STOCK WATCH

For the latest Dec’08 quarter 3i Infotech (30.00) reported encouraging set of nos as its total revenue grew by 90% to Rs 616 cr and PAT increased by 40% to Rs 70 cr on a consolidated basis. Accordingly for the nine months ending Dec’08 it has posted a topline of Rs 1694 cr and bottomline of Rs 200 cr which means company has already clocked an EPS of Rs 14 in the first three quarters. As on date, company has a pending order book position of more than Rs 1400 cr to be executed in next one year. To maintain its organic growth, company is in the midst of opening 255 new service centres in tier-II and tier-II cities to help banks and financial institutions in decreasing the processing time for various back office operations. It has also bagged a huge contract from Central govt for setting up over 12,000 kiosks, spread across various states in India, for providing citizen services centers to be used for dispensing G2C and B2C services. It has recently made a strategic tie up with ICICI Lombard, Airtel and Max Newyork Life to open 12,500 retail stores in rural areas to offer bouquet of retail services in general insurance, telecom and life insurance sector respectively. Earlier it formed a 51% joint venture with Chinese company who will localize the financial technology software from 3i Infotech to cater to the requirements of China's diversified financial services sector. With an expected EPS of Rs 16 for entire FY09, this scrip is trading grossly cheap at current market cap of Rs 400 cr. Keep accumulating at declines

Despite other construction companies going thru a rough patch and liquidity crunch, J Kumar (55.00) has posted decent result for the Dec qtr. It registered total revenue of Rs 90 cr and PAT of Rs 7.13 thereby posting an EPS of Rs 3.40 for the quarter. Accordingly for first three quarters it has clocked a turnover of Rs 265 cr and profit of Rs 20.85 cr. Company 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. 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. It is expected to report a topline of Rs 350 cr and bottomline of Rs 25 cr for FY09 which translates into EPS of Rs 12 on current equity of Rs 20.70 cr. Scrip can be bought at current levels for short term gain.

Cera Sanitary (65.00) is one such ceramic company who is constantly churning out good nos without showing any impact of slowdown or margin pressure. It has reported 10% growth in sales to Rs 38 cr and 35% jump in PAT to Rs 3 cr for the Dec quarter. It is the third largest company in the organized sanitaryware segment with over 20% market share in domestic market. Notably, in the last couple of years, company has evolved itself into a total bathroom solutions provider with a wide product range including WC’s, wash basins, whirlpools, bath tubs, shower panels, shower cubicles, shower temples, bath fittings, kitchen sinks, tiles etc. In line with today’s high technology it also provides automatic electronic flushing system, automatic water flow sensor tap, automatic hand dryers/soap dispensers, & perfume sprayer. It even has a strategic tie-up with Pozzi-Ginori, an Italian designer sanitaryware for importing premium sanitaryware and marketing it in India. To take the benefit of high demand, it has recently expanded its production capacity to 24,000 MTPA from 16,500 MTPA. To boost up its retail sales, company came up with novel idea of setting up live CERA bath studio where consumers, architectures, interior designers etc can actually see how the premium products will look, feel and function in their homes. It has already setup eight such studios across India and is now putting up Cera Bath Galleries with its retail partners. Further company is planning a major foray into taps as there is only one strong Indian brand, followed by mediocre brands. Considering its nine month figures, it may register sales of Rs 150 cr and PAT of Rs 11 cr i.e. EPS of Rs 18 on current equity for FY09. Buy at sharp declines only.

