STOCK WATCH

Interesting Jindal Polyfilms (300.00), has recently approved a second buy back for an aggregate amount not exceeding Rs 73 cr at a maximum price of Rs 400/- per share from the open market. In the first buy back which it closed in April 2009, company bought back an aggregate of 32,34,492 equity share at an average market price of Rs 270.17 per share absorbing a total amount of Rs 87.38 cr. So it seems that company may actually buy back further shares which will restrict the major correction in the scrip. Incidentally company didn’t take the benefit of recent amendment in AS11 and provided huge forex loss to the tune of Rs 61 cr in P&L a/c for FY09. Despite that it recorded a PAT of Rs 124 cr on sales of Rs 1417 i.e. EPS of Rs 47 on standalone basis. Company is a leading player in flexible packaging, basically makes polyester films (BOPET), polypropylene films (BOPP), metallised films and coated films with in house ability to produce polyester chips (93800 TPA) for captive consumption. It is the only company in India to offer PVDC coated BOPP and Pet films having a capacity of 4500 TPA to manufacture PVDC, Acrylic and LTS coated films. Remarkably, company has been constantly expanding over the years and has further lined up aggressive expansions till 2011. For the latest June’09 quarter, company has posted good set of nos as it provided Rs 25 cr as forex gain leading to a net profit of Rs 85 cr on sales of Rs 381 cr. Even excluding the forex gain company has recorded an EPS of Rs 24 on current equity of Rs 24.90 cr which is quite encouraging. Purely on the operational front company can register sales of Rs 1500 cr and profit of Rs 160 cr i.e. EPS of Rs 64 for FY10. Keep accumulating at sharp declines.

Bharati Shipyard (150.00), second largest private shipyards in India is engaged in design and construction of bulkers, cargo/container ships, tankers, dredgers, passenger vessels, chemical carriers etc. It has special expertise in construction of offshore support vessel required for oil exploration industry and is the first Indian player to bag an order of an oil rig. However, the shipyard sector is going thru a bad phase as very few shipping companies are placing major fresh order for ships due to world economy slowdown. However company is having sufficient order position (of more than Rs 3000 cr) for next two years and by then the situation is expected to improve. Secondly the crude oil prices have also recovered smartly which will lead to continuation of increased E&P activities. But because of the ongoing slump in business, company has slowed down its Greenfield expansion and other capex plan. For FY09, its topline increased by 45% to Rs 934 cr but bottomline grew by 20% to Rs 125 cr due to significant increase in employee and interest cost posting an EPS of Rs 45. In May 2009 company acquired 15% stake in Great offshore and since then it has been constantly in news as it is competing against ABG shipyard to acquire Great offshore. As of now it holds nearly 20% stake in Great offshore against 8% held by ABG shipyard. Ironically ABG has made a counter open offer @ Rs 520 per share to acquire 1.26 cr shares of Great Offshore against companys open offer of Rs 405 per share. So even if company sells the 72 lac shares to ABG it will make a cool gain of Rs 155 cr on its investment.

Indag Rubber (50.00) has reported satisfactory result for the June’09 quarter. Sales as well as NP improved by 20% to Rs 23 cr & 2.30 cr respectively. Thus it posted an EPS of Rs 4.50 for the quarter. For the entire FY09 its sales marginally grew to Rs 76 cr but net profit declined by 10% to Rs 7.60 cr posting an EPS of Rs 15 on equity of Rs 5.25 cr. It declared 20% dividend for FY09. Company is one of the reputed players in tyre retreading business and has been benefitted to the drastic fall in prices of raw material like poly butadiene rubber, natural rubber, carbon black and rubber chemicals. Due to high prices of tyres, retreading of tyres has become all the more necessary as tyres retreaded with quality material give about the same mileage as new tyres and that to at a much lower cost per mile. On the other hand the concept of retreading is bound to grow in coming years being environmentally friendly. However the performance of the company will be vulnerable to commodity prices and hence scrip wont command very high premium. Buy only at sharp declines

