Geojit Result Updates

Beck India Ltd (BIL)

Beck India, 88.5% subsidiary of Atlanta AG, has reported good performance for Q4 CY2006. Net Sales grew @29.9% to Rs.38.88 crore led by 17.4% rise in Wire Enamel & Varnishes sales (55.7% of turnover) and 47.7% rise in resins sales (44.3% of turnover). However OPM% declined marginally to 16.1% (16.4%) as rise in other heads of expenditure offset savings in raw material cost. PBIT of Wire Enamels & Varnishes declined to 12.6% (14.1%) while PBIT% of Resins business declined to 20.9% (21.9%). PBT increased by 24.5% to Rs.6.88 crore. A lower rate of tax of 28.9% (37.2%) led to 40.9% increase in PAT to Rs.4.89 crore.

BIL produces widest range of electrical insulating materials as well as construction chemicals. In order to cater to power requirements of growing Indian economy, government aims to increase power generation from present 124,000 MW to 200,000 MW and looking downstream country plans to add 600,000 ckm to transmission network by 2012. This major initiative and expenditure outlay will augur well for sustained growth in electrical equipment industry benefiting company’s electrical insulating business. In addition, migration of production capacities to India is creating new business opportunities for BIL in India as well as export markets. Through Atlanta association company has forayed into Sri Lanka and South Africa and is working on supplying intermediates to group companies.

Construction chemicals is also a rapidly growing sector in India and Beck India is concentrating on certain niche protective coatings and floorings for high end light engineering, pharma, food processing and nuclear institutions. Though Atlanta is not in construction chemicals, Beck India has been able to hold against global competitors active in India through its in-house product development and application skills.

Electrical and Construction industry, which constitutes BIL’s customer base, are on an uptrend. Beck India with its R&D capabilities, access to global technologies and innovation skills in technical and application areas, is all set to explore emerging opportunities.

At CMP of Rs.380/- share is trading at 17.8 times CY 2006 EPS of Rs.21.3 and 13.7 times CY 2007 expected EPS of Rs.27.7 We recommend to “BUY” the share at CMP in view of excellent business prospects.

Essel Propack (EPL)

EPL, manufacturer of laminated tubes, plastic tubes, medical devices and speciality packaging materials with state-of-the-art manufacturing facilities in 13 countries with 24 plants across globe, has declared good numbers for Q4 CY 2006 and CY 2006 (December year-end). Consolidated Net Sales grew @ 31.7% to Rs 289.3 crore (Rs 219.7 crore) led by steady growth in tubes business. PAT increased by 13.6% to Rs 30.1 crore (Rs 26.5 crore).

Factors like retail boom and India’s increasing positioning as the world manufacturing hub for prescription drugs has increased the need for convenience packaging. This can be easily tapped by leveraging on Company’s strong capabilities and market leadership position.

In laminated tubes, Company has widened product range by introducing mini tubes (for pharma & FMCG industry) and inviseam tubes and thus has become fully integrated laminated tubes company in the world. However, as the growth opportunities were limited in laminated tubes, Company diversified into plastic tubes business by acquiring Arista in 2004. This acquisition gave EPL entry in new markets of UK and Europe. Company also set up a green field plant in USA which became operational from December 2006 to cater growing demand and expanded existing capacity at UK.

Recent 100% acquisition Packaging India Pvt. Ltd. which is present in Medical Devices and Speciality Packaging business has de-risked its business model. In Medical devices, Company manufactures cardiac catheters based on polymer processing which is EPL’s core competency. In Speciality Packaging, Company is currently focusing into food packaging for FMCG sector. It is also looking to enter high margin pharma packaging business in near future. Speciality Packaging will be one of the major growth drives and to cater to higher demand, Company is setting up a plant at Uttranchal at a cost of Rs 45 crore. This plant will start contributing to top-line and bottom-line from middle of CY 2007. Company targets revenues of ~ $ 100 mn (Rs 450 crore) each from Medical Devices and Speciality Packaging by CY 2010.

