STOCK WATCH

XL Telecom & Energy (40.00) has been the pioneer in solar module manufacturing since last 15 years. Due to gaining popularity of this non conventional energy, company is in advanced stage of implementing the 120 MW solar cell manufacturing facility in Fab City SEZ, Hyderabad with a capital outlay of Rs 360 cr. For this it has also inked a five-year contract with Chinese firm LDK Solar to supply multi-crystalline solar wafers which is a key component for solar cell and panel manufacturing. It is also adding another 40 MW module manufacturing capacity thereby taking its total module manufacturing capacity to 220 MW. Remarkably, company has even got itself forward integrated in solar value chain by entering into EPC segment of solar farm establishment and has already succeeded in setting up its first solar farm in Majorca, Spain with an installed capacity of 1.6 MW. With this it has become the world’s first and only solar company to capture the complete solar value chain from manufacturing of solar cell to solar module to setting up of solar farm. After getting this success, company is now exploring the opportunities to establish such solar farms in Italy, southern France and other European countries in next 3 years totaling about 300 MW. Meanwhile, company has registered very poor performance for the Dec’08 quarter. Its bottomline is getting hit due to significant interest cost on the loan which it has borrowed for expansion. However for the year ending June’09 it may report sales of Rs 700 cr and PAT of Rs 25 cr leading an EPS of Rs 13 on current equity of Rs 18.80 cr. Although company has reset the FCCB conversion price to Rs 160 from Rs 260, still no equity dilution is expected in near future. Keep a close watch

Numeric Power (230.00) has eight world class manufacturing facilities spread across Pondichery-TN, Chennai-TN, Parvanoo-HP and Colombo-Srilanka, thereby emerging as the biggest integrated manufacture of UPS in India. It also undertakes turnkey projects and offers end to end solution for SCADA/EMS package, large network of industrial process, power transmission support systems and distribution management. It has an enviable and high profile clientele including Infosys, Siemens, Intel, Philips, Microsoft, Veritas, HDFC, Citibank, ICICI, RBI, NIC, Reliance, ABB, BMW, NCR, Nokia, major stock exchanges etc. As per rough estimates, around 75% of the ATMs in the country are fitted with UPS supplied by the company. Recently, company ventured into solar power generation using Photo Voltaic Modules and initially intends to develop solar hybrid UPS systems. To become more efficient, it is backward integrating into batteries and is scouting for a technology partner to set up a battery manufacturing unit. For nine months ending Dec 2008, company’s sales increased marginally to Rs 296 cr but PAT declined by 20% to Rs 23 cr. Hence it may end the current year with a topline of Rs 400 and bottomline of Rs 25 cr i.e. EPS of Rs 50 on current equity. However, it has the potential to clock a turnover of Rs 450~475 cr and NP of Rs 35 cr i.e. EPS of Rs 70 for FY10. A solid bet.

Elecon Engineering (40.00) is a leading manufacturer of bulk Material Handling Equipment (MHE) and Asia’s largest producer of industrial gear with 26% market share in India. For more than five decades, it has been supplying hi-tech equipment to core sectors such as steel, fertilizer, cement, coal, petrochemicals, lignite and iron are mines, power stations, defense and port mechanization in India and abroad. With a strategy of diversification, last fiscal company started a new business of setting up of Wind Turbine Generator (WTG) farms and manufacturing of WTG gear boxes. It has started manufacturing of WTG gear box having capacity of 1 MW to 2 MW, which is the import substitute, thereby becoming the first Indian company to manufacture gearboxes of such sizes. Currently, it has an pending order in hand of Rs 1800 cr comprising of Rs 1570 cr for MHE division and Rs. 240 cr for gear division. For the latest Dec’08 quarters, its revenue grew by 35% to Rs 245 cr but its net profit fell by 25% to Rs 12.50 cr on the back of substantial forex loss. Hence it may end FY09 with sales of Rs 950 cr and PAT of Rs 50 cr i.e. EPS of more than Rs 5 on current equity of Rs 18.60 having face value as Rs 2/- per share.

Jyoti Structure (65.00) has an expertise to take on turnkey projects for transmission lines from 33 kV to 800 kV and substations upto 400 kV irrespective of terrain, location and requirements of power utilities within and outside India. In order to provide end-to-end solutions company has two manufacturing facilities which are capable of making proto types, fabricating and galvanizing transmission towers and structures, microwave towers, wind mill tower, railway electrification structures, etc up to 76,000 MTPA. Besides, its wholly owned subsidiary JSL Structures is having a capacity to manufacture another 19800 tons of transmission line towers. On the back of huge flow of investments in the power transmission and distribution segment, it has an all time high order book position of more than Rs 3500 cr. Meanwhile, company has reported encouraging set of nos for current year till date and is expected to end FY09 with topline of Rs 1650 cr and PAT of Rs 70 cr leading to an EPS of Rs 9 on current equity of Rs 16.35 cr with face value as Rs 2/- per share. Apart from above, company is betting on international market and has formed a couple of joint venture companies in UAE and South Africa. Keep accumulating at sharp declines.