By capitalizing all the forex gain/loss as per AS-11 amendments, JK paper (29.00) has reported decent set of nos for the June’09 quarter. Sales remained flat at Rs 261 cr and net profit stood at Rs 20 cr posting an EPS of Rs 2.50 for the quarter. Surprisingly it reported an impressive OPM of 23% due lower raw material cost. It will be interesting to see if company can maintain this margin going forward. For FY09 it had clocked a turnover of Rs 1077 cr and PAT of Rs 38 cr leading to an EPS of almost Rs 5 on equity of Rs 78 cr. With more than dozen of popular brands, company is India’s largest producer of branded papers and commands 40% market share in branded cut size papers. It is engaged in production of writing & printing paper and has recently ventured into high-end coated packaging boards. It operates two integrated plants in India with an total installed capacity of 180,000 TPA. Of late it has setup Rs 300 cr state-of-the art multi layer packaging board plant with an installed capacity of 60,000 TPA, thereby taking the total installed capacity to 240,000 TPA. But the most interesting aspect of the company is the high dividend payout ratio. Company has announced a dividend of 17.50% (against 15% last year) which translates into payout ratio of more than 35%. At CMP the dividend yield works out to more than 6%. However the record date has gone and scrip is trading ex-dividend now. So buy during corrections.

TIL Ltd - Rs 235.00

Established in 1944, TIL Ltd (erstwhile Tractors India Ltd) is one of the oldest and country’s leading providers of a wide range of technology intensive equipment for infrastructure development that represent some of the finest in global technology. It provides a complete gamut of support solutions ranging from equipment recommendation to total maintenance and repair contracts. Apart from manufacturing and marketing hi-tech equipments, TIL’s forte also lies in after sales service including equipment commissioning, inspection, overhauling and rehabilitation, training support, 365 days service and tailor made service contracts. It also offers field repair service and fleet maintenance management even if the equipments are deployed in the remotest location. And most importantly, TIL boasts of having a strong network of parts warehouses across various regions to minimize delivery lead time. Infact, its total stock of spare parts exceeds 2 lac line items which ensures that all the critical items are available off the self to its customers. Headquartered in Kolkata, company has four regional offices (Kolkata, Delhi, Mumbai and Chennai) and a network of 50 branches. Besides it has overseas office is in Phuntsholing (Bhutan) and subsidiaries in Nepal, Myanmar and Singapore. Its manufacturing locations are based in Kolkata (cranes, reach stackers and lorry loaders) and Ghaziabad (generator sets). To have cutting edge technology, TIL has several long term technical and strategic alliances with leading Equipment manufacturers in the world - Caterpillar Inc, Grove Worldwide USA, Manitowoc Crane Group - USA, Paceco Corp-USA [a part of Mitsui Engineering and Shipbuilding-Japan], FAMAK - SA, Poland. For effective management, TIL operates through following three strategic business groups

Material Handling Solutions (20%): This division designs, manufactures, markets and supports a comprehensive range of lifting and material handling equipment. Notably, it has many “first in India” to its credit – the first mobile yard crane, first truck mounted crane, the first rough terrain crane, the first 100 tonne crane to name a few. The broad product portfolio includes all types of Mobile Cranes, Lorry Loaders, Reach Stackers, Electric Level Luffing cranes, Rubber Tyre Gantry cranes, Lattice Boom Crawler cranes etc. The division caters to a wide array of infrastructure sectors such as Port, Aviation, Railways, Construction, Mining, Oil & Petrochemicals, Steel plants, Cement, Power and Defence through its product range. Presently, TIL is the undisputed leader commanding more than 60% market share in India and is infact the only manufacturer of higher capacity mobile cranes (40 tones and above) in India.

Construction and Mining Solutions (60%): This is basically the dealership division, as TIL represents “Caterpillar’ products across North and East India as well as Bhutan, Nepal and Myanmar. It markets, imports and services a comprehensive, range of equipment manufactured by Caterpillar- the world leader in construction and mining equipment. Remarkably, TIL partnered with ‘Caterpillar' in 1944 and since last 6 decades the bonding has only become stronger. The products offerings include Wheel Loaders, Backhoe Loaders, Excavators, Off Highway Trucks, Motor Graders, Track-Type Tractors, Compactors, Paving products, Wheel Dozers and Underground Mining equipment. Being a very reputed brand, the equipments are extensively used by the companies in mining & quarrying industry like coal, iron ore, metal and limestone. Its also popular in construction sector like building, Roads, Ports, Power (thermal and hydro), Airport, Urban and Rural infrastructure.