Turnaround plans of Company have also started paying off. Company was successful in turning around laminated tube business in UK and Mexico. Plastic tube business in UK has reached the breakeven levels by year-end and Russian business is evolving and has good potential. On a consolidated basis, Company targets revenue of $ 500 mn (Rs 2,250 crore) by CY 2009 for which catalysts are put in place.

At CMP of Rs 76.55, share is trading at 9.2 times CY 2007 expected EPS of Rs 8.4 and 5.9 times CY 2008 expected EPS of Rs 12.9. We recommend “BUY” at CMP in view of excellent future outlook.

ICI India

ICI, 51% subsidiary of ICI Plc., U.K., has reported cheerful set of numbers for quarter ending Dec. 2006.

It should be noted that company has divested couple of businesses (viz. rubber chemical in FY 2006 and Uniqema in FY 2007) in recent past. To have meaningful comparison, one has to adjust for such exclusions.

Reported Net sales declined by 12.8% to Rs. 224.2 crore (Rs. 257.2 crore). However, continued businesses registered 12% sales growth. Paint turnover was up by 11.7% to Rs. 192.37 crore (Rs. 172.23 crore), while continued chemical business grew @ 14.7% to Rs. 31.86 crore (Rs. 27.78 crore). Overall OPM% improved noticeably to 15.6% (14.4%) led by sharp improvement in PBIT% of paint business to 14.8% (11.7%) because of price hikes across all product categories & control on fixed costs. After accounting for more than doubled other income of Rs. 7.67 crore, PBT (before extra ordinary items) inched up by 7.7% to Rs. 36.34 crore (Rs. 33.74 crore). After accounting for large exceptional income of Rs. 253.61 crore (expenses of Rs. 10.62 crore) from sale of Uniqema business, PAT zoomed to Rs. 225.3 crore (Rs. 8.27 crore).

Company has hived off Uniqema business to Croda Chemicals for Rs. 280 crore. It has also agreed to sell its 100% stake in Quest International (engaged in the business of flavours & fragrances) to Givaudan Group in line with global sale for Rs. 390 crore. After hiving off these businesses, ICI is now emerging to be a major player in decorative paints and chemicals (mainly starch).

Demand for paints continues to be buoyant owing to construction boom, new product launches, etc. Consequently, industry is expected to grow at double the GDP growth rate i.e. @ ~ 15-16% and company will be able to achieve 20-25% value growth due to aggressive play and premium products. It is also looking for M&A opportunities in paint business preferably in India.

Starch business is also expected to grow @ 15-20% p.a., being customer specific technical segment. To further strengthen this business, ICI has recently acquired controlling interest (67%) in Polyinks, existing player in Hotmelt Adhesives market for Rs. 9 crore.

At CMP of Rs. 452.55, share (Rs. 10/- paid up) is trading at 21.1 times FY 2007 expected EPS of Rs. 21.4 and 16.1 times FY 2008 expected EPS of Rs. 28.2. Company is sitting on huge pile of cash which will further swell on receipt of proceeds from sale of businesses. In view of robust business prospects, we recommend to “BUY” the share at CMP.

Mahindra & Mahindra (M&M)

M&M is flagship company of the $3 billion Mahindra Group and largest manufacturer of MUVs in India. Company has reported excellent performance on consolidated basis for Q3 FY2007. Consolidated Gross revenues & Other income grew @ 30.7% to Rs. 4757.4 crore (Rs. 3639.8 crore) following good performance by both parent company as well as group companies. PBT before exceptional items was up by 40.6% to Rs.548.4 crore (Rs.390.1 crore), while PAT after minority interests doubled to Rs.530.6 crore (Rs.262.5 crore).

However, M&M’s standalone performance for Q3 FY2007 was subdued. Standalone Net sales grew @ 16.7% to Rs.2576.06 crore led by 9.7% growth in automotive sector (57% of sales) and 27% growth in farm equipment sector (38.3% of sales). However, OPM% declined to 12% (12.9%) due to decline in PBIT % of automotive segment to 10% (15.2%) due to deterioration in sales mix and inability to pass on higher input costs. However, PBIT% of farm equipment business improved to 14.9% (12.3%) on back of strong operating leverage and higher realizations. PBT (before extra ordinary items) increased by 16.5% to Rs.315.42 crore. After accounting for extraordinary expense of Rs.0.63 crore (Rs.1.49 crore –VRS and Rs.0.86 crore – Tech Mahindra IPO profit) as against extraordinary income of Rs.46.91 crore on account of sale of LCV division and octroi refund, growth in PAT got restricted to 3.5% at Rs.241.69 crore.

