STOCK WATCH

Last week Numeric Power (380.00) reported almost flat nos for the March’09 quarters with net sales of Rs 113 cr and net profit of Rs 10 cr thereby posting an EPS of Rs 20 for the single quarter. Effectively for entire FY09 it recorded 5% growth in topline to Rs 409 cr but PAT declined by 15% to Rs 33.50 cr. This translates into EPS of Rs 66 on small equity of Rs 5.05 cr. Incidentally, on a consolidated basis company has clocked a turnover of Rs 443 cr and profit of Rs 38 cr i.e. EPS of Rs 76. Thus company is currently trading at a P/E multiple of 5x times against its current consolidated earnings. Company 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. To conclude, company has the potential to report 20% growth for FY10. Keep accumulating at sharp declines.

For the latest March’09 quarter Tantia Construction (65.00) has reported excellent performance by clocking an operating margin of impressive 15%. Thus is registered 160% jump in net profit to Rs 12.50 cr although its topline remained flat at Rs 169 cr. Eventually for entire FY09, its PAT improved by 12% to Rs 17.25 cr and revenue increased by 25% to Rs 450 cr thereby posting an EPS of Rs 11 on current equity of Rs 15.57 cr. This stupendous performance is backed by good order booking in the last few months. Its current order book position stands healthy at Rs 1500 cr which is more than 3x times its FY09 turnover thereby giving strong future revenue visibility. Company boasts of having presence in roads and highways, railways, tunnels, bridges and flyovers, urban instructure, sewerage and drainage, civil & housing construction etc. Lately, it also ventured into the lucrative marine infrastructure space, power transmission and distribution segment and aviation infrastructure. Infact, it is among the five Indian companies capable of providing ‘foundation-to-finish’ for mega railway bridges spanning 2-km or more. More importantly, company has a very strong presence in the eastern and north-eastern region which gives it an edge, as very few players are interested in bidding in these regions due to difficult terrain. With Mamta Banerjee being the railway minister a special fund has been created for development of north east railway in the recent railway budget. This augurs well for the company as its forte lies in railways infrastructure. A decent bet for long term.

International Combustion (215.00) has reported very flat nos the March’09 quarter and ended FY09 with topline of Rs 99 cr (up 5%) and bottomline of Rs 10 cr (down 15%). Thus it clocked an EPS of Rs 41 on a very tiny equity of Rs 2.40 cr. Company is a leading manufacturer of sophisticated plant and machinery for core industries. 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. To meet the increasing demand, company has initiated an expansion programme for augmenting the manufacturing capacity of the gear box/geared motor division. It is also upgrading the manufacturing capacity of the Heavy Engineering Division. Ironically, scrip which crossed Rs 900 in Dec’07 tumbled down to as low as Rs 80 in March’09 and has now recovered to above Rs 200 in a very short span. For FY10 it can report sales of Rs 125 cr and profit of Rs 14 cr leading to an EPS of Rs 58. Even at modest discounting by 5x time scrip can move up to Rs 300 by March’10. A safe buy.

Last week, Ind Swift Lab (40.00) reported satisfactory result for March’09 quarter. Sales grew by 20% to Rs 148 cr but net profit remained flat at Rs 11 cr posting an EPS of little more than Rs 4 for the quarter. Accordingly for the entire FY09 its sales jumped up 30% to Rs 588 cr and profit increased by 10% to Rs 35 cr after considering onetime extraordinary expense of Rs 5 cr. Thus company reported an EPS of Rs 16 on current equity of Rs 25 cr. Notably, company has started exporting to USA after getting USFDA approval in Sept 2007 for its API manufacturing facility at Derabassi Punjab for Clarithromycin. Presently, exports constitute around 40% of sales with company having presence in 45-50 countries across globe. For future growth the company has a robust product pipeline of 25 products which includes few blockbuster drugs as well. It has successfully filed over 72 DMFs with the US, Canadian, UK and European Drug Authorities. Hence company has been aggressively expanding its capacity and has increased the gross block by almost five times to Rs 470 cr from 100 cr in 2005. With a healthy book value of Rs 97, scrip is trading relatively cheap at a P/E ratio of 2.5x times. However high debt equity ratio is cause of concern.

