construction of roads, flyovers, bridges, railway over bridges, subways, irrigation projects, commercial and residential buildings, railway buildings and piling works. It also has a ready mix concrete plant for captive use. Its operations are largely confined in the state of Maharashtra with majority in Mumbai itself. The company is a class I A contractor with PWD, Government of Maharashtra. Importantly, company owns a large fleet of modern construction equipments like Hydraulic piling rigs, Putmiester Mobile boom placer concrete pump and stationery concrete pumps, RMC plants, transit mixers, various capacity cranes, poclains, front end loaders, JCBs and tippers. Due to govt’s special focus & aggressive spending on infrastructure, company is witnessing best of its time and boast of having an all time high order book position to the tune of Rs 1200 cr executable in next two years. Importantly major chunk of this order book has been recently bagged by the company with Rs 560 cr contract from MMRDA & MSRDC to construct 16 Skywalks in Mumbai. Company has earned an EPS of Rs 7 for H1FY09 and may report total revenue of Rs 375 cr and PAT of Rs 25 cr for entire FY09 which leads to an EPS of Rs 12 on current equity of Rs 20.70 cr. Accumulate at sharp declines only.

XL Telecom & Energy (55.00) has been the pioneer in solar module manufacturing since last 15 years. Due to gaining popularity of this non conventional energy, company is in advanced stage of implementing the 120 MW solar cell manufacturing facility in Rajiv Gandhi Nano Technology Park SEZ, Hyderabad with a capital outlay of Rs 360 cr. For this it has also inked a five-year contract with Chinese firm LDK Solar to supply multi-crystalline solar wafers which is a key component for solar cell and panel manufacturing. Remarkably, company has also got itself forward integrated in solar value chain by entering into EPC segment of solar farm establishment and has recently setup its first solar farm in Majorca, Spain with an installed capacity of 1.6 MW. With this it has become the world’s first and only solar company to capture the complete solar value chain from manufacturing of solar cell to solar module to setting up of solar farm. After getting this success, company is now exploring the opportunities to establish such solar farms in Italy, southern France and other European countries in next 3 years totaling about 300 MW. For the Sept’08 qtr, company derived 98% revenue from energy & only 2% from telecom (against 55% & 45% respectively in FY08), which indicates that company is betting high on energy segment. On the back of terrific Q1FY09 nos, it may clock a turnover of Rs 850 cr and PAT of Rs 25 cr for FY09 ending June 2009. This translates into EPS of Rs 13 on current equity of Rs 18.80 cr. Although the conversion price for FCCB has been reset downwards to Rs 160 from Rs 260 earlier, still bond holder may not opt for conversion in near future. A good bet in renewable energy sector.

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. Although company may witness a fall in charter rate due to slowdown in E&P activities and lower demand, still it can clock a consolidated turnover of Rs 3250 cr and NP of Rs 500 cr. This translates into EPS of Rs 132 cr on current equity of Rs 7.60 cr. Buy at sharp declines only.

Ratnamani Metals (58.00) is basically engaged in manufacturing welded and seamless stainless steel (SS) pipes & tubes, carbon steel (CS) LSAW, HSAW and ERW pipes. To cater the rising demand company is adding 3,000 TPA of capacity in stainless steel tubes and pipes segment, which is to be operational shortly thereby taking the total stainless steel pipe capacity to 22,000 tonne. In carbon steel segment, it is adding 100,000 tonne of HSAW capacity through brown field expansion in current fiscal, which will double its HSAW capacity of 200,000 TPA and take the total carbon steel capacity to 400,000 TPA. It meets its 100% power requirement from its own 24 windmills generating 20.54 MW of green power. It has also got itself partly backward integrated by establishing hot extrusion line which has reduced its dependence on imported material to some extent. As a part of forward integration, RTML has recently set up a 3 layer polyethylene and epoxy coating line with capacity of 2.7 million sq mtrs. About 50% of company’s turnover comes from oil, gas, petrochemical industry followed by 20% from power and rest from others. As of now RTML has a decent order book of more than Rs 500 cr to be executed over the next 6~9 months. The recent fall in steel and other metal prices augurs well for the company. Accordingly it may register sales of Rs 1000 cr and profit of Rs 80 cr for FY09 i.e. EPS of Rs 18 on equity of Rs 9 cr having face value as Rs 2/- per share. A solid bet.