Going forward, newly launched pick-ups like MaXX MAXI truck and Bolero Pik up are expected to boost volumes of automotive division. Another growth driver will be M&M’s much-awaited entry into passenger vehicle segment by start of FY08 with launch of Logan. Also planned in FY08 is launch of new UV platform Ingenio. In tractor segment, latest launch of Shaan - a multi-utility tractor is expected to boost growth. Over next 3 years, M&M expects to incur capex Rs.2,000 to Rs.2,400 crore. This will not only include investment in JV but also investment in manufacturing capacity.

Company’s major subsidiaries (into realty, infrastructure, finance, IT) have performed well & will continue to give it consistent revenue growth. Tech Mahindra and Mahindra Finance posted a growth in PAT of 122% and 59% respectively in Q3 FY07. As subsidiaries grow in scale there will be significant value unlocking.

In view of strong growth expected in tractor segment on back of robust growth in economy, company’s entry into passenger car segment and strong performance of subsidiaries, company’s future appears buoyant.

At 906.90, share is trading at 13 times FY 2007 expected consolidated EPS of Rs. 70/- and 10.4 times FY 2008 expected consolidated EPS of Rs. 87.50. Considering above mentioned factors, we recommend to “BUY” the share.

Madras Cements (MCL)

MCL, 3rd largest cement producer in southern India with Ramco brand & having capacity of 6 mn tonnes, has reported excellent performance for Q3 FY 2007. Net Sales grew @ 61.1% to Rs 391 crore (Rs 242.7 crore) led by 25% volume growth in cement despatches to 13.88 lakh mt (11.1 lakh mt) and 29% increase in realization of Rs 2,818/- per tonne (Rs 2,185/-). OPM% enhanced to 32.71% (17.15%) primarily due to higher realization and reduction in Power & Fuel cost to 20.78% (24.6%) and in Transportation & Handling cost to 14.11% (17.97%). Consequently, PBT zoomed to Rs 103.1 crore (Rs 14.4 crore) and PAT shoot up by 609.4% to Rs 68.1 crore (Rs 9.6 crore).

Company is implementing a green-field cement unit of 2 mn tonnes, at Ariyalur in Tamil Nadu at a cost of Rs 613 crore and a clinker manufacturing unit (effective cement capacity 2 mn tonnes) at a cost of Rs 439 crore at existing location at Jaivanthipuram in Andhra Pradesh. Thus, total capacity will expand from 6 mn tonnes currently to 10 mn tonnes, an increase of 67%. Moreover, it is doubling captive power plant capacity at a cost of Rs 112 crore. First unit of 18 mw captive power plant is expected to commission by March 2007. This will further lower its Power & Fuel cost, thereby boosting profitability margins.

Huge investments announced in infrastructure projects in various parts of the country and booming housing sector provide good visibility for strong cement demand in coming years. Such positive outlook is expected to sustain cement prices at current level at least in medium term leading to higher profitability for MCL.

At CMP of Rs 3,430.75, share is trading at 12.3 times FY 2007 expected EPS of Rs 279.3 and 11.6 times FY 2008 expected EPS of Rs 295.6. Considering strong future outlook, we recommend “BUY” at CMP.

Usha Martin Limited (UML)

UML, an integrated specialty steel and global wire rope company, has reported fantabulous results for Quarter ended December 2006 (Q3 FY 2007).

Standalone net sales (excl. excise and inter-divisional transfer / sale) grew 11.3% to Rs. 351.4 crore (Rs. 315.8 crore) as sales (gross) from value added Wire & Wire Ropes rose by 18% to Rs. 197.4 crore. Steel sales (gross) went up to Rs. 252.3 crore (Rs. 232.2 crore) [Specialty steel production grew by 12% during the quarter]. Despite increase in overall costs, OPM% improved to 21.49% (19.79%) as raw material costs declined substantially to 35.9% (42.9%) as % of sale on back of benefits from backward integration of iron ore. Consequently PBT increased 62.9% to Rs. 39.1 crore (Rs. 24.0 crore). Lower average tax rate further propelled PAT up by 72.2% to Rs. 28.4 crore (Rs. 16.5 crore).

