Pitti Laminations

Pitti Laminations has performed well during the first quarter ended Jun-06. Total Income is up by 91.4% to Rs 302.60 million as compared to Rs 158.10 mn for the same period last year. Net profit is up by 35.88% in the first quarter ended Jun-06 to Rs 20.26 million as compared to Rs 14.91 mn for the same period last year.

 

In FY-06 the Total Income was up by 85.44% to Rs 846.5 million as compared to Rs 456.49 mn in FY-05. Net profit was up by 37.21% in FY-06 to Rs 68.95 million as compared to Rs 50.25 mn in FY-05.

 

I am attaching a report dated 3 Oct 06 by Prabhudas Liladhar. They have the following comment to make

 

"Set up in 1983 at Hyderabad, Pitti Laminations (PLL) is a leading manufacturer of electrical steel laminations and stampings, die-cast rotors, tools, jigs, fixtures and moulds. Its manufacturing facilities are located at Nandigaon village in Andhra Pradesh. These laminations are used in industrial motors, alternators, power and wind generators, DC machines, train-lighting generators, pumps, medical diagnostic equipment and in aeronautics, to name a few.

 

Pitti currently has a capacity to manufacture 25,000 tonnes per annum of stampings. The company is setting up a new facility for fabricating steel stator bodies, machining stator bodies and for core dropping operations. This forward integration initiative would help Pitti to get better realizations. It plans to set up by May 2007 a facility to manufacture 1,800 to 2,000 pieces of core droppings, primarily to cater to the requirements of GE ( USA). The project is expected to cost about Rs 400m.

 

PLL has a large customer base and supplies to power equipment manufacturers such as ABB, BHEL, Siemens, Crompton Greaves, Areva T&D, VA Tech, Bharat Bijlee, Kirloskar Brothers, Suzlon, GE (USA), etc. Pitti has a current order book to supply 17,000 MT of stampings and 1,200 pieces of core droppings. This translates into orders worth approximately Rs 1,400m.

 

We expect CAGR of 55.1% in Pitti's revenue and 72.8% in its earnings for the period FY06 – FY08. At the CMP of Rs 88, the stock trades at 6.3x and 3.9x its FY07E and FY08E earnings, respectively, of Rs 13.9 and Rs 22.4. On an EV/EBIDTA basis, the stock trades at 3.6x and 2.2x respectively. We rate the stock a BUY with a target price of Rs 140."

 

 

Pitti Laminations Ltd			BSE Code: 513519
	FY-06	FY-05	FY-04	FY-03	FY-07 Q1	FY-06 Q1
Total Income	846.50	456.49	379.61	256.92	302.60	158.10
Expenditure	708.33	365.38	324.75	226.03	260.25	130.41
Operating Profit	138.17	91.11	54.86	30.89	42.35	27.69
Op Profit %	16.32%	19.96%	14.45%	12.02%	14.00%	17.51%
Interest	19.18	7.58	8.94	9.73	8.34	3.12
Depreciation	11.80	7.80	7.99	7.83	3.48	2.09
Tax	38.24	25.48	(2.38 )	1.15	10.27	7.57
	69.22	40.86	14.55	18.71	22.09	12.78
Net Profit	68.95	50.25	40.31	12.18	20.26	14.91
Net Pr %	8.15%	11.01%	10.62%	4.74%	6.70%	9.43%
Earning Per Share	8.79	8.05	8.72	3.88	2.20	2.33
Calculated EPS	8.80	8.05	6.46
Share Capital	78.34	62.44	62.42	31.42	92.04	78.34
Reserves	192.90	47.72	8.08	(32.24 )
Book Value	34.62	17.64	11.29	(0.26 )	10.00	10.00
Dividend	20.00%	15.00%	0.00%	0.00%
Dividend Payout	22.75%	18.63%	0.00%	0.00%
Growth in Income	85.44%	20.25%	47.75%		91.40%
Growth in Profit	37.21%	24.66%	230.95%		35.88%
Net Sales	845.38	450.72	377.89	251.45	302.40	158.00
Other Income	1.12	5.77	1.72	5.47	0.20	0.10
Total Income	846.50	456.49	379.61	256.92	302.60	158.10
Net Sales	99.87%	98.74%	99.55%	97.87%	99.93%	99.94%
Stock	(62.446 )	(22.367 )	2.994	(2.521 )	(5.26 )	(10.56 )
Raw Materials	582.714	273.576	240.279	161.462	205.11	99.08
Staff Cost	59.202	43.173	27.588	21.665	22.51	11.15
Other Expenditure	128.856	70.993	53.892	45.425	37.89	30.75
Total Expenditure	708.326	365.375	324.753	226.031	260.250	130.413
Materials %	61.46%	55.03%	64.08%	61.86%	66.05%	55.99%
Staff Costs %	6.99%	9.46%	7.27%	8.43%	7.44%	7.05%
Other Exp %	15.22%	15.55%	14.20%	17.68%	12.52%	19.45%
Interest %	2.27%	1.66%	2.36%	3.79%	2.76%	1.97%
Depreciation %	1.39%	1.71%	2.10%	3.05%	1.15%	1.32%
Tax %	4.52%	5.58%	-0.63%	0.45%	3.39%	4.79%

