SENSEX RECOVERS
The Sensex has recovered a bit from the lower levels after taking support in the proximity of 14700 as mentioned in the last issue making it a source of strong support while a probable breach of this level could mean further despair for the Sensex. The sequence of lower tops and bottoms continues indicating continuing weakness in the form of an
intermediate downtrend. The next important support for the Sensex comes in at the 14400 level followed by the 13800 level while any upside doesn't seem to be very sustainable at this point in time. It would be prudent to stay away from the market till stability returns.
Trend (Index): Turning Down Last Index Closing: 14833.46
Support: 14732,14431 Resistance: 15430,16450/16520
55-WEEK EMA: 16517.06 100-WEEK EMA: 14804.33
MACD: SELL MODE RMI: SELL MODE
ROC: SELL MODE RSI: SELL MODE
STOCHASTIC: SELL MODE
Good amout of buying volume is expected in Rajvir Industries (BSE code 532665) currently trading at Rs 104.80. Investors can take exposure to the scrip with long-term perspective.
RECOMMENDATIONS
Avaya GlobalConnect Ltd. (Code: 500463) Rs.159
Incorporated in 1986, Avaya GlobalConnect Ltd. (AGCL), the erstwhile Tata Telecom Ltd., is India’s leading provider of intelligent communications solutions, systems and services focused on meeting the needs of organizations large and small. It offers a comprehensive suite of solutions for Contact Centres, Business Process Outsourcing and end-to-end converged communications. By designing, building and managing some of the world’s most advanced communications solutions, AGCL is helping its customers achieve sustained advantage through superior business results. Notably, it has initiated strong branding on Intelligent Communications covering IP Telephony, Contact Centres, Unified Communications and Communications Enabled Business Processes (CEBP) Solutions. In fact, the company continues to command leadership position across various market segments in the Convergence and Contact Centre domain. In order to provide best-in-class converged communications products and solutions, AGCL has partnered global technology leaders such as Polycom- the worlds leading video-conferencing solutions provider and NICE Systems-the Israel-based customer experience management specialist. It also has strategic alliances with systems integrators such as IBM, HP, Netsol and Servion.
With strength of around 800+ professionals, AGCL has over 30 offices spread across the country from Jammu to Trivandrum to Ahmedabad to Siliguri. The company has an extensive distribution network comprising over 50 systems integrators, channel partners and dealers. With over 6,000 customers, it provides world-class service support through a remote maintenance integration (RMI) system. It has a state-of-the-art Lab and a world class Customer care centre in Gurgaon, Customer studio in Mumbai and Development & Solutions support centre in Pune. Today, the role that communications networks play extends far beyond basic connectivity. The effective use of communication tools can have a major impact on any company’s success by enabling delivery of better customer service, help empower key decision makers and enhance the brand image. To remain competitive, enterprises are looking at emerging technologies to utilise the common infrastructure for voice, data and multimedia applications and also expect to deploy Modular Messaging, Unified Communications and high-end Video conferencing Solutions in the near future. This all augurs well for AGCL, which is uniquely positioned to offer solutions of convergence for such customers. Accordingly, the company has been expanding its focus on `3C' strategy of converged communications, contact centers and customer services to address specific industry verticals. The industry verticals approach helps it to differentiate its products and solutions in a highly competitive market environment.
Last year, AGCL launched new products and solutions like customer interaction express solution to address the needs of domestic call centre customers, high definition video end point (HDX) and IP based high definition multi conferencing unit (RMX) for video conferencing and wireless infrastructure and handheld devices for mobile computing to address the needs of key vertical segments like retail, hospitality, etc. It is also planning to develop domain knowledge of Banking & Financial Services, retail & manufacturing and Travel & Logistics. Its endeavour is to tap large investments in these sectors by developing and deploying new applications/solutions and thereby create an experiential selling environment. On the other hand, its WOS in Australia has expanded its geographical/customer base and now has presence in Sydney, Melbourne, Adelaide, Brisbane and Perth with over 100 customers. Financially, the company reported disappointing results for last the 2-3 quarters. Yet, on a conservative basis it is estimated to clock a turnover of Rs.550 cr. with PAT of Rs.30 cr. for FY08 ending 30th September 2008. This translates into an EPS of Rs.21 on its current equity of Rs.14.20 cr. Investors are advised to buy at current levels with a target price of Rs.250 (i.e. 55% appreciation) in 12-15 months.
Shilchar Technologies Ltd. (Code: 531201) Rs.123
From a modest beginning of manufacturing only R core transformers in 1989, Shilchar Technologies Ltd. (STL), erstwhile Shilchar Electronics Ltd., today boasts of manufacturing various types of transformers and cores catering to a wide cross section of the industry segments ranging from highly competitive consumer goods to the tech savvy industrial segment, both at home and abroad. Backed by a state of the art manufacturing facility in Vadodara, Gujarat, and its competitive pricing strategy, STL holds a dominant position and is recognised as a world class manufacturer of transformers and cores. It has UL and CSA approvals for its products and caters directly to the market requirement as well through its franchisees in different parts of the country. Notably, it serves a wide range of industrial segments which can be gauged from the product profile mentioned below.
