STOCK WATCH

Last week, Voltamp Transformer (325.00) came out with excellent set of nos for Q3FY09. Despite reporting marginal fall in net sales to Rs 136 cr it posted 50% increase in net profit to Rs 34 cr due lower raw material cost. Surprisingly it posted a very healthy OPM of 30%, where the EPS for the quarter stood at whopping Rs 34. Company 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. It is expected to end the current fiscal with sales of Rs 650 cr and profit of Rs 100 cr i.e. EPS of Rs 99 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.

Consistently, Micro Technology (78.00) has been churning out encouraging nos quarter after quarter. Even for Dec’08 quarter, its revenue increased by 30% to Rs 59 cr whereas PAT grew by 10% to Rs 15 cr thereby posting an EPS of Rs 14 for the single quarter. Importantly it managed to record an OPM of 40%. The nine months figures are much more exciting as company has registered 50% growth in topline to Rs 176 cr and 35% increase in bottomline to Rs 49 cr. Thus company has already clocked an EPS of Rs 45 till date on current equity of Rs 10.98 cr. Over the years, company 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 high-tech wireless technologies such as 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). Today, it boasts of having hundreds of unique, hi-tech, first of its kind and innovative security products which have huge demand & tremendous potential worldwide. It may end FY09 with revenue of Rs 225 cr and net profit of Rs 55 cr i.e. EPS of Rs 50. Scrip can shoot up to Rs 110 levels in short term.

Genus power (90.00) declared average result for the Dec’08 quarter. Sales improved by 15% to Rs 120 cr and PAT grew marginally by 7% to Rs 10.65 cr. Company is amongst the leading integrated metering solutions' providers and the pioneer in implementing AMR (Automatic Meter Reader) technology. Importantly it has diversified into engineering construction and currently derives more than 50% from EPC power T&D projects where it provides absolute solutions for power transmission & distribution system. As a step forward, company has also launched IT enabled distribution transformer metering system, feeder monitoring and management system, smart street light management system with value added software application for providing end to end solutions for energy management. Although company’s participation in tenders have come down drastically and it may bag fewer orders in future still as of now it has an order book of Rs 795 cr. Besides it has bid for tenders of more than Rs 1500 cr, out of which it is L1 bidder in tenders worth Rs 300 cr. So it can clock a turnover of Rs 475 cr and profit of Rs 35 cr for FY09 on conservative basis. This translates into EPS of Rs 24 on current equity of Rs 14.80 cr. Keep accumulating at declines

Bharat Bijlee (450.00) has reported decent nos for the Dec’08 quarter with 25% rise in sales to Rs 140 cr and 10% increase in NP to Rs 13 cr. It has already earned an EPS of Rs 60 for the nine month ending Dec’08. Company has recently increased its transformer manufacturing by 40% to 11,000 MVA from 8000 MVA, the full benefit of which will be derived in FY10. Apart from being the pioneer in the manufacture of electric motors, it is also one of the oldest players in transformer industry. Remarkably, company has the capability to manufacture power transformer up to 200MVA in 220 kV class which handful of Indian manufacturers can claim of. In order to expand the product range, it 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 of Spain. Accordingly for FY09 it can register sales of Rs 600 cr and net profit of Rs 55 cr leading to an EPS of Rs 97 on small equity of Rs 5.65 cr. Importantly, BBL is almost a debt free company and even has liquid investment whose current market value as on date is Rs 125 cr. At the same time, 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. Thus at current market cap of Rs 250 cr, scrip is available grossly cheap.

