Stocks To Watch Out

Lok Housing & Constructions Ltd. (Code: 500256) Rs.235.60
Incorporated in 1986, Lok Housing & Constructions Ltd. (LHCL) is the flagship company of the Mumbai based Lok group, which specializes in mass housing and primarily caters to the needs of the middle-income group. It has contributed significantly to the development of Mumbai and its adjoining suburbs with over 40 mini and mega residential complexes, commercial centres, from single storey bungalows to multi storey towers, simple flats to penthouses and plush condominiums comprising 17,000 units spread across 9 million sq. ft. area. Lok Nagari (Ambernath), Lok Terraces (Vashi), Lok Upvan (Thane), Lok Vatika (Kalyan), Lok Nisarg & Lok Kailsah (Mulund), Lok Vihar (Powai), Lok Darshan (Andheri) etc. are few of its popular and big projects. It is among the first few real estate players to develop an estimated 1.2 million sq. ft. of land in a single year way back in 1994. It boasts of being the first to start an SRA (Slum Rehabilitation Authority) project in 1994. Notably, it is also among the very few construction companies in India to have instituted six sigma quality system for operational excellence, timely delivery and seamless execution of large scale projects. Presently, it has several residential projects under construction including Lok Everest (Mulund), Lok Amber (Ambernath), Lok Nirman (Khar), Lok Prabhat (Virar) and few others at Thane, Kalyan, Marol etc.
Importantly, LHCL has a land bank of whopping 1222 acres across Mumbai, Pune and Bangalore with a development potential of 62.5 million sq. ft. Of these, 356 acres under the company’s belt on merger with group companies. Most of the land has been acquired long back at very low cost and is located at Ambernath (80 acres), Kalyan (92 acres), Vasai (136 acres), Turbhe (180 acres), Pune (425 acres), Bangalore(240 acres) and the balance 69 acres spread across Andheri, Malad, Khar, Thane & Virar in Mumbai. In order to consolidate and emerge as a bigger player, the group recently merged Lok Shelter involved in urban rehabilitation and reconstruction projects, Lok Global- involved in diverse infrastructure projects and Lok Holding - key vehicle to acquire land with LHCL. Thus, the company has now got into two new promising business segments – infrastructure development and rehabilitation project. Although both have a huge potential, the company is betting high on the latter and is looking to participate in the National Urban Renewal Projects comprising slum eradication projects and demolition & reconstruction of old and dilapidated buildings. It has already submitted a proposal to the state government to rehabilitate tenants of about 300 unsafe cessed buildings in Mumbai and simultaneously develop 6 million sq. ft. in the heart of the city in association with MHADA. The government may cross subsidize the cost of redevelopment through sanction of Floor Space Index (FSIs). Hence it’s a win-win situation for either of them.
LHCL is holding nearly 180 acres as a salt pan land in Turbhe, which it intends to develop into a top quality township on getting clearance. The company also plans to come up with a grand project on 125-150 acres of land and to be called as ‘The Lok International City’, which will be a landmark mega township resembling a small independent civilization and possibly a first of its kind in the country.
Fundamentally, its equity stands enhanced to Rs.42.88 cr. against Rs.11.70 cr. due to merger of group companies/warrant conversion. At the same time, the promoters’ holding has increased to 51% against 23% last year. To fund its upcoming projects, the company is seeking to raise more than Rs.800 cr. through QIB/FCCB/GDR/private placement etc. Accordingly, it made a preferential allotment of 7,62,200 shares to Bennett & Coleman at Rs.197 and is planning to allot 50 lakh warrants to promoters at Rs.354 per share. Considering LHCL’s huge land bank position in metros like Mumbai, Bangalore and Pune coupled with rising property prices, this company is available fairly cheap at a market cap of Rs.800-850 cr. The scrip hit a new 52-week high of Rs.390 on 1st January 2008 but collapsed 50% in the recent carnage. Although it can go down further, investors can still expect 50% return from hereon in 12-15 months.

