STOCK WATCH

Despite the adverse market condition, Elgi Equipments (30.00) reported 20% growth in topline as well as bottomline to Rs 121 cr and Rs 10 cr respectively for the latest Dec’08 quarter. However its automotive equipment division which contributes roughly 20% revenue is witnessing sharp slowdown. In order to manage this effectively, company is hiving off its automotive equipment business into a separate wholly owned subsidiary called ATS-Elgi Ltd. On the other hand its air compressor business is doing well as it is used in a wide range of applications and company caters to almost all sector of industry. Being the Asia’s largest manufacturer of air compressors, company is involved with the design, development and production of exhaustive range of electric and diesel powered, centrifugal, reciprocating, borewell, railway air compressors etc. Of late to cash on its rich experience company also started offering end to end mechanical engineering solutions and contract manufacturing services of precision engineered part to clients who are looking for cost-effective, subcontracting solution. It is also looking to increase its global presence for which it has formed a subsidiary in China and has also entered into joint venture with M/s. J P Sauer & Sohn, Germany for manufacturing air compressors. It may end FY09 with sales of Rs 450 cr and NP of Rs 35 cr i.e. EPS of Rs 6 on equity of Rs 6.30 cr having face value of Rs 1/- per share. A solid bet for medium to long term

For the Dec’08 quarter, Gayatri Project (80.00) reported 25% rise in revenue to Rs 256 cr but profit declined by 20% to Rs 10.70 cr. However for the nine months ending Dec 08, its topline has increased by 40% to Rs 670 cr and PAT has also risen by 15% to Rs 30.50 cr thereby posting an EPS of Rs 30 till date. Company 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 which are estimated of 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. Moreover company 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. Despite having huge debt of Rs 450 on its books company can be bought at current market cap of Rs 80 cr.

Most of the retail investors are selling Shanthi Gears (32.00) as it posted more than 40% decline in net profit for the Dec quarter. But during the quarter, company has incurred one time extraordinary expenditure of Rs 7 cr as interest and forex loss towards redemption of FCCB. So excluding this, company has reported almost flat nos with PBT of Rs 17.50 & PAT of Rs 11.50 cr. It is not an auto ancillary company although name suggest, but infact it is the second largest player in industrial gear segment with 20% market share and at the same time is the undisputed leader in the customized product segment where the manufacturing is as per clients’ requirements. Of late, company has even started manufacturing gearboxes of 250 KV for windmills. Incidentally, the recent fall in steel and other metals will reduce its input cost considerably and may give a good fillip to its bottomline in coming qtrs. For FY09 it may clock a turnover of Rs 235 cr and PAT of Rs 38 cr i.e. EPS of Rs 5 on equity of Rs 8.17 cr having face value as Rs 1/- per share. Moreover if rumors are to be believed then at one time, India’s largest windmill manufacturer Suzlon, through its subsidiary Hansen Transmission (world’s fifth largest maker of gearbox), was interested in taking a stake in the company. If it happens anytime in future, this may lead to re-rating of the company and share price may see a vertical rise.

Recently Supreme Infrastructure’s (25.00) declared good set of nos. Total revenue for the quarter almost doubled to Rs 92 cr and operating profit jumped up 75% to Rs 16 cr. However due to higher interest and depreciation cost its PAT declined by 10% to Rs 5.50 cr. At the same time, its nine month revenue is up by 125% to Rs 237 cr and net profit stands at 21 cr up by 55%. Thus it has already clocked an EPS of Rs 15 till date. Company’s core competency lies in construction/widening of roads & highways, but it also undertakes other infrastructure projects like integrated nallah development, drainage work, laying of railway tracks, construction of minor bridges, development of IT Park, residential tower, RCC building, strengthening of sea wall and laying of tetra pods etc. Its area of operation is mainly concentrated in Mumbai region and few parts of Maharashtra & Bangalore. Couple of days bag company has bagged new orders to the tune of Rs 225 cr which include construction of flyover in Jaipur, widening of road and construction of bridge across the creek in Thane district, which is first of its kind for the company. Importantly, company has its own captive ready mix concrete plant, asphalt mix plant, quarrying and crushing unit & paver block manufacturing unit. With massive order in hand of more than Rs 600 cr and capex plan to double its RMC capacity to 300 cum. per hour, the future looks promising. Against having a net worth of Rs 95 cr (i.e. Book value of Rs 68) & IPO price of Rs 108, scrip is available grossly cheap at CMP of Rs 25.

