>Prakash Steelage Ltd.: IPO NOTE

Business Overview: Prakash Steelage Limited (‘PSL’) a flagship company of Prakash Group is engaged in the manufacturing of seamless & welded stainless steel Pipes, Tubes and U-tubes. PSL carries production through its two stateof- the-art production units situated at Silvasa and Umbergaon (Gujarat) with total installed capacity of 15,600 MTPA.

Key Rationale:
■ PSL is an ISO 9001: 2008 & PED certified company. Company is also a government recognized 'Star Export House' exporting to several multinationals in over 40 countries across the globe.

■ The Company manufactures a wide range of products based on the customer specifications. Company also plans to add Duplex, Super Duplex and Super Austenitic pipes/ tubes to its product portfolio.

■ PSL's installed capacity has increased at a compounded annual growth rate (CAGR) of 40.5% over FY2007-10. The company's utilization rate has steadily increased from the low of 35.3% in FY2008 to 68.6% in FY2010. PSL is planning to increase its capacity from 15,600MT to 19,000MT by FY2011.

To read the full report: PSL

>WENDT LIMITED (Industry - Abrasives)

Bangalore-based Wendt (India) Ltd (Wendt) is a leading manufacturer of superabrasives in
India. It also manufactures grinding machines and precision components. We assign Wendt a fundametal grade of ‘4/5’, indicating that its fundamentals are ‘superior’ compared to other listed securities in India. We assign a valuation grade of ‘2/5’, indicating that the current market price has ‘downside’ to our fair value per share.

■ Leading the superabrasives pack in India
Wendt currently commands ~35% market share in the Rs 1.5 bn Indian superabrasives industry, which is expected to grow at a CAGR of 7% over the next three-five years. Given its technological advantage, comprehensive product portfolio, strong brand image and reputed customer profile, we expect Wendt to maintain its lead. The rise in incremental demand due to a shift in customer preference from conventional abrasives to superabrasives will further boost the segment, though it is too early to factor this in.

■ Grinding machines and components to be the next growth driver
Wendt has renewed its focus on manufacturing grinding machines and precision components since FY06 while they have been making these machines since FY95. These products require high-end machines and technological expertise, which Wendt has courtesy of Wendt Gmbh, a leading manufacturer of grinding machine and precision components globally. We expect Wendt’s revenues from this segment to grow at a twoyear CAGR of 70% to Rs 274 mn by FY12 on account of a strong order flow.

■ Strong technical support from the parent…
Germany-based Wendt Holding Gmbh, part of the Winterthur Technology Group AG, is one of Wendt’s promoters. The company is globally known for its technological know-how and superior quality superabrasives. The technology sharing keeps Wendt’s product portfolio continuously updated and helps it command significant premium pricing over its competitors. We believe access to superior technology will help Wendt to maintain a strong foothold in the superabrasives segment.

■ … but technology dependence could be risky
Wendt benefits on the continuing technology inputs from Wendt Gmbh. But Wendt has over a period of time moved from being entirely dependent on the ‘Know how’ transfer to a company that operates on ‘Know why’ understanding. Over 40% of the current sales come from products that have been developed in-house by WIL. Though little but there still lies technology dependence risk which may impact the profitability.

■ Revenues to grow at a two-year CAGR of 19%, RoE to expand to 24.8%
We expect the company’s revenues to grow at a two-year CAGR of 19% to Rs 897 mn in FY12, primarily driven by strong growth in the grinding machines and components business. We expect EBITDA and net margins to marginally improve to 26.9% and 16.4%, respectively, by FY12. Consequently, RoE is expected to improve to 24.8% by FY12. We expect the company to continue to remain debt-free going forward.

