STOCK WATCH

Patels Airtemp (55.00) reported decent nos for the March’09 quarter. Despite sales declined by 5% to Rs 20 cr PAT improved by 15% to Rs 1.80 cr. For the full year it recorded 25% rise in turnover to Rs 68.50 cr and 40% increase in net profit to Rs 7 cr thereby posting an EPS of Rs 14 for FY09. Company has declared 18% dividend against 15% last year. 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. For FY10 it has the potential to register further 20% rise in revenue and profit. At a current enterprise value of Rs 35 cr and PE ratio of less than 4x times, scrip is trading reasonably cheap. Accumulate at declines.

Recently, ABG Shipyard (200.00) reported 35% rise in total revenue to Rs 371 cr and 15% increase in net profit to Rs 53 cr for March’09 quarter. Accordingly for full year its turnover shot up by 45% to Rs 1412 cr but PAT improved by 7% to Rs 173 cr. Thus it posted an EPS of Rs 34 on current equity of Rs 51 cr. Taking the benefit of recent amendment in AS11, company has capitalized Rs 22 cr of exchange difference. It 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. In the October last year it bagged its first rig order from Essar Oilfields Services Ltd, Mauritius. Importantly, company didn’t see any major order cancellation from its customers till now despite the all round fear and recession around the world. Notably, ABG 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. As the shipbuilding industry in India is still at nascent stage and commands hardly 1% share in world market, it has tremendous growth potential ahead. Recently company has made a counter offer of Rs 375 per share (against Bharti Shipyards Rs 344 per share) to share holders of Great offshore Ltd to acquire 32% stake. This will lead to cash outflow of Rs 471 cr for which company is looking to raise the money thru equity placement. Buy at declines

Last week Accurate Transformers (30.00) reported very flat nos for the March’09 quarter as topline stood at Rs 91 cr and PAT at Rs 3.50 cr. As the company caters to govt organizations, its fourth quarter nos always constitute almost 50% of sales and profit. Accordingly it ended FY09 with 10% rise in sales to Rs 195 cr whereas net profit remained flat at Rs 7 cr. This translates into EPS of Rs 24 on a very tiny equity of Rs 3 cr. Company is engaged in manufacturing of power as well as distribution transformers ranging from 1 MVA to 40 MVA - in up to 220 KV class. It is looking to venture into manufacturing of higher capacity power Transformers of 160 MVA from FY10. It also carries out rural electrification project which involves the complete setting up of electricity in remote areas including the laying of lines, poles and substations. Unfortunately company is working at very low capacity utilization due to high working capital requirement and shortage of funds. On a gross block of Rs 11 cr company claims of having an installed transformer manufacturing capacity of 8000 MVA, of which 3000 MVA in Dehradun and Haridwar are relatively new and enjoy income tax and excise exemptions. Although market experts are skeptic about this company still aggressive investors can buy this scrip as it look grossly cheap at current market cap of Rs 15 cr.

HBL Power (100.00) came out disappointing nos for the March’09 quarter. It recorded 20% decline in net profit to Rs 18 cr on a flat sales of Rs 284 cr. Despite this on the full year basis, its topline grew by 30% to Rs 1244 cr and bottomline increase by 35% to Rs 91 cr leading to an EPS of Rs 37 on equity of Rs 24.30 cr. Company is a technology focused manufacturer of several ranges of specialized application batteries i.e. nickel cadmium (pocket, fibre, and sintered plate), lead acid (VRLA, Tubular, LMLA), silver oxide zinc, lithium, thermal, etc. Infact it is the market leader in VRLA (valve regulated lead acid) and NCPP (nickel cadium pocket plate) batteries and enjoys 50% market share of domestic telecom market. Infact it is the world’s second largest player in nickel cadium alkaline batteries and stands 3rd for Nicad Passenger aircraft batteries. It also manufactures other power electronics such as thyristor controlled battery chargers, earth leakage monitors, battery monitoring systems, industrial chargers, uninterrupted power systems, distribution boards etc. It even has a dedicated railway division to execute end-to-end turnkey railway signaling works, starting from yard design, estimation, procurement, installation and commissioning. Recently it has put up two new factories at Vizianagaram and SEZ Vizag in Visakhapatnam under a capex of Rs 150 cr and is now setting up a small facility in Mahape, New Mumbai. It is also planning to set up of JV Company in Saudi Arabia to manufacture Industrial Batteries. As the prices of lead, nickel, copper, tin and other metals has fallen considerably in the recent times, company may report better performance in coming quarters. Meanwhile just to improve the liquidity company has decided for stock split into face value of Rs 1/- per share. Although no super growth is expected for FY10 still this company deserves a better discounting and valuation. Keep accumulating at declines.

Man Industries (India) Ltd - Rs 40.00

Established in 1988 as an aluminium extruder, Man Industries India Ltd (MIIL) today is one of India's largest producers and exporter of submerged arc welded (SAW) pipes. Being led by dynamics personalities like Mr R.C. Mansukhani and Mr. J.C. Masukhani, MIIL is the flagship company of reputed MAN group which has diversified business interest in India, USA, UK and UAE. Within the last ten years, company has multiplied its production capacity 20x times, from 50,000 tonne in 1998 to 1 million tonne currently. It specializes in production of large diameter Longitudinally SAW pipes & Helically (Spirally) SAW pipes. LSAW line pipes are generally used in transportation of oil and natural gas in high temperature and pressure applications in refineries and petrochemical units apart from finding application in fertilizers and dredging industry. On the other hand HSAW pipes are used under low pressure condition for transportation of oil, water, sewerage, agriculture and in construction sector. Company has the capability to manufacture LSAW pipes with outer diameter ranging from 16~60 inches and wall thickness of 6~38 mm upto maximum pipe length of 12 mtrs. Whereas for HSAW it can make pipes having 16~84 inches of outer diameter upto maximum length of 18 mtrs. Infact it is the only company in India to manufacture 18 mtr long HSAW pipe and up to 30 mm thickness in X-70 grade steel. Besides manufacturing, MIIL also has the in-house processing facilities for all types of Anti-corrosion coating such as 3LPE, FBE, Internal Epoxy etc and cement mortar coatings. And among the recent developments MIIL has diversified into real estate & infrastructure development in a small scale thru a subsidiary “Man Infraprojects” and has also hived off the extrusion business into “Man Aluminum – a separate listed company.