Small & Beautiful

Gayatri Project (85.00) is engaged in execution of major civil works including concrete/masonry dams, earth filling dams, national highways, bridges, canals, aqueducts, ports, etc. Although the company has executed various projects in different sectors of infrastructure, its expertise lies mainly in the road and irrigation sectors. Of late company has moved up the value chain and is executing five lucrative BOT road projects having very healthy IRR of around 14%. It has also entered into joint ventures with DLF for construction of road on BOT basis and with ION Exchange for water transport projects. For the Sept’08 quarter its revenue increased by 45% to Rs 207 cr and PAT grew by 25% to 8.50 cr. Incidentally, it has already posted an EPS of Rs 20 for H1FY09. And as of now, it boasts of having a massive order book position of more than Rs 3000 cr which is 4x times its FY08 turnover thereby providing strong revenue visibility. Notably, irrigation projects constitute 30%, transportation projects 60% and industrial building constitutes the balance 10% of order book. Thus for FY09 it may register a topline of Rs 950 cr and profit of Rs 30 cr i.e. EPS of Rs 30 on current equity of Rs 10.10 cr. However, the huge debt of Rs 450 cr on its book is a cause of concern.

XL Telecom & Energy (55.00) has been the pioneer in solar module manufacturing since last 15 years. Due to gaining popularity of this non conventional energy, company is in advanced stage of implementing the 120 MW solar cell manufacturing facility in Rajiv Gandhi Nano Technology Park SEZ, Hyderabad with a capital outlay of Rs 360 cr. For this it has also inked a five-year contract with Chinese firm LDK Solar to supply multi-crystalline solar wafers which is a key component for solar cell and panel manufacturing. Remarkably, company has also got itself forward integrated in solar value chain by entering into EPC segment of solar farm establishment and has recently setup its first solar farm in Majorca, Spain with an installed capacity of 1.6 MW. With this it has become the world’s first and only solar company to capture the complete solar value chain from manufacturing of solar cell to solar module to setting up of solar farm. After getting this success, company is now exploring the opportunities to establish such solar farms in Italy, southern France and other European countries in next 3 years totaling about 300 MW. For the Sept’08 qtr, company derived 98% revenue from energy & only 2% from telecom (against 55% & 45% respectively in FY08), which indicates that company is betting high on energy segment. On the back of terrific Q1FY09 nos, it may clock a turnover of Rs 850 cr and PAT of Rs 25 cr for FY09 ending June 2009. This translates into EPS of Rs 13 on current equity of Rs 18.80 cr. Although the conversion price for FCCB has been reset downwards to Rs 160 from Rs 260 earlier, still bond holder may not opt for conversion in near future. A good bet in renewable energy sector.

Ratnamani Metals (58.00) is basically engaged in manufacturing welded and seamless stainless steel (SS) pipes & tubes, carbon steel (CS) LSAW, HSAW and ERW pipes. To cater the rising demand company is adding 3,000 TPA of capacity in stainless steel tubes and pipes segment, which is to be operational shortly thereby taking the total stainless steel pipe capacity to 22,000 tonne. In carbon steel segment, it is adding 100,000 tonne of HSAW capacity through brown field expansion in current fiscal, which will double its HSAW capacity of 200,000 TPA and take the total carbon steel capacity to 400,000 TPA. It meets its 100% power requirement from its own 24 windmills generating 20.54 MW of green power. It has also got itself partly backward integrated by establishing hot extrusion line which has reduced its dependence on imported material to some extent. As a part of forward integration, RTML has recently set up a 3 layer polyethylene and epoxy coating line with capacity of 2.7 million sq mtrs. About 50% of company’s turnover comes from oil, gas, petrochemical industry followed by 20% from power and rest from others. As of now RTML has a decent order book of more than Rs 500 cr to be executed over the next 6~9 months. The recent fall in steel and other metal prices augurs well for the company. Accordingly it may register sales of Rs 1000 cr and profit of Rs 80 cr for FY09 i.e. EPS of Rs 18 on equity of Rs 9 cr having face value as Rs 2/- per share. A solid bet.

