STOCK WATCH

Its heartening to see that despite some disputes going on between Man Industries (48.00) & GAIL, the former has recently bagged Rs 200 cr from the latter. Few months ago Man Industries took GAIL to the court due to cancellation of one of the already confirmed orders. However, with this and another Rs 550 cr order from Middle East and Africa, company’s total order book position as on today stands at Rs 2500 cr. It is one of India's largest producers and exporter of large diameter Longitudinal submerged arc welded (LSAW) pipes and Helically submerged arc welded (HSAW) pipes. Infact it is the only company in India to manufacture 18 mtr long HSAW pipe. Of late, company has started a new production line for HSAW pipes with a name plate capacity of 200,000 MTPA thereby equalizing the total production capacity to 500,000 MTPA each for LSAW as well as HSAW. To become a global player, company is setting up a HSAW pipe manufacturing plant with an capacity of 300,000 MTPA in USA under a capex of Rs 400~450 cr. Although company was expected to report better margins due to softening of raw material cost but it didn’t and instead reported sharp decline in net profit to Rs 3 cr on sales of Rs 322 cr. Couple of months ago company made a preferential allotment of 25 lac warrants to promoter group to be converted @ Rs 35 per share. Despite poor Q1FY10 nos, company is expected to report sales of more than Rs 2000 cr and profit of Rs ~50 cr leading to an EPS of Rs 9 on expanded equity of Rs 27.85 cr hacing face value as Rs 2 per share. Keep accumulating at declines.

Diamond Power Infrastructure Ltd (180.00) is a leading manufacturer of transmission & distribution conductors, power & control cables & speciality cables. After the acquisition of Western Transformers in March’07 and Apex Electricals in July’07, company has also ventured into transformer production with installed capacity of 7500 MVA for power transformer and 5000 MVA for distribution transformer. For the June’09 quarter it reported marginally 5% decline in topline as well as bottomline to Rs 170 cr and Rs 14 cr. Couple of month ago it bagged a large power infrastructure project entailing electrification of north Cachar, Demaji and Kamrup districts of Assam to the tune of Rs 140 cr, thereby taking its total order book position to Rs 1150 cr. During June 2009 it also commissioned its horizontal lead extrusion facility of 66 kV, 132kV, & 220kV cables as partII of its cable expansion project at Vadodara. With this company is now among the select club of EHV cable manufacturers in the range of 11kV to 220kV. Company is further in the midst of expanding its low tension cables capacity from 8800 km to 30,000 km and is adding an EHV cable capacity of 2800 km for voltage upto 500kV maing it one of the largest power cable manufacturers in India. It is also investing 60 cr in setting up a facility for manufacture of Transmission tower with 48000 TPA capacity. All its project are expected to complete by Mar’10. Recently, L&T Infrastructure Finance Company Ltd has also agreed to extend a credit of Rs 50 cr to part finance the expansion project. For FY10 it may register sales of Rs 875 cr and PAT of Rs 75 cr i.e. EPS of Rs 36 on current equity.

JMC Projects (155.00) part of Kalpataru group, is among the top seven players for building and factory construction in India & has also been recognized as India’s one of the fastest growing company. It has successfully ventured into fields of turnkey execution involving civil, mechanical, electrical, HVAC, fire fighting, architectural and landscaping works. Lately, it has started focusing on infrastructure and power projects and is aggressively bidding for contracts to construct bridges & flyovers, roads & highways, railways stations, marine work, water supply & irrigation projects and construction of power plant. Despite significant slowdown in construction industry, company boast of having order book position of Rs 2200 cr (i.e. 1.7x times its FY09 turnover) of which nearly 50% consists of industrial construction/buildings segment, 30% of infrastructure related and 12% of power projects. It is also executing major fast track projects in Delhi for the Commonwealth Games 2010. For future it intends to take up railways, airports and water management projects on an EPC basis which will further add to its execution capabilities. For FY09 company clocked 45% growth in topline to Rs 1309 cr and 20% rise in PAT to Rs 37 cr posting an EPS of Rs 19 on equity of Rs 18 cr. Meanwhile for the recent Q1FY10, its revenue declined by marginally to Rs 292 cr but net profit remained flat at Rs 6.50 cr. Recently company has decided to come out with right issue of Rs 40 cr in the ratio of 1:5 @ Rs 110/- per share and is trading ex-right currently. For FY10 company is expected to clock a turnover of Rs 1500 cr and NP of Rs 42 cr i.e. EPS of Rs 19 on diluted equity of Rs 21.75 cr. Good for long term appreciation.

Ironically, most of the transformer manufacturers reported dismissal performance for the June’09 quarter and Voltamp Transformer (850.00) is no exception. It posted 50% fall in sales to Rs 104 cr whereas PAT declined by 35% to Rs 15 cr ofr the quarter. On the back of lower realization its operating margin also shrank to 15% against 20% last fiscal. However it is a leading manufacturer of customized transformers for industrial, building and power applications. It has special expertise in production of dry type vacuum resin impregnated (upto 3 MVA/11 kV class) and cast resin transformers (upto 7.5 MVA/33 kV class) apart from manufacturing regular oil filled power & distribution transformers, induction furnace transformers & unitized substations. Infact, company is the market leader in dry type transformers with around 40% market share. Unlike other transformer makers, VTL's focus is on the non-SEB industrial and engineering segment, which has enabled the company to restrict its debtors day to less than 2 months and thus better working capital management. Currently company is in the midst of putting up a Greenfield plan with an installed capacity of 4000 MVA thereby taking the total transformer manufacturing capacity to 13000 MVA. The plant is expected to go on stream soon. Although the margins may comparatively remain low but due to higher volumes in H2FY10 it is clock a turnover of estimated to end FY10 with topline of Rs 650 cr and bottomline of Rs 100 cr leading to an EPS of Rs 100 on equity of Rs 10.10 cr. But at sharp declines.

