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Aditya Birla Chemicals (32.00) earlier known as Bihar Caustic is among the leading caustic soda producer in the northern and eastern region of the country having an installed capacity of 265 TPD of caustic soda, 200 TPD of liquid chlorine, 130 TPD of hydrochloric acid, 150,000 Nm3/day of compressed hydrogen and 3 TPD of sodium hypo chlorite. It has also set up a 25 TPD stable bleaching powder plant and 12000 TPA of aluminum chloride unit. To maintain its future growth, company is in the process of further augmenting the capacity of its caustic soda from 265 TPD to 300 TPD at a capital investment of Rs 30 cr. Due to some boiler problem during Sept quarter, company is expected to end FY09 with sales of Rs 200 cr and PAT of Rs 40 cr. This translates into EPS of Rs 17 on current equity of Rs 23.40 cr. Despite belonging to such a reputed group and having strong fundamentals like high profit margin, low debt equity ratio, huge reserves, good dividend yield, consistent growth etc, scrip is poorly discounted at P/E multiple of less than 2x times and EV/ EBIDTA of little over 2x times. Although company is vulnerable to caustic soda price movement, but with Hindalco being its parent company & biggest customer this is relatively a safer bet.

MIC Electronics (15.00) is a pioneer in design, development, manufacture & supply of true color LED Video Displays, LED Lighting products and solutions. Infact, it is the only integrated LED display manufacturer in India with design-to-manufacture capabilities. Being a sunrise technology, its products have tremendous potential for growth and hence to cash on the opportunity, company commissioned a state of the art fully automated manufacturing line at Hyderabad on 29th October 2008. With this EOU facility, it has doubled the production capacity of LED display to 2400 modules from 1200 modules earlier. It is further contemplating to take its total capacity to 3600 modules in near future. Company is regularly making presentations and negotiating with Indian railways to supply LCD display as well LED lighting solutions to them. Its 50:50 USA joint venture has already won a contract for LED display in 50 stadiums in Latin America. Company is also entering the entertainment business through self owned digital theme parks and theatres. For six months ending Dec’08, it recorded 70% rise in net profit to Rs 40 cr despite marginal fall in topline to Rs 144 cr due to change in product mix. Conservatively for FY09 ending June’09 it is estimated to clock a turnover of Rs 275 cr and PAT of Rs 65 cr on a standalone basis. This works out to an EPS of Rs 6.50 on current equity of Rs 20 cr having face value as Rs 2/- per share. Share price can double within a year.


Transformer & Rectifiers (110.00) is one of the few manufacturers in the country manufacturing the entire range of transformers namely power generation, transmission and distribution transformers, industrial transformers such as furnace transformers, and special transformers such as mobile substation, rectifiers, testing transformers etc. Infact, company is among the largest manufacturer of furnace transformers in India. With an installed capacity of 7200 MVA it has the capability to manufacture transformer upto 160 MVA in 245 kV class. To cash on the boom in power sector, company is setting up a Greenfield plant in Moraiya, near Ahmedabad with an installed capacity of 16,000MVA. The new plant, expected to be operational shortly would be capable of manufacturing transformers upto 756kV class, though the company initially intends to manufacture transformers of 220kV and 400kV classes. As of now, company has order book position of Rs nearly Rs 400 cr, out of which 70% comprises of power transformers. For Dec’08 qtr it reported 40% & 30% increase in sales and NP to Rs 97 cr and 9 cr respectively. Accordingly it may end FY09 with sales of Rs 400 cr and NP of Rs 38 cr i.e. EPS of Rs 29 on current equity of Rs 12.90 cr. Importantly, it will start reporting substantial growth from FY10, as new plant will begin operations by then.

Cosmo Films (60.00) is one of the dominant players in the Bi-axially Oriented Polypropylene Films (BOPP) market in India with a 23% market share and also one of the lowest cost producers of BOPP films in the world. It currently boast of having 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 Indian player to manufacture thermal laminated films which is a high margin business. Despite demand supply mismatch, company is working at 100% capacity and is further expanding its BOPP capacity to 136000 MTPA & metalized films to 10500 in phases. It has even started a coating film with a capacity of 12000 MTPA last year. Recently company has decided to acquire a USA based company providing thermal lamination films and equipment in Europe, North America, Japan and the Pacific region. However the deal is expected to get complete before Sept 2009. 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. 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. A good bet to gain 50% in a year.

