Stock Watch

Mazda Ltd. (Code: 523792) Rs.64
Established in 1977, Mazda Ltd. (erstwhile Mazda Controls Ltd.) was founded by Mr. Sorab R. Mody as a small unit to manufacture automated valve packages. Today, it is among the few engineering companies in the world that manufactures very specialized, high technology and critical equipments for industries like Power, Refineries, Fertilizers, Chemicals, Nuclear, Sugar, Paper, Food, Pharma etc. Broadly, its product profile can be segmented into vacuum system, valve division, air pollution control equipment, crystallizers and evaporators. Thus its product range includes various types of vacuum jet ejectors, turbine bypass valves, desuperheaters, condensers, pressure reducing stations, pneumatic actuators, steam jet thermo compressors, process control equipments, scrubbers etc. In India, its products are installed in the plants of Reliance group, United Phosphorus, IOC, BHEL, Alstom, Cadila, Grasim, GSFC, HPCL, Siemens, Triveni Engineering, GHCL, NRC, L&T, Nuclear Power Corp etc. Besides engineering, the company also has a Biotechnology division dealing in carbohydrates, rare sugars and miscellaneous bio-chemicals. Recently, the company diversified into the business of manufacturing food and drink concentrates, essence, jams etc. on a small scale.Mazda has two manufacturing facilities located at Ahmedabad, Gujarat. For vacuum systems and air pollution control equipment, it has a technical collaboration with market leaders Croll-Reynolds Inc., USA, which also holds 12% stake in the company. Accordingly, designing & engineering is jointly done by them manufacturing is done by Mazda while marketing across the globe is done by Croll. Mazda also has a collaboration with Germany-based Kauer Engineering for manufacturing various types of valve. Importantly, Mazda has the coveted ASME 'U' stamp accreditation certificate from the American Society of Mechanical Engineers (ASME) which very few Indian engineering companies can boast of. Hence, the company can fabricate pressure vessels and heat exchangers confirming to ASME standards and is authorised to stamp them as 'Coded Vessels'. Of late, Mazda has designed vacuum systems for applications like steel De-gassing and expects good growth in this line of business. In future, the company intends to enhance exports substantially having Siemens, Alfa Laval, APV Asia Pte, BASF, Petronas, Bechtel, Colgate Palmolive, European Space Agency, IDE Technologies Ltd., Ministry of Oil & Gas Industry, Turkmenistan etc. as its global clients. It also expects some good orders from a German firm for the supply of fabricated valves for gas pipelines in Europe.Due to increased business and unavailability of space at its two existing units, Mazda is setting up a third manufacturing unit at an investment of about Rs.5/6 cr. on land at Naroda, Ahmedabad. It is well poised to harness growth opportunities and is continuously upgrading its manufacturing facilities, technology, production processes and its marketing reach to maintain its growth momentum. For FY07, it recorded 40% growth in sales as well as net profit at Rs.53 cr. and Rs.5 cr. respectively and reported an EPS of Rs.12 on its small equity of 4.25 cr. For FY08, it is estimated to report sales of Rs.65 cr. with profit of Rs.6.5 cr., which means an EPS of Rs.15 in relation to which the scrip is trading at a P/E ratio of 4, which is extremely low considering its expertise and future prospects. Investors are strongly recommended to buy this scrip as it can easily double within 12-15 months.