Small & Beautiful

Investors shouldn’t sell Sunil Hitech (70.00) although it posted loss at the net level. Actually it recorded 90% growth in revenue to Rs 148 cr and 40% increase in profit to Rs 7 cr, but due to provisioning of notional loss in mutual fund investments to the tune of Rs 13 cr, it registered net loss of Rs 6 cr. Although company hasn’t bagged any major order of late, but it boast of having an massive order book position of Rs 1300 cr. Company specializes in niche segment of fabrication, erection & testing and commissioning of thermal power plants including doing individual works under balance of plant. It also undertakes projects in the transmission and distribution segments including commissioning of EHV lines for substations, errection of turbine generators etc. It has 125,000 TPA of steel fabrication capacity and 100,000 TPA of equipment installation capacity in power plants. Incidentally, company has an under leveraged balance sheet with a low debt equity ratio of 0.60x times and can raise more debt comfortably. It may end FY09 with a topline of Rs 525 cr and PAT of Rs 25 (excluding notional loss on investment). This translates into EPS of Rs 20 on current equity of Rs 12.30 cr. Secondly it has huge reserves to the tune of Rs 145 cr on small equity leading to a healthy book value of Rs 128. Aggressive traders can buy for short term gain.

ABG Shipyard (70.00) is one of India’s largest private sector shipbuilding companies & established manufacturer and service provider of a variety of ships, including bulk carriers, interceptor boats, diving support vessels, anchor handling supply ships, dynamic positioning vessels, anchor handling tugs & other multipurpose vehicles. Till date it has delivered 104 ships and has further order book position of nearly Rs 10,000 cr to be executed in next 4~5 years. Few months back it bagged its first rig order from Essar Shipping. For the Dec’08 quarter, company has reported 80% rise in sales to Rs 489 cr but due to very high interest cost, PAT remained flat at Rs 46 cr. Although there is high probability of company witnessing huge order cancellation in short term because of slowing down of world economy, still the Indian ship building industry has a tremendous growth potential ahead. According to new international shipping norms, single-hull tankers have to be phased out by 2010 & ships that are over 25-year old have to be scrapped. Meanwhile, the ship-building activity has shifted from Europe to Asian countries like Korea, China and India due to cost and other factors. Notably, it is the first ship building company in private sector to actually receive the subsidy to the tune of Rs 19 cr from govt last year. It is estimated to clock a turnover of Rs 1400 cr and profit of Rs 150 cr i.e. EPS of Rs 29 on current equity of Rs 51 cr. A short term trading bet.

Last week, Voltamp Transformer (325.00) came out with excellent set of nos for Q3FY09. Despite reporting marginal fall in net sales to Rs 136 cr it posted 50% increase in net profit to Rs 34 cr due lower raw material cost. Surprisingly it posted a very healthy OPM of 30%, where the EPS for the quarter stood at whopping Rs 34. Company 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. It is expected to end the current fiscal with sales of Rs 650 cr and profit of Rs 100 cr i.e. EPS of Rs 99 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.

Unichem Laboratories (155.00) have been churning out excellent nos from last few quarters. For the Dec’08 qtr, it recorded whopping 90% increase in net profit to Rs 28 cr with 10% improvement in sales to Rs 152 cr. It posted an impressive OPM of 24% against 17% last fiscal. Its nine months net profit of Rs 97 cr has already surpassed the entire FY08 NP of Rs 78 cr by wide margin. Thus the EPS till date of the current fiscal stands at Rs 27. Company is a leading domestic pharma company deriving majority of its revenue from formulation although it also manufactures active pharmaceutical ingredients. It has its formulation facilities at Ghaziabad(UP), Baddi(HP) and Goa and the API plants in Roha(Maharashtra) and Pithampur(MP). The Goa and UP plant has already got the US FDA approval whereas MP plant is expected to get it soon. Company has a wide chronic care portfolio with cardiovascular and diabetology therapeutic segments contributing around 50% of the domestic formulations. Lately company has launched new division focusing on Dermatology and has even introduced 15 products of this segment in the market. For FY09 it is estimated to report topline of Rs 650 cr and PAT of Rs 110 cr leading an EPS of Rs 31 on current equity of Rs 18 cr having face value as Rs 2/- per share.