• Power Transformers: STL can manufacture and test transformers upto 66 KV Class and 15 MVA capacity. It makes Three Phase oil cooled transformers with and without OLTC and with or without RCC Panel. Presently, it has an installed capacity of 1000 MVA for power transformers alone.
• Distribution Transformers: Under this division, STL can manufacture and test transformers up to 33 KV Class and 10 MVA capacity with an installed manufacturing capacity of 200 MVA per annum. It specialises in producing single phase oil cooled up to 100 KVA, three phase oil cooled transformer up to 2 MVA, 33 KV class and three phase dry type transformers up to 1 MVA, 11 KV class.
• Linear Transformers: STL manufactures new age power rangers for all electrical needs. Be it for computers/peripherals, telefax/copiers, audio/video equipment, medical or communication equipments, STL has an extensive range from R core transformers to El Transformers and Toroidal to Current transformers used in electronic energy meters. These transformers are supplied according to customer requirement of different class of thermal insulation, cut-offs, static-magnetic shielding, special mounting, epoxy moulding, vaccum impregnation etc.
• Telecom Transformers: With engineering support from Custom Magnetics-USA, STL manufactures telecom and data transformers with the highest quality standard for all sorts of telecom equipments. Its ferrite transformers are exported regularly and used by leading telecom giants of the world.
• Core & Laminations: STL manufactures various types of cores including R-Cores, R-Toroid cores, rectangular cores, cut C cores, split cores etc on SPM Japanese winding machine and using M2H/M4 grade CRGO material. On the other hand, it produces EI lamination using M6 grade CRGO material of 0.35 mm.
• Bobbins: STL has set up its own Plastic Bobbins manufacturing unit to support the needs of the industry for high-grade quality bobbins. This division also makes plastic parts for the transformer industry using all engineering plastics viz. Nylon 6, PBT, Ploycarbonate, ABS, Glass filled Nylon 6, Nylon 66 etc depending on the requirement.
The Indian transformer market is estimated at Rs.10,000 cr. and is likely to grow by 8% to 10% annually in the coming 10 years. The growth is mainly due to large power generation projects coming up in various parts of the country. The electrification of rural areas all over the country will require many transformers and the present capacity in the country is not enough to meet the growing demand. Hence to cash in on this opportunity, STL is in the midst of expansion and modernisation of its plant and has also enhanced the existing production capacity up to 20 MVA Transformers from 15 MVA earlier. Last year, the company bought land, installed modern plant and machinery and completed the construction of a new building for manufacturing of power & distribution transformers up to 500 KVA. It also merged its wholly owned subsidiary called Shilchar Payton Technology Ltd. with itself. For FY08, it is expected to clock a turnover of Rs.75 cr. with PAT of Rs.4.25 cr. i.e. an EPS of Rs.11 on its equity of Rs.3.80 cr. The considerable rise in steel and copper wire prices is, however, a cause of concern. Still for FY09 the company has the potential to register a topline of more than Rs.100 cr. with profit of around Rs.6 cr. i.e. an EPS of Rs.16. This means that the company is currently available at a P/E ratio of less than 8 times its FY09 earnings. Investors are advised to accumulate this scrip at sharp declines for a price target of Rs.190 (i.e. 50% appreciation) within a year.
Indsil Electrosmelts Ltd.: Smelting profits
Indsil Electrosmelts Ltd. (IEL) is an 18-year old Coimbatore, Tamil Nadu-based company established in 1990. The ‘Indsil’ Group manufactures manganese alloys with captive power generation plants. Its operations are spread across Kerala and Chattisgarh. IEL is a part of the ferro alloys industry and its products are consumed by the steel industry primarily by the stainless steel industry. S.N. Vardarajan is the chairman and managing director of the company.
IEL entered the capital market with a public issue aggregating Rs.2.85 cr. in July 1993 to set up a Rs.12-cr unit to manufacture 7800 TPA of ferro silicon, which is its major product.
In addition to ferro silicon, it also manufactures aluminium ferro silicon and has signed MOUs with state electricity boards (SEBs) for establishing a 71-MW hydel power projects for captive consumption to ensure full power supply. The company’s operations can, therefore, be broadly classified into two segments i.e. Ferro Alloys and Hydel Power.
Its 21 MW power project is situated at Kuthungal in Kerala. The first phase of this Hydro Electric Power plant involving one generator with a capacity of 7 MW was commissioned in May 2000 and is the largest private hydel scheme in Kerala.
Its electro smelter unit with a capacity of 14,000 TPA and steel melt shop with capacity of 30,000 TPA moulded steel ingots at Palakkad, Kerala was commissioned in 1994. Its Hydro Electric Works is at Rajakkad, Idukki District, Kerala and Indsil Energy and Chemicals at Raipur, Chattisgarh, manufactures low carbon silico manganese with a capacity of 12,000 TPAs.