Hind Rectifiers Ltd. (Code: 504036) Rs.131
Established in 1958 in collaboration of Westinghouse Brake & Saxby Signal, UK, (which still holds 16% equity stake), Hind Rectifiers Ltd. (Hirect) has rich experience in developing, designing, manufacturing and marketing power semiconductors, power electronic equipments and railway transportation equipments. Currently, the company derives 50% of its revenue from railways, 20% from the power sector and the rest 30% from various industries like telecommunications, electronics, defence, aviation, R&D organisations, electro-chemicals, steel, cement etc. Its business is segmented into the following four divisions:-
A. Equipment Division: manufactures power supply equipments for R&D, Defence & Aviation, DC power system for electrochemical plants, rectifiers for metal finishing, battery chargers and dischargers etc. It also offers specialised services such as customisation, automation and optimisation of controls and safety. It has a technical tie-up with M/s. Friem S.P.A., Italy, in design & technology transfer of high current water cooled rectifier systems for electro-chemical applications.B. Semi Conductor Division: manufactures power diodes, power modules, thyristors & assemblies apart from supplying special devices on request. To complement them, a full range of custom designed heatsink assemblies using IEC circuit configuration is also manufactured. These semi-conductors find use in industrial, military and transport applications. Recently, the company signed a technical collaboration agreement with M/s. Infineon Technologies AG, Germany, for manufacturing IGBT based primeSTACK, which will complement its other products. These stacks will also be used for in-house consumption for manufacture of equipments.C. Railway Transportation Division: manufactures transformers for rolling stock, auxiliary converter and inverter, track side DC substation equipment, rectifier for rolling stock etc. Out of the 50% revenue from railways, 10% comes from locomotive transformers, 20% from rectifiers and the balance 20% from inverters. Hirect has a technical collaboration with M/s. Transtechnik GmbH of Germany for design and development of inverter and auxiliary converters for traction application. In collaboration with M/s. Nieke, Germany, it has upgraded its technology and infrastructure for manufacture of main transformers for AC/DC Dual Voltage EMU and BG AC EMU. It also has a tie-up with M/s. Microelettrica Scientifica of Italy for supply of resistors for railway applications.D. Trading Division: Hirect has a separate small trading division under which it imports and markets semi-conductor fuses from Bussmann-Denmark, capacitors from ICAR-Italy and resistors from Microelettrica Scientifica, Italy.Hirect has two manufacturing plants in Mumbai and Nasik. Its Equipment Division is ISO 9001 certified and the Semiconductor Division is ISO 9002 certified. Although railways is its major customer, it has a reputed clientele including HUL, Indian Navy, Ordnance factory, ISRO, BARC, HAL, Nuclear Power Corp, BSNL, BHEL, BEML, Grasim, L&T, Tata Steel, Hindustan Zinc, Siemens, ABB, Crompton Greaves etc. Its products are also exported to Australia, Bangladesh, Canada, Columbia, Italy, Malaysia, Middle East, Pakistan, South Africa, South Korea, Spain, Sri Lanka, Thailand, UK and USA.Recently, Hirect modernised all its plants in Mumbai and has set up greenfield plant in the tax-free zone of Uttarakhand for manufacturing equipment, semiconductors and for the railway transportation system. Although this new plant is ready, Hirect is completing the earlier orders from its old plants in Mumbai and Nasik in order to get the Cenvat paid on raw material. The new orders, however, will be manufactured at the Uttrakhand plant, Hence the excise and income tax benefits will be visible from FY09. Based on the first three quarter results, it may end FY08 with sales of Rs.95 cr. with PAT of around Rs.11 cr. i.e. an EPS of Rs.15 on its very tiny equity of Rs.1.50 cr. having a face value of Rs.2 per share. Importantly, the company is estimated to report an EPS of more than Rs.20 for FY09. Investors are strongly recommended to buy this share current level at a fair discounting of 14 times as it can double in 12-15 months. Moreover, since the company is in its 50th year of operation, the chances of declaring a liberal bonus are also high.

A few days back, GM Breweries Ltd. (Code: 507488) (Rs.79) came out with disappointing results for the March 2008 quarter. Sales improved marginally to Rs.49 cr. but net profit declined by 25% to Rs.2.65 cr. due to lower operating margin. Accordingly, the company declared 25% dividend (including 5% special dividend being the Silver Jubilee year), which gives a yield of nearly 3% at CMP. Although the March 2008 quarter results were below expectation, the entire FY08 figures are pretty decent as sales grew by 10% to Rs.186 cr. and PAT increased by 25% to Rs.14.70 cr. thereby registering a healthy EPS of Rs.16 on its equity of Rs.9.40 cr. At the current market cap of Rs.80 cr., the scrip is trading at a low P/E multiple of 5. With a whopping gross block of Rs.68 cr., low debt : equity ratio, strong cash flows, decent margins etc., the company deserves much better discounting. With 68% holding, the promoters are investor friendly and have an uninterrupted record of dividend payment from the day of listing. At a modest discounting by 12 times, the scrip has the potential to cross Rs.200 mark in the medium-to-long-term.