Cosmo Films Ltd - Rs 60.00

Incorporated in 1976 and promoted by Ashok Jaipuria, Cosmo Films Ltd (CFL) is the pioneer and market leader in the manufacture of biaxially oriented poly propylene (BOPP) film which is widely used as a flexible packaging material. Being non-toxic and totally recyclable this wonder thermoplastic material is also preferred for its superior moisture retention, strength, and flexibility, and better optical properties that provided higher visual aesthetics. Remarkably, CFL is one of the dominant players in the BOPP market in India with a 23% market share and also one of the lowest cost producers of BOPP films in the world. It produces a wide variety of BOPP films such as transparent, pigmented, pearlised, antifog, speciality, holography, pressure sensitive, synthetic paper films etc. Of late it also started manufacturing value added and high margin products like thermal lamination films and metallized lamination films. Apart from FMCG sector being the major consumer, BOPP films also finds application in various other industries like textile, food processing, stationary, cigarettes over wraps, cosmetic, toiletries, label films, self adhesive tapes, holography/lamination etc. Due of smaller market size and demand supply mismatch in India, company is presently exporting 50% of its production. Infact CFL is the largest BOPP film exporter from India, supplying to over 60 countries across USA, Europe, Middle East and other parts of Africa.
With its manufacturing plant spread across Gujarat & Maharashtra, CFL currently has an installed capacity of 56000 MTPA of BOPP films, 21000 MTPA of thermal lamination films & 3000 MTPA of metallized films. Importantly, company is the only India player to manufacture thermal laminated films which is a high margin business. Despite the industry going thru an over capacity scenario in domestic as well as international market, CFL has been working at 100% capacity utilization coupled with regular expansions. It is still confident of future growth and is further expanding its BOPP capacity to 96000 MTPA by March 2009 and 136000 MTPA by March 2010. At the same time, its capacity of metalized films will be enhanced to 6500 tonne by March 2009 & further to 10500 by March 2010. The company has even started a coating film with a capacity of 12000 MTPA last year. To maintain and grow its bottomline, CFL is focusing on value growth compared to volume growth by selling more value added specialty products like multi layer barrier laminates and thermal lamination films on paper based products, where margin are much better. On the other hand it is targeting higher end profitable markets to improve its realization and accordingly has set up a wholly owned subsidiary in USA recently. Simultaneously it has been constantly expanding its customer base by providing cost effective innovative packaging solutions to its customers.
Ironically, the per capita consumption of BOPP in India is just 130 gm compared to world average of 660 gm, hence proving to be a major indicator for growth potential, considering the retail revolution in the country. Hence the total domestic size of BOPP is around 160,000 TPA with 6 major players, who supply nearly 90% of consumptions. Because of organized retailing, increasing mall culture and higher spending capacity, FMCG and food processing industry is witnessing phenomenal growth and hence domestic BOPP market is also growing @ 15~20 % per annum. Secondly to boost up its growth momentum, CFL has adopted an inorganic growth strategy and couple of days back only finalized to purchase the GBC Commercial Print Finishing business from ACCO Brands Corporation U.S.A. With revenues of approximately $100 million, GBC Commercial Print Finishing is a leader in the industry, providing thermal lamination films and equipment in Europe, North America, Japan and the Pacific region. It has three manufacturing sites - Hagerstown in Maryland, USA, Kerkrade in Netherlands and Asan in Korea. However terms of the transaction have not been officially disclosed yet and the deal is expected to get complete before Sept 2009.
Financially, company has been reporting encouraging result despite very sharp up down movement in crude oil prices. Incidentally, the recent crash in crude oil price will bring down the input cost considerably as polypropylene resin and ethylene vinyl acetate forms the major raw material for the company. But at the same time company has to proportionately reduce its product prices as well. Recently for the Dec qtr, CFL reported 10% decline in sales to Rs 135 cr whereas its profit fell by 40% to Rs 7 cr. But notably, company was able to maintain its OPM of 15%. Company has already posted an EPS of Rs 17 till date and may end FY09 with sales of Rs 650 cr and PAT of Rs 40 cr i.e. EPS of Rs 21 on current equity of Rs 19.40 cr. It may declare 40% dividend for FY09 which gives a yield of nearly 7% at CMP. To fund the expansion company has allotted 31 lac warrants to promoter group to be converted @ Rs 107 before August 2009. But looking at the market conditions, promoters may let it lapse and forgo the 10% as CMP is almost 40% lower than the conversion price. Considering company’s leadership position, integrity of management, dividend yield, huge reserves etc, scrip is trading fairly cheap at an enterprise value of Rs 275 cr. Investors are strongly advised to buy at current levels as scrip can easily appreciate 50% in 12~15 months.

