RAJESH'S RECOMMENDATIONS DT:30.7.07

RAJESH’S PORTFOLIO CHOICE DT:30TH JULY 2007

EIMCO ELECON (INDIA)
Mining money
BSE ticker code 523708
NSE ticker code EIMCOELECO
Major activity Engg.–Material handling
Managing Director P M Patel
Equity capital Rs 5.77 crore
52 week high/low Rs 417 / Rs 220
CMP Rs 379
Mkt Capitalisation Rs 218.68 crore
Recommendation Buy

EIMCO ELECON (INDIA) (Eimco Elecon) was incorporated in 1974 as a joint venture between Tamrock OY, Finland (25% equity stake) and Elecon Engineering Company, India, and its associates (47%). It produces a wide range of underground mining machinery.The scrip is worth a look by investors.
Just consider:
Eimco enjoys an overwhelming lead in the manufacture and supply of mining and tunneling machines for the metalliferous, coal and civil tunneling industries and sub-surface construction projects. The coal mining industry is expected to see major improvement going forward. Demand supply gap currently is envisaged to be huge. The hike in coal prices and a sharp rise in coal demand are expected to trigger increased investment in the coal mining industry in the coming years.
 The current per capita commercial primary energy consumption in India is about 350 kgoe/year. Driven by the rising population, expanding economy and a quest for improved quality of life, energy usage in India is expected to rise around 450 kg/year in 2010. Considering the limited reserve potentiality of petroleum & natural gas, eco-conservation restriction on hydel project and geo-political perception of nuclear power, coal will continue to occupy centre-stage of India’s energy scenario.
The projected demand for coal is expected to reach 730.10 MT by 2011-2012 the last year of the XIth five year plan. However, the production is likely to fall short of demand at 680MT, registering a compound annual growth of 9.47%, according to official data. The government is considering the possibilities of granting infrastructure status to the coal sector it the XIth plan. To give a boost in investment in coal mining, the sector is also likely to get tax holidays and duty exemptions.
Eimco Elecon is adding various state-of-the-art mining equipments such as continuous miners, face & roof drills, coal haulers, 160mm & 250mm self propelled crawler mounted blast hole drills to enhance production of coal to meet demand of future. It is expected that the new products would result in increased business commensurate with the growth of related segment.
 In June 2007 quarter, the company registered sales growth of 58% to Rs 33.13 crore. PAT shot up by 43% to Rs 4.09 crore. This indicated that the company has entered a new growth orbit. In FY 2008 we expect t he company to register sales of Rs 150 crore. The net profit is projected at Rs 16.44 crore. EOS would thus stand at Rs 28.5. The share price trades at Rs 379. P/E comes to just 14.0. In FY 2009, the company can register EPS of Rs 41.3. P/E on FY 2009 EPS comes to just 9.7. By 2008, book value will be near Rs 190-mark, making it ripe for a bonus issue especially when the business has turned very buoyant for the company. This can turn out to be a very good medium and long-term bet.


TAYO ROLLS
Rolling growth
BSE ticker code 504961
NSE ticker code Not listed
Major activity Casting – Steel / alloy
Chairman A N Singh
Equity capital Rs 5.47 crore
52 week high/low Rs 263 / Rs 92
CMP Rs 233
Mkt Capitalisation Rs 127.45 crore
Recommendation Buy

