STOCK WATCH

With more than dozen of popular brands, JK Paper (17.00) is India’s largest producer of branded papers and commands 40% market share in branded cut size papers. It is engaged in production of writing & printing paper and has recently ventured into high-end coated packaging boards. It operates two integrated plants in India with an total installed capacity of 180,000 TPA. Of late it has setup Rs 300 cr state-of-the art multi layer packaging board plant with an installed capacity of 60,000 TPA, thereby taking the total installed capacity to 240,000 TPA. Notably, company 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. For H1FY09 it has reported 40% growth in sales to Rs 546 cr but PAT remained flat at Rs 19 cr due to provisioning of unrealised foreign exchange loss of Rs 8.40 cr. 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. 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. Although its debt equity ratio and interest cost is alarmingly high, investors can accumulate at sharp declines as it can appreciate 50% within a year.

Orient Papers & Industries (23.00) is a diversified company engaged in manufacturing of cement, paper and electrical appliances. It derives 60% of total revenue and 90% profit from cement segment which has an installed capacity of 3.40 million tonne. With its popular brands 'BIRLA A1’ and ORIETAL GOLD’ and having main market as Maharashtra and AP, company’s cement division is reportedly doing well. Infact to increase its market share, company is in the midst of augmenting its capacity to 5 million TPA by April 2009. It is also setting up a 50 MW captive power plant to bring down its power cost. At the same time on the back of strong demand for tissue paper, it is expanding its tissue paper manufacturing capacity from current 10,000 TPA to 30,000 TPA by April 2009. Having a market share of over 17% in the organized sector, its ORIENT PSPO brand of fans are quite popular. To cash on this brand, company has ventured into lighting products also and is now setting up a up a modern manufacturing facility for Compact Fluorescent Lamps at its Faridabad. Financially, 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 0.16x times. For FY09, it may clock a turnover of Rs 1350 cr and PAT of Rs 150 cr i.e. EPS of Rs 8 on equity of Rs 19.30. Scrip can easily appreciate 50% within a year.

Emco Ltd (42.00) 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 1150 cr and PAT of Rs 58 cr for FY09. This translates into EPS of Rs 10 on current equity. At a modest discounting by 8x times share price can double within a year.

Patels Airtemp (30.00) is engaged in the manufacture and sale of extensive range of heat exchangers such as shell & tube type, finned tube type and air cooled heat exchangers, pressure vessels, air-conditioning and refrigeration equipments and turnkey HVAC projects in India & marketing of equipments even outside India. It has technical collaboration with M/S. TEK FINS Inc. USA for design and manufacture of air cooled heat exchangers. It supplies to core industrial sectors like power, refineries, fertilizers, cements, petrochemicals, pharmaceuticals, textiles and chemical Industries. For future growth company is concentrating more on high value added engineering products and has even got its product the coveted ASME `U' Stamp authorization. Few months back it bagged an order of Rs 16 cr from Essar oil and presently boasts of having an order book of nearly Rs 50 cr. For H1FY09, company has done exceedingly well as its sales jumped up 40% to Rs 35 cr whereas profit shot up 50% to Rs 3.40 cr. Accordingly for entire year it may report sales of Rs 65 cr and PAt of Rs 5 cr leading to an EPS of Rs 10 on equity of Rs 5 cr. At a modest discounting by 5x times scrip can easily appreciate 50% within a year.

Small & Beautiful

Indo Asian Fuse Gear (35.00) manufactures wide range of electrical circuit protection equipment including distribution boards, switch boards, switch panels, fuse switches, MCCBs, HRC Fuses, MCBs, RCDs, etc. Besides, it’s one of the largest manufacturers of CFLs and MCB’s in India. With having 8 manufacturing units its products are available in more than 80 countries around the world. Domestically, it has pan-India presence with 30 offices, 550 authorized distributors and over 15000 retailers selling its products across the length and breath of the country. To capitalize the ongoing boom, it is diversifying into power distribution business on behalf of state electricity board on franchise basis. Lately, it has forayed into cables & wires manufacturing business as well with a planned investment of 100 cr in phases. For the higher end segment, company is setting up a plant in Haridwar under a joint venture with Simon Holding (Spain) for manufacturing home and building automation products for the first time in India. At the same time it is putting up a facility in Saudi Arabia thru a tie up with Saudi National Glass for production of Compact Fluorescent Lamps (CFLs) and High Intensity Discharge Lamps (HID Lamps). For FY09 it is expected to clock a turnover of Rs 300 cr and PAT of Rs 10 cr on a conservative basis which works out to an EPS of Rs 7 on current equity of Rs 15.30 cr. The recent fall in copper and other metal prices will have a positive impact on the bottomline going forward. So although it has a bit high debt equity ratio coupled with longer cycle of receivable, still it’s a value buy at an EV of Rs 150 cr.