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Cosmo Films Ltd
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Gujarat Apollo Industries Ltd
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Gujarat Apollo Industries Ltd - Rs 56.00

Established in 1972, Gujarat Apollo Industries Limited (GAIL), flagship company of Gujarat based Apollo Group is the undisputed leader and India's No.1 manufacturer of road construction & maintenance equipment. With nearly four decade of experience in the design, manufacturing and after sales support of equipments, the group today literally offers the entire range of equipment required by bituminous road building industry. Company has expertise in manufacturing asphalt plants (batch mix plants, drum mix & mobile drum mix plants), soil stabilization plants, indirect heating equipment, sensor paver finisher, bitumen sprayer, rollers, kerb paver, road marking machines and road maintenance equipments like milling machines and recycling machines. Presently, company derives 45% of the revenue from mobile equipments such as pavers & finishers and the balance 55% comes from plants such as asphalt mix plant etc. Ironically, GAIL 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.

GAIL’s state-of-the-art manufacturing plant is located in Gujarat and caters to all three categories viz. government & semi-government agencies, private corporate customers and small contractors. Besides, it has a subsidiary called Apollo Earthmovers Ltd which is also engaged in same line of business but targets road equipment market for rural roads funded through PMGSY programme etc where the machinery requirement is of not highly sophisticated/technology oriented and of also lower capacity. Thus the market positioning of parent company and its subsidiary are different both in terms of product offerings and market catering with former focusing upper end of market and the later at lower end. Secondly due to constant thrust on export, GAIL has achieved significant market share in Saudi Arabia, African countries, Afganistan, Australia, Bangladesh and Sri Lanka. Infact, presently exports contribute nearly 35% of total revenue. In order to de-risk its revenue model, last year GAIL 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. This segment of products has larger market size with relatively less competition in organized sector. Hence company intends to become a significant player in this segment and has ambitious future growth plans.

Although there are apprehensions regarding slowdown in construction activities due to recession and lower GDP growth rate but GAIL is expected to be least affected due to its association with road construction activities only. The projects under pipeline in road sector are quite strong from both NHAI stable and State Highways side. The Union government is already executing massive road construction projects, with the National Highway Development Program building the north-south and east-west corridors and the Golden Quadrangle Project connecting major cities. Besides, the Eleventh plan, entails an investment of gigantic Rs 200,000 cr in road infrastructure which converts into huge opportunity for road construction equipment manufacturer like GAIL. To move in tandem with today’s world, company has been regularly implementing capex and has further planned to invest Rs 18~20 cr each for next 3~4 years. In fact it is building a brand new factory near Ahmedabad specifically for manufacturing of compaction equipment and is expected to begin production in few months.

Last fiscal i.e. for FY08 GAIL reported bumper profit of Rs 37 cr as it got an extraordinary pre-tax gain of Rs 16 cr on divestment of 49% equity stake in Johnson Screens (India) Limited, a joint venture company to the foreign partner to enable them to have 100% control of that business. Whereas in the current fiscal, company has recorded a modest growth of 10% in topline as well as bottomline for H1FY09. Recently company has given 1:2 bonus thereby making the record of declaring 3 times bonus in the last 4 years. It may end the current year with sales of Rs 200 cr and net profit of Rs 23 cr. This works out to an EPS of Rs 15 on expanded equity of Rs 15.75 cr. Importantly, GAIL’s subsidiaries are also doing well and churning out respectable profit. In the current year company took strategic stake in another group company called Apollo Construction Equipment pvt Ltd which will be eventually made a subsidiary in due course. Although no official consolidated figures are available, still it is roughly estimated to clock a turnover of Rs 300 cr and PAT of Rs 30~32 cr on a consolidated basis for FY09. That means the scrip is current trading a P/E ratio of less than 3x times considering the consolidated EPS of Rs 19. Due to adverse market condition share price has become one fourth from its high in May’08. Investors can buy at current levels as share price can double in 15~18 months.

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