Although not so encouraging but still Mazda Ltd (30.00) has declared satisfactory result for the Dec quarter. Sales declined marginally by 7% to Rs 17 cr and net profit fell by 12% to Rs 2 cr. Despite this its year to date figures look encouraging with 30% growth in topline as well as bottomline. Company is among the few engineering companies in the world, manufacturing very specialized, high technology and critical equipments for various industries like power, refineries, fertilizers, chemicals, nuclear, sugar, paper, food, pharma etc. Broadly its product profile is segmented into vacuum system, valve division, air pollution control equipment, crystallizers and evaporators. Notably, it has a technical collaboration with world renowned Croll-Reynolds Inc. USA, who holds 12% stake in the company. However, due to ongoing slowdown globally as well as domestically, most of the industrial units are either postponing their capex plan or putting it under back burner. This may hamper the future growth of the company. But fundamentally, company is on a strong footing with very low debt equity ratio and good reserves leading to a book value of Rs 61. On a conservative basis, for FY09 it is slated to register sales of Rs 70 cr and profit of Rs 7.50 cr. This works out to an EPS of Rs 18 on current equity of Rs 4.25 cr. At an Enterprise value of merely Rs 20 cr scrip and at a P/E multiple of less than 2x times, scrip is trading damn cheap.

Bharat Bijlee Ltd - Rs 415.00

Established in 1946, Bharat Bijlee Ltd (BBL) as emerged as one of the leaders in the electrical engineering industry in India. Today, it is mainly engaged in manufacturing of two product ranges namely electric motors and transformers. Infact, company boasts of pioneering the manufacture of electric motors at a time when most electrical equipments were imported. Thus it produces a wide range of standard and customized low-tension motors for various applications. It specializes in three phase Ac induction motors and other special motors like torque motors, loco auxillory, multi speed, low vibration motors etc. It is also one of the oldest players in transformer industry as it began manufacturing transformers way back in 1954. Remarkably, it has the capability to manufacture power transformer up to 200MVA in 220 kV class which handful of Indian manufacturers can claim of. At the same time it also makes distribution, generator, dry type, thyristor duty & locomotive transformers. Besides, BBL has a separate DC drive division which is recognized as the first and largest manufacturer of microprocessor based variable speed drives for batch-type sugar centrifugal machines. Although not so significant but company even trades in anti-corrosive products and submersible pumps. Earlier in 1972, BBL had diversified into manufacture and installation of elevators under brand name Olympus but subsequently divested this business to a subsidiary of Kone Elevators in 2004. Presently, BBL derives nearly 30% revenue from sale of electric motors, 65% from sales of transformers and the balance 5% from trading and other products.

BBL’s manufacturing plant is spread across 50 acre near Kalwa, Mumbai with regional offices at Mumbai, Delhi, Bangalore and Kolkata and a national network of sales and service offices. Importantly, the technology adopted by the company in the field of design, manufacture, quality control & assurance is based on that followed by the world’s topmost German organization in electrical industry i.e. Siemens. Actually, BBL had a comprehensive technical collaboration for the manufacture of transformers and motors with Siemens AG and its manufacturing plant is set up as per Siemens' exacting standards. Infact, company's transformers and motors were originally marketed by Siemens India only, but eventually in 1980 BBL undertook a phased take-over of the marketing of its products. In short, replicating the German standards and modifying to suit Indian and other specified International operational conditions, BBL truly offers world class products. On the capacity front, BBL has recently increased its transformer manufacturing by 40% to 11,000 MVA from 8000 MVA earlier. The additional revenue from this expansion is expected to start pouring in from Q4FY09. On the other hand, company has ongoing investments for the manufacture and testing of large motors, specifically catering to high-growth market segments in higher frame sizes and output ratings. It has also recently increased the motor capacity to 1.7 million HP from the current 1 million HP per annum. In order to expand its product range, company has lately added AC variable speed drives and gearless machines to its portfolio for which it has tied up with KEB of Germany and Permanent Magnets Spain. Notably, BBL has even formed a Project division to undertake turnkey projects for outdoor EHV & HV switchyards, indoor sub-stations, overhead and under ground distribution systems, industrial electrification, power evacuation systems for power projects etc.

In order to expand its product range, company has lately added AC variable speed drives and gearless machines to its portfolio. It has entered into an exclusive distributorship and service agreement with K.E.B. of Germany for A.C. variable speed drives. These drive systems enable precise positioning, control, starting and stopping of complex machinery in customized configurations, and have significant synergies with the electric motors business. At the same time, company's technology transfer agreement with Permanent Magnets, Spain, has enabled it to be the first manufacturer in India of synchronous permanent magnet gearless machines for elevators, including those without machine rooms. These machines use revolutionary technology and offer significant advantages in compactness, energy efficiency, controllability and low noise to elevator manufacturers and their customers. Notably, BBL has even formed a Project division to undertake turnkey projects for outdoor EHV & HV switchyards, indoor sub-stations, overhead and under ground distribution systems, industrial electrification, power evacuation systems for power projects etc.