Solar explosives..

The explosive Industry is set for a boom and there will be demand from Private sector too!

The Explosives industry is important to extract minerals, break rock and make roads. The infrastructure of the developed world couldn't have built without the help of Explosives. In the 1860s, Alfred Nobel invented dynamite and the blasting cap required to make dynamite explodes and this saw the beginning of Industrial Revolution began. With the use of dynamite mines could be dug deeper and more quickly. Explosives are a vital part of every construction project and in the mining of every mineral i.e. coal, iron ore, copper, bauxite, or any other. In India, manufacture of Explosives started in the year 1958 by M/s. ICI (India) Limited, Gomia, Bihar (now Jharkhand). The demand for explosives is directly linked to the growth in mining and infrastructure sector. Demand for explosives is more in Coal mining, Infrastructure development and Metal mining. Mining industry is expected to grow in the core segments like coal, iron ore, and limestone. Coal mining remains the largest application for Explosives worldwide accounting for almost 70% of total explosive consumption. Quarrying and metal mining accounts for almost 10% and the balance 20% is accounted for by infrastructure, construction and other miscellaneous uses. Over 70% of the coal output in India is being consumed for power generation and it is believed to be growing at 4.5%. Production of Coal was 405mn ton in 2005-06 compared to 382mn ton in 2004-05 an increase of 6%. The Government has plans to increase production from 405mn to 621mn ton by 2011-12.. Plans are afoot to deblock 20 bn ton coal reserves for power projects. This should lead to an increase in demand for explosives. India offers good infrastructure opportunities and there are many upcoming ambitious plans for expansion and modernization. India has 3.3 million kilometers of road network, which is one of the largest in the world. Explosives are indirectly used for Roads which occupy an important position in transportation as they carry nearly 65% of freight and 87% of passenger traffic. In India traffic on roads is growing at a rate of 7-10% per annum while the vehicle population growth for the past few years has been 12% p.a.

Solar explosive is the market leader with CIL deciding fortunes for now !