Joint Venture: IEL has entered into a joint venture (JV) agreement with the Good Earth group at Nagpur to jointly operate an already acquired manganese ore mine in Indonesia. The mine is spread across 5000 hectares and has rich resources of high grade manganese estimated at 3 million tones of medium and high grade ore. Detailed geological surveys are being conducted for purposes of accurate assessment and the estimated production from it is expected to be around 3,00,000 tonnes per annum.
The JV has a 100% subsidiary in Indonesia to operate the acquired mine and the manganese produced would be sold to the group companies for captive use and the surplus ore would be marketed across the globe.
Performance: The company has come out with decent results for the year ended 30th June 2007. On net sales of Rs.66.51 cr., it registered a net profit of Rs.4.90 cr. posting an EPS of Rs.5.18.
Latest Results: The company came out with impressive results for the quarter ended 30th December 2007. It recorded net sales of Rs.26.71 cr. with a net profit of Rs.5 cr. posting a basic/diluted EPS of Rs.5.29. The annualised EPS works out to Rs.21.16
Financials: It has an equity base of Rs.9.45 cr. with a book value of Rs.31.33 and a debt:equity ratio of 1.31, ROCE of 13.35% and RONW of 17.51%.
Share Profile: The company’s share with a face value of Rs.10 is listed on the BSE under the B1 segment. It touched a 52-week high of Rs.102.80 and a low of Rs.25. At its current market price of Rs.41, it has a market capitalisation around of Rs.45 cr.
Dividends: The company has been paying dividends as shown below:
June 2007 - 15%; June 2006 - 10%; June 2005 - 7.5%.
Shareholding Pattern: As on 31/12/07, the promoter holding in the company was to the tune of 48.77% while the balance 51.23% relates to non promoter shareholding and the Indian Public.
Prospects: The ferro alloys industry has seen a major upward rise, both in demand and price realisation in FY07. The manganese alloy industry, in particular, has seen a major bull run in the prices of its respective commodities starting with pure manganese metal stretching across the entire gamut of manganese alloy products.
All time high prices were reached during the last part of the year due to tightening supplies from China after the Chinese Government imposed various export taxes on the export of manganese alloy products. The Chinese Government's stated policy is to restrict exports of manganese alloy products thereby forcing the Chinese industry to concentrate on domestic supplies.
This shortage of material from China in the global markets had to be made up by countries like India. The heightened demand from the steel industry in India too had a significant bearing on the overall demand for manganese alloy products. Thus, a severe shortage in the availability of manganese alloy was witnessed worldwide especially in India and the industry saw a major upward correction, which has since been sustained.
Manganese ore is a key input in the production of manganese alloys. The company is one of the market leaders in the production and supply of Low carbon silico manganese. The global manganese alloy industry continues to grow and is showing signs of improved price realisation and growth in demand. The company has secured lucrative medium term and long term contracts for supply of Low carbon silico manganese till 1st quarter of 2008.
Conclusion: IEL with business interests in speciality alloys and power generation is a fast growing group with well integrated manufacturing plants and a well diversified geographical base.
At its current market price of Rs.41, its share price is discounted less than 3 times its estimated earnings. The share is available at very attractive valuations and could be added to one’s portfolio for mining gains in the medium-to-long-term.
Accurate Transformers Ltd. (Code: 530513) (Rs.86.50)
is engaged in manufacturing of power and distribution transformers ranging from 1 MVA to 160 MVA - in up to 220 KV class. It also carries out rural electrification project, which involve electrification in remote areas including the laying of lines, poles and substations. Unfortunately, despite having installed capacity of more than 8000 MVA, the company is working at very low capacity utilization of less than 50% due to mounting debtors and shortage of funds. However, on the back of the ongoing boom in the power sector and the robust demand for transformers, the situation has improved considerably. Due to better operating efficiency and higher realization, the company is expected to improve its profit margin going forward. It may even grow at CAGR of 50% over the next three years as far as its bottomline is concerned. On a conservative basis, it can clock a turnover of more than Rs.200 cr. with PAT of Rs.8 cr. for FY08. This works out to an EPS of Rs.27 on its current equity of Rs.2.96 cr. As per unconfirmed reports, SEBI has stalled its preferential issue of 31 lakh warrants at Rs.56 and it may have to go in for fresh fund raising programme as per SEBI guidelines. The scrip has reduced to nearly one third from its high of Rs.240. A screaming buy.
Spanco Telesystems & Solutions Ltd. (Code: 508976) (Rs.165)
offers core competency telecom systems integration, which includes implementation of multi-location, multi-services converged networks for carrying diverse multimedia traffic (voice, data & video) based on latest technologies like ATM, MPLS, Frame Relay, TCP/IP etc. On the other hand, it has bagged a 10-year contract to set up, operate and maintain Interactive Voice Response System (IVRS) and Regional Call Centres (RCC) for the Indian Railways in a joint venture with the Spice Group. Moreover, it has ventured into the RFID space by acquiring 51% stake in Skandsoft Technologies - a pioneering software solutions company, which is dedicated to revolutionize the upcoming world of automated business processes through technologies like Radio Frequency Identification (RFID) & Automatic Identification and Data Capture systems (AIDC). It has even formed a joint venture ‘Spanco-GKS’ with Golden Key Solutions of Oman to replicate its Indian business in the Gulf region as well. For FY08, it may clock a turnover of Rs.625 cr. with profit of around Rs.48 cr. on a standalone basis i.e. an EPS of Rs.23 on its current equity of Rs.20.65 cr. A solid bet.