Small & Beautiful

For the Dec’08 quarter, Gayatri Project (80.00) reported 25% rise in revenue to Rs 256 cr but profit declined by 20% to Rs 10.70 cr. However for the nine months ending Dec 08, its topline has increased by 40% to Rs 670 cr and PAT has also risen by 15% to Rs 30.50 cr thereby posting an EPS of Rs 30 till date. Company 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 which are estimated of 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. Moreover company 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. Despite having huge debt of Rs 450 on its books company can be bought at current market cap of Rs 80 cr.

Interestingly, even though sales of Vivimed Labs (40.00) declined by nearly 15% to Rs 35 cr, its operating profit jumped up 40% to Rs 11 cr on the back of very healthy OPM of 32%. Thus it recorded 60% rise in NP to Rs 6.50 cr posting an EPS of approx Rs 7 for the single quarter. It also already clocked an EPS of more than Rs 17 in the first three quarters. It’s a specialty chemical manufacturer catering to segments including oral care, sun care, skin care, hair care, natural extracts, preservatives, anti microbial, anti oxidants, anti-aging molecule etc. Infact it is world’s 2nd largest manufacturer of Triclosan - an antibacterial used for oral care and one of the top three companies for Avis – a chemical which improves UV absorbing ability of Sunscreen. Last year it acquired 100% stake in M/s James Robinson,UK and accordingly on a consolidated basis has reported sales of Rs 211 cr and PAT of Rs 18 cr for the nine months ending Dec 08. Recently, company has decided to acquire Har-met International Inc a small importer of pharmaceutical & cosmetic product, based in USA. Organically as well company has been expanding its capacity and has chalked out Greenfield expansion plan in Uttaranchal and Hyderabad. With an expected EPS of Rs 20 on a consolidated basis, company is available reasonably cheap at current market cap of less than Rs 40 cr.

At the time when most of the biggies are reporting dismal nos, a small company name Patels Airtemp (30.00) has come out with fantastic result. For the Dec’08 quarter, it recorded 30% rise in sales as well as NP to Rs 13 cr & 1.75 cr respectively. Even for nine months, it has recorded 35% increase in sales to Rs 49 cr and 40% jump in NP to Rs 5.20 cr thereby posting an EPS of Rs 10 till date. Company 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. It may end FY09 with sales of Rs 60 cr and PAT of Rs 6 cr leading to an EPS of Rs 12 on equity of Rs 5 cr. A good bet with limited downfall risk.

Most of the retail investors are selling Shanthi Gears (32.00) as it posted more than 40% decline in net profit for the Dec quarter. But during the quarter, company has incurred one time extraordinary expenditure of Rs 7 cr as interest and forex loss towards redemption of FCCB. So excluding this, company has reported almost flat nos with PBT of Rs 17.50 & PAT of Rs 11.50 cr. It is not an auto ancillary company although name suggest, but infact it is the second largest player in industrial gear segment with 20% market share and at the same time is the undisputed leader in the customized product segment where the manufacturing is as per clients’ requirements. Of late, company has even started manufacturing gearboxes of 250 KV for windmills. Incidentally, the recent fall in steel and other metals will reduce its input cost considerably and may give a good fillip to its bottomline in coming qtrs. For FY09 it may clock a turnover of Rs 235 cr and PAT of Rs 38 cr i.e. EPS of Rs 5 on equity of Rs 8.17 cr having face value as Rs 1/- per share. Moreover if rumors are to be believed then at one time, India’s largest windmill manufacturer Suzlon, through its subsidiary Hansen Transmission (world’s fifth largest maker of gearbox), was interested in taking a stake in the company. If it happens anytime in future, this may lead to re-rating of the company and share price may see a vertical rise.