Patels Airtemp (30.00) is engaged in the manufacture and sale of extensive range of heat exchangers such as shell & tube type, finned tube type and air cooled heat exchangers, pressure vessels, air-conditioning and refrigeration equipments and turnkey HVAC projects in India & marketing of equipments even outside India. It has technical collaboration with M/S. TEK FINS Inc. USA for design and manufacture of air cooled heat exchangers. It supplies to core industrial sectors like power, refineries, fertilizers, cements, petrochemicals, pharmaceuticals, textiles and chemical Industries. For future growth company is concentrating more on high value added engineering products and has even got its product the coveted ASME `U' Stamp authorization. Few months back it bagged an order of Rs 16 cr from Essar oil and presently boasts of having an order book of nearly Rs 50 cr. For H1FY09, company has done exceedingly well as its sales jumped up 40% to Rs 35 cr whereas profit shot up 50% to Rs 3.40 cr. Accordingly for entire year it may report sales of Rs 65 cr and PAt of Rs 5 cr leading to an EPS of Rs 10 on equity of Rs 5 cr. At a modest discounting by 5x times scrip can easily appreciate 50% within a year.

Gujarat Apollo Industries (60.00) is into manufacturing and after sales service of equipments for road building industry like asphat plants, pavers finishers, wet mix plants, bitumen sprayers, compaction equipment, road making machineries, crushing & screeing machines etc. It controls more than 60% of the market in the product segments in which it operates, with over 1,400 customers and an equipment population of around 3,500 units. Besides it also regularly exports to countries like Saudi Arabia, African countries, Afganistan, Australia, Bangladesh and Sri Lanka. Due to robust demand company has been regularly expanding its capacity and earlier has even entered into a technical collaboration agreement with a German company to manufacture Jaw Crushers, Impact Crushers, Wheeled/ Crawler mounted/ Skid mounted Crushing plants, Grizzly Feeders, Screens, Conveyors, etc. Although insignificant currently, company also undertakes construction activity. To consolidate its position, it has been making investments in its associate companies and has already made Apollo Earthmovers and Apollo Industrial Products Ltd as its subsidiaries. In current fiscal, another group company called Apollo Construction Equipments Ltd is expected to come under its fold. Hence on a consolidated basis for FY09 it may clock a turnover of Rs 275 cr and NP of Rs 32 cr which translates into EPS of Rs 20 on expanded equity of Rs 15.75 cr. A strong buy as share price can easily appreciate 50% within a year.

With more than dozen of popular brands, JK Paper (17.00) is India’s largest producer of branded papers and commands 40% market share in branded cut size papers. It is engaged in production of writing & printing paper and has recently ventured into high-end coated packaging boards. It operates two integrated plants in India with an total installed capacity of 180,000 TPA. Of late it has setup Rs 300 cr state-of-the art multi layer packaging board plant with an installed capacity of 60,000 TPA, thereby taking the total installed capacity to 240,000 TPA. Notably, company 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. For H1FY09 it has reported 40% growth in sales to Rs 546 cr but PAT remained flat at Rs 19 cr due to provisioning of unrealised foreign exchange loss of Rs 8.40 cr. 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. 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. Although its debt equity ratio and interest cost is alarmingly high, investors can accumulate at sharp declines as it can appreciate 50% within a year.

Smart Investments

Orient Paper & Industries Ltd
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Micro Technologies Ltd
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Micro Technologies India Ltd - Rs 98.00

Established in 1992 and promoted by Mr. P Sekhar, Micro Technologies (India) Ltd. (MTIL), an IT based company is a global developer, manufacturer and marketer of security, safety and life-support electronic equipments & solutions. Over the years, MTIL has developed some of the high-end security products, which address areas of concern right from mobile security to automobile security & monitoring systems using its leverage over various futuristic technology platforms such as embedded, web-based and client server applications. The high-tech wireless technologies which MTIL cater through its products are the GPS(Global Positioning System), GSM(Global System for Mobile communication), CDMA(Code division multiple access), GPRS(General Packet Radio Service), RFID(Radio-frequency identification) & GIS(Geographic Information System) which is an information system for capturing, storing, analyzing, managing and presenting data. Today, MTIL boasts of having hundreds of unique, hi-tech, first of its kind and innovative security products which have huge demand & tremendous potential world wide. Considering its performance MTIL has been accorded with “Deloitte Technology Fast 500 Asia Pacific Award” & “Deloitte Technology Fast 50 (India) Award” for two consecutive years – 2007 & 2008. It has even won the Dun & Bradstreet-ECGC Indian Exporters' Excellence Award in June 2008. During 2007 it was profiled as one of the top IT innovators by NASSCOM. Recently, on 15th August 2008 Dr. A P J Kalam felicitated Dr. P Sekhar – CMD of Micro Technology (124.00), for his significant contribution in the security segment.