ANG Auto Ltd. (Code: 530721) (Rs.94.45)
is among the few companies in the world to be completely integrated – from the manufacture of components to sub-assemblies and assemblies and finally to vehicles. Today, it is the largest trailer manufacturing company in India with a capacity of 3600 trailers per year and will soon be No. 1 in Asia as it is augmenting the capacity to 6000 trailers. Notably, the company has entered into a 5-year contract with Ashok Leyland for trailers, which is valued at Rs.1500-1800 cr. Secondly, its patented automatic stack adjuster and the single piece dummy axle is witnessing strong demand from all over the world. Going ahead, it intends to manufacture suspension systems and is also setting up a forging unit at Bhiwadi, Rajasthan, at capex of Rs.37 cr. To consolidate its operations, the company has merged ANG Auto Tech, its 75% subsidiary with itself. On a standalone basis, it is expected to clock a turnover of Rs.120 cr. and profit of Rs.16 cr. for FY08 i.e. an EPS of Rs.13.50 on its current equity of Rs.11.90 cr. Since the conversion price is high at Rs.325, its FCCB of Rs.50 cr. may not get converted into equity. Moreover, finding its valuation very cheap, the management has obtained the approval to buy back equity shares up to 24.30% of the total paid-up equity capital at a maximum price of Rs.215 per share. A golden opportunity to buy at such low price levels.
Part of the B. M. Thapar Group, Greaves Cotton Ltd. (Code: 501455) (Rs.192.50) is engaged in the production of diesel/petrol/LPG engines for power generation, agro equipment and automotives apart from manufacturing gensets, agro equipment and construction equipment Besides, it is also engaged in marketing high technology systems for marine, aviation and electronic applications. Last year, to enhance its presence in the global market, it acquired Bukh Farymann Diesel GmbH (renamed as Greaves Farymann Diesel GmbH), which is engaged in the manufacture and marketing of single cylinder diesel engines and parts for Rs.25 cr. For FY08, it may clock a turnover of Rs.1400 cr. with PAT of Rs.115 cr. i.e. an EPS of Rs.24 on its current equity of Rs.48.80 cr. More importantly, few weeks back Piaggio Group's Indian subsidiary signed an 8 year agreement with the company for purchase of mono-cylinder diesel engines for application on the three-wheeled vehicles manufactured by it. This implies that the company will continue to be a single source supplier of such mono-cylinder diesel engines to Piaggio. A solid bet for long-term.
This share was recommended in Early Bird Gains (EBG), our investment news on 15th August 2007 at Rs.125. It touched, a high of Rs.429 on 8th January 2008 fetching a gain of 206%. The share has come down on bad market sentiment and offers good opportunity for medium-to-long-term gains.
The share of Jindal Photo Ltd. (JPL) (Code: 532624) (Rs.126) is attracting the interest of investors. The buzz is that JPL is in the process of setting up a 1000 MW power plant in Orissa for which it has already been allotted coal mines. The management is meeting on 27th March 2008 to invest Rs.300 cr. in the equity of Jindal India Powertech, a company formed to execute the power project. The power plant is expected to come up by 2012.
Incorporated in 1986, JPL, from the Rs.2000 cr. BC Jindal stable is a manufacturer of photographic and allied products. Its product range includes colour film rolls, analog and digital cameras, photographic colour paper, medical X-ray films and equipment, photo processing equipment, cine colour positive films, photographic chemicals, etc.
It markets its products under the brand name ‘Fujifilm’ in a technical and marketing tie-up with Fuji Photo Films, Japan and a technical tie-up with Fuji Hunt Photographic Chemicals, Singapore (a subsidiary of Fuji, Japan) to manufacture photo chemicals. This ISO 9002 certified company has its manufacturing plants in Dadra & Nagar Haveli and Jammu.
JPL has over 36% market share in the colour paper and colour film rolls while its other products have market share of about 25%.
To integrate the technology change in the photography processing, JPL has set up over 400 Fuji Digital Imaging (FDI) laboratories as an extension of the Fuji Imaging Services (FIS) already available throughout the country. JPL has also launched a series of cameras in the digital segment and lays emphasis on developing a consumer-friendly retail sector in the amateur film market by opening up FDIs throughout. These outlets are equipped with world-class digital Minilabs - the Frontier series.
Some years back, JPL acquired a strategic stake in Coheris SA, listed in France, through its group special purpose vehicle (SPV), Jindal France SAS. It has spent Euro 3.5 million together with loan to acquire the stake in the software publishing firm. The acquired entity is in customer relationship management (CRM) as well as business intelligence and occupies a leadership position in Europe.
For FY07, although sales declined by 5% to Rs.361 cr., its net profit advanced by 43% to Rs.26.5 cr. yielding an EPS of Rs.25.7.