Smart Investments

Techno Electric & Engineering Co Ltd
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Jaihind Projects Ltd
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Patels Airtemp India Ltd - Rs 28.00

Incorporated in 1973, Patels Airtemp (India) Ltd (PAL) is one of the leading designers, manufacturers and suppliers of the complete range of heat exchangers such as shell & tube type, finned tube type and air cooled heat exchangers, pressure vessels, columns & air-conditioning and refrigeration equipments like coils, exhaust air units, fan coils, fans & blowers, condensers & chillers etc. It also makes Dow therm condensers, inter coolers & after coolers, oil coolers, air heaters, HP & LP feed water heaters, LPG bullets etc. All these industrial process plant equipments are supplied to leading industrial sectors like power projects, refineries, fertilizers, cements, steel, aluminium, automobile, petrochemicals, engineering, pharmaceuticals, textiles, paper, chemical etc. Importantly, the company also undertakes turnkey projects in the highly specialized and related area of Humidification, Ventilation and Air-Conditioning i.e. HVAC. Its expertise in HVAC project includes industrial air conditioning, pharmaceutical plant air conditioning, textile humidification, pressurization and ventilation systems, evaporative cooling systems etc. Besides, it also undertakes project work for air-conditioning multiplexes, offices, educational institutions, halls, theaters, hospital etc.

PAL has two manufacturing units in Gujarat – one at Mehsana and another at Ahmedabad. It has technical collaboration with M/s. TEK FINS Inc., USA, for design and manufacture of air-cooled heat exchangers. To support its turnkey HVAC projects, the company has even backward integrated its facility to manufacture package air conditioners, ductable air-conditioners, split air-conditioners, window air-conditioners etc. to cater to the domestic industrial segments. Importantly, all the products that it manufactures in the plant are designed in-house using the most advanced software. The company is accredited by the American Society of Mechanical Engineers (ASME) and the National Board of Boilers & Pressure Vessels. Hence its products have the coveted ASME `U' Stamp authorization. It maintains quality standards to satisfy third party inspections from leading agencies such as Lloyds, EIL, BVIS, IBR, CCOE, PDIL, LINDE, H&G, Technimont ICB, UHDE, CHEMTAX, BAXCOUNSEL etc. For updating its heat transfer technology, it has also become member of HTRI (Heat Transfer Research Inc., USA). It caters to a very huge clientele including leading companies from across the industry and is an approved supplier for most of them. Although miniscule, it also exports equipments to Germany, Italy, Indonesia, Srilanka, UAE, Jordan UK, Ukraine etc.

Importantly, in the past PAL has successfully executed several orders of Nuclear Power Corporation of India. Hence it is expected to good orders from NPCIL in future due to signing of the Indo-US nuclear deal. In other words the future growth potential for the company is tremendous. Meanwhile company has done exceedingly well in the current year on the back of strong order position. Currently it boasts of having unexecuted order in hand to the tune of Rs 50 cr including Rs 16 cr order bagged from Essar Oil in Sept 2008. Recently, company reported good set of nos for the Dec’08 quarter, as it registered 30% rise in sales as well as NP to Rs 13 cr & 1.75 cr respectively. Even for nine months, the sales have increased by 35% Rs 49 cr whereas it saw a 40% jump in NP to Rs 5.20 cr thereby posting an EPS of Rs 10 till date. Accordingly it may end FY09 with sales of Rs 60 cr and PAT of Rs 6 cr leading to an EPS of Rs 12 on equity of Rs 5 cr. It may maintain its 15% dividend which gives a yield of 5% at CMP. For FY10 it can report a topline of Rs 75 cr and bottomline of Rs 7.50 cr i.e EPS of Rs 15 on current equity. Although it’s a small company with a gross block of less than Rs 15 cr but the share price can easily double within 9~12 months. Investors are strongly recommended to buy at current levels.

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JaiHind Projects Ltd - Rs 35.00

Established in 1963, Jaihind Projects Ltd (JPL) is an engineering, procurement & construction (EPC) company focused on the oil & gas, water & infrastructure sectors. Its core area of specialization & operation includes laying oil & gas pipe lines across the country. Thus it even boasts of executing some of the longest pipeline projects in India. Having laid around 5000 km of pipes till date, JPL has capability to lay pipelines from 4” to 56” in diameter thru different terrains ranging from rocky to desert and snowy to marshy land. Apart from GAIL - its biggest client, JPL also undertakes projects for ONGC, Cairn Energy, BPCL, IOC, GSPC, GSPL, Mahanagar Gas, Reliance Infra, L&T, Delhi Jal Board etc. Notably, company has accomplished many river crossing projects, which involve Horizontal Directional Drilling (HDD) - an advanced technology useful for construction of all types of pipelines and cable lines under various landscape obstacles, such as rivers, lakes, ramparts, roads, canals, swamps, runways, parks, sanctuaries etc. In this technology the obstacle is crossed by drilling under it, from one side to the other, using special machine called drilling rig. Thus to carry out such projects JPL owns 6 HDD rigs up to 150 tons for providing non-destructive alternative for crossing of pipelines and cables. Its USP also lies in owning one of the largest fleet of Pipeline equipment in India consisting of more than 1500 equipments with 70 different machineries.