Consolidated net sales (excl. excise and inter-divisional transfer / sale) stood at Rs. 480.4 crore for the quarter while PAT was at Rs. 39.9 crore.

With effect from December 1, 2006, UML has acquired rolling mill unit of U-Tor Construction Steel Ltd. located at Agra for consideration of Rs. 7.53 crore.

UML is on line to expand its steel capacities from present 4 lakh tones p.a. (tpa) to 10 lakh tpa and then divert up to 50% (5 lakh tpa) towards specialty steel. It is also increasing value added steel (Wire & Wire Ropes) capacities from 1.7 lakh tonnes to 4 lakh tonnes by FY 2010. For this purpose it is investing Rs. 1,300 crore to be financed by mix of GDR, debt and internal accruals (without further equity dilution); post which it aims to achieve turnover of ~ Rs. 5,000 crore.

Company is also focusing on enhancing its competitive edge through a string of cost saving measures to significantly improve profitability (by ~ 10%):

Ø Complete captive iron ore mining (already operational and expected to achieve 100% efficiency in Q4 FY 2007).

Ø Captive coal mining (expected to start benefiting company from Q2 FY 2008). Both above backward integration measures would help in saving Rs. 800-1000/- per tonne as well as shield company from trend of rising raw material prices.

Ø Setting up 400,000 tpa sintering plant by December 2007.

At current market price of Rs. 211/- share is trading at 7.8 times FY 2007 expected consolidated EPS of Rs.27 and 5 times FY 2008 expected consolidated earnings of Rs. 42; further company’s earnings will receive a major boost with progress / completion of above expansion plans. In view of excellent prospects, we recommend to ‘BUY’ the share at CMP.

Tata Elxsi (TEL)

TEL, a niche IT Company with core focus on Product Designing Services and Industrial / Engineering Designing Services space, has posted strong set of numbers for Q3 FY 2007. Net Sales grew @ 39.1% to Rs 80.46 crore (Rs 57.83 crore). OPM% enhanced to 22.7% (18.5%) due to higher PBIT% margin of 24.3% (19.6%) from Software Integration & Support Services. PBT jumped to Rs 15.97 crore (Rs 9.04 crore) and consequently PAT shoot up by 83.1% to Rs 13.96 crore (Rs 7.63 crore).

Global spending for engineering and designing services is currently estimated at $ 750 bn p.a. By 2020, worldwide spending on engineering services is expected to increase to more than $ 1 trillion. Of the $ 750 bn spent today, only $ 10-15 bn is currently being outsourced of which India’s share is 12%. With its strong presence and proven execution skills, strong brand name of Tata and huge & experienced talent pool, the Company is all set to reap the benefits of engineering outsourcing story.

TEL offers wide variety of specialized technologies ranging from Automotive Systems, VLSI design, Embedded Systems, Networking, Digital Signal Processing. Customers (major ones CISCO, Motorola, Hitachi, Canon etc.) rely on Company’s R & D that shapes futuristic products in the market segments from Automobiles, Consumer products, Semiconductors, Media, Storage and Scientific Application. Going forward, Company expects Industrial Designing, Animation, Telecommunication and Embedded Software to be the major growth drivers.

At CMP of Rs 300.80, share is trading at 16.33 times FY 2007 expected EPS of Rs 18.42 and 10.03 times FY 2008 expected EPS of Rs 30/-. We recommend “BUY” at CMP considering excellent growth prospects.

Sundaram Finance (SF)

Sundaram Finance (SF) has come out with very good numbers for Quarter Ended December 2006 (Q3 FY 2007). Standalone net interest income (income from operations less financial expenses) sales have increased by a handsome 35% to Rs. 68.71 crore (Rs. 50.92 crore) despite a higher rise in financial expenses of 46.4% to Rs. 98.96 crore against that of income from operations @ 41.4% to Rs. 167.67 crore. Strong income growth coupled with lower operating costs (as % of total income) saw PBT spurt 50% to Rs. 32.74 crore (Rs. 21.83 crore) despite higher provisioning and write offs. Lower average tax rate further boosted PAT to Rs. 22.65 crore (Rs. 14.66 crore).