J Kumar (65.00) is a Mumbai based EPC company with a primary focus on construction of roads, flyovers, bridges, railway over bridges, subways, irrigation projects, commercial and residential buildings, railway buildings and piling works. It also has a ready mix concrete plant for captive use. Its operations are largely confined in the state of Maharashtra with majority in Mumbai itself. The company is a class I A contractor with PWD, Government of Maharashtra. Importantly, company owns a large fleet of modern construction equipments like Hydraulic piling rigs, Putmiester Mobile boom placer concrete pump and stationery concrete pumps, RMC plants, transit mixers, various capacity cranes, poclains, front end loaders, JCBs and tippers. Due to govt’s special focus & aggressive spending on infrastructure, company is witnessing best of its time and boast of having an all time high order book position to the tune of Rs 1200 cr executable in next two years. Importantly major chunk of this order book has been recently bagged by the company with Rs 560 cr contract from MMRDA & MSRDC to construct 16 Skywalks in Mumbai. Company has earned an EPS of Rs 7 for H1FY09 and may report total revenue of Rs 375 cr and PAT of Rs 25 cr for entire FY09 which leads to an EPS of Rs 12 on current equity of Rs 20.70 cr. Accumulate at sharp declines only.

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Savita Chemicals Lts
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Savita Chemicals Ltd - Rs 140.00

Incorporated in 1961, Savita Chemicals Ltd (SCL) specializes in manufacturing of petroleum specialty products like transformer oil, liquid paraffin, petroleum jelly, white mineral oil, automotive and other industrial lubricants. With 40% market share, it is the leading supplier of transformer oil in India. It is also India’s largest exporter of petroleum specialty products to South Africa, Australia, Middle East & South East Asia. SCL also operates wind power plants in Maharashtra, Karnataka and Tamil Nadu. Presently, company derives 98% of revenue from petroleum products whereas the rest comes from wind power. Of the total petroleum products sales, transformer oil constitutes around 45% of sales, white oil & liquid paraffin’s around 35% and lubricating oil around 20%. Hence company caters to several varied industries as transformer oil is predominantly used in transformer, utilized in power industry and liquid paraffins/white oils are used in cosmetics, pharmaceutical, personal care products, printing & plastics. While automotive sector and industrial units are major markets for its lubricants. In short company’s fortune is not dependent on one particular industry. Its clientele includes several SEB’s and almost all major power equipment manufacturers like ABB, BHEL, Crompton Greaves, Areava T&D, Bharat Bijlee, Reliance Power etc, FMCG players like Johnson & Johnson, HLL, Dabur, Marico etc and Pharma companies like Pfizer, GSK and others.

SCL’s ultra modern manufacturing facilities are located at Navi Mumbai and Silvassa where it has been regularly expanding its capacity to cater more efficiently to the growing domestic as well as foreign demand. Presently, it has a total installed capacity of 216,000 KL per annum against which it made a production of 205,122 KL for FY08, representing 95% of capacity utilization. As a part of its growth strategy, SCL is working on a Greenfield project with an investment of Rs. 15-20 crore for petroleum products to augment the capacity by around 25~30%. Last year it introduced a new brand named SAVSOL in lubricating division which is doing very well and is expected to generate sales revenue of more than Rs 100 cr in the current year. It also has a tie-up with Idemitsu, Japan to market its “Idemitsu”range of automotive lubricant and “Daphne” range of industrial lubricants which rated one of the best in the world. On the other hand, to avail tax benefits along with good realizations for power being sold to SEBs after captive consumption, SCL, last fiscal increased the installed capacity for wind energy generation to 26.3 MW from 21.8 MW. Further it has planned a capex of Rs 40 crore, so as to augment the capacity to 34.9 MW in the current year.

With ambitious targets set for the power sector and massive investments lined up in generation, transmission and distribution segment, the demand for transformer oil will continue to grow substantially in coming years. Automotive lubricant being a consumable item is expected to do well as the number of vehicles on road has shot up significantly in past few years. Similarly, the market for liquid paraffins and white oils will also grow in line with the growing importance for personal hygiene amongst the masses. However despite the promising future ahead, SCL’s profitability mainly depends upon the price of base oil which is the major raw material for all its petroleum products and is a refined fraction derived from crude oil. Hence, company’s margin was under tremendous pressure when crude oil price shot up to US$ 130 per barrel. But with the recent fall in crude oil prices to below US$ 50 levels, company is expected to report improved margin and healthy bottomline in coming quarters. Accordingly it may clock a turnover of Rs 1000 cr and NP of Rs 45 cr for FY08 which leads to an EPS of Rs 31 on equity of Rs 14.60 cr. Having a healthy book value of Rs 171, promoter holding of 71%, dividend yield of around 6~7% & very low debt equity ratio of 0.14x this company is available fairly cheap at a market cap of less than Rs 200 cr. Investors are recommended to buy at current levels and add on declines for a 50% return in 9~12 months.