To read the full report: WENDT

>Transformer & Rectifier India Ltd: RESULT UPDATE 1QFY11

Transformer & Rectifiers India Limited’s (TRIL) Q1FY11 results were tad lower than our expectation in terms of revenue and earnings. TRIL registered a muted performance on revenue front as it registered a top line of ` 85.56 Crores as compared to ` 85.94 Crores in the same quarter last year. Sales in volumes terms declined by 2% to 1591 MVA as compared to 1616 MVA in the same quarter last year, while the realizations slightly improved by 1% to ` 5.24 lakh per MVA from 5.18 lakh per MVA in the same quarter last year. Realizations improved in the quarter on account of some good private industrial order execution where the realizations were as high as ` 8-9 lakhs per MVA.

On a sequential basis, the revenues declined by 60.5% where as net profit declined by 57%. Operating profit during the quarter has decline marginally by 2.06% to ` 14.73 Crores as compared to ` 15.04 crores in the same quarter last year. The company able to maintain the margins despite 270 bps increase in the raw material cost, as it was able to manage its other cost efficiently.

TRIL has an order book position of ` 3726 mn (8700 MVA), which the company plans to execute within next 6 months.

To read the full report: TRIL

>Indian Hume Pipe Ltd (IHP): only company/manufacturer in the organised sector in India that manufacture quality Air Rifles / Air Pistols.

IHP is in the business of cemented pipes and pipes that can cater almost water management needs. IHP is only company/manufacturer in the organised sector in India that manufacture quality Air Rifles / Air Pistols. Company is now entering in to real estate development this will unlock the value for shareholders. At CMP of ` 777 we initiate our covering on IHP and recommend buying with a target price of ` 975.

■ Water Management remain as necessity forever ~ Water is a prime natural resource and a basic human need for survival and existence. Indeed water is fundamental to our life. In view of the vital importance of water for human, animal & plant life, for maintaining ecological balance and for economic and developmental activities of all kinds and considering its increasing scarcity, the planning and management of this resource and its optimal economical and equitable use has become a matter of national importance.

■ Diversified Portfolio ~ IHP is in the business of the almost all type of cemented pipes and pipes that can caters almost every water management needs. Company is making seven different types of cemented pipes. The sewage systems in the country are not only dilapidated but also overused. Each state government may probably have to take up sewerage resurrection plans. IHP being a preferred supplier for pipes in sewerage systems.

■ Government attention towards infrastructure ~ Indian government has now shifted its focus to infrastructure development. Budget 2010-11 government has allocated over ` 1, 73,550 Cr for
infrastructure and ` 48000 for rural development. Expansion in the country’s economy and growing industrialization even though at a slower pace than that witnessed in the recent past shall lead to an increased demand for water – such as hydro power, industrial uses, agriculture etc, which shall in turn put an increased pressure on water resources.

To read the full report: IHP

>Indian Power Industry - Current Scenario and Opportunities Ahead

Generation
India has the fifth largest generation capacity in the world with an installed capacity of 152 GW as on 30 September 2009, which is about 4 percent of global power generation. The top four countries, viz., US, Japan, China and Russia together consume about 49 percent of the total
power generated globally. The average per capita consumption of electricity in India is estimated to be 704 kWh during 2008-09. However, this is fairly low when compared to that of some of the developed and emerging nations such US (~15,000 kWh) and China (~1,800 kWh). The world average stands at 2,300 kWh2. The Indian government has set ambitious goals in the 11th plan for power sector owing to which the power sector is poised for significant expansion. In order to provide availability of over 1000 units of per capita electricity by year 2012, it has been estimated that need-based capacity addition of more than 100,000 MW would be required. This has resulted in massive addition plans being proposed in the sub-sectors of Generation Transmission and Distribution.

Transmission
The current installed transmission capacity is only 13 percent of the total installed generation capacity3. With focus on increasing generation capacity over the next 8-10 years, the corresponding investments in the transmission sector is also expected to augment. The Ministry of Power plans to establish an integrated National Power Grid in the country by 2012 with close to 200,000 MW generation capacities and 37,700 MW of inter-regional power transfer capacity. Considering that the current inter-regional power transfer capacity of 20,750 MW4, this is indeed an ambitious objective for the country.