Meanwhile, company has also built a strong reputation for executing turnkey projects for water supply schemes. Out of the total pipes laid till date, JPL has supplied and laid over 2500 km of various pipes such as MS/ CS/ CI/ AS/ SS/ AC/ PVC/ RCC/ PSC/ DI/ MDPE/ HDPE/ SW/ GI etc. for water supply & sewerage system projects. It even has in house & mobile site facilities for pipe fabrication from metal plates. Besides it also undertakes projects for construction of reservoirs, water & sewage treatment plants, intake wells, pump house landfill & soil treatment pad etc. Moreover for corrosion protection, company provides services like coal tar & poly ethyle coating, anti-corrosion painting of terminals & pipes, cement lining, cathodic protection and weight coating. On the other hand, JPL is looking to increase its presence in city gas distribution business. It has successfully implemented construction of city gas distribution projects in Ahemdabad, Valsad, Nadiad etc for transporting piped natural gas and compressed natural gas to retail customers, including domestic, commercial, industrial and automobiles. One of its pioneering projects in this segment was the construction of a city gas distribution network for Mahanagar Gas Limited in Mumbai.

To scale up its operation, JPL is now looking to enter the construction and laying of pipeline business in the international markets particularly in Gulf regions. It is in talks with many multinational companies for joint venture / equity participation or any such arrangement. Meantime, the outlook in India as well looks very promising for new 4~5 years. The discovery of huge gas reserves on the eastern coast of India would necessitate the laying of cross country pipelines as the demand centers are mainly located in the northern, western and southern regions. Rising gas demand and thrust on LNG imports will also lead to growing demand for gas transportation. GAIL alone is planning additional 7,900 km of new trunk lines over the next five years against current pipeline network of 4,600 km. As per estimated investments exceeding Rs. 30,000 cr is likely to be committed in setting up the National Gas Grid. As per unconfirmed reports, JPL has bid for more than Rs 2000 cr contract apart from having healthy order book position.

To funds its capex & increased working capital requirement, JPL raised approx Rs 4 cr (thru placement of 10 lac equity shares @ Rs 41) in 2007 & then raised Rs 15 cr (thru placement of 10 lac equity shares @ Rs 150) in 2008. Thus today its equity stands at Rs 7.10 cr. Recently company has took the approval for preferential allotment of 20 lac warrants to be converted @ Rs 120 per share. However the placement may not materialize considering the CMP. Financially JPL is doing exceedingly well and has recently come out with terrific set of nos for the Dec’08 quarter. Its revenue more than doubled to Rs 72 cr and PBT more than trebled to Rs 7 cr. Accordingly for the nine months ending Dec’08 its revenue was up 75% to Rs 153 cr and profit before tax shot up 230% to Rs 15 cr. However company hasn’t made any tax provisions till date as it provides at the year end. Considering all the factors, JPL is estimated to end FY09 with topline of Rs 225 cr and bottomline of Rs 13 cr i.e. EPS of Rs 18 on current equity of Rs 7.10 cr. For FY10, it can earn a PAT between Rs 16 ~ 18 on total revenue of more than Rs 300 cr. However investors should note that in April 2008 M/s N K Aswani & Co resigned as an auditor and M/s Deloitte Haskins & Sells were appointed as Statutory Auditor in their place. But couple of months later in August 2008, M/s NK Aswani & co was appointed again due to resignation tendered by M/s Deloitte. Secondly, to boost up its net worth to become eligible to bid for larger projects, company may opt for huge equity dilution in future. Despite all these, investors can buy this scrip at current levels as share price has the potential to double within a year.

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