Action Construction Equipment Ltd - Rs 9.00

Incorporated in 1995, Action Construction Equipment Ltd (ACE) is the undisputed leader in hydraulic mobile crane manufacturing with a market share of more than 50% in India. These cranes are rough terrain, pick and carry types which are most commonly used in several core industries apart from construction. According to the functions & application, ACE makes different types of hydraulic cranes ranging from 3 tons to 18 tons capacity. Deriving more than 65% of total revenue, this forms the core product of the company. Along with, it also manufactures mobile tower which are used basically for civil construction. It makes self-erecting & self-folding cranes with inbuilt generators that can work from 6 to 12 storied buildings. Under material handling and construction equipment category, ACE manufactures various types of back hoe loaders, wheeled loaders, forklift trucks etc with a lifting capacity of 1.5 to 10 ton. In its endeavor to increase its product portfolio, ACE over a period of time, has entered into marketing tie-ups with leading foreign companies like Autogru PM Italy, Maber-Italy, Zoomlion- China and Tigieffee SRL-Italy which facilitate the availability of latest technology and machines from around the world. Thus it is also engaged into importing CKD units, assembling them at its plant, marketing them in India and even proving after sales support. Its imported fixed tower cranes from China with maximum lifting height of 240 meters are very well accepted in Indian market and hence company commands 35% market share. Besides, from last fiscal, ACE started importing high value equipments like crawler cranes, piling rigs, concrete pumps etc from Zoomlion-China, thereby expanding its product range further. Interestingly, company has also got into production of 35 HP tractors (with a 4 cylinder engine) which are used for construction and industrial purposes and already succeeded in selling 70 of them last year. To sum up, apart from infrastructure development, due to the versatility of the ACE equipment to satisfy a vast range of possible applications, company’s product are being successfully used in many sectors like power projects, ports & shipyards, dams, metro rail, roads, coal mines, steel industry, engineering industry, railways, cement, petroleum, defense, chemicals and fertilizer plants, building, construction etc.

Presently, ACE has three manufacturing facilities with two in Haryana & one in Uttaranchal with combined production capacity of more than 8500 units including tractors. It has a well spread network of 5 regional offices and 60 sales and services centers across India. These centers are fully equipped to provide genuine spare parts and services by company trained engineers as and when required. Due to world class product and excellent track record, ACE has a huge clientele including all the big corporates, industrial houses & PSU like Reliance, Tata, Aditya Birla, L&T, Punj Lloyd, ABG, IVRCL, NCC, Essar, Unitech, BHEL, NTPC, Gammon, Indian railways to name a few. In order to tap the international market, ACE has got CE Certification for most of its manufactured products.Although miniscule currently, company has exported its products to U.A.E., Qatar, Sultanate of Oman, Kuwait, South Africa, Kenya,Nigeria, Mauritius, Sri Lanka, Nepal, Bhutan, Bangladesh, Singapore and Portugal. As a part of its long term strategy, ACE intends to produce or deal in every type of construction equipment so as to become complete solution provider for any infrastructure entity. To achieve this mission, company is contemplating to venture into manufacturing of road construction equipments in near future. Initially it plans to produce tandem vibratory roller and double drum rollers, concrete batching plant and subsequently expand to pavers, sprayers etc. In long term, ACE also wants to get into excavator segment as well which is currently dominated by L&T. After acquiring a Romanian company in 2007, company has recently signed an MOU to acquire a Chinese company.

Importantly, the market for the construction equipment has increased rapidly due to unprecedented rise in development of infrastructure activities in the country. Further, the momentum will be maintained in long run as the Indian economy is in a takeoff phase and has developed necessary strengths to achieve the target of being a developed nation by the year 2020. Although it may take a hit in short term due to global economic turmoil and tight liquidity scenario, but sooner or later it will be back on track as the situation improves. Financially company has done excellent for FY08 and reported excellent set of nos for H1FY08. However for the Dec qtr, suddenly its topline, bottomline as well as operating margin fell drastically, maybe due to ongoing slowdown in construction activities. Despite this for the first three quarters it has recorded 25% increase in sales to Rs 352 cr and 20% fall in profit to 22 cr. Thus it has already clocked an EPS of Rs 2.40 till date. Favorably, its input cost has come down considerably as steel constitutes nearly 55~60% of raw material cost. On a conservative basis, it may end FY09 with topline of Rs 425 cr and bottomline of Rs 25 cr leading to an EPS of Rs 3 on current equity of Rs 18 cr having face value as Rs 2/- per share. Its a debt free company and even has Rs 12.50 cr as unutilized amount from its IPO proceed of Rs 60 cr in 2006 which it may utilize for its future capex & growth plans. Considering the company’s leadership position and future prospect of construction equipment industry, investors can buy this scrip at current level for a price target of Rs 25 in 18~24 months.

