>OM METALS INFRAPROJECTS (SBICAP SECURITIES)

Om Metals Infraprojects Ltd (OMIL) is the largest hydro-mechanical equipment supplier in India with a market share of over 60 percent. The company has nearly 4 decades of experience in successful execution and completion of turnkey hydro-mechanical contracts for hydropower and irrigation. The company presently has Rs 636 crore worth of order book, which is 3.5x of its H1FY10 annualised sales and it is expected to be completed in the next 3 years.

We believe that value unlocking from its real estate business will be a major fillip for the valuation of the company. The value of its land bank is at Rs 248 crore (Rs 26 per share). We initiate coverage on the stock with 'BUY' rating.

■ Largest hydro-mechanical with a healthy order book: The company is the largest hydro-mechanical equipment supplier in India with a market share of over 60 percent and nearly 4 decades of experience in successful execution and completion of turnkey hydro-mechanical contracts for hydropower and irrigation. The company presently has Rs 636 crore orders book, which is 3.5x of its H1FY10 annualised sales and it is expected to be completed in next 3 years. This provides substantial medium term revenue visibility. In addition, the company has submitted bids for more projects and they expect to take the total tally of order book to over Rs 800 crore by FY10.

■ Huge value unlocking from the real estate business: The company has nearly 1.5 million Sq.ft of saleable land bank situated at Hyderabad, Jaipur, Mumbai, Faridabad, Kota etc This land bank is valued at Rs 248 crore which works out to Rs 26 per share. The company has a 35 percent stake in a 2.6 lakh Sq.Ft. SRA project in Bandra, Mumbai. This project will be completed in next 3 years and a total profit of Rs 117 crores is expected to accrue to the company on project completion. The company also generates real estate revenue from a hotel in Jaipur, lease revenue from a multiplex in Kota and a Toyota show room in Jaipur.

■ De-risking strategy through infrastructure forayed: The Company has recently forayed into the Infrastructure segment by winning two contracts for the development of a port and an SEZ in Pondicherry. The SEZ project is multi-product SEZ spread over 860 acres and the company has a 20 percent stake in it. The company has a 50 percent stake in the port project in Pondicherry, which is to be developed in next 5-6 years. Both projects are excepted to be developed through separate SPV's.

■ Valuations: We have valued the company by the 'Sum of the Parts' valuation method, in which we have taken the value of its core business and the BV of its land bank for the purpose of valuation. At the current price of Rs30, the stock is trading at 7.3x and 5.3x of its core FY10E and FY11E earnings respectively. As per our Sum of the Parts valuation, we recommend a buy on the stock with a price target of Rs39 thus providing an upside potential of 30%.

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