KLG Systel Ltd. (Code: 531269) (Rs.789.25)
specialises in providing technological solution for the entire business life cycle i.e. right from concept and creation, through plant design, project execution and management operations and from optimisation to expansion/revamp. It also provides on-line IT solutions to distribution utilities, using its self-developed software Vidushi, SG61 Technology and solution for determining the transmission & distribution losses, fixing the areas of power theft, on-the spot billing & cheque collection, increasing revenue collection efficiency of utilities and addressing consumer grievances. It already serves 16 of the 44 power distribution companies across the country, which will constitute more than 75% of its sales in a couple of years from 50% currently. On the other hand, to capitalise on its the Engineering Services Outsourcing (ESO) potential, the company has gained engineering design domain-expertise in various industry verticals and has ventured into planning, design and erection of large scale infrastructure projects in India. Hence, it is aggressively bidding for EPC (Engineering procurement and commissioning) contracts and has recently acquired 51% stake in Atlantis Lab Pvt. Ltd., a dedicated engineering solutions company. Further, it is looking for other companies in aerospace for acquisition. For FY08, it may report a topline and bottomline of more than Rs.300 cr. and Rs.55 cr. respectively. This works out to an EPS of Rs.42 on its diluted equity (post FCCB conversion) of Rs.13.20 cr. For FY09, however, it may register an EPS of Rs.55 on its fully diluted (post warrants conversion & ESOP) of Rs.14.50 cr. Accumulate only at sharp declines.

Selan Explorations Technology Ltd. (Code: 530075) (Rs.169.95)
is involved in onshore drilling for exploration of oil and gas and presently boasts of owning four oil fields Bakrol, Indrora, Lohar, Ognaj and one gas field Karjisan – all in and around Ahmedabad, Gujarat. Incidentally, the company has been producing crude oil from three oilfields as the mining lease for Ognaj oilfield is still awaited from the government of Gujarat. But its Bakrol field alone is stated to have oil/gas reserves of around 45 million barrels, which is huge by any standard. However, due to limited funds and not so aggressive management, the company produced only 1 lakh barrels of crude in FY07 and is expected to produce 140,000 barrels in FY08, which may move up to 2,00,000 barrels in FY09. With assured off-take of the entire oil & gas production by the government, there is zero marketing risk. Secondly, with international crude oil prices expected to remain high, its future earnings appear very encouraging. Although the company may report an EPS of Rs.11 for FY08, considering its oil reserve, it is available at a fairly cheap valuation.

KEI Industries Ltd. (Code: 517569) (Rs.89.10),
the second largest power cable company in India is engaged in manufacturing of high and low tension cables (HT and LT), control and instrumentation cables, house wires and stainless steel wires. In the near future, it plans to manufacture Extra High Tension cables that will serve the modern power transmission segment. It is also contemplating to move up the value chain from manufacturing and supplying cables to executing EPC contracts and manufacturing and supplying transformers. Last week, the company started commercial production at its new 100% EOU unit in Alwar - Rajasthan for manufacturing HT and LT power cables. Thus it has increased its capacity by 10,000 kms taking its total cable manufacturing capacity to 50,000 kms per annum. The company has already registered excellent performance for H1FY08 and may clock a turnover of Rs.900 cr. and PAT of Rs.58 cr. for FY08. This translates into an EPS of Rs.7 on its fully diluted equity (post conversion of all FCCB) of around Rs.15.75 cr. Considering its recent expansion and future growth plans, it is estimated to report an EPS of more than Rs.10 for FY09. Despite the company having huge debt of Rs.310 cr., investors are advised to accumulate at sharp declines.

Although small, Ram Informatics Ltd. (Code: 530951) (Rs.16.10)
is a budding company in the e-governance space. It has completed various IT projects for different divisions of the Government of Andhra Pradesh like computerized administration of sales tax, tourism, state road transport corporation, AP Housing Board etc. Besides, the company has designed, developed and maintains several government portals like BangaloreOne (Karnataka), eSuvidha (UP), iSetu (Maharashtra), Eseva, Sales Tax and Fire Service (AP) etc. Recently, it got an order from the Karnataka Government for executing 'Karnataka One' project, which is on BOOT model for a period of 7 years and the revenue model is based on a transaction basis. Of late, it has also won a contract to implement and manage the `Bus Pass' automation system in the city of Visakhapatnam, A.P. on a Build, Operate and Transfer (BOT) model for a period of 5 years. Few months back, the company launched an insurance portal through which it intends to tap 2% - 5% of the agents of LIC for subscription to its portal for a nominal price per year apart from generating income via hosting ads. On the other hand, it has developed smart software products for automation in banking, insurance & retail. It is also into education & training and offers courses for call centre training, corporate training etc. On the flip side, it has invested whopping Rs.32 cr. in its US subsidiary called Aravali Technologies Inc., which has not yielded much returns.