Oil Country Tubular - Rs 70.00

Incorporated in 1985, Oil Country Tubular Limited (OCTL) is among the world’s leading manufacturers & processor of oil country tubular goods specially required by oil drilling and exploration industry. Its expertise lies in production of wide product range of product such as drill pipe, heavy weight drill pipe, drill collars, production tubing, casing, tool joints, couplings, pup joints, nipples, subs, and cross overs. It also deals in oil field accessories such as rotary subs, lift plugs and lift subs, stabilizer sleeves, welded blade stabilizers & integral stabilizers and cast steel lifting bails. But broadly, company has segmented its product range into Drill pipes, production tubing & Casing pipes.

· Drill pipe, a seamless pipe is the principal tool, other than the rig, required for drilling of an oil or gas. OCTL is among the handful companies in India, manufacturing coated as well as uncoated drill pipes up to five and half inches.

· Casing pipes are the steel pipes, placed in an oil or gas well as drilling progresses to prevent the wall of the hole from caving in during drilling, to prevent seepage of fluids and to provide a means of extracting oil & gas. OCTL has the capabilities to produce casing pipes up to 20 inches outer diameter.

· Production tubing is also a tubular pipe but held inside the casing pipe to provide a continuous bore from the production zone to the wellhead in case the oil has stopped flowing naturally.

Presently, drill pipes constitute ~50% of total sales followed by 35% from casing pipes and 10% from production tubings. The rest 5% of revenue comes from services as OCTL also offers following facilities to its clientele:

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  Reconditioning of Drill Pipe


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  Re-threading of Drill Pipe


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  Internal Plastic Coating of Drill Pipe and Tubing


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  Make and Break of Tool Joints


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  Tool Joint Hardbanding


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  Tubing and Casing


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  Field Inspection of Tubulars.

At OCTL, the complete manufacturing & processing activity is concentrated in a single unique integrated plant located at Narketpally, Nalgonda and with corporate headquarters in Hyderabad, India. It boast of having an installed capacity of 10,000 TPA for drill pipes, 50,000 TPA for casing pipes and 15,000 TPA for production tubings. However against this total installed capacity of 75,000 tonne, OTCL produced only 25,000 tonne for FY09 leading to one third capacity utilization. Categorically, 75% utilization for drill pipes, 30% for casing pipes and 15% utilization for production tubings. The facilities at the plant include upsetting, heat treatment, non-destructive testing, metallurgical laboratory, gaging and calibration laboratory, tool joint and coupling threading, casing and tubing threading, friction welding of drill pipe, hydrostatic testing and internal plastic coating of tubulars. Importantly, OCTL is licensed by American Petroleum Institute (API) as processor/threader of casing & tubing, processor of drill pipe and manufacturer of rotary drill stem elements according to API specification. In addition to the manufacture of API Products, company is also a licensee for the manufacture of high performance premium connections which are basically threaded connections with a gas tight seal and the ability to handle high torque, tension and pressure. Being ISO/TS 29001 certified, company’s products are well accepted in the international market and it has been regularly exporting to Russia, Middle East, Far East and European countries. Infact it derives 50% of its revenue from exports. Domestically ONGC and OIL are its two biggest customers apart from other central and state govt companies. For future growth, company has planned to doubled its drill pipe manufacturing capacity to 20,000 TPA but it seems the planned has been dropped. Now OTCL is contemplating to triple its casing pipe capacity to 1,50,000 TPA in the current fiscal itself.

Being a manufacturer of oil country tubular products, OCTL’s fortune is mainly dependent on oil & exploration activities. With crude oil price shooting up at almost US$ 150, the oil exploration activities were at its peak in 2007. But post the economic meltdown & global recession in 2008, crude price as well as exploration activity has come down significantly. Thus the order book which stood at Rs 250 cr in March 2007 now stands at Rs 150 cr in March 2009. However the situation has improved to some extent in the recent past and the long term prospects of the industry looks promising. More importantly, OCTL made a smart turnaround in FY08 as its operating margin improved drastically and it also wiped out all its earlier losses. What more, in FY09 it has even made itself debt free and is now generating strong cash flows. For FY09 it recorded 25% rise in sales to Rs 420 cr but PAT zoomed up 125% to Rs 65 cr due to lower interest cost. This translates into EPS of Rs 15 on equity of Rs 44.29 cr. After a gap of more than 20 years, OTCL has returned back to dividend paying list by declaring 15% dividend for FY09. Despite challenging times, company has reported good nos for June’09 quarter as its revenue grew by 17% to Rs 72 cr and profit increased by 25% to Rs 14 cr due to lower tax provisioning. Considering all the factors, OTCL is estimated to clock a turnover of Rs 375 cr and net profit of Rs 60 i.e. EPS of Rs 14 for FY10. Further it has the potential to post an EPS of Rs 18 for FY11. Long investors are advised to buy at current levels and add on declines for a price target of Rs 110 in 12~15 months.

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