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Balaji Amines Ltd - Rs 72

Balaji Amines Ltd (BAL) was setup in 1988 for manufacturing of aliphatic amines in India to cater the growing requirements of value based specialty chemicals. Since then, it has emerged as the leading producer of methylamines, ethylamines and their derivatives. Importantly, BAL is among the few handful manufacturers across the world as amine manufacturing technology is a closely guarded process. And ironically company is using indigenously developed technology i.e. without any technical foreign collaboration. And remarkably, its one of the lowest cost producers of methylamines in the world. Today, it also produces specialty chemicals which are import substitutes like Morpholine, hydroxylamine, N-Methyl Pyrrolidone etc and few natural products (herbal extracts) such as solanesol, calcium sennosoid, coleus forskohlii, camptothesin etc. Company’s products find application in various important industries including like pharmaceuticals, agro chemicals, water treatment, rubber chemicals, dyes & pigment, paper, explosives, rocket fuel oil refineries, photography etc. Besides, Morpholine - which is being manufactured by company for the first time in India through indigenously developed technology, finds extensive application in manufacture of corrosion protection compounds used in refineries, ships, steel plants etc. Being ISO 9001-2000 certified, company’s product are very well accepted in international market and it derives nearly 15% of total revenue from export to several countries such as UK, USA, Canada, Latin America, Germany, Italy, Middle East, South Africa, France, Brazil, Mexico etc

Presently, BAL has two manufacturing facilities - one at Sholapur-Maharashtra for amines & derivatives and second one at Hyderabad – AP for natural products. On the back of regular expansion, it has capacity of 18000 MTPA of methyl amines, 3000 MTPA of ethyl amines & 13000 MTPA of intermediates. Last fiscal, company has successfully enhanced capacities for methyl amines, ethyl amines, NMP and other derivatives by revamping the production facilities. It has strong presence in domestic market with major clients from pharma sector including Aurobindo, Aventis, Clariant, Dr. Reddy’s, Glaxo, Merck, Ranbaxy, Sun Pharma, Wyeth, Wockhardt, etc. Earlier it also entered into a long term strategic arrangement with BASF for supply of N-methyl-2-pyrrolidone. Notably, company is the only manufacturer for Morpholine and N-methyl-2-pyrrolidone (NMP) with a monopoly status in India and hence, has of late set up a separate dedicated plant at Solapur to manufacture them with a capacity of 2000 MTPA & 3000 MTPA respectively. Company has also established a hydrogen plant in house to cater to the needs of captive requirement and is successfully running chlorine chloride plant (solutions & solid) with a capacity of 5000 MTPA. Last fiscal it also put up a plant for manufacture of Co-Enzyme Q10.

Meanwhile, BAL boasts of having two state-of-the-art R&D centers at both its plants. Infact, its Hyderabad R&D unit which has is approved by Department of Science and Technology, Govt. of India has identified some new products under natural products and processes are being developed. It has also successfully carried out R&D activities in process automation of various plants to reduce the consumption of raw materials and utilities. Financially, company has been reporting very encouraging nos and has recorded 45% growth in sales to Rs 145 cr and 70% jump in PAT to Rs 11.80 cr for the first six months ending Sept 2008. Accordingly it is expected to clock a turnover of Rs 260 cr and PAT of Rs 13 cr for FY09. This leads to an EPS of Rs 20 on equity of Rs 6.50 cr. Incidentally, BAL is not affected by rupee appreciation or depreciation as its raw material import is almost equivalent to export revenue. Despite BAL being vulnerable to commodity price cycle still it is expected to improve its profit margin going forward due to various initiatives taken by the company. Notably, promoters have bought 2% stake from open market in the last three quarters. Investors are advised to buy at sharp declines with a price of Rs 120 (i.e. 50% appreciation) in 9~12 months.

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