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Tuesday, September 18, 2007

Akar Tools-The Dark Horse from my stable

Scripscan=Akar Tools Ltd
Return expectation=70%
Duration=9-12 months

Introduction-Akar tools manufactures a range of hand tools under the brand name 'Akar' which include open-ended jaws, rings, combination and tubular box spanners, pliers, pipes/wheels/filters, wrenches, chisels, vices, hacksaws, bearing pullers, wrecking bars and nail pullers, carpenter tools and punches etc.

1)Over the years the company has forward integrated itself from making steel to tool manufacturing and currently has a large export market spanning Europe, US, Japan, Australia and many other countries.

2)The company has increased its hand tool capacity from 2,400 tonne per annum (tpa) to 3,600 tpa and futher they are expanding their leaf spring capacity from 3,600 tpa to 12,000 tpa:The same is scheduled to complete by last quarter of 2007-08.This will help the company to meet the growing demand in years to come.

3)To add synergy and to gain more market share the company recently has merged an associate company,ajanta auto with itself.Ajanta Auto caters to demand of the domestioc market and is engaged in the busienss of manufacturing leaf spring used in automobile sector.This is certainly going to boost the companys domestic revenue in the coming quarters.

4)Hand Tools Industry is directly related to Engineering & Automobile sector where the maximum expansion and new projects are going on.With the increased of modern manufacturing and quality control facilities akar tools is in a position to take full advantage of the increase in its product demand.

5)The company has declared a dividend of 15% and good news is that its till cum dividend.Anybody who opts to own the scrip before 21st of these month would be entitled for the dividend.Now thats something to cling upon as the dividend yield itself comes at nearly 4%.Hmm one is already coming superior to the inflation numbers just by the dividend yield.

Outsourcing Opurtunity-India's cost competitiveness,due to a high degree of engineering and manufacturing skills in segments like forgings, castings, stampings, and engineering services has resulted in India being one of the top 3 outsourcing destination for auto component/tools RFQs by global customers. Already, a growing number of OEMs are using India as an exports hub and increasing procurement volumes.With the growing brand image of akar coupled with increasing aceptance of its product there looks to be tremendous potential for the company to tap.

Risk and Concerns:Tough competition.# Margin pressure.# Frequent increase in the prices of steel and other inputs.# Uncertainties of overseas and external factors are some of the risk and concerns associated with the company

Conclusion-The robust investment capex lined up by Indian corporates across the engineering industries, will increase the demand for the company's products.With high economic activity, especially in the infrastructure and construction sectors booming, companies like Akar are definitely poised for big growth.Akar should deliver a topline of about 98crs this fiscal with 4.2crs in bottomline.At 41 rs its just quoting a valuation of about 5 times its expected fy08 earnings.Given the attractive valuation and impending robust growth,We are very positive about the company.Owning it for an year or so may just help ones portfolio to garner a return of over 70-80%.Altogether a scrip worth looking at.


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