JPL, however, reported a phenomenal jump in net profit of 2.91 times for Q3FY08 at Rs.10.5 cr. against Rs.3.6 cr. in Q3FY07 on 19% higher sales of Rs.96 cr. During the first three quarters of FY08, its sales moved up by 7% to Rs.267 cr. and net profit jumped by 97% to Rs.35.5 cr.
JPL’s small equity of Rs.10.3 cr. with reserves of Rs.121 cr. gives its share a strong book value of Rs.128. The promoters hold 72% in its equity capital, PCBs hold 7% leaving 21% with the investing public.
The Tata Power Company (TPC), Monnet Ispat & Energy and Jindal Photo Films are forming a joint venture company to develop a 290 MT coal mine at Mandakini in Orissa. These companies, which are each building a 1000 MW power plant in the state will hold an equal stake in the JV mining company and consume the coal in equal proportion.
Conservatively profits in a thermal power plant work out to Rs.1 cr. per MW per annum. Thus in 3 years from now JPL could add as much as Rs.200 cr. tax-free to its bottomline, making the current price an attractive point to buy the stock. The new merchant power policy allows tax free benefits for 10 years under the Income Tax Act and numerous other concessions in State taxes.
The widespread availability of cameras in democratizing the practice of photography benefits amateur photography leading to increased consumption of photographic films.
Although analogue products continue to have a good hold over the Indian market, there is a huge potential for digital cameras and storage devices, which are making a mark in the industry. The accessibility and affordability of quality cameras and films is the key demand driver. The colour film roll is the major constituent of the consumer-imaging segment.
Current operations of JPL, based as they are lucrative in the tax haven of Goa. The photographic industry is perched for significant growth due to constructive and favourable new advances in technological products, the tourism trends and the socio-economic growth of the vast middle class.
The low per capita consumption of photographic products in India coupled with the growth in population and the growing disposable income of the burgeoning middle-class offers good revenue potential in the future.
During FY08, JPL may post sales of Rs.390 cr. and earn a net profit of Rs.47 cr., which would give an EPS of Rs.45.6.
The JPL share traded at Rs.126 at a P/E of 2.87 on FY08E is recommended with a target price of Rs.228 (at conservative P/E of 5) in the medium-term. The 52-week high/low of the share has been Rs.429/72.
Incorporated in 1985, the flagship of the Amtek Group, Amtek Auto Ltd. (AAL) (Code: 520077) (Rs.241.65) is an integrated automotive component manufacturer of forgings, engine, transmission and suspension parts, assemblies and sub-assemblies. It supplies over 300 components and assemblies to leading OEMs in India and abroad. Its subsidiaries are: Ahmednagar Forgings – Pune; Amtek Ring Gears Inc., Amtek Crank Shaft India, Amtek Investments, GWK, Lloyds Brierly Hill and Triplex – UK; and Smith Jones Inc., Midwest Manufacturing, Amtek Gears and Amtek Investments - US. It earns 60% of its revenues from clients in the four-wheeler segment and the balance from the two-wheeler and commercial vehicle segments.
Its current machining capacity is about 40 million parts and the forging capacity is about 2,80,000 TPA. Amtek Ring Gears Inc., its subsidiary has set up a plant at Bay City near Detroit for manufacturing 9 million fly wheel ring gears per annum.
AAL has already invested over Rs.1200 cr. in the last two years for expansion across its existing facilities and has also set-up greenfield facilities in Sanaswadi, Ranjangaon, Bhiwadi, Dharuhera, Coimbatore and Baddi. These expansions and new capacities were expected to come on line in FY08 and FY09.
Its new forging facility in Dharuhera, near Gurgaon, is exclusively for heavier forgings and the first phase is expected to be commissioned by June 2008 and will add a further 20,000 TPA. The forging capacity at its subsidiary, Ahmednagar Forgings, is also being expanded by 55,000 TPA by next year end.
Recently, AAL ventured into an aluminium high pressure die casting and gravity casting through the greenfield (20,000 TPA) as well as the acquisition routes. Its UK subsidiaries GWK and Triplex are into aluminium machining and this foray into aluminium casting was a backward integration for AAL. It also plans to shift JL French’s manufacturing lines from the UK to India over the next 2-3 years.
AAL is building a facility for supplies exclusively to Tata Motors' small car project, which will supply parts like balancer shafts, crankshafts, connecting rods, cylinder block and head, spindles, front and rear brake drums and the steering knuckle for the Nano.
AAL derives around 55% of revenues from overseas and given the increasing opportunities for outsourcing, exports are likely to receive a fillip. Besides, a majority of its exports are to Europe with the USA contributing less than 5% thereby minimising the risk of losses on account of depreciation of the US dollar against the Indian rupee.
For the year ended 30th June 2007, AAL posted consolidated sales of Rs.3721 cr. and earned a net profit of Rs.409 cr. During H1FY08, it recorded a net profit of Rs.213 cr. on sales of Rs.2335 cr.
Its equity capital is Rs.26.8 cr. and with reserves of Rs.2436 cr., the book value of its share works out to Rs.148. The promoters hold 31% in the equity capital, FIIs hold 50.3%, Mutual funds/Institutions hold another 12.2%, PCBs hold 2.9% leaving 3.6% with the investing public.