SF is the only NBFC (non banking financial company) in India that is in the business of commercial vehicle (CV) financing (car and CV financing segments constituted over 85% of disbursements in 2005-06) for over 5 decades wherein it has developed strong brand equity and robust customer relationships. This has helped it to face stiff competition from banks and other NBFCs. Adequate capital position (Tier I capital adequacy of 13.75% as on March 31, 2006) coupled with robust asset quality (gross NPA stood at 1.58% of total assets as on March 31, 2006) due to effective credit evaluation norms and efficient collection mechanisms will provide good buffer to SF in growing its business as well as maintaining profitability in an increasingly competitive era.

Recently released draft guidelines by RBI have increased provisioning requirement (from 0.4% to 2%) and risk weights (from 100 to 125%) for banks’ exposures to NBFC. These guidelines are not applicable to Asset financing companies (AFC) like SF. Hence, SF will enjoy twin benefits:-

1) Reallocation of bank funding to AFCs will make borrowing easier for SF (bank borrowings accounts for ~ 50% of its financial requirements)

2) Increase the borrowing costs for NBFCs enhancing SF’s pricing competitiveness vis-à-vis other NBFCs.

However, SF’s ability to manage steadily rising deposit costs, interest rate hikes by RBI and intensifying competition from banks will be key going forward.

At CMP of Rs. 431/-, the share (Rs. 10/- paid up) is trading at 5.3 times FY 2007 expected consolidated EPS of Rs. 82/- and 4.6 times FY 2008 expected consolidated EPS of Rs. 94/-. In view of bright business prospects, we recommend to “BUY” the share at CMP.

Precot Meridian Limited (PML)

Precot Meridian, coimbatore based textile company poised to venture into high margin garmenting segment, reported excellent results for Q3FY2007.

Net Sales grew by 40.4% to Rs 83.53 crore (Rs 59.48 crore) driven mainly by increase in spindlage capacity and value addition in yarn – gassed yarn & dyed yarn which yield better realization. OPM increased to 16.8% (14.5%) due to stable cotton prices and value addition in yarn resulting in better realization in yarn dyed shirting fabric. Operating profits increased to Rs 15.92 crore (Rs 11.40 crore) – growth of 39.6% which increased PBT by 50.4% to Rs 8.39 crore (Rs 5.58 crore) despite increase in interest & depreciation cost. PAT grew by whopping 75.3% to Rs 6.17 crore (Rs 3.52 crore) due to lower charging of average income tax rate.

Company is moving up value chain by venturing into manufacturing of Shirting fabric and garmenting to become an integrated textile player which would enhance its profitability in future. For this purpose, PML plan to invest Rs 30 crore to create garment making facility in a phased manner. In the phase-I, company will have 400 sewing machines with a capacity to produce 4 million pieces annually which will be doubled in 2007-08.

During FY 2007, Precot acquired spinning assets of Philippines based Litton Mills at Rs 40 crore having installed capacity of 32,256 spindles. IT has also merged Meridian Industries (MIL) – Group Company (swap ratio – one share of PML for every 2 shares of MIL) is also on expansion mode, which will raise its spindle capacity to 51000 spindles (34,000) at Rs 70 crore. Merged entity will have total spinning capacity of 200,000 spindles (post expansion).

At CMP of Rs.253, share is trading at 8 times FY 2007 expected EPS of Rs. 31.7 and 5.5 times FY 2008 expected EPS of Rs.46/-. Going ahead, company has good growth potential in view of its becoming integrated textile player – presence in spinning, weaving, processing and garmenting – entire value chain will significantly drive its profitability in future. We recommend to “BUY” the share at CMP.

Valecha Engineering Ltd. (VEL)

Valecha Engineering Ltd. (VEL), leading infrastructure and developing company, has come out with superb results for Quarter Ended December 2006 (Q3 FY 2007).