International Combustion (India) Ltd 140.00

Established in 1936, International Combustion India Ltd (ICIL) is recognized to be a leading manufacturer of sophisticated plant and machinery for core sector industries such as mining, steel, cement, petrochemical, construction, sugar, power, textile, paper, rubber, pharma, chemicals etc. From a modest beginning as a trading house, ICIL today boasts of manufacturing specialized range of engineering products under technical collaboration and license agreement from various global leaders. It has an enviable list of clientele including corporate giants like Tata, Essar, Jindal, Aditya Birla, Ashok Leyland, SAIL, NALCO, Atlas Copco, NTPC, HLL, Nirma, P&G, ABB, Alstom, Bajaj Hindustan, LMW, ITC, TNPL etc. According to its product profile, company has broadly segmented its business model into following two divisions:-

I. Heavy Engineering Division :
This is the main division as nearly 80% of total revenue comes from it whereas it contributes more than 95% of earnings. This division has been further divided into following three categories:-

• 
  
  Vibrating equipments: ICIL manufactures and markets a wide range of mechanical and electro-magnetic vibrating screens, feeders, sizers, & conveyors which can handle all types of bulk solids, whether large lumps or very fine grains, wet or dry, or whether abrasive such as scrap, flux and sinter. As accessories it also makes exciters, DC brake unit & monitoring system for vibrating machines.

• 
  
  Bulk Material Handling: Under this category, ICIL deals in spiralling belt elevators, scooping belt conveyers, girdle pocket elevators, apron feeder, mining haulages etc. as an intelligent solutions to suit even difficult to handle materials.

• 
  
  Grinding, Classfication and Drying system: ICIL offers complete grinding mill systems designed to pulverise and classify various kinds of material, including non-metallic minerals, fertilisers, chemicals and many other manufactured products. Importantly, it markets ‘Raymond” American brand roller mill, pulverisers, grinding mills, mechanical air separators and flash drying system, which can reduce many products by 95~98% or refine them below 10 microns

II. Gear Motors & Gear Box Division
Under license from Danfoss Bauer, Germany, ICIL offers a comprehensive range of geared motors, gear boxes and electric motors manufactured on specially designed inter-linked CNC production lines. It also exports these products to neighboring markets including Iran and Sri Lanka. Besides company has been chosen as the outsourcing partner by Danfoss Bauer itself and has even started exporting cast iron machine parts to them.

Currently, ICIL is having three fully equipped manufacturing facilities spread across Calcutta, Nagpur and Aurangabad. To have a cutting edge technology for manufacturing premium quality equipment, ICIL has made several tie-ups with international majors like Danfoss Bauer(Germany), Mogensen(Germany), IMS Engineering(South Africa), Alstom Power(USA), Gummi Kuper (Germany) and Tredomen Eng (UK) for each product group. It has also entered into a license agreement with Ecutec(Spain) to manufacture microfine classifiers. Ironically, all the players in user industries are ramping up their capacities which translates into a huge opportunity for company's products. To meet the increasing demand, an expansion programme has been initiated by the company for augmenting the manufacturing capacity of the gear box/geared motor division. It is also upgrading the manufacturing capacity of the Heavy Engineering Division. On the back of its wide product range and high engineering skill, ICIL is contemplating to enter the lucrative turnkey project segment in future.

Fundamentally, ICIL is on a strong footing with an reserves of around Rs 50 cr i.e. book value of nearly Rs 220 as on March 2009. Importantly it’s a debt free company and has never even raised any significant money thru equity route. In other words, there is no major equity dilution since 1995. It has been funding its capex plan thru internal accrual only. Being a seven decade old company, it has a conservative approach and believes in slow but consistent growth. In the last five years, it has recorded a topline CAGR of 30% whereas bottomline has grown at a CAGR of 140%. Besides it has an impressive ROCE of 40% and ROE of 25% on a very tiny equity of Rs 2.40 cr. On the back of poor performance for the Dec’08 quarter, it has posted marginal growth in sales to Rs 71 cr and 20% decline in net profit to Rs 6.50 for the first nine months. Accordingly for entire FY09 it is estimated to clock a turnover of Rs 95 cr and PAT of Rs 8.50 cr leading to an EPS of Rs 35 on current equity. Although management can declare 50% dividend but on a conservative note 35% dividend is expected for FY09. ICL is expected to benefit from the sharp fall in metal prices being its main raw material. It has the potential to earn a profit of more than Rs 12 cr for FY10 i.e. EPS of Rs 50. Hence with expected CEPS of more than Rs 60, and EV/EBIDTA of less than 2x, company is available fairly cheap at current market cap of merely Rs 35 cr. Ironically, scrip which crossed Rs 900 in Dec’07 tumbled down to as low as Rs 80 in March’09. However now it has marginally recovered to Rs 140 in a very short span. So investors are strongly recommended to accumulate it at sharp declines for a price target of Rs 280 (i.e. 100% appreciation) in 12~15 months. Moreover its a strong bonus candidate as well.

Click here to download Report (PDF)