Currently, MIIL has two huge manufacturing plants spread across 200 acres – one at Pithampur, MP and other at Anjar, Gujarat having combined installed capacity of 500,000 TPA of LSAW pipes and 500,000 TPA of HSAW pipes. Out of this, 200,000 tonne of HSAW pipe manufacturing has been added last year only. With a vision to become a true global player, company has acquired 155 acres of land in Little Rock, USA for putting up state-of-the-art HSAW pipe manufacturing plant having capacity of 300,000 MTPA at an estimated investment of Rs 400~450 cr. However, due to world economic condition this project is put on hold and may be even dropped in future. But at the same time it will enjoy the benefits from recent domestic expansion. Couple of months ago company bagged a huge single order to the tune of Rs 1340 cr from a Middle East company which proves the strong credentials and execution capability of the company. With this its current order book position swelled to Rs 2000 cr straight away. Earlier company had a bagged order worth nearly Rs 1000 cr from a single US client. Apart from current order in hand, company has emerged as lowest bidder for order worth Rs 1100 cr in domestic and international markets. This is including a major order of Rs 400 cr approx, which has been re-invited for tender by GAIL and challenged by MIIL in the court as already being declared the lowest bidder. Actually, at the time of placing the order post tender, GAIL had asked the company to reduce the tender price. But as MIIL rejected the same, GAIL went ahead and made invitations for re-tender for the same contract. Although this may strain some business relations with GAIL but MIIL already has an impressive global clientele comprising Shell, Technip, Bechtel, Elpaso, Kinder Morgan, ENI, Hyundai, Petronas, Petrojet, Petrobras, Saipem and several oil majors in Middle east in the international markets, and Cairn India, ONGC, IOC, Reliance Industries, Essar Oil, BPCL, HPCL, IBP LNG Petronet, etc in the domestic market. Thus, company is in the bidding stage for many projects for supplying pipes worth Rs 5000 cr and expects to bag additional Rs 2000 cr order this fiscal.

The demand for SAW pipes is significantly dependent upon the level of exploration activities and transportation of oil and natural gas in India and globally, which is currently being driven up by volatile crude oil prices. Incidentally, concentration of source of crude in the Middle East augurs well for Indian pipes manufacturers as they have the advantage of being in the close proximity to Middle East vis-a-vis other major pipe manufacturers in Japan or Europe. On the other hand, demand arising from the replacement of old pipelines, dominantly in the USA and Russia is further pushing up the SAW pipes demand. As per certain estimates, there is a global demand supply mismatch of nearly 2 million tones currently. Moreover, here in India, demand for pipes has risen significantly with thrust on laying pipeline infrastructure for oil & gas transportation. The Indian natural gas market is relatively underdeveloped compared to other regions of the world. By 2024-2025, the share of natural gas would increase to 20% of total primary energy consumption, according to Hydrocarbon Vision 2025. With growth in consumption, the transportation infrastructure would naturally see a phenomenal jump. Higher usage of natural gas requires better & economical transportation medium and thus more pipelines. Further, strong growth expected in infrastructure, power, construction and housing sector would also lead to a spurt in the demand for pipes. In addition to all the above, severe correction in metal prices and shipping freight will have positive impact on the company’s bottomline going forward.

Infact recently, MIIL posted encouraging result for the March’09 quarter. Sales zoomed up 75% to Rs 722 cr whereas PAT jumped up 40% to Rs 19 cr posting an EPS of 3.60 for the quarter. Accordingly for entire FY09 it recorded 25% rise in sales to Rs 1883 cr but net profit declined by 35% to Rs 47 cr. Thus it posted an EPS of Rs 9 on current equity of Rs 26.60 cr having face value as Rs 2 per share. It declared and maintained Rs 1.50 as dividend giving a yield of nearly 4% at CMP. On the flip side, is OPM for FY09 fell considerably by 300 basis points on account of volatile metal prices which constitute more than 80% of production cost. Of late, the steel and other metal prices have corrected & stabilized, which will enable the company to improve and maintain the margin in coming quarters. Financially, MIIL had raised around Rs 200 cr in May 2007 thru FCCB route to set up a plant in USA. But now as the company is not proceeding with that plan and also doesn’t has any other major capex plan, it has decided to buyback the FCCB thru the unutilized amount and thru internal accruals. This will prevent the equity from huge dilution which would have been detrimental for the existing shareholders. Incidentally, due to high conversion price and adverse market sentiment, not a single bond has been converted into equity, despite the conversion price being revised downward couple of times. Importantly, promoters have increased their stake thru creeping acquisition as it stands to 48% against 44% a year back. Secondly, few days back they have also taken preferential allotment of 25 lac warrants to be converted into equity @ Rs 35 per share. With an expected EPS of Rs 11 and current book value of Rs 70, company is available fairly cheap at market cap of little over Rs 200 cr. Investors are strongly recommended to buy at current levels for 50% gain within a year.

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