With govt putting special thrust on investments in accelerated development programme of power generation, transmission and distribution capacities, future prospect of electrical equipment manufacturers like BBL looks very promising. The demand for transformer is estimated to maintain its healthy double digit growth rate for next 2~3 years at least. Secondly, company is also looking to increase the export of transformers to countries like Indonesia, Phillipines, UAE, Egypt, Jordan, Oman, Bangladesh, Nepal, etc. Whereas on the other hand the outlook for electric motor doesn’t look so robust for the company and may report de-growth in near future. But it will be more than compensated by the increased capacity of transformer. On the operational front, BBL has been facing margin pressure from last six months due to substantial rise in raw material cost. Accordingly it may post disappointing nos for the Dec quarter as well, but from March quarter things will improve as the raw material cost has come down considerably. So for entire FY09 it is expected to clock a turnover of Rs 600 cr and PAT of Rs 50 cr i.e. EPS of Rs 88 on tiny equity of Rs 5.65 cr. Hence it may declare a dividend of Rs 20 which leads to a yield of 5% at CMP. Besides company is quite ripe for bonus as it has huge reserve to the tune of Rs 160 cr (i.e. book value of Rs 298) on such a small equity. Importantly, BBL is almost a debt free company and even has liquid investment whose current market value as on date is Rs 125 cr against the investment value of nearly Rs 5 cr. Thus at current market cap of Rs 225 cr, BBL is effectively available at merely Rs 100 cr (i.e. Rs 175 per share). Because of bad market sentiment coupled with dismissal performance by the company, share price has fallen by around 90% from the high of Rs 3340 in Jan’2008. Investors are strongly recommended to buy at current levels for a handsome gain of nearly 50% within 12 months.

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Gujarat Alkalies & Chemicals Ltd
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Bharat Bijlee Ltd
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Small & Beautiful

Despite other construction companies going thru a rough patch and liquidity crunch, J Kumar (55.00) has posted decent result for the Dec qtr. It registered total revenue of Rs 90 cr and PAT of Rs 7.13 thereby posting an EPS of Rs 3.40 for the quarter. Accordingly for first three quarters it has clocked a turnover of Rs 265 cr and profit of Rs 20.85 cr. Company 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. 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. It is expected to report a topline of Rs 350 cr and bottomline of Rs 25 cr for FY09 which translates into EPS of Rs 12 on current equity of Rs 20.70 cr. Scrip can be bought at current levels for short term gain.

Oil Country Tubular (40.00) is one of the leading companies in processing a range of oil country tubular goods required for the oil drilling and exploration industry. Its wide product range covers drill pipe, heavy weight drill pipe, drill collars, production tubing, casing, tool joints, couplings, pup joints, nipples, subs and cross overs. It has an installed capacity for manufacturing & processing 50,000 MT of casing pipes, 10,000 MT of drill pipes and 15,000 MT of production tubing. Financially company made a smart turnaround last year and since then has been reporting encouraging performance. Even for the Dec’08 quarter its sales improved by 30% to Rs 120 cr and profit zoomed up 130% to Rs 24 cr posting an EPS of more than Rs 5 for the single quarter. Remarkably it has been maintaining the operating margin of around 30% and NPM of 20% from last few quarters and with the recent fall in steel and other metal prices it may improve it further. Currently Company is concentrating on the drill pipes and has planned to double the installed capacity of drill pipe manufacture from 10,000 MT to 20,000 MT from internal accruals. For entire FY09 it may clock a turnover of Rs 375 cr and PAT of Rs 65 cr i.e. EPS of Rs 15 on equity of Rs 44.30 cr. However the drastic fall in crude oil price and eventual reduction in E&P activities is a big cause of concern. Only aggressive investors can buy for short term gains.