AAL's first acquisition was a US-based ring gears manufacturer Midwest Manufacturing in 2002. After that, it acquired UK-based companies GWK and Lloyds Brierly Hill, Sigmacast Iron, the aluminium casting facility of Germany-based Zelter. It has recently acquired one of the largest automotive precision machining companies Triplex- Ketlon Group, which was also Amtek's strongest competitor running close to 185 different machining lines and a multi-location presence in the UK.
Its acquisition of the UK-based JL French (Witham) in June 2007 has added JLF’s aluminium casting business to Amtek and has given access to customers like Peugeot, Land Rover and Jaguar. Its acquisition of the precision machining companies, Triplex Components and Kelton in November 2007 has also brought in customers like Dana Spicer, Honeywell, Perkins, TRW, Honda UK, Ford, JCB and Toyota (UK).
The company has inked a strategically important 50:50 JV with VCST Industrial Products bvba of Belgium with headquarters in SintTruiden, Belgium to set up a state-of-the-art manufacturing facility for powertrain components in India. This JV will primarily focus on the manufacture of gears and shafts for automotive on-and off-road applications.
It has also inked a 50:50 JV with Canadian giant Magna Powertrain for establishing a manufacturing facility outside Delhi for 2-Piece FlexPlate assemblies for automotive applications. The manufacturing operation is expected to be commissioned by June 2008.
AAL has signed an MOU to set up a 50/50 JV with American Railcar Industries (ARI), a leader in railcars. ARI is a leading designer, manufacturer and marketer of a variety of railcars in North America and also provides fleet management services.
The buoyancy in the automobile industry coupled with the increased outsourcing by global auto majors will be its key revenue driver. Besides, its strategy of acquiring front-end capacities near global OEMs in the US and European markets will drive future growth.
Its proposed transportation division in JV with ARI, which includes railways, aerospace and surface transport will add around Rs.1,500 cr. in sales in the next 4-5 years.
AAL has been gearing up for an aggressive expansion strategy as it recently raised further capital of Rs.1,012 cr. by way of preferential allotment of shares and warrants to the promoter group. Leading private equity player, Warburg Pincus, has also recently acquired a 9% stake each in AAL and Amtek India. The consolidation of AAL with Amtek India, a group company manufacturing castings, is also on the cards. Synergies from the consolidation such as product line expansion, economies of scale and settlement of issues relating to transfer pricing between the group companies (Amtek India and its subsidiary, Sigmacast Iron, supply castings to two of Amtek Auto’s subsidiaries), are expected to trigger a re-rating for the stock.
For FY08, consolidated sales are expected to move up by 28% to Rs.4800 cr. with 17% higher consolidated net profit of Rs.480 cr., which would give an EPS of Rs.35.8. During FY09, consolidated sales would go up to Rs.5760 cr. and net profit to Rs.560 cr. leading to an EPS of Rs.41.8.
The Cenvat reduction by 2%, reduction in excise duty on small cars from 16% to 12% and hybrid cars from 24% to 14% in the Union Budget 2008-09 are auto industry positives that augur well for AAL. Its product range, strong client base, thrust on exports and foray into the high-margin aluminium castings business lend confidence to the growth prospects of its revenue & earnings.
At the CMP of Rs.241.65, the share is trading at a P/E of 7 on FY08 estimated EPS of Rs.35 and 5.9 times on FY09 projected EPS of Rs.41.8 and recommended with a target price of Rs.350 in the medium-term.
The share of Lokesh Machines Ltd. (LML) (Code: 532740) (Rs.55.40) is recommended for steady appreciation in the medium-to-long-term.
Founded in 1984, Hyderabad-based LML has three divisions — special purpose machines (SPM), computerised numerically controlled (CNC) machines and auto components. While SPMs are targeted at big automobile companies, CNC machines are aimed at auto ancillaries. Its auto component division is an OEM supplier to Mahindra & Mahindra and Ashok Leyland.
The company manufactures Horizontal Machining Centre, Vertical Machining Centre, Turning Centre and Transfer Lines, Productivity and Cycle Time requirements and Auto Components-Cylinder Blocks that are optimally designed for clients. Its total capacity has been enhanced to 1,60,000 machines.
In April 2006, LML came out with an IPO priced at Rs.140 per share raising Rs.42 cr. for setting up an additional facility for machining and supply of 40,000 cylinder blocks and cylinder heads per annum to Ashok Leyland at Shahzadiguda village in Ranga Reddy district of Andhra Pradesh and to meet the cost of modernisation and upgrade the existing facilities for manufacture of CNC Machine Tools. The commercial production from this new facility commenced from November 2006.
Its technical partners are Fagima, Italy; SCMS, Japan; AVM Angelini, Italy; Wenig Wemas, Germanya and IMT Intermato, Italy and its clients include Mahindra & Mahindra, Bajaj Auto, Ashok Leyland, Force Motors, Tata Motors, L T John Deer, Escorts, Eicher, Honda Motor Cycles & Scooters, Kinetic, Tecumsheh, Bharat Forge and Rane Engine Valves.
