RAJESH’S PORTFOLIO CHOICE DT:30th JUNE 2007

RAJESH’S PORTFOLIO CHOICE DT:30th JUNE 2007


ELECTROTHERM (INDIA)
From steel to wheel

BSE ticker code 526608
NSE ticker code ELECTHERM
Major activity Light Engineering
Chairman Mr Mukesh Bhandari
Equity capital Rs 9.13 cr
52-week high/low Rs 592/195 (FV Rs10)
CMP 492
Mkt capitalisation Rs 455.33 cr
Recommendation Buy and accumulate at declines

Electrotherm India (EIL) is an Ahmedabad-based company, with business interests in six segments such as engineering, capital equipments and projects construction, steel /TMT steel, stainless steel, structural & alloys steel bar, ductile iron (DI) pipes and electrical & hybrid vehicle division (YO BIKES).The scrip is worth a look by the investors.
The company is the leader in induction furnace and machinery, catering to the growing ferrous and non- ferrous foundries and metal smelting industry in the country. It is one of the few Indian players who provide turnkey services for setting up medium sized steel plants. Today, over 12 million tonnes of steel is being poured out of the company’s furnace. The company has also successfully designed, developed and commissioned India’s largest induction melting furnace of 8000KW/25 MT.
f EIL manufactures steel of various types ranging from sponge iron, billets, TMT bars and DI pipes. With huge demand coming in with the laying of new and upgrading of extant transmission lines towers (TLT), the company sees huge opportunity in this space and is keen to foray in manufacturing Transmission Lines Towers.
f Indus Elec-trans, a division of EIL manufacturing electric vehicles and hybrid vehicles, has performed exceedingly well. On the sales of YO-BIKES it has cornered major space in electric two-wheeler space. With rising fuel prices and environmental awareness, the demand for electric vehicles is expected to remain robust and the company with its first mover advantage should benefit. The company has plans to invest Rs 200 crore in this division along with increasing the number of dealers from 150 at present to over 400 in a phased manner. Development of electric three-wheelers, four wheelers and hybrid electric low floor buses are on anvil.
f The company is setting up a 30-MW captive power plant for supplying power to the Iron & Steel and Electric Vehicles Plant in at Kutch. This plant will utilize waste gases of sponge iron plant along with lignite. Setting up of this power plant will substantially lower the power cost, resulting in huge financial savings to the tune of around Rs 60 crore annually. The company also expects to earn revenue through sale of carbon credits once the plant becomes operational.
F The company has tied with HYL Technologies, Mexico for setting up gas-based HYL DRI Plant. This will further help the company make inroads in foreign markets.
F The company clocked sales of Rs 730.887 crore with profits of Rs 43.35 crore in 2006-07 as against sales of Rs 337.964 crore with profit of Rs 27.25 crore in the previous year. The management is confident of achieving turnover of Rs 1000 crore in the current financial year ending March 2008. With the stock currently trading at a P/E multiple of 10.63 and at around 4.8 times its book value of Rs 101, there is scope for considerable appreciation in the coming months. n

Ador Fontech
Welding future growth

BSE ticker code 530431
NSE ticker code Not listed
Major activity Electrodes-welding equipments
Chairman R T Malkani
Equity capital Rs 3.50 crore
52-week high/low Rs 107/62 (FV Rs 10 )
CMP Rs 94
Mkt capitalisation Rs 32.90 crore
Recommendation Buy

Ador Fontech is a major player in maintenance welding, which is a niche segment requiring specialised skills. The focus of its activities is to provide metal joining, reclamation welding and surfacing solutions. The company also acts as a value added reseller for many international companies like Alloy Steel International , Australia, Berkhenoll, Germany, CEA, Italy, Cepro Netherlands for their products in India. It supplies products and services to almost all the core sector and several engineering industries. The company is worth adding to one’s portfolio at current levels.
f Strong growth in the manufacturing, shipping and oil industries has increased the need for maintenance welding to make the best use of available resources (machinery, ships and rigs). Moreover, a better demand scenario has led to old machinery and old factories getting back into operation, thereby increasing the demand for maintenance welding. Increased activity in the ship building industry also has boosted demand for specialised and reclamation welding.
f Indian industry is on a high growth path. The company’s user industry segments such as steel and other metallurgical complexes, mining, cement, power etc. have ambitious expansion plans. Basic mineral and metal prices are on the increase. Further, more and more end-users have a need to outsource the reclamation work of their machinery components. Therefore, recycling and life-enhancement will be an increasing window of opportunity.
f Most of the company’s customers are positive on their growth prospects. New products and services as needed by them are also included in the company’s business plans. New customers too are being added to its end-user portfolios. Further the number of steps initiated by the company to improve customer focus and continues addition of world class brands to its product spectrum will help it fully captive on the better demand scenario. Overall outlook is therefore bright.
F Moreover, the company can be expected to sustain sound performance due to its higher ratio of manufactured products to traded goods, focus on high-growth products and end-users, employee training and development programmes and benign economic environment. This year the company has made a major thrust on key products portfolio like repair welding & ceramics. Focused training has been imparted to employees by foreign principles through company in-house training division ‘DOTES’.
f After achieving an EPS of Rs 14.6 in FY 2007, we expect the company to register EPS of Rs 18.3 in FY 2008. The share price trades at Rs 94. P/E works out to just 5.0. Moreover, the company is available cum-dividend of Rs 5. The tax-free dividend yield works out to a good 5.5 and the forward tax-free dividend yield works out to a handsome 7.1.