PBA Infrastructure Ltd. (Code: 532676) (Rs.68) is engaged in the execution of civil engineering projects and specialises in construction of highways, dams, runways and heavy RCC structures, bridges and other infrastructure projects of various
government and semi-government bodies. It is executing projects from Kashmir to Kanyakumari and has taken up new works like toll collection and quarrying to augment its income. For the first three quarters of FY08, its revenue increased by 45% to Rs.270 cr. and net profit increased by only 20% to Rs.11.50 cr. The company has been regularly bagging new orders and its current order book position is around Rs.700 cr. But it has a huge debt of Rs.170 cr. due to which its interest cost is very high. However, to fund its working capital requirement and reduce the high cost debt, the company has finalised a preferential allotment of 30 lakh warrants to the promoters and promoter group. Meanwhile, it is estimated to clock a turnover of Rs.375 cr. with PAT of Rs.13.50 cr. for FY08. This translates into an EPS of Rs.10 on its current equity of Rs.13.50 cr. Technically, the scrip seems to have bottomed out and investors should start accumulating it from the current levels.

Avantel Softtech Ltd. (Code: 532406) (Rs.59) designs and manufacturers repeaters, filters, splitters, tappers, combiners, couplers & amplifiers to enhance the capacity and coverage of wireless communication networks for use in GSM, CDMA and 3G networks. Interestingly, it has developed customized solutions for INSAT based mobile satellite services with advance microwave, digital wireless communication and signal processing products for defence and commercial use. Hence it offers mobile satellite services for messaging, tracking and all locations based services with appropriate network security. Using the same technology it provides specialised products like Ship borne terminal, handheld terminal, S-band receiver, UHF transmitter, burst demodulator etc., which are one of its kind. It has also signed a Transfer of Technology (TOT) agreement with ISRO for supply of hubs and satellite interactive terminals for EduSat networks. Through its government recognized R&D division, the company has developed a number of products for the defence sector by ensuring compliance of stringent defence standards. Q4 being the best quarter for the company traditionally, it may end FY08 with sales of Rs.35 cr. and profit of Rs.5 cr. i.e. an EPS of Rs.10 on its equity of Rs.5.15 cr. Buy before the results are out.

Rohit Ferro Tech Ltd. (Code: 532731) (Rs.65) is a leading producer of high carbon ferro chrome apart from manufacturing ferro manganese and silico manganese through submerged arc furnace route. It has set up a greenfield plant in Jajpur-Orissa thereby taking its total capacity to 1,65,000 MTA from 55,000 MTA earlier. Further, it has set up a fifth furnace with 15000 MTA capacity in Bishnupur, which is expected to go operational soon. To become an integrated player, the company has applied for a mining lease to the Government of Orissa for chrome ore as well as manganese ore. Presently, it is sourcing manganese ore from Australia besides local sourcing. On the other hand, due to higher production, better margins and better availability of raw-materials, the company is stressing more on production of ferro manganese in place of high Carbon Ferro Chrome. For future it has chalked out a plan to setup a 110 MW captive power plant to bring down its power cost. In order to fund this, it recently made a preferential allotment of 80 lakh convertible warrants at Rs.43 per share to promoters as well as strategic investors like Kampani Finance, Foster Capital etc. On the back of stunning Q3 results, it may end FY08 with sales of more than Rs.500 cr. with PAT of Rs.50 cr. i.e. an EPS of Rs.14 on its current equity of Rs.34.50 cr. The company has the potential to post an EPS of Rs.20 on its fully diluted equity of Rs.42.50 cr. for FY09. Keep accumulating at declines.