Power Systems Solutions (20%): For continuous and quality power and for critical standby applications, TIL offers a complete portfolio of diesel and natural gas generator sets powered by Caterpillar engines. The core focus products are diesel generators from 200 kVA to 3500 kVA and gas generators from 1000 kVA to 3500 kVA. It even markets only the engines for industrial, oil & gas, marine as well other applications. It also deals in engine and generator sets used for the Petroleum sector. Thus as a single source for complete power solutions, TIL provides application engineering, feasibility studies, supply chain management, onsite installation services, and uninterrupted product uptime thru on-site support & maintenance.

Apart from above three segments, TIL has of late started to focus on the global concept of providing equipment on Rent. In India, the rental business is gaining importance rapidly as it eliminates capital investments, risk of equipment idling, the need for cumbersome maintenance, as well as inventory management for the end users. To cash on this growing opportunity, company has already set up six rental stores in Sahibabad, Bhubaneswar, Asansol, Lucknow, Udaipur and Chandigarh. These rental stores offer new and relatively new rental equipment and reliable used equipment. To improve coverage and be close to the medium & smaller size companies, rental was also promoted from outlets in Dhanbad, Jamshedpur, Kolkata and Ranchi. Due to special thrust, company rented out more than 150 units for the first time in FY09 and is planning to grow this business at CAGR of 50% for next 5 years.

To maintain its growth momentum, TIL is in the midst of constructing a 5-star state-of-the-art component rebuild centre at Asansol-West Bengal, as per the Caterpillar standards. Simultaneously, it is also putting up a Greenfield plant for manufacturing cranes and other new products. Of the required 200 acres of land, the company has already acquired 100 acres of land at Kharagpur, West Bengal. The total capex is estimated to be Rs ~200 cr and may begin operation in FY11. Meantime, to enhance its product range and increase its customer base TIL has entered into strategic tie up with NACCO-USA for marketing its Hyster range of Big Forklift trucks, Container Handlers & Reach Stackers. Besides its has also entered into technical collaboration with Astec Inc – USA for manufacturing Double Barrel Hot Mix Asphalt plant, used in the road making industry and for crushing and screening plants for mining and construction industry. This new indigenization process under the technology transfer and licensing agreement from Astec will enhance TIL’s cost competitiveness and ensure faster delivery and better value proposition.

During FY09, the infrastructure industry in particular, was impacted because of the freeze on fresh capital infusion into projects of a large size, given the contracted liquidity situation across the globe. Ironically, the Indian construction equipment industry at US$ 2.3 billion, is a fraction of the global market, whose size is over US$ 75 billion. However, it has been growing at a frenetic pace of 30%, in sharp contrast to the world average of 5 per cent. Today, India is one among the top ten markets for construction equipment and is one of the key international markets. The Government of India's focus on infrastructure development is the single biggest driver for the construction, mining and material handling equipment industry. With government planning to invest Rs. 2,002,000 cr in physical infrastructure (railways, roads, ports, airports, irrigation, urban and rural water supply and sanitation) as per Eleventh Five-Year Plan, the future prospect of the company looks robust.

Financially TIL is doing well although it didn’t recorded spectacular growth as it did in FY08 due to obvious reasons. For FY09 on a consolidated basis it recorded marginal decline in sales to Rs 1037 cr and 7% rise in PAT to Rs 45 cr leading to an EPS of Rs 44 on equity of Rs 10 cr. However for Q1FY10 it reported flat bottomline of Rs 5.80 cr despite 10% fall in topline to Rs 163 cr on a standalone basis. But considering all the factors like revival in construction sector & fall in metal prices, TIL is expected to clock a consolidated turnover of Rs 1200 cr and NP of Rs 48 cr i.e. EPS of 48 on current equity. Recently, the 30 lac convertible warrants (@ Rs 326) which were issued in Dec’07 to promoter group & ENAM to fund the expansion got lapsed due to poor market sentiment. But it doesnt make much difference as company can easily raise debt and complete the project. Its debt equity ratio stands low at 0.50x. At current Enterprise Value of Rs 300 cr, TIL is trading grossly cheap at PE ratio of less than 5x times, EV/EBITDA of less than 3x times & Price/book value of almost 1x times. Investors are strongly recommended to buy at current levels for 50% gain within 12~15 months.

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