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Lloyd Electric & Engineering Ltd
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Mazda Ltd
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Mazda Ltd - Rs 25.00

Established in 1977, Mazda Ltd (Mazda) erstwhile Mazda Controls Ltd was founded by Mr. Sorab R. Mody with a small unit to manufacture automated valve packages. Today, it’s among the few engineering companies in the world, manufacturing very specialized, high technology and critical equipments for various industries like automotive, electrical equipment, heavy engineering, agricultural, refineries, fertilizers, chemicals, nuclear, sugar, paper, food, pharma etc. Broadly its product profile can be segmented into Vacuum system, Valve division, Air pollution control equipment, Crystallizers and Evaporators. Hence its product range includes various types of vacuum jet ejectors, turbine bypass valve, desuperheaters, condensers, pressure reducing stations, pneumatic actuators, steam jet thermo compressors, process control equipments, scrubbers etc. In India, its products are installed at plants of Reliance group, United Phosphorus, IOC, BHEL, Alstom, Cadila, Grasim, GSFC, HPCL, Siemens, Triveni Engineering, GHCL, NRC, L&T, Nuclear Power Corp etc. Besides engineering, it also has a Biotechnology division dealing in carbohydrates, rare sugars and miscellaneous bio-chemicals. Of late, company has diversified into business of manufacturing and exporting soft drink drink concentrates, essence, jams etc in a small scale to various countries including gulf countries where there is tremendous demands for such products.
Mazda has two manufacturing facilities located at Ahmedabad, Gujarat. For vacuum systems and air pollution control equipment, it has a technical collaboration with market leaders Croll-Reynolds Inc. USA, who also holds 12% stake in the company. Accordingly, the designing and engineering is done jointly by them, whereas manufacturing of equipment is done by Mazda and marketing is done by Croll across the globe. Mazda also has the collaboration with Germany-based Kauer Engineering for manufacturing various types of valve. Importantly, Mazda has the coveted ASME 'U' stamp accreditation certificate from the American Society of Mechanical Engineers (ASME) which very few Indian engineering companies can boast off. Hence, company can fabricate pressure vessels and heat exchangers confirming to ASME standards and are authorized to stamp them as 'coded Vessels'. Of late, Mazda has designed vacuum systems for applications like steel De-gassing & expects good growth in this line of business. In future company intends to increase its export substantially with having Siemens, Alfa Laval, APV Asia Pte, BASF, Petronnas, Bachtel, Colgate Palmolive, European Space Agency, IDE Technologies Ltd, Ministry of Oil & Gas Industry Turkmenistan etc as its international clients. Domestically, despite industrial slowdown & lower GDP growth estimates, Mazda is slated to maintain its momentum with increased orders from major clients such as Reliance Industries, L&T, Siemens etc. Due to increased business and unavailability of space in its two existing units, Mazda is setting up third manufacturing unit in Naroda, Ahmedabad with an investment of nearly Rs 5. However the unit hasn’t commenced operation due to pending formalities like local authority clearance certificate etc.

Meanwhile, company is doing well as it reported 15% rise in sales to Rs 60 cr and 30% jump in net profit to Rs 6 cr for FY09. Even for the current year till date, its topline has increased by 30% to Rs 56 cr and bottomline has grown by 35% to Rs 6.50 cr thereby posting an EPS of more than Rs 15 till date. Thus company has already surpassed the entire FY08 net profit in its first three quarters only. Besides, fundamentally Mazda is on a strong footing with very low debt equity ratio and good reserves leading to a book value of Rs 61. It boasts of having an uninterrupted track record of dividend payments for nearly two decades which certifies that company has done well even during earlier down cycle and slowdown. In the last five years company’s sales has grown at CAGR of 30% whereas Net profit has recorded a CAGR of 40%. On a conservative basis, for FY09 it is slated to clock a turnover 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 16 cr scrip and at a P/E multiple of less than 1.5x times, company is available for a song. Long term investors are strongly recommended to buy at current levels with a price target of Rs 75 in 15~18 months.

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