Ind Swift Ltd - Rs 19.00

Incorporated in 1986, Ind Swift Ltd (ISL) is the flagship company of the north India based Ind Swift group which has diversified interest in pharmaceuticals, education, infrastructure, media & publication and software development. However the group’s core business remains manufacturing of pharmaceuticals products as it is a leading player in both the segment of industry namely bulk drugs and formulation. In order to concentrate & grow both the segments independently, the formulation business is looked after ISL whereas Ind Swift Lab another listed group company specializes in bulk drugs and API’s (active pharmaceutical ingredients). Thus ISL’s forte lies in production of various formulations, branding and marketing them in finished dosage form encompassing several therapeutic segments. It mainly focuses on critical but relatively under crowded therapeutic segments like pediatrics, cardiology, gynecology and diabetes apart from having significant presence in high growth segments like Cardiology, Diabetology, Anti depressant, anti-allergic, Anti- infective, Neurology & Oncology. Infact company boasts of formulating Neurophen - a composition of Ibuprofen & Acetamenofen for the first time in India apart from introducing another formulation Suprox SR, a composition of Isoxprine Hel in tablet form. It also claims to be the pioneer for the mouth dissolving tablets technology in India. Notably, ISL is among the top 500 fortune companies of India and have been ranked at No. 35 by IMS/ORG in Pharmaceutical industry during 2007-08 with a portfolio of 650 products and a nationwide distribution network comprising 1200 marketing professional, 50 offices in India, and 3000 stockists and distributors.

ISL’s core competency lies in its manufacturing capabilities as it has 7 state-of-the art multipurpose, multilocation manufacturing set-ups spread over an area of 12,00,000 sq ft with an installed capacity of 3 billion units comprising tablets, capsules, Ointments, Injectable, Liquids & Dry Syrup. All it production facilities are spread across tax free zone in Parwanoo & Baddi (HP), Samba(J&K), Jawaharpur (Punjab). Importantly, all the units are built according to current guidelines of USFDA and comply with WHO cGMP standards. Most of its units are audited and certified by international rating agencies like MHRA(UK),TGA(Australia), MoH(UAE), TFDA(Tanzania), NDA(Uganda) and DACA(Ethiopia). Simultaneously, ISL put equal emphasis on Research & development and gained critical expertise in development of non infringing process, novel drug delivery system, new process development for cost effectiveness, NCMR handling etc. Its only because of its strong R&D effort, company has been able to launch on an average 25~30 products over the last five years. After gaining commands over manufacturing and R&D, ISL is now focusing on marketing aspect. To effectively track the operations and growth of each therapeutic segment, ISL has formed 12 different marketing divisions. Out of these 'Diagnozis' division dealing in medical equipments & devices for personal health care was launched in December 2007 and 'Animal Health Care' division is also relatively new. On the other hand its ‘Ethical’ marketing division continues to excel with regular introduction of unique products. Of late it has introduced Topclav 625, Emtee 25, Timcol Eye Drops etc and Cirrholiv which has proved out to be extremely useful in curing Hepatities and other liver disorders. Interestingly, ISL’s strategy is counter to general industry’s practice of maximizing sales thru higher dosage consumption, with introduction of one dosage per day thereby resulting into greater consumer acceptance. Infact, ISL’s few brands such as Amyclox, Swimox, Oxo, Swiflox and Cafzone have been rated as the top brands in Generics commanding sales of more than Rs 25 cr each in short time. Whereas its brand Swimox and Amyclox are among top 300 brands of the industry. Besides, company also exports to Latin America, Middle East, African countries, Srilanka, Vietnam, Myanmar, Combodia and CIS countries.

Apart from creating and marketing its own brand, ISL has put special thrust on CRAMS (Contract research and Manufacturing Services) business. Company provides contract research from conceptualization till the final dossier of the product. Till date it has delivered two major R&D contracts and is expecting more research contracts on product development and stability data profiling. Side by side it also offers complete support to international partners for preparing and filing dossiers for finished dosages. On the other hand, it supplies large quantities of products to reputed Indian pharma companies including Ranbaxy, Cipla, Glenmark, Lupin etc. It even has contract manufacturing alliances with different companies in UK, Europe, Turkey and Iran. For future growth company is betting high on contract manufacturing and expects this segment to contribute more than 30% to its total bottomline.

Financially, ISL has over leveraged itself with a high debt equity ratio of more than 2x times. Sarcastically, its detrimental for growth in bottomline as cost of debt works out to nearly 8% whereas return on capital employed is merely 3%. However for the year ending March 2009, it recorded 15% growth in sales and net profit to Rs 589 cr and 31.50 cr. This works out to an EPS of Rs 8.50 on tiny equity of Rs 7.40 cr having face value as Rs 2/- per share. On the back of constant capex, company follows a very low dividend payout ratio policy. It has augmented its Gross Block at CAGR of 60% in the last 5 years. At an estimated reserve of more than Rs 200 cr, scrip is trading at steep discount of 65% to its book value. Moreover for FY10, ISL is expected to clock a turnover of Rs 700 cr and PAT of Rs 38 cr on standalone basis. Incidentally, company holds 26% stake in Ind Swift lab which is another growing company and currently commanding a market cap of Rs 100 cr. To conclude, although ISL looks reasonably valued at EV/EBIDTA of 5.50x times, still investor can accumulate it sharp declines for 50% gains within a year.

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