During FY07 its sales advanced by 15% to Rs.90 cr. and net profit by 31% to Rs.8.2 cr. leading to an EPS of Rs.9. During Q3FY08, sales surged by 3% to Rs.2.3 cr. on 10% increased sales of Rs.22 cr. During the first three quarters of FY08, sales went up by 21% to Rs.61 cr. and net profit by 28% to Rs.8.6 cr.
LML’s equity capital is Rs.11.8 cr. and with reserves of Rs.65.2 cr., the book value of its share works out to Rs.65. The promoters hold 63% in the equity capital, institutions/mutual funds hold 5%, PCBs hold 8% leaving 24% with the investing public.
LML hopes to earn 20% of its revenues through exports in FY08 and is targeting an export turnover of 40 % by 2010.
LML has kept up with the growth momentum by diversifying its customer base, adding auto components to its portfolio, exploring export opportunities and coming up with innovative import-substitute products for the Indian market.
Its robust order book position and the strategic moves on the part of industry constituents in augmenting capacity, upgrading technology, expanding product offering and moving up the value chain augurs well for the automobile and capital goods industries both at the earning and revenue levels.
The capacity expansion in the automobile and auto component industry would be the key demand driver. The capex in these two industries alone is expected to be about Rs.5,000 cr. and Rs.2,000 cr. p.a. respectively over the next three years. With both multinationals and domestic companies expanding, the demand for machine tools is expected to be robust.
LML has delivered consistent performance over the last decade even when the entire machine tool industry was in dire straits. Its ability to maintain growth during a slowdown when most engineering companies struggled to make profits enthuses the confidence in its management.
LML has been able to build long-term arrangements with customers like Mahindra & Mahindra and Ashok Leyland for machining & supplying critical components. Given the positive demand outlook for the commercial vehicle industry,
LML’s gradual diversification and increasing capacities for cylinder blocks, supplies to big ticket clients and its increasing focus on exports given its revenue visibility, which in turn confer earning potential in the coming years.
LML is likely to post a net profit of Rs.13 cr. on sales of Rs.95 cr. in FY08, which would give an EPS of Rs.11. Sales are expected to move up to Rs.125 cr. in FY09 with net profit increasing to Rs.18 cr. and the EPS can increase to Rs.15.
The LML share traded at Rs.55 at a P/E of 5.3 on its FY08 estimated EPS of Rs.11 and 3.8 times its FY09 projected EPS of Rs.15 is recommended with a price target of Rs.90 in the medium-term. The 52-week high/low of the share has been Rs.166/57.
Tera Software
BSE Code: 590020
Last Close: Rs.44.70
As per informed sources, the company has bagged some big lucrative government contracts/orders. With an expected EPS of Rs.12-13 in the current year and Rs.18 in 2008-09, the scrip has potential to go up by 100% within a year. The company has surplus land in Hyderabad, the market value which works out to Rs.38-40 per share. The company may develop an IT Park on this land and is not at all affected by the strong rupee as it has nil presence in the export market. The company is paying attractive dividend of 20%. Buy with stop loss of Rs.34 to get good return in the medium-to-long-term. P/E is only 4.
CEAT Face Value - Rs 10 Buy Rs 95.50
Ticker: 500878 Equity: Rs 34.24 crore H/L: Rs 198.80/95.50
�� CEAT offers a wide range of tyres for all user segments. CEAT sold 6.92 acres of the 31-acre land at its Bhandup plant for Rs 130 crore. Proceeds from sale of the land will be utilized to set up a new facility. Importantly, this ale will not impact production. Over the next 24-30 months, the company intends to shift capacity from Bhandup to a new facility at Ambernath. The remaining 24 acres will be sold once the relocation is completed.
�� CEAT plans to increase capacity by 40 tonnes per day (TPD) at the new facility from the current capacity of 240 TPD at the Bhandup plant. It also plans to set up a radial tyre facility at a cost of Rs 500 crore over the next three years. The new facility at Ambernath will take 30 months to complete. Further, CEAT is also in the midst of finalizing the location for its radial plant. In the interim, it intends to increase volumes through outsourcing.
�� CEAT has de-merged its investments into a separate company called CHI Investments. Under the scheme of arrangement, investments to the tune of Rs 120 (book value) are transferred to the investment company. The shareholders of CEAT on the record date got 25 equity shares of CHI Investments of face value Rs 10 and 75 equity shares of CEAT for every 100 equity shares held by them in CEAT.
�� With the excise duty on the automobile being brought down, we feel the performance of CEAT, having a market share of 14 per cent, is expected to be good. On the valuation front, the CMP of Rs 95.50 discounts its trailing four quarter earnings by 3.70x which we feel is on the lower side and gives scope for upward movement. We recommend investors to buy the scrip at the current level.
Sesa Goa Face Value - Rs 10 Buy Rs 3160.95
Ticker: 500295 Equity: Rs 39.36 crore H/L: Rs 3969/1550
�� When the recent IIP data was released, the only sector which hasshown growth was mining. This should be a piece of good news for India's largest private sector exporter of iron ore Sesa Goa. Investors should seriously consider this company for investments.