Net income from operations surged 69.1% to Rs. 68.86 crore (Rs. 40.73 crore). OPM% improved to 8.7% (7.5%). Consequently PBT doubled to Rs. 5.36 crore (Rs. 2.60 crore). After accounting for one-off item of Rs. 18.11 crore, PAT shot up over 10 times to Rs. 22.11 crore (Rs. 1.79 crore).

Future prospects –

© From being a pure contractor in civil construction, VEL wants to expand its role and become a developer in road & hydel power sector. Company is planning to venture into BOT projects as long-term strategy for growth and stability. This is important, as most of new roads and hydel projects will be operated on Build, Operate and Transfer (BOT) basis, where margins are better.

© Company is looking to diversify into real estate (townships and malls), through special purpose vehicles. It is looking to earmark investment of ~ Rs. 100 crore for this venture.

© It is also planning to enter international markets to further boost revenues. It has already formed a JV (VEL – 49%) in Dubai to exploit business opportunities in Middle East. It will make capital infusion of Rs 15 crore p.a. for next 2 years. This JV (commenced operations in Q3 FY 2007) is expected to achieve turnover of Rs. 80 crore in FY 2008.

© Company has also entered into 50:50 joint venture (JV) with Malaysian-based infrastructure company “Persys” for the bidding of Bangalore Metro Rail Project.

© Company has a low debt equity ratio (of below 0.5) enabling it to leverage its strong balance sheet for bagging large orders. It also holds 686,280 shares of Jyoti Structures (current market value – Rs. 12.15 crore). This holding was earlier bought down from 10,86,280 shares (400,000 shares being transferred to 100% subsidiary Valecha Infrastructure Ltd.) to increase net worth and make the company eligible to bid for BOT projects.

At CMP of Rs. 222/-, the share (Rs. 10/- paid up) is trading at 15 times FY 2007 expected EPS of Rs. 14.86 (excl. one time gain of Rs. 18 crore) and 10 times FY 2008 expected EPS of Rs. 22.28. Company is a direct beneficiary of rising importance of infrastructure sector in India’s growth. In view of robust order book and bright business prospects, we recommend to “BUY” the share at CMP.

Yuken India Ltd. (YIL)

Yuken India Ltd. (YIL) has come out with fabulous results for Quarter Ended December 2006 Net sales grew 36.8% to Rs. 22.87 crore (Rs. 16.72 crore). OPM% shot up to 16.7% (9.8%) due to better operating efficiencies and savings on all heads of expenditure. Good sales growth coupled with improved margins led to jump in PBT to Rs. 2.75 crore (Rs. 0.80 crore). Lower average tax rate further drove PAT to Rs. 1.75 crore (Rs. 0.36 crore).

YIL one of leading manufacturers of power saving Oil Hydraulics and provides a comprehensive range of hydraulic products – pumps, valves and power units. It is also entering gear pumps segment, which caters to automobile industry. YIL has technical collaboration with Yuken Kogyo, Japan, which also holds 40% stake in the company. Hydraulic devices find application in heavy engineering industry as effective means of automation. To make an economy more globally competitive, lot of automation and hydraulic tools would be required to improve quality, consistency, lower fatigue, and improve safety and productivity. Thus company’s products are best suited to capitalize on economic growth. It is also making new product introductions.

In addition to strengthening its position in domestic market, company is penetrating export market through process improvements.

Going forward, YIL will be able to cater to increased demand for its products without any substantial capex. Company will outsource more and will invest more in CNC machines, which will improve OPM%.

At Rs.146.60 the share is trading at 9.6 times FY 2007 expected EPS of Rs.15.3 and 7.3 times FY2008 expected EPS of Rs.20. In view of good business prospects, we recommend to “BUY” the share at CMP.

AIA Engineering

AIA Engineering, a niche player in high value added high chrome metallurgy segment commanding 90% market share in India, has reported outstanding performance for Q3 FY 2007.