TAYO ROLLS (Tayo), the erstwhile Tata Yodogawa, was promoted in the year 1968 by Tata Steel Limited and Yodogawa Steel Works & Nissho Iwai Corporation (now Sojitz Corporation) of Japan, for the manufacture of rolls with a capacity of 7,800 tonnes. This scrip should be considered by investors for ones portfolio as long term investment.
Just consider:
 The steel industry is the key user industry for the company’s rolls. Expected sustained growth in demand for steel in Asia especially in China and India, has enthused all key manufacturers and almost all steel players are expanding their capacities. Increased investment in steel rolling mills ensures sustained growth prospects for the company.
 With the anticipated growth in infrastructure sector, Indian steel majors are in the process of substantial expansion by adding additional capacity as well as announcing green field projects. The availability of resources and lower cost of making steel has prompted international steel majors to announce their investment plans in India. Taking into consideration the significant development, the total steel making capacity of the country is expected to touch 110 million tonnes by 2020. A significant aspect of these developments, is exponential growth expected in the Eastern India, within the close proximity of the company.
 The company has embarked on a modernisation-cum- expansion programme involving an outlay of Rs 38 crore over a period of three years (by FY 2007-08). The expansion programme envisages phased increase in the roll making capacity from the present level of 12,500 t. per annum to 17,000 t. per annum by 2007-08. This expansion-cum-modernisation programme is being done by installing a roll grinding machine and a gas-fired heat treatment furnace. The backward integration of mini blast furnace will result in reduced energy cost by using liquid metal for captive roll making. The company is chalking out its plan for using the excess pig iron available after captive consumption. The company is exploring various options including putting up facilities for the manufacture of forged rolls, and other engineering forgings / castings.
The company aspires to be Rs 500 crore plus turnover corporate entity by 2010, through accelerated growth with global mindset, strategic alliances/diversificatuion and low cost quality product and services. Last year, its sales had expanded from Rs 158 crore to Rs 186 crore and the net profit from Rs 6.15 crore to Rs 10.63 crore, pushing up the EPS from Rs 11.2 to Rs 19.4.
For the fiscal year 2008, we expect the company to register sales and net profit of Rs 245 crore and Rs 12.96 crore respectively. EPS would works out to around Rs 21. The share price trades at Rs 233. P/E works out to just 9.8. Investors can add this scrip to their portfolio for handsome returns. 


DENSO INDIA
Electric start
BSE ticker code 520022
NSE ticker code Not listed
Major activity Auro Ancillary - Elect.
Managing Director H Hirahata
Equity capital Rs 27.88 crore
52 week high/low Rs 118 / Rs 67
CMP Rs 86
Mkt Capitalisation Rs 239.77 crore
Recommendation Buy

DENSO INDIA (DIL) (formerly Nippondenso India), is a Joint venture of three Japanese companies Denso Corp., Asmo and Sumitomo Corp, engaged in the manufacture of automotive electrical equipments.The scrip is worth a look by investors .
Just consider:
 The Indian economy is set to grow at the rate of 8-9% for the next few years. This coupled with better infrastructure, the demand for passenger cars as well as two wheelers shall continue to register good demand for the company’s products. The reduction in excise duty on small cars affected in the budget will also accelerate the growth in the car industry. Easy financing, favorable demographics (a relatively young population), increasing mid and high-income group has emerged as an important driver of demand for automobiles in India. This is going to help the sector like auto ancillaries in large way.
 With most two-wheelers using Capacitor Discharge Ignition (CDI), Denso with about 35% of its revenues coming from CDI and Magneto, would continue to remain a preferred supplier of ignition systems to most of the two-wheeler companies. The company can benefit from the fact that India’s largest car manufacturer Maruti Udyog, that has 46% market share, is a major client of DIL. Notably passenger car accounts for 65% of DIL’s total sales. Some of its other clients include Hero Honda, Bajaj Auto, Swaraj Mazda, Escorts, Toyoto Kirloskar, Tata Motors, Hindustan Motor, Eicher and Greaves.
The parent company Denso Corporation, headquartered in Japan is one of the leading international player in the field. It is looking to raise its production capacity in the country to take advantage of low production cost & high engineering skills. This will benefit the Indian operations, with possibility of parent increasing its stake.
 For the quarter ended March 2007, DIL registered an 18% rise in its revenues to Rs 119.58 crore. Even on higher base of 16.3%, OPM was up by a good 60 basis points to 16.9%. operating profit thus went up by 22% to Rs 20.19 crore. Higher other income and lower depreciation and interest free status saw its pre-tax profit going up by 36% to Rs 19.74 crore. As provision for taxation (including deferred tax) rose 22% to Rs 7.16 crore, the profit at net level jumped 46% to Rs 12.58 crore. The robust March 2007 quarter performance saw its FY 2007 sales up by 17% (to Rs 421 crore) and the pre-tax profit going up by 32% to Rs 44.02 crore. The net profit was up 32% to Rs 27.66 crore.
 For FY 2008, we expect DIL to register sales and net profit of Rs 480 crore and Rs 35 crore. On an equity of Rs 27.88 crore and face value of Rs 10 per share, EPS works to Rs 12.6. As the share price trades at Rs 86, the P/E works out to just 6.9. At these attractive valuations, the scrip should be considered for investment.