�� The company has a strong management bandwidth and also has shown strong financial growth in the past. The topline and bottomline have grown consistently in the last five years. Sesa Goa has carried its momentum in 9MFY08 by showing impressive growth. It posted a topline of Rs 1957.68 crore and bottomline of Rs 693.70 crore as compared to Rs 1245.01 crore and Rs 354.08 crore respectively in 9MFY07.
�� Sesa Goa has corrected in the recent market downfall and we do think that it is the right opportunity to enter the scrip at the current level as its valuations look cheap. At the CMP of Rs 2975 it discounts its trailing four quarter earnings by 12.40x. This is considerably on the lower side. In the past the scrip has traded at a P/E of more than 20x, this gives it the scope for upward movement and hence we recommend investors to buy the scrip at the current level.
Cairn India Face Value - Rs 10 Buy Rs 222.40
Ticker: 532792 Equity: Rs 1778.40 crore H/L: Rs 269/121
�� Cairn India operates the largest producing oil field in the Indian private sector. It has interest in 15 blocks (2 producing, 1 developmental and 12 exploratory) in India. CIL has gas sales contract with public as well as private buyers where as, it has oil sales agreements to four major refineries across India. Currently it produces approximately 85,000 barrels of oil per day.
�� CIL has a high leverage to crude oil prices and hence, the firmness in the crude oil prices leads to increase in the value of oil resources of CIL. Further, CIL is the only listed pure play oil company in India.
�� Cairn India has arranged a private placement of approximately Rs 2534.6 crore after entering an agreement with Petronas and Orient Global Tamarind Fund Pte. The investors have agreed to purchase a total of 11.3 crore shares of CIL at Rs 224.30 per share. Although, there will be equity dilution at this level, there will be a marginal impact on the valuations. The NAV is expected at Rs 285 per share which is higher than the CMP of Rs 221. We recommend investors to buy the scrip at the current level.
MONNET ISPAT Buy Rs 462.05
1st Target: Rs 499 2nd Target: Rs 519 Stoploss: Rs 441
Trading Pointers
Indicators: MACD-Buy RMI-Buy Stochastic-Buy ROC-Buy RSI-Buy
Support: 441, 410 Resistance: 474, 521
BSE code: 513446 55-day EMA: 468.21
Monnet Ispat bottomed out by posting an intra-day low of Rs 142.55 on 20.11.06, moved upwards for quite a few trading sessions while continuous support came in the form of the 143level (congestion area) and continuous resistance came in the form of the 55-day EMA. The scrip finally posted an intra-day low of Rs 147.15 on 13.12.06 and these levels have not been seen very often since then. Monnet Ispat commenced a short-term uptrend from here (there was enough clarity on the medium-term front), struggled but overcame the 55-day EMA, posted a series of
progressively higher tops and bottoms, started moving within the confines of an upward sloping channel, almost gave a throwover from this channel and finally peaked at an intra-day high of Rs 710 on 01.01.08. The scrip almost gave a downward key reversal from here, couldn't sustain these levels for long, entered a corrective phase, declined to post an intra-day low of Rs 355.75 on 22.01.08, rebounded smartly from here, posted a good but unsustainable rally to post a high of Rs 505 on 25.01.08 only for the scrip to enter a sideways correction. Monnet Ispat seems to be on the verge of entering a short term uptrend (could commence a daily uptrend), is trying to come to terms with the 55-day EMA and with the oscillators looking positive indicating the possibility of a further upside from here.
STERLING INT Buy Rs 182.75
1st Target: Rs 206 2nd Target: Rs 218 Stoploss: Rs 159
1Trading Pointers
Indicators: MACD-Buy RMI-Sell Stochastic-Buy ROC-Buy RSI-Buy
Support: 159, 133 Resistance: 187, 223
BSE code: 508998 55-day EMA: 142.04
Sterling Int. Ent. peaked by posting an intra-day high of Rs 108 on 10.09.07, but couldn't sustain these levels for long and finally declined to bottom out by posting an intra-day low of Rs 59.05 on 23.10.07 where strong support prevented further downside. The scrip finally posted an intra-day low of Rs 64 on 13.11.07 and these levels have often been seen since. Sterling Int. Ent. commenced a medium term uptrend from here (this time around there wasn't enough clarity on the medium term front), struggled but eventually overcame the 55-day EMA, posted a series of progressively higher tops and bottoms, started moving within the confines of an upward sloping channel, almost gave a throwover from this channel and finally peaked by posting an intra-day high of Rs 159.20 on 07.01.08. The scrip almost gave a downward key reversal from here, couldn't sustain these levels for long, entered a corrective downmove, declined to post an intra-day low of Rs 90 on 23.01.08, recovered sharply from here, posted a smart but slightly unsustainable upmove to post a high of Rs 177.05 on 25.02.08. Currently, Sterling Int. Ent. is in process of starting a short-term uptrend, while it seems to have exhausted its weekly correction (has actually sustained above the 55-day EMA) and with the mechanical indicators looking positive, a further upside from these levels cannot be ruled out.
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