Consolidated Sales grew @ 30.8% to Rs. 123.5 crore (Rs. 94.5 crore) led by 66.7% jump in export sales of Rs. 55 crore (Rs. 35 crore). Domestic turnover rose by 11.5% to Rs. 69 crore (Rs. 61 crore). OPM% improved to 25.55% (23.10%) due to better product mix with improved focus on value added high chrome mill internals, and increased production volumes resulting into better operational efficiencies. More than doubled other income of Rs. 5.18 crore (Rs. 2.31 crore) further boosted PBT (before extra ordinary items) by 65.5% to Rs. 34.05 crore (Rs. 20.58 crore). Sharp reduction in average tax rate of 26% (30.6%) lifted PAT (after minority interest) by 83.4% to Rs. 24.89 crore (Rs. 13.57 crore).

Company manufactures milling internals used in grinding operations of cement (73.4% of sales), mining (7.8% of sales) and utilities (18.9% of sales). All these user industries are witnessing tremendous boom in India. In global markets, it has supply contracts with most global cement manufacturers and is all set to further consolidate its position in cement sector and also foray into global mining sector.

For this purpose, company is expanding capacities from current level of 65,000 tpa à 165,000 (50,000 tpa each in 2 phases) in by October 2007 à 265,000 tpa in FY 2008 (by setting up either green field / brown field 100,000 tpa plant) à 315,000 tpa in FY 2009 (additional 50,000 tpa). Thus, capacity would go up by almost 5 times by FY 2009. Company is also planning to integrate backward by acquiring ferrochrome plant in India or outside India. All these capex plans are to be financed thru equity issue to QIP (Qualified Institutional Placements – raised Rs. 125 crore by issuing 10.20 lakh shares @ Rs. 1225/- during the quarter under review) / ADR / GDR / other routes.

At CMP of Rs 1379.25, share (Rs 10/-) is trading at 25.2 times estimated FY 2007 consolidated EPS of Rs 54.7 and 16.2 times estimated FY 2008 consolidated EPS of Rs 85.2. We recommend a strong BUY as the company is going for aggressive capacity expansion over next 2-3 years to further fortify its market leadership and emerge as a major global player.

Areva T&D

Areva T&D, 66.65% subsidiary of Areva T&D France, has reported sterling performance for quarter Q4 CY 2006 (Year-end December).

It should be noted that company has divested its non-T&D business w.e.f. January 1, 2006. To give meaningful comparison, company has provided figures for quarter ending December 2005 for only T&D business.

Net Sales (excl. excise) has soared up by 35.5% to Rs. 400.7 crore (Rs. 295.75 crore). OPM% improved significantly to 14.4% (10.5%). Further aided by higher other income of Rs. 3.1 croer (Rs. 0.6 crore), PBT (before extra ordinary items) skyrocketed to Rs. 56.1 crore (Rs. 28.5 crore).

Areva T&D, one of the few large players in the transmission and distribution of electricity, will be big beneficiary of capital spending on power and also civil nuclear power plants becoming a reality. The massive upgradation of T&D network is multi-billion dollar opportunity for company in coming years.

Parent company is consolidating its closely held T&D operations in India by amalgamating Areva T&D Systems India, Areva T&D Instrument Transformers, and Areva T&D Lightening Arresters w.e.f. January 1, 2006. For this purpose, company will be issuing 79 lakh shares of Rs. 10/- each to parent company. Consequently, Areva – France’s stake in Indian outfit would stand enhanced to 72.16% (66.65%). With consolidation happening in Areva T&D, India’s power story will be captured entirely in this listed company as there won’t be any other subsidiary of the parent.

Besides, parent company also views Indian operations as sourcing base for supply of components & products to other units worldwide. With Indo-USA nuclear deal going through, parent company may make India hub for manufacturing components for EPR (European Pressurized Reactors). This move would help to bring down costs and make India one of its “first priorities” market. Parent company plans to invest > Rs. 250 crore in next 3 years in Indian unit.

At CMP of Rs. 1,101/-, share (Rs. 10/- paid up) is trading at 25 times CY 2007 expected EPS of Rs. 44.32 and 17. times CY 2008 expected EPS of Rs. 62.6 on existing equity of Rs. 40 crore without considering addition from proposed amalgamation. In view of excellent future prospects, we recommend to “BUY” the share at CMP.

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