Shivalik Bimetal Controls
BSE Code: 513097
Last Close: Rs.21
Shivalik Bimetal is engaged in the production of thermostatic bimetal/ CRT components/ shunts/ EB Welded Strips/ Trimetal Strips/ Solder reflow material/ Snapaction disc/ Precision stainless steel etc. Its products are used in many industries and it also has clients in domestic as well as global markets like Germany, UAE, France, Australia, USA, Japan, UK and many others. It is an investor-friendly company. In 2005, it issued 1:1 bonus and paid 37.5% dividend in 2007-08. Its equity is only Rs.3.84 cr. while reserves are Rs.28 cr. and promoters hold 61.52% stake in the company.ReviewLast week, we recommended Anuh Pharma at Rs.208.45. During a volatile week, it zoomed to Rs.247.95 and achieved our medium-term target in just 3 days.For the first nine months of FY08, sales were Rs.54.60 cr. (Rs.44.94 cr.) and net profit was up by 26.54% at Rs.6.15 cr. against Rs.4.86 cr. in the previous corresponding period. It may close FY08 with sales of Rs.75 cr. and with a net profit of Rs.8 cr. The share is trading at a P/E of 4.5 only.This is a hi-tech engineering company, wherein the promoters have a high stake and have a got decent track record of rewarding of shareholders. The company has entered into a MOU with M/s. G RAU GmbH & Co. KG, Germany, for setting up a joint venture for manufacturing of Metal Parts (Tubes and Wires) for industrial applications in India on a 50:50 basis.Buy with strict stop loss of Rs.17. On the upper side, its share price can go up to Rs.27 in the medium-term. If we apply a P/E ratio of just 10, then also stock can easily go up to Rs.45 in the bull market.

Infotrek Syscom
BSE Code: 530643
Last Close: Rs.37
Mumbai based Infotrek Syscom was incorporated in 1994 as a private limited company and was converted into a limited company in 1995 when it went public and was listed on the BSE in June 1995.The company is engaged in Electronic Equipment Recycling with manufacturing facilities located in Panvel, Navi Mumbai spread over 7000 sq. ft. constructed area and run by qualified & experienced professionals with access to modern tools and technology.It has an equity of just Rs.4.50 cr. In December 2007 quarter, its net sales zoomed 32.02% but net profit zoomed 180.95%.Infotrek Syscom has informed the BSE that a meeting of the Board of Directors of the company will be held on 10th April 2008, interalia, for the following business:1. Conversion of 600,000 warrants to Bennett, Coleman & Co. Ltd. into equity shares at Rs.90 per share as per the terms of the issue of warrants as approved by the General Body in its meeting dated 12th January 2008.
2. Ratification of allotment of 19,00,000 warrants to First On Line Comtrades Pvt. Ltd. as per the terms of the preferential issue as approved by the General Body in its meeting held on 12th January 2008.On 8th January 2008, the share was traded at Rs.134 but is now traded at Rs.37. The stock is thus trading at a throwaway price. From this price, the stock can slide by a maximum 10% while on the upper side; it can zoom by 70-100% in the long-term.Buy with stop loss of Rs.30. On the upper side, the share price will go up to Rs.53 in the medium-term and will cross it’s 52-week high price in the next 15-18 months

Investment Call
* DIC India (Rs.158) has reported encouraging results for CY2007. It reported consolidated net profit of Rs.14.24 cr. on its equity of Rs.6.88 cr. resulting in an EPS of Rs.20.50. The company had recently issued shares worth of Rs.51 cr. at a premium of Rs.215 to reduce its borrowings, which included the amount borrowed for its new project. This will save interest burden of around Rs.5 cr. in the current year while its equity will go up to Rs.9.15 cr. Moreover, it is likely to benefit from the expansion in the current year.The FMCG sector has seen a turnaround and its fortunes are looking up. The publication sector has a huge growth potential and is expected to grow in coming years in view of the country's large population and rising literacy levels. With more foreign publication houses setting up shop in India, it is poised for major growth. Similarly, the Packaging sector is expected to be driven by the retail boom with more and more improvements in lifestyle and urbanisation. The stock cum 35% dividend looks attractive from the long-term view.