Gandhi Special Tubes BSE Code: 513108
Traded at NSE also as: GANDHITUBE Last Close: Rs.227.60
This week’s special is Gandhi Special Tubes (GST). This project was set up by the Gandhi group in Gujarat in April 1998 in technical collaboration with Benteler of Germany. Its association with GST has grown up in all directions.
Gandhi Special Tubes have also started producing tubular components like condenser coils & wires and have recently set up a unit in Pune. This company has a manufacturing unit for cold formed tube nuts for fuel injection tube assemblies. It has also given due importance to developing reliable quality systems and has been certified ISO\TS 16949: 2002 by M\S TUV.
Company also is making small diameter welded steel nuts and cold drawn seamless steel tubes. Customers for both these items are Godrej, Voltas, Electrolux, Carrier, TELCO, Ashok Leyland, M&M, TISCO, HMT, L&T, WIPRO, SAIL, BEML, BHEL, Bajaj Auto, Maruti etc.
GST has a small equity of just Rs.7.35 cr., wherein the promoters’ holding is 72%. Last year, the company made a profit of Rs.12.87 cr. whereas the profit of the first nine month’s of FY08 is Rs.14.02 cr.
Recently, it announced mind blowing December’07 quarterly results. Net sales jumped more then 50.28% in the December’07 quarter while net profit jumped more then 97%. For the first nine months of the current year it recorded an EPS of Rs.19.09 and declared 50% dividend and stock spilt into Rs.5 face value.
In the earlier week, the stock closed at Rs.231 but in the horrible last week it closed at Rs.227.60. Buy for short to long term investment with stop loss of Rs.198. On the upper side, it will zoom to Rs.245, Rs.270 in the short-term and can go up to Rs.350+ levels in the next 15 months. It is a great investment stock at current levels.

Steel Strips Wheels Ltd. BSE Code: 513262
Traded at NSE also as: SSWL Last Close: Rs.180
Mohali bases Steel Strips Wheels is engaged in auto ancillary. It has a small equity of just Rs.11.30 cr. wherein the promoter’s holding is 59%. Only 16.05% shares are with the public. GIC holds 3.54%, United Insurance holds 2.15% and Merryl Lynch holds 4.48% stake in the company.
Recently, the company got an order to supply 13,75,000 steel wheel rims worth about $75 million from Europe’s number 2 car company, PSA PE UGEOT CITROEN.
In the September’07 quarter, company’s sales went up 39.21% and profit jumped 45.09%. Tata Steel’s investment company, Kalimati Investments has purchased 12 lakh shares of this company at Rs.170. The company’s board will also allot 3,47,663 warrants to its 1company’s managing director at Rs.170.
Company’s future looks very bright. In the previous week, the stock closed at Rs.188.70 and last week closed at Rs.180, which may be the bottom level for this stock. Buy for investment with a stop loss of Rs.165. On the upper side, it will go up to Rs.201 in short time and Rs.260 level in the next 4-5 months.

UltraTech Cement (ULTCEM)
Current price:Rs 835 Target price : Rs 1018
Potential upside :22% Time Frame : 6-8 months OUTPERFORMER
Margin improvement …
• Sales up 10% in Q3FY08
Net sales during the quarter increased 10% to Rs 1,382 crore against Rs 1,260 crore in the corresponding quarter the previous year. Domestic volumes registered a growth of 6% from 3.21 million tonnes in Q3FY07 to 3.40 million tonnes. The effective capacity utilisation was 102%. Sales of ready mix concrete accounted for around 5% of the sales turnover.
• 32% increase in PAT
Profit before interest, depreciation and tax rose 23% to Rs 489 crore (Rs 397 crore). Profit after tax grew by 32% from Rs 212 crore to Rs 279 crore. The increase in variable cost per tonne was restricted to 4% as a result of improved production efficiencies. This was despite higher energy costs by 9%, primarily due to escalating coal prices.
• New developments
UltraTech has earmarked a capex of around Rs 3,300 crore to be spent over the next three years towards expansions, setting up captive power plants and de-bottlenecking. The capacity expansion at the unit in Andhra Pradesh, and the first phase of the captive power plant at the unit in Gujarat are expected to be commissioned in the Q4FY08. The other projects are progressing on schedule.

Valuation
At the current price of Rs 835, the stock is trading at $ 128 per tonne of its installed capacity of 17 million tones,
which is at replacement cost for setting cement plant. We expect the overall cement industry to trade at a premium
of 22% to replacement cost considering higher RoCEs of 25-30%. We expect the Ultratech stock would trade in line

We believe companies whose capacities were commissioned recently would show higher volumes and emerge as sector outperformers. These are Shree Cements, Dalmia, ACC and Kesoram Industries etc. We remai npositive on the sector with a one-year perspective as demand-supply statistics will favour the industry. Shree Cements, JK Cements, UltraTech Cements and ACC are out best picks. with large- efficient player as its cost initiatives would help improve its operating margin. We are also upgrading out rating to outperformer.