Q: Ion Exchange - what is the story and why do you like it?
Ans: In Ion Exchange, the basic story is that of water. The company has got a brand called Zero B, which is a super brand. The earnings are improving. If we take the annualised earnings of last quarter and revise it, it has a PE of around 7.
The stock has come down from a high of around Rs 145. The important thing going forward is that water is a big issue, which is going to affect not only Mumbai but all large metros. So there is a huge section, which needs to play out.
Ion Exchange has not been discovered by the investors yet because of low exposure of mutual funds and FIIs in this particular company. With huge water prospects, I think this is one stock, which investors can look at. But traders be aware that this stock is currently in the trade-to-trade segment and therefore one will have to take delivery.
Ans: In Ion Exchange, the basic story is that of water. The company has got a brand called Zero B, which is a super brand. The earnings are improving. If we take the annualised earnings of last quarter and revise it, it has a PE of around 7.
The stock has come down from a high of around Rs 145. The important thing going forward is that water is a big issue, which is going to affect not only Mumbai but all large metros. So there is a huge section, which needs to play out.
Ion Exchange has not been discovered by the investors yet because of low exposure of mutual funds and FIIs in this particular company. With huge water prospects, I think this is one stock, which investors can look at. But traders be aware that this stock is currently in the trade-to-trade segment and therefore one will have to take delivery.
Q: Hitachi Home and Life Solutions - what is the story there, and why do you like it?
Ans: I like this story because of the management, which is Japanese Hitachi, which has 70% stake here. But the more important point is that the company has been doing well. The margins are improving from 3% last year to 7% now in 2006. We expect the improvement to continue in the near future as well.
Though there is huge competition even with imported products in the market, the company has been able to price its products at around 25% premium. It also has the best technology in town. More importantly the company is yet to address itself fully to the growing needs of the malls and agricultural air-conditioning, which will be the order of the day.
If one just believes that even 50% of the plans which are there on SEZs and other things, go on stream, I think the company will have its hands full, where it hopes to attain a market share of around 20%.
So I am absolutely gung-ho on this particular stock. With averaging out probably around Rs 45-50 levels, should the market go down further, the stock can produce good returns and it will give good amount of comfort atleast in this bearish summer.
Q: Lokesh Machines has come a long way off its 52-week high, tell us about it?
Ans: Lokesh is primarily catering to the auto components segment. They provide CNC machines and other products. We are quite sure that the company will be able to report very strong growth numbers. For the next year, we expect revenue of around Rs 141 crore as against revenue of Rs 86 crore. On a fully diluted basis the company would report an EPS of close to Rs 16.7 as against an EPS of Rs 11.6.
The stock has not really moved from its IPO price though it went up from Rs 140 to Rs 200 levels. It has retraced to the IPO price of Rs 140. It is trading at a very attractive price at a valuation of 8 times FY07 and less than 5.5 times FY08. The management of the company is quite good, their plans are very well run and the customers of this company particularly Ashok Leyland and Mahindra & Mahindra have a long-term relationship. We believe that the company deserves a much better valuation than what it is currently getting hence we feel that the investors will make money out of it.
Q: What do you expect in terms of earnings from MRO- TEK?
Ans: In terms of revenue growth, one should not expect it to be spectacular like what they did last year. This year I am expecting a revenue of Rs 184 crore and a net profit of Rs 22 crore which in EPS terms will grow by around 27%. We had recommended the stock at Rs 67 levels initially and it went to Rs 100 levels.
Post the crash it came to Rs 57 and we again had pushed its levels and right now it is at Rs 70. We believe that the true value of the company should be around close to Rs 110-Rs 120 levels because the growth in terms of EPS is going to be very strong.
The company is focusing on in-house research which will lead to a margin expansion. The company could be introducing a couple of new products which would also lead to a significant improvement in the margins. Apart from that the existing relationship with Rad and Zyxel are doing very well, so I think it is on an auto pilot mode at this point of time. So we believe a good 25% upside on the stock from the current levels.
Post the crash it came to Rs 57 and we again had pushed its levels and right now it is at Rs 70. We believe that the true value of the company should be around close to Rs 110-Rs 120 levels because the growth in terms of EPS is going to be very strong.
The company is focusing on in-house research which will lead to a margin expansion. The company could be introducing a couple of new products which would also lead to a significant improvement in the margins. Apart from that the existing relationship with Rad and Zyxel are doing very well, so I think it is on an auto pilot mode at this point of time. So we believe a good 25% upside on the stock from the current levels.
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