The present market for industrial explosives including Accessories is estimated at Rs.1300cr comprising of Bulk Slurry emulsion of Rs.740 cr, Cartridge of Rs.260 cr and Accessories of Rs.300 cr. Indian Explosives Limited, Solar Group and Gulf Oil Corporation Limited are the major players. Currently, there are 63 Explosive manufacturers in the country. Of these 31 manufacturers are presently active in Cartridge Explosives, 24 companies manufacture Bulk Explosives, 10 companies manufacture Detonators and 18 companies manufacture Detonating Fuse. The industry?s combined capacity for Bulk Explosives and Cartridge Explosives is 14 lac ton, almost 878mn Detonators are manufactured p.a. and the total capacity for Detonating Fuse is 439mn meters. Solar Explosives Limited a part of Solar Group started manufacturing Slurry Explosives in the year 1996-97. It also manufactures Detonators and Detonator components through Economic Explosives Limited and Solar Components Private Limited. The Group started manufacturing Bulk Explosives through wholly owned subsidiary Solar Capitals Limited in the year 2000. With a Licensed Capacity of 1.75 lac tonne Explosives, 140 Million numbers of Detonators and 20 Million Meters of Detonating Cord, it is one of the largest suppliers of Packaged Explosives in India. Solar Explosives is also one of the largest suppliers to Coal India Limited (CIL) which alone accounts for major consumption of the domestic Explosive industry?s output i.e. 70% of total country's demand. It consumes around 4 lakh tons of explosives produced annually. Sales to CIL constitute almost 45-48% of total revenue of Solar explosives. The company also supplies to companies like Steel Authority of India Limited, Singareni Collieries Co. Limited, Hindustan Zinc Limited, Cement Industry, Border Roads Organization, various National Hydro- Electric Projects and various other companies in the infrastructure and construction sector. Solar explosives also export their products to South East Asia, Gulf and African countries. Solar explosive is now the market leader with a market share of 25% compared to 15% of Indian Explosive Ltd and 9% of Gulf Oil Corp. The company had a turnover of Rs 169cr (consolidated) for the year 2005-06 with NPM of 11%. The company's exports were of Rs 8cr in 2005-06 against Rs4.6cr in 2004-05 with a significant increase of 74%. Solar has received an order of 61300 MT of Bulk explosives and 10265 MT of Permitted explosives for 2006-07 from CIL. The total order is approximately valued at Rs 148 cr. There has been a change in the process of ordering by CIL and that has lead to much higher business from CIL. Earlier orders were shared amongst all vendors but its now L1 and given the economic size and spread out presense Solar has managed to bag larger orders.

Best placed to capture the potential..however near term performance likely to be a dampener

The explosive industry is a licensed industry where you have to procure license for producing, transportation and can sell to sell only to those company having a license. The industry has major entry barriers as new players have to wait to get getting the license for the manufacture of explosives. Interesting thing to note is that liquid explosives cannot be transported over long distances and hence manufacturing has to be nearer to place of use. Also the specialised vehicles needed for transport restricts the capacity. Most of the production is in the December and the March quarter as construction and mining activity is restricted during the monsoon season. Shelf life is low at about 6 months so manufacturing also picks up post September only. Specialised knowledge on the kind of explosive and the right combination needed for kind of rocks gives Solar the exta edge. Demand for Explosives is also expected to come from the hydro electric projects which would require excavations and huge capacity addition in thermal power is expected to push the demand for coal even further. The government's plan to deblock 20bn ton coal reserves for the private sector is the big trigger. With the increasing mining activity and infrastructure plans for roads the Explosives industry is set for better times. Solar recently raised Rs 76 cr in its IPO in March this year at a price of Rs 190 per share. The IPO was was to raise money for setting up 13 support and transfer plants, mostly in eastern parts of the country, as part of its expansion plan. These include 4 new manufacturing units at Himachal Pradesh and Jharkhand.The proposed new plants near the coal mining sites would fill this gap in the growing demand for the explosives. The company is in the process of setting up a factory in Nigeria to carter its clients based in Africa and Gulf countries. Solar explosives is working to supply to the Defence sector with the DRDO but thats likely to take some more time. It has developed a dust suppressor which makes working conditions easier after the blast thus leading to higher worker efficiencies. The macro business scenario remains extremely exciting. However for now the worry is from the falling margins from the new supplies to Coal India Ltd. The higher volumes from Coal India will somewhat compensate but operating margins will be hit. The next big trigger is the awarding of the coal blocks to the private sector. The initial mining uses up most of the explosive. To add to this margins from the private sector are expected to be higher. The business is good with strong barriers to entry and Solar has the edge with its high marketshare and explosive experts. The stock trades at Rs 140 which is a valuation of 14 times trailing earnings for FY 06. A P/E of 14 for FY 07 makes is attractive.. though near term poor performance on margins will weigh on stock performance. For those willing to invest, accumulating this for long term is not a bad idea. We will however keep watch.    Revenues (Cr) 1st Qtr 4th Qtr 1st Qtr   FULL       200506 200603 200606   2007 E 2006 2005 Net Sales 20.24 23.94 27.20   194.23 149.37 116.89 %Change y-o-y   -4% 34%   30% 28%   %Change q-o-q -19% 19% 14%                         OPM% 10% 10% 12%   20% 23% 20% Operating profit 2.09 2.50 3.29   38.85 33.78 23.32 %Change y-o-y   32% 57%   115% 145%   %Change q-o-q 10% 5% 32%                         NPM% 12% 8% 11%   10% 11% 9% Adjusted PAT 2.44 2.01 3.06   19.29 17.09 10.90 %Change y-o-y   38% 25%   13% 57%   %Change q-o-q 67% 19% 52%                         Equity 3.49 17.32 17.32   17.32 17.32 3.49 Face Value 10.00 10.00 10.00   10.00 10.00 10.00 EPS 6.99 1.16 1.77   11.14 9.87 31.23 Annualised EPS 27.97 4.64 7.07         Trailing EPS   11.23 6.01         Price     140.00   140.00 140.00   P/E     19.81   13 14