For the latest Dec’08 quarter, Tilaknagar Industries (75.00) registered 50% growth in sales to Rs 63 cr and 30% increase in profit to Rs 6 cr. Even for nine months ending Dec’08 its sales is up by 45% to Rs 152 cr and PAT has increased by 30% to Rs 14 cr posting an EPS of Rs 25 for the first three quarters. Company is basically engaged in manufacturing, marketing and selling of Indian Made Foreign Liquor (IMFL) encompassing the brandy, whisky, gin, vodka and rum segments. It derives more than 60% revenue from whisky and nearly 35% from brandy. As a part of its growth strategy, company is in the midst of doubling its capacity in Shrirampur, Maharashtra from 50,000 liters of alcohol per day to 1,00,000 liters of alcohol per day, together with investments in cost saving equipments. The entire project is expected to be financed by a capital outlay of Rs. 70 cr. Notably, company is present in 15 states with 19 operating units. Last year it took over Surya Organic Chemicals in Karnataka and Prag Distillery in Andhra Pradesh. Besides this, it has 4 lease arrangements and 12 tie-up arrangements across for carrying out manufacturing and bottling activities, ensuring proximity to large markets. Company had issued 45 lac warrants to promoter group @ Rs 157 which may simply lapse by May 2009 considering the CMP. It may end current year with sales of Rs 210 cr and PAT of Rs 18 cr i.e. EPS of Rs 31 on current equity.

Although not so encouraging but still Mazda Ltd (30.00) has declared satisfactory result for the Dec quarter. Sales declined marginally by 7% to Rs 17 cr and net profit fell by 12% to Rs 2 cr. Despite this its year to date figures look encouraging with 30% growth in topline as well as bottomline. Company is among the few engineering companies in the world, manufacturing very specialized, high technology and critical equipments for various industries like power, refineries, fertilizers, chemicals, nuclear, sugar, paper, food, pharma etc. Broadly its product profile is segmented into vacuum system, valve division, air pollution control equipment, crystallizers and evaporators. Notably, it has a technical collaboration with world renowned Croll-Reynolds Inc. USA, who holds 12% stake in the company. However, due to ongoing slowdown globally as well as domestically, most of the industrial units are either postponing their capex plan or putting it under back burner. This may hamper the future growth of the company. But fundamentally, company is on a strong footing with very low debt equity ratio and good reserves leading to a book value of Rs 61. On a conservative basis, for FY09 it is slated to register sales of Rs 70 cr and profit of Rs 7.50 cr. This works out to an EPS of Rs 18 on current equity of Rs 4.25 cr. At an Enterprise value of merely Rs 20 cr scrip and at a P/E multiple of less than 2x times, scrip is trading damn cheap.

Techno Electric & Engineering Co Ltd - Rs 55.00

Incorporated in 1963, Techno Electric & Engineering Co Ltd (TEECL) is a large engineering, procurement and construction (EPC) contracting company primarily focused on the Indian power sector. Ironically, it has worked in one capacity or other in setting up of more than 50% of the power generating capacity in the country (more than 50,000 MW) and has similarly participated in building more than 50% of National Grid for execution and transmission of power from one region to another. Company has presence in all the three segments of power sector i.e. generation, transmission and distribution. It is among the very few Indian companies to have license to execute electrical installations upto 400 kV. Although majority of its revenue comes from govt bodies or PSU but it caters to private sector as well and has an enviable clientele including all power giants such as NTPC, Power Grid, NHEPC, BHEL, APTRANSCO, MSEB, Reliance Energy, ABB, Alstom, Thermax, Delhi Vidut board, CESC, IOC, Nalco and various other State Electricity Board. Company has even executed a turnkey power project with GE of USA for Damodar Valley Corporation and subsequently has won the confidence of other multinationals like ABB and ROLLS ROYCE amongst others, as an associate for their IPP Projects in India. Over the years TEECL has groomed itself in the field of comprehensive engineering, procurement and construction services for fuel oil storage and handling system, comprehensive piping systems, process plant installation, fire protection systems, EHV switchyards, EHV sub stations, power plant cabling system, plant electrical distribution system, lightning protection system and plant illumination systems. It has capabilities in setting up small capacity power plants and executing balance of plant jobs for larger capacity thermal/hydro power plants. It also possess specific domain knowledge that enables it to serve the steel, fertilizer, metals and petrochemicals sectors along with specialized jobs in diversified manufacturing.