Distribution
While some progress has been made at reducing the Transmission and Distribution (T&D) losses, these still remain substantially higher than the global benchmarks, at approximately 33 percent. In order to address some of the issues in this segment, reforms have been undertaken through unbundling the State Electricity Boards into separate Generation, Transmission and Distribution units and privatization of power distribution has been initiated either through the outright privatization or the franchisee route; results of these initiatives have been somewhat mixed. While there has been a slow and gradual improvement in metering, billing and collection efficiency, the current loss levels still pose a significant challenge for distribution companies going forward.

To read the full report: POWER SECTOR

>ICSA LIMITED: Ready to takeoff

We recently had a conference call with the management of ICSA (India) Ltd. to have an understanding of i) the corporate strategy for their new SMART meters manufacturing facility, ii) new product development, and iii) recent developments within the T&D industry, specifically RAPDRP. ICSA is bullish on the demand potential of the SMART meters facility with peak revenue potential of Rs.1000–1500mn in the next 3-4 years. ICSA is also bullish on Power Quality Management Systems (PQMS), designed to monitor interruptions, durations, voltages etc., at each distribution transformer level. Near-term triggers to the stock include possible order inflow from high margin ESS business from Q3 FY11 onwards, fruition of which could provide an upside to the current order book of Rs.18bn. We reiterate our BUY rating on the stock with a price target of Rs.239/share.

■ Strengthening SMART meter capacity
ICSA has set-up SMART meters manufacturing facility in Andhra Pradesh with a total capacity of 150,000 meters/month at a cost of Rs.260mn. SMART meter is a combination of energy meter and a communication device, which would form a part of smartgrids network in the country. ICSA sees immense demand potential for these meters going forward. Presently, the company is planning to produce energy meters and other embedded solutions like RTU and IAMR in this facility, which would be supplied to its distribution utilities. The company is looking for revenue of ~Rs.1,000–1,500mn/year from this business unit at the peak, which is expected to happen in the next 3–4 years. The company is expecting margins of ~10–12% for energy meters and ~20%+ for SMART meters.

■ Product pipeline getting stronger with Power Quality Management System (PQMS)
ICSA has recently completed a pilot project for installation of a power quality management system (PQMS). PQMS has been designed specifically to monitor interruptions, durations, voltages etc., at each distribution transformer level. This equipment would help to improve power quality. The company expects immense potential for this new product going forward.

■ Expects orders inflow for high margin ESS business by Q3FY11 onwards under RAPDRP
The company is maintaining the same guidance in terms of orders inflow for its high margin ESS business from System Integrators by Q3FY11 onwards under RAPDRP. For SCADA solutions, the company is expecting floatation of tenders after one and a half month. Currently, the company has placed bids for projects worth ~Rs.2bn for ESS business (other than SCADA solutions) and ~Rs.8bn for overall ESS and SCADA solutions. These above said orders are not part of the opportunities available under RAPDRP.

■ Looking for other opportunities available in Oil & Gas and Water segment
ICSA is considering a business opportunity of Rs 16–17bn for its product Intelligent Cathodic Protection System (iCap) from the oil and gas segment in the next 2–3 years. Apart from this, the company is looking for a business opportunity of Rs.21–22bn for its products Intelligent Automatic Water Meter Reading and Agricultural Load Management System from water and irrigation segment in the next 2–3 years.

■ Maintain “BUY”, with a price target of Rs.239/share
We expect a subdued performance in 1Q FY11 – net sales of Rs.3bn, down 2% Y-o-Y and PAT of Rs.247mn, down 27% Y-o-Y. However, we maintain our full year estimates for revenue and PAT despite subdued 1Q as we expect 2H FY11 to be much better than 1H, since generally 60% of revenues get booked in 2H. We thus maintain our BUY rating on the stock with a price target of Rs.239/share.

To read the full report: ICSA LIMITED