Few of its Blockbuster Product/Solutions
Micro VBB - Vehicle Security System
Micro HSS - House Security System
Micro LMTS - Lost Mobile Tracking System
Micro FMS - Fleet Monitoring System
Micro OSS - Office Security System
Micro SBB - Secure Bank Black Box
Micro DMS - Disaster Management System
Micro EBB - Electric Black Box
Micro VDP - Video Door Phone
Micro IBB - Intelligent Black Box

Recently launched products / solutions

Micro BSS - Bike Security System
Micro ISS - Intelligent Surveillance System
Micro WSS - Wi-fi Security Sytem
Micro LNTS - Lost Laptop Tracking System
Micro BTS - Buddy Tracking System
Micro SAMS - Students Attendance Management System

So it’s very clear from the above that these revolutionary products are the USP for the company. Infact, MTIL is one of the first company to develop security systems using SMS (Short Messaging Services) on a mobile GSM platform. Accordingly, all the products/solutions developed by the company can be fully controlled using normal mobile & computers. Infact with over 80 IPR’s, its technology has been patented in 123 countries, giving it exclusive rights in these markets. Therefore company has also got test certifications from national and internationally accredited agencies like ERTL, ARAI, FCC, CE, SYMBIAN etc for all its premium grade products. Hence after developing and having world class products in its kitty, MTIL is now focusing more on marketing and distribution to increase its presence in India as well across the world. Accordingly it has appointed more than 2000 dealers/distributors all over India, opened more than 70 Micro Shoppe franchise outlets, increased participation in exhibition and has also increased the advertisement budget substantially for brand building and product awareness. It has even launched a novell concept of Mobile Micro Shoppe i.e. Shops on Wheels and is also selling its products online thru various portals. It has been targeting to cater to a range of clients across diverse sectors such as retail, corporate, institutions, PSUs etc and has its products successfully installed at ICICI Bank, Reliance Energy, L&T, NSDL, Siemens, NMMC, FICCI, Girvan Institute, Tata Honeywell, CIDCO, HPCL, BPCL, BARC, MCGM, MSEB, MRVCL, TVS Lucas to name a few. Importantly, it has tied up with MTNL, BSNL, IDEA & AIRTEL to offer mobile security solution (Micro LMTS) at competitive rate to their subscribers. It also has a strategic tie up with FORD for installation of Micro VBB device in Ford Ikon vehicles. To segregate is business model and work efficiently MTIL has formed two subsidiaries namely Micro Secure Solutions & Micro Retail which will concentrate only on marketing and distribution aspect.

Although, India in itself is a huge market, still MTIL is also betting on international market to boost up its revenue. To increase its global presence, it has entered into marketing tie-ups with several foreign companies like Active Solutions(Nepal), Knowledge Vectar(USA), Easy Fleet Solutions(Turkey), Tokyo Software(Japan), Kreasindo Solusi(Indonesia), Pacific Solution(UK, Africa and Singapore), Status Solutions(UAE), I-System(Srilanka) etc. Of late it has entered into a strategic agreement with TWI International(South Africa) & Lazer Technology Solutions for distribution of its selected security products in Middle East and Egypt. Recently is tied up with Jicoux Datasystems, a 100% subsidiary of Mitsubishi Corporation to offer Micro LMTS (Lost Mobile Tracking System) for Chinese and Japanese market. Accordingly it has even introduced the Chinese version of its internationally acclaimed product - Micro LMTS.

Meanwhile, company continues to have a strong R&D team working on multiple innovations to ensure that company introduces five to six new products in the market every year. At the same time it is constantly expanding its hardware/equipment manufacturing capacity and improving its infrastructure to meet the rising demand. Presently, Indian electronic security market is at a very nascent stage and growing at rate of more than 25% per annum. Moreover it is dominated by unorganized sector with organized players enjoying less than 10% market share. With handful of Indian manufacturers, the security equipments are largely imported from China, USA, UK, Germany, Singapore, Italy, Hong Kong, Israel, Japan, Korea, and Taiwan. With India having the largest mobile subscriber base and highest number of two wheeler / four wheelers on road, the potential market for company’s product is very huge. Due to rising terror incidence across India, corporates, households & govt have understood the need/importance of premise security. These all factors are eventually leading to increased business for the company. Recently, company reduced the price of its products by up to 30% to cash on the fear sentiment post Mumbai terror attack.

As far as financial are concerned, MTIL is doing exceedingly well as it has reported a CAGR of 85% in top line and 95% in bottom line in last three years. Even for H1FY09 it has posted 60% growth in revenue to Rs 117 cr and 50% increase in net profit to Rs 34 cr. It has a strong balance sheet with low debt equity ratio of 0.35x and huge reserves of Rs 192 cr on small equity of Rs 10 cr leading a healthy book value of Rs 190. On the margin front it has been consistently registering an OPM of more than 40% and NPM of 30% for last three years. For current year, it may record total revenue of Rs 275 cr & PAT of Rs 55 cr which leads to an EPS of Rs 50 on current equity of Rs 11 cr. Considering the CMP, chances of conversion of balance FCCB & warrants into equity seems bleak. With an EV/EBITDA of less than 2x times, Market Cap/Sales of merely 0.40x times and having Cash EPS of Rs 75, scrip is trading extremely cheap at a market cap of Rs 115 cr. Investors are strongly recommended to buy at current levels as share price can triple in 15~18 months.

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