Till date TEECL has successfully executed nearly 300 projects including power project, electrical projects or civil, structural and civil work. Out of these most of them were quite prestigious and large scale projects. The reason for company’s success is the adoption of state-of-the-art technology in the form of computerized engineering services, mechanized field operations, high standards of quality management backed by strong human resources and resourceful financing. Infact TEECL has been an acknowledged force vis-a-vis safety and statutory requirements for design, engineering and construction framed by the Indian Statutory Authorities such as the Inspectorate of Boilers, Chief Controller of Explosives, Tariff Advisory Committee for Fire Protection, Inspectorate of Electrical Installation among others. Today TEECL is actively involved in APDRP and Rajiv Gandhi Rural Electrification Program of Govt. of India. It boast of having an unexecuted order book position of more than Rs 600 cr. Besides company has participated in many other prestigious tenders out of which it is L1 (lowest) bidder in few of them.

As a part of its diversification strategy, TEECL has ambitious plan to be a major power producer in the field of non-conventional energy through setting up of biomass power generating units all over the country. Initially company has already obtained licenses for two units and is now setting up 10/12 MW Bio-Mass based power plants, one in North Dinajpur District of West Bengal and the other in Rajgarh District of Madhya Pradesh. These projects are slated to complete before March’2010. This new business segment of the company has tremendous potential because by 2012 most of the electricity boards will be compulsorily required to source 10% energy from non-conventional sources as per rules of the Electricity Act. On the other hand TEECL has also been selected as a Franchisee' for power distribution by Dakshin Haryana Bijli Vitran Nigam, Haryana. The total load involved is 85 MVA with a consumer base of +55000. TEECL is expected to increase the collection and decrease the T&D loss on the back of better governance and proper control to make a better distribution network.

Unfortunately, in the power sector the generation capacity addition has not been in commensurate with the increase in demand for power. After dismal performance in the 10th plan the government has set another ambitious target for the 11th plan of 78577 MW. In the first year of the plan i.e. 2007-08 an addition of 9263 MW was made which is again 57% of the target of 16336 MW. Although the annual rate of capacity addition has improved significantly over last 2 years, it has to double to meet the ambitious target set for the 11th plan period. However the silver lining is the projects over 53300 MW are under construction comprising 68% of the total 11th plan target. Similarly, the matching transmission and distribution systems will be augmented in due course. The National Grid is being upgraded to 765 kV and the State Grids are being upgraded to 400 kV to reduce the T&D losses. Moreover, to achieve the inter-regional power transmission capacity of 37150 MW by 2012 through creation of transmission super highways, the govt plans to set up a number of 765 KV Sub-Stations interconnected with matching transmission lines. And with TEECL being one of the major players is bound to benefit from such massive investments.

Financially, TEECL has been doing exceedingly well. Even for the latest Dec'08 quarter it reported satisfactory nos as sales improved by 10% to Rs 123 cr and profit increased by 15% to Rs 13.75 cr. Accordingly for nine months it has registered 30% growth in topline to Rs 368 cr whereas net profit has jumped up 50% to Rs 43 cr. Being a very low capital intensive business, company has a very small gross block of less than Rs 10 cr. And with this gross block company has generated cash to the tune of Rs 55 cr from operating activities in FY08. It is not only a debt free company but a cash rich company having liquid investment worth Rs 150 cr and cash balance of Rs 25 cr as on 31st March 2008 which is equivalent to almost Rs 30 per share. So eventually investor is getting the company at the rate Rs 25 per share. For FY09, TEECL is expected to report total revenue of Rs 500 cr and PAT of Rs 55 cr i.e. EPS of Rs 10 on equity of Rs 11.42 having face value as Rs 2 per share. Investors are strongly recommended to buy at current levels with a price target of Rs 100 in 15~18 months.

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