Pick of the Week: EPIC Energy

EPIC Energy

BSE Code: 530407 (Rs. 103.15)

EPIC Energy Ltd (EPIC)

EPIC is a manufacturer of energy conservation device and renewable devices like EPIC POWER SAVER 1090 and charge controller. In spite of mega power projects being lined up, we believe the gap between demand and supply of energy would prevail largely due to the increase in demand far outstripping the increase in supply. We believe energy conservation is the fastest way to bridge the demand supply gap, which is likely to immensely benefit EPIC in coming years. Renewable energy sources include: Solar Energy, Wind Energy, Hydro Power and Bio-Fuels.

Background: - EPIC was incorporated in August, 1991 by Mr Nikhil Morsawala as a Financial Services company, under the name Fastrack Holdings Pvt Ltd. Later EPIC changed its focus to Energy Conservation and Renewable Energy. It is now its mission to empower numerous commercial establishments and households in India, to save power and use Power generated from Renewable Sources with a view to reducing Greenhouse Gas emissions and reducing the Energy Demand Supply gap.

Company Profile: - Currently EPIC has manufacturing facilities one in Vadodara and Navi Mumbai. Both are ISO 9001:2000 certified. Its plants are equipped with state of the art technology. EPIC operates in States like Maharashtra, Gujarat, Tamil Nadu, Andhra Pradesh, Karnataka, Uttarakhand and Chhattisgarh. Company is currently managed by a team of professionals. Mr. Nikhil Morsawala is a Chartered Accountant and CPA (USA) by profession. He has 3 decade of business and corporate experience. Narhari Patil is an accomplished professional in energy audit, demand side management, electrical end-use efficiency, power quality and solar energy solutions. V Chandrasekhar has 2 decade of experience in the fields of electrical energy management and electronics. Mr. M. K. Pandey has 1 decade of experience in power system analysis, power & motor control centers and Mr. R. Senthil Kumar has 2 decade of experience in the Electrical and Electronics field.

Areas of operation :- Energy conservation: EPIC manufacture EPIC POWER SAVER 1090 (EPS), which is used to save power for various types of lighting systems, High intensity discharge lamps (HID), Air conditioners Etc. In this segment EPIC caters to public and private players. In the government sector, the major customers are Navi Mumbai Municipal Corporation, Thane Municipal Corporation, Madurai Municipal Coporation, Coimbatore Municipal Corporation and Tirupur Municipal Corporation. EPIC�s EPS 1090 equipment saves more than 30% of the energy consumed by Electrical Appliances like Street Lights which is a major source of expenditure for Municipal Corporations.

Power Retail: The company has launched its power boutique retails chain under the brand name S-URJA through which it will sell products like solar lanterns, solar water heaters, solar home lighting systems, mini windmills for home use and energy conservation equipment for home use. Recently the company opened its S-URJA shop in Navi Mumbai and gradually plans to expand its presence in 10 states. EPIC has set a modest target of installing and servicing energy saving and renewable energy devices in 5,000 households by March 2008.

Bio Fuels: EPIC is planning to acquire 500 acres of land in Gujarat where the company will grow Jatropha, which is an important raw material for Bio Diesel. Company is planning to invest Rs.65 million in this project of which Rs.50 million will append towards the land acquisition. Effect of the same is expected to reflect in revenues by 2010. For the same EPIC has initiated talk with few UK and Israel companies for technology transfer for converting these plants into Bio fuel.

Strong customer base: - EPIC supplies energy conservation devices to government bodies like: Navi Mumbai Municipal Corporation, Thane Municipal Corporation, Municipal Coporation, Coimbatore Municipal Corporation and Tirupur Municipal Corporation. EPIC has successfully completed pilot projects for BEST, Mumbai, Pimpri Chinchwad Municipal Corporation, Jalgaon Municipal Corporation, Konkan Railway Corporation Ltd, Raipur Municipal Corporation, Thirupathi Thirumalai Devasthanam, Karnataka PWD, MIDC, Pune Division, Central Power Research Institute, Lonavala Municipal Corporation. In the private sector EPIC caters to customers like: Sohum Health Resort, Alkem Laboratories Limited, Aditya Park Hotel, Hyderabad, Abhiman Residency, Mangalore, Mangalore And Rasilant Technologies Ltd EPIC�s ongoing pilot projects in private sector includes: J W Marriott, Mumbai, J W Marriott, Chennai, Raymond Limited, Jalgaon, JSW Limited, Bellary and Indian Market Research Bureau (IMRB).

Acquisition of Hydragen and SRS Engineers to augur well for company :- EPIC recently acquired a Bangalore based energy conservation company, Hydrogen Infrastructures Pvt Ltd (HIPL), which has a dominant installment base of 3000 KVA with Navi Mumbai Municipality for Rs.12.5mn (Gross) and also acquired SRS Engineers a Tamil Nadu based company for Rs.7.5mn (Gross), which has an extensive network of customers in Tamil Nadu covering nine municipalities. Apart from energy saving devices SRS Engineers is also specialized in manufacturing Automatic Timers. We expect this acquisition will provide synergy to existing business of company and enable it to have pan India footprint.

Moreover, it will help to develop strong network for after sales maintenance service to its customer.


High concentration on services- Lead to higher EBIDTA margin: - Currently EPIC has an installment base of energy saving equipment of around 7000 KVA (Including the recent acquisition). Currently EPIC 80% revenue comes from energy saving solutions and remaining from sale of solar products. EPIC operates on BOOT basis in most of the projects where the company will get a share in the energy saved after the energy saving devices is installed. The company gets 70% of the energy saved for 5 years and thereafter EPIC will get 15% of the energy saved for next 5 years. Due to high concentration of services the EBITDA margin remains at higher levels. It employs 55 engineers nationally, with 30 in Mumbai alone.

Capex on the card: - EPIC has planned to do capital expenditure of Rs.320