Kalindee Rail-Hi Speed Rail Links

Kalindee Rail Nirman: Building up the National Train Network

BSE 522259, CMP Rs 147

 

Delhi based Kalindee Rail is emerging as one of the most exciting infrastructural plays. With the GOI announcing huge outlay on enhancing the Railways network and Metro Rail expected to be set up in 4 more cities of Mumbai, Bangalore, Hyderabad and Chennai, Kalindee could become a prime beneficiary. Kalindee has already executed 22 kms of ballast free tracks for the Delhi Metro and a large order flow is likely to come its way.

 

Financials

 

Consolidate Revenues of Kalindee Rail would exceed Rs 250 crore (Rs 90 crore), with after tax profits of Rs 12.6 crore (Rs 3.6 crore). Consequently, on the post-merger Equity of Rs 8.77 crore Kalindee will be able to report an EPS of Rs 14.3 (Rs 7.3). At the current price of Rs 147, the stock quotes at a PE of 10 based on near term projected earnings.

 

But this is just part of the story. With the orders in hand and under the bidding process FY08 Revenues will rise to Rs 400 crore and to Rs 700 crore in FY09. After tax profits will rise to Rs 24 crore and Rs 49 crore  in the same period.

 

Background

 

Indian Railways (IR), the world's second largest rail network having a network of 63,465 route km, in 2003, formed Rail Vikas Nigam Limited, a 100 per cent government-owned company, to execute all projects under the National Rail Vikas Yojana, which was initiated in 2002. These projects pertain to rail-port connectivity, developing multimodal corridors to the hinterland, construction of mega bridges and strengthening of the Golden Quadrilateral. The RVNL has already identified about 56 projects valued about Rs. 30 billion.

 

In 2005, the Committee on Infrastructure headed by the Prime Minister approved the Rs 600 billion freight corridor railway project. The Railway Budget 2006-07 also proposed the construction of the dedicated multimodal high axle load freight corridor with computerized control on the western and eastern routes at an estimated cost of Rs 220 billion in the first phase. The freight corridor, which will add 10,000 km to the existing rail network, is expected to change the dynamics of country's transportation sector.

  

Mass rapid transit system (MRTS) projects are gaining momentum. The progress of the Delhi MRTS project is notable. In all, 62.19 km of the Delhi metro is now fully operational and it is planned to extend its network outside the capital city. Recently, in March 2006, the cabinet approved the MRTS projects of Mumbai, Bangalore and Hyderabad. These projects are now in various stages of implementation.

 

The budget has projected an increase of 32 per cent in the annual plan outlay over the previous year to Rs 234.75 billion, excluding provisions for national projects.

  

Construction on the Rs 600 billion project is expected to commence in 2006. Once completed, the rail freight corridor project would add 10,000 km to the existing rail network. This is extremely significant considering that only 9,625 km has been added since 1950-51

  

This brings forth the extent of business potential lying ahead for the highly experienced company in Railway Sector like Kalindee in coming years.

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations, outlook etc are included in this update to help investors / analysts get a better comprehension of the Company's prospects and make informed investment decisions. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Investors are advised to consult their certified financial advisors before making any investments.