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Friday, July 3, 2009

Ambica Agarbathies and LT Overseas and Autoline Industries:Future growth prospects and outlook

1)Scripscan:Ambica Agarbathies & Aroma Industries Ltd

Story:Andhra-based Ambica Agarbathies & Aroma Industries Ltd is the only incense-stick company that is publicly-listed. The company manufactures and sells incense sticks, which is a humdrum business and easily catered by the fragmented small-scale sector. The margins are not great. Ambica has tried to introduce innovation in such a simple and highly competitive business. It has launched a host of products appealing to a much wider consumer base other than those who relate incense only with religious rituals. Its incense sticks include brands like Kamasutra, Erotica, Desire, Love and Passion, which helps it reach a much bigger market than other incense sticks. However, innovation in a fiercely competitive business has only a limited value.Now heres something interesting about it-Ambica has five other businesses – hotels, real estate, film production, food plaza and wind power. In hotels, it currently has one property – Ambica Empire – located in downtown Chennai, which is a 4-star hotel with more than 100 rooms. The hotel is affiliated to Best Western Inc, USA and would be worth more than Rs50 crore today. With this as the base, it wants to be one of the biggest chains of economy hotels in Chennai. The real estate division has developed a project near Bangalore costing Rs30 crore.Ambica’s film production & distribution division runs multiplexes and theatres and has already produced three feature films at a cost of Rs15 crore. The multiplexes may be worth about Rs7 crore today. The wind power division is setting up a 50MW project costing Rs200 crore near Coimbatore. Finally, Ambica also runs a food plaza at Visakhapatnam Railway Station. Ambica is believed to be planning construction of a commercial complex in Visakhapatnam and a multiplex at Vijaywada, in addition to other commercial complexes planned for Hyderabad and Chennai. If these businesses are split into separate groups following a restructuring, as is the market rumour, the stock is going to turn really hot.More importantly, Ambica’s market-cap is now Rs13 crore. The asset value of its businesses is a multiple of that. It is worth a speculative buy with a stop loss at 25% below the purchase price.

2)Scripscan:LT Overseas foods ltd (Daawat)

Story:LT Foods is among the earliest companies to have recognised the market for branded rice, particularly the basmati variety and established its Daawat brand firmly in the domestic market.LT is the third largest basmati rice producer after KRBL (India Gate and Noor Jahan brands) and Satnam (Kohinoor brand) with a range of products catering to retail customers, institutional buyers and the economy segment. Globally, LT has a distribution network spanning 35 countries and its tie-ups with international distributors have ensured it a presence in all major markets.LT has recently bought out Kusha Inc in the US through its wholly-owned subsidiary LT Overseas North America Inc. Kusha has approximately $40 million in revenues. This acquisition is likely to further bolster LT’s presence in the US rice market. A new significant business is its subsidiary LT Infotech’s joint venture with Cordia International Corporation which has launched an IP telephony-based service offering customers international long-distance calling facilities.Growth is strong and the stock is cheap.A good bet at dips.

3)Scripscan:Autoline Industries Ltd

Story:Autoline manufactures various auto parts, sheet metal components, silencers and exhaust systems for passenger cars, SUVs (sports utility vehicles), commercial vehicles, two-wheelers, three-wheelers and tractors. It is a prime vendor for Tata Motors, Bajaj Auto, Kinetic, Mahindra & Mahindra and Walker Exhaust through its three plants at Kudalwadi, Chakan and Bhosari near Pune. For instance, it makes the load body for Tata’s super-hit product, the small commercial vehicle, ACE. It also exports brake shoes for Mercedes trailers to Germany, Singapore, UAE, Saudi Arabia and other countries. It has a subsidiary to export auto components to the Gulf and African markets. But a slowdown in auto sales is apparently impacting the fundamentals of the company. Its recent numbers are not all that impressive.It has entered into an agreement with Sharjah Cement & Industrial Development Co through its subsidiary to form a joint venture for setting up and developing industrial parks for designing and engineering of auto components. In a bid to grow inorganically, the company bought out the manufacturing operations of US-based Dura Automotive Systems. This is likely to add Rs100 crore to its topline from the business that Dura currently does with high-profile auto companies including GM, Ford, Honda, Subaru, Nissan and AM General. Dura designs and manufactures driver control systems and is a leading supplier of door modules, glass systems, seat mechanisms and engineered assemblies.The acquisition gives Autoline manufacturing facilities spread over 140,000 sq ft with a painting and assembly line, in addition to eight US patents and over 30 proprietary designs and toolkit products. Earlier, the company had acquired a 51% stake in Belgium-based company Stokota NV for Rs67 crore. All this is shifting Autoline towards being a completely integrated design and engineering company in the auto components space with a global focus. The worry, however, is on the domestic front. It supplies almost 86% of its production to Tata Motors and Bajaj Auto. Pressure on either of the two could mean difficult days aheads. Bajaj Auto is already under severe pressure. Currently trading at Rs76, the stock of Autoline is attractively priced.It is worth buying.

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