STOCK WATCH

Petronet LNG (55.00) is operating India's first LNG receiving and regasification terminal at Dahej, Gujarat having a capacity of 5 million tonnes per annum. This year it has doubled this capacity to 10 million tones, the benefits of which will start accruing from the coming quarter. Meanwhile, company is midst of setting up another terminal at Kochi in Kerala under a capex of Rs 3400 cr to be completed by 2012. Besides, it has also entered into a joint venture agreement with Adani Group for setting up a solid cargo port at Dahej. To summarize, company is a bulk supplier of imported LNG, which is regasified and delivered to GAIL's HVJ pipeline. Most of the natural gas is supplied to customers of GAIL, IOCL and BPCL, while a small share goes to spot sales and other customers. Remarkably as of now company supplies about 23% of the natural gas consumed in the country. Company has a long term sale and purchase agreement with Ras Laffan LNG, Qatar for supply for LNG to India. Recently, company entered into an agreement with Exxon Mobil under which they will supply minimum 1.5 MTA of LNG from Australia to the Kochi port for 20 years. Fundamentally, on the back of sharp volatility in LNG price and dollar rates, Petronet LNG ended this fiscal with high forex gains and exceptional loss. It clocked a turnover of Rs 8428 cr which was higher by 30% and PAT of Rs 518 cr, increase of 10% for FY09. This translates into EPS of Rs 7 on equity of Rs 750 cr. It declared 17.50% dividend for FY09. With doubling of Dahej capacity, company may report sales of Rs 15000 cr and net profit of Rs 750 cr i.e. EPS of Rs 10 for FY10. Keep accumulating at declines.

For the March’09 quarter, Elgi Equipments (35.00) reported 10% growth in PBT to Rs 16 cr despite 6% fall in sales to Rs 118 cr. However due to higher tax provisioning net profit for the quarter declined by 5% to Rs 9.70 cr. Accordingly for the full year ending March 2009, company managed to improve its sales marginally by 5% to Rs 480 cr whereas PAT stood flat at Rs 40 cr. Thus it posted an EPS of more than Rs 6 on equity of Rs 6.30 cr having face value as Rs 2/- per share. It declared 130% dividend which gives a yield of nearly 4% at CMP. 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. Infact it’s newly set up unit in China has commenced production from Jan 2009. On the other hand in order to manage the automotive division effectively, company is hiving off this division into a separate wholly owned subsidiary called ATS-Elgi Ltd. Keep accumulating at declines

Another compressor manufacturing company namely Kirloskar Pnematic (255.00) also reported decent set of nos for the March’09 quarter. Although its topline declined by 7% to Rs 158 cr, PBT remained flat at Rs 25 cr due to higher operating margin. At the same time, because of increase in tax provisioning its net profit fell by 15% to Rs 17 cr for the quarter. However for entire FY09 it clocked 30% growth in topline to Rs 518 cr and 40% increase in bottomline to Rs 41.75 cr thereby posting an EPS of Rs 32.50 on equity of Rs 12.80 cr. It there wasn’t increase in tax provisioning company would have clocked 70% growth with an EPS of almost Rs 40. Company is one of the leading manufacturers of compression systems and transmission products. It manufactures a wide variety of compressors and also undertakes design & packaging of conventional and high-tech refrigeration systems thereby serving several core industries across the board. Under the transmission division, it make rail traction gears, wind turbine gear boxes, marine gearboxes for Naval and commercial ships and gearboxes for industrial applications. Moreover company has emerged as the undisputed leader in supplying gears and pinions to Indian Railways. On the other hand it has manufactured the first prototype CNG Compressor under license agreement with Cameron and has recently signed packaging/technology agreement with GE (Nuovo Pignone), Italy for compressor packages meant specially for refineries and petrochemicals industry. A solid bet

Despite all the apprehensions about the future growth and profitability of cement industry, JK Lakshmi (70.00) continues to churn out encouraging set of nos. It reported 25% increase in sales to Rs 364 and whopping 55% jump in profit before tax to Rs 104 cr for the March’09 quarter. Remarkably it was able to maintain an impressive OPM of more than 30% for the quarter although for the entire FY09 it stood at 25.50%. But most significantly, company earned a net income instead of interest cost for the quarter. Effectively for entire FY09 its sales was up 10% to Rs 1225 cr but NP was down 20% to Rs 178 cr on the back of higher deferred tax provisioning. This works out to an EPS of Rs 29 on current equity of Rs 61.20 cr. Company has declared a dividend of 40% which leads to a yield of 6% on CMP. In order to cater the rising demand and increase its market share, company has been constantly expanding and modernizing over the years. Infact, in the last quarter only it completed its expansion of 1.1 million tonne thereby taking the total current production capacity to 4.75 MTPA. Further company is in the process of setting up of 2.70 million tonne Greenfield cement plant at Chhattisgarh under a capex of Rs 1100 cr to be ready by 2011-12. Besides, it has taken up work of waste heat recovery system which would generate 12 MW of power by 2011 and thereby will lead to considerable saving in power cost. At the same time the fall in coal and pet coke prices augurs well for company as it has fully stabilized the working of the 36MW captive thermal power plant. Moreover the icing on the cake is the reduction of debt by the company, which now stands at approx Rs 350 cr. To conclude, growth guaranteed.

Techno Electric & Engineering Co Ltd - Rs 100.00

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 500 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 March’09 quarter it reported satisfactory nos as PBT increased by more than 10% to Rs 28 cr despite 20% fall in revenue to Rs 117 cr. But due to higher tax cost its PAT reportedly declined by 5% to Rs 19.50 cr in comparison to corresponding quarter last year. Notably company reported a very healthy OPM of 16% for the quarter which is a very quite heartening. Thus for the entire FY09, TTECL was able to clock 30% growth in net profit to Rs 62 cr, whereas topline grew by 15% to Rs 485 cr. This translates into an EPS of Rs 11 on equity of Rs 11.40 having face value as Rs 2 per share. Being a very low capital intensive business, company has a very small gross block of less than Rs 10 cr. It is not only a debt free company but a cash rich company having liquid investment worth Rs 150 cr and cash balance of approx Rs 25 cr which is equivalent to almost Rs 30 per share. Investors are strongly recommended to buy at sharp declines with a price target of Rs 150 in 15~18 months.

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Techno Electric & Eng Co Ltd
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