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Saturday, September 12, 2009

KCP Ltd and Dil Ltd:Future outlook and prospects(buy/sell or hold?)

1)Scripscan:KCP Ltd

Story:Chennai based KCP is broadly engaged in manufacturing of Cement and heavy mechanical equipment for cement, sugar and Infrastructure. The cement plant is located at Guntur in AP. The two engineering units are located in Tamil Nadu at Tiruvottiyur in Chennai and at Arakonam. The engineering unit had further invested heavily over the years to increase productivity of the unit as also to compete in value added segment. Since the company has versatile engineering facility capable of manufacturing heavy mechanical equipment to a given design mainly for sugar, cement and infrastructure industries, it enjoys better margins. The workshop has foundry, heavy fabrication and machine shop facilities integrated within the plant locations. Arakonam facility was effectively used to augment production of foundry products.Cement division of the company is also operating near capacity and due to better margins, this division is likely to contribute to improve the working of the company substantially.The share is present ruling at Rs 270 per share, which translates into forward earnings of single digit valuations. The cement and engineering sector enjoys better multiple on the bourses and this company has combination of both the sectors hence, the company has scope of P/E expansion, which can take share price to cross Rs 400 mark in the next 12 months.A good safe defensive bet.

1)Scripscan:Dil Ltd

Story:DIL management has taken some key initiatives in the recent past such like shifting of bulk manufacturing business to Kullu which is a tax free zone, increased marketing spend on core businesses, development of a new R&D centre, renting out of excess space available at its premises at Thane & Worli for generating consistent lease rentals, amongst others, which we believe will ensure healthy profit growth for the company going forward.DIL has already started providing research services (through FTE & Custom synthesis models) to a few of the leading MNC clients and in our opinion, is very well placed to bag many more larger contracts going forward. We expect its R&D division to achieve not only high growth in revenues but also report good margins over the next 2-3 years as it starts executing large new projects. Moreover, DIL has huge cash at its disposal for suitable acquisition which could further prove to be a booster for revenues and profits. DIL is one of the well managed; fundamentally sound company with growth visibility in all the segments that it is operating. We remain positive on the company's long term prospects and retain our Buy rating on the stock with a price target of Rs 350rs with a two year holding period.

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