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Tuesday, April 15, 2008

2 more midcap gems:-Hbl Power and Vinati Organics

Scripscan:HBL Power Systems Ltd
CMP:275
Traded in:-Bse-nse

Story:-HBL power is engaged in the business of making specialised batteries, electronics and DC power systems and caters to a variety of end-user requirements across industries.The customer segments include telecom, railways, defence, power, solar energy, petroleum, oil and gas, and uninterrupted power supply systems.A secured communications product,(a gateway encryptor) developed by HBL has passed all the tests required and is likely to be used widely by several government agencies,beginning early 2008.The product can prove to be a blockbuster for the company.The company made 2 bids during early 2007 for defence electronics contracts, totaling over 500 crores. The time lines in defence are such that the final result will be known only in end of 2008.The products are already in field trials.Further, Its JV with IAI-ELTA of Israel has commenced exports recently.Two bids were made by the JV to the Ministry of Defence.Results may be known in mid 2008.The management expects to increase its margins as each and every contracts of the company are now on variable cost and the price hike has been pass on to the clients.Last year the company faced several problems because of the high volatility of input cost prices, this fiscal they have given a decent check in managing the raw material procurements.In these sort of competitive environment where most companies are struggling to grow by 20-25%,Hbl is going to double its turnover and Profit these fiscal.The company has guided a turnover of in excess of 1000crs these year vs 511crs last year.Profit after tax should touch around 70crs vs 32crs last fiscal.It should be prudent to note that the company guided 500crs revenue in 07 and ended up doing 511crs.Further the company is expected to post turnover worth 1650crs in 09 and profit is expected to inch to around 120crs.Eps for 08 and 09 are expected to be 29 and 50 respectively.The company as on march 2007 has got over 215crs reserves in its book which is around 9 times its equity capital.Its of one"s easy assumption that HBL remains one of the primate candidates for a liberal bonus issue.If the assumptions vindicates that can certainly as a big trigger for the company. At present price of 275 the company is quoting at 9.5 times its 08 and just 5.5 times its fy09 earnings.One of the finest buys.




Scripscan:Vinati Organics Ltd
Code:524200
Cmp:78
Traded on:BSE

Story:Vinati Organics is engaged in the business of producing IBB (Iso Butyl Benzene) and ATBS (2-Acrylamido 2 Methylpropanesulfonic Acid).The company with a capex of about Rs.35crs is presently expanding its ATBS facilities from 3k MT to 8k MT and the same is expected to be completed by June 2008.This expansion will make the company the world's second largest producer of ATBS.ATBS is a specialty monomer used in oilfield and mining chemicals, water-treatment, acrylic fiber, personal care, emulsions, adhesives etc. The world demand for ATBS is growing steadily and is expected to increase 2 to 3 fold with the production of enhanced oil recovery polymers.The company is in the process of finalizing long-term supply agreements for ATBS with worlds largest buyers based in USA and Europe.The company has entered into a long-term supply agreement with BASF, USA, world's lamest producer of Ibuprofen. The company has increased its Isobutyl benzene (IBB) manufacturing capacity to 14000 TPA and is the world's largest producer with 70% market share.IBB is one of the key raw materials for making Ibuprofen.The supply agreement warrants BASF to buy majority of its IBB requirements from the company up to 2011. The contract can be renewed for additional three years and is expected to contribute up to Rs 240 crore in revenue in the first five years. As per the contract the monthly selling price of IBB is adjusted based on monthly world prices of key raw materials and exchange rate, thus minimizing the company's exposure to these variables.The production and supplies have ramped up since July and the coming quarters should reflect all the developments.The company is planning to convert its ATBS production facility into an Export Oriented Unit from a Domestic Tariff Area.It is understood that the process would get completed by these year itself.It means that the profits from the sale of ATBS could be tax-free for the next couple of years.The company is expected to end the year with sales of about 150crs.Profits could be around 15crs resulting an EPS over 15rs.At present price of 78 its just quoting at 5.3 times its fy08 earnings.With escalating product prices,industry leadership,enhanced capacity utilization,new long-term contracts and roubust business prospects,Vinati organics may just prove to be another of my scrips which satiates ones desires through tremendous capital appreciation in the coming days.




Regards,
ARUN
I can be reached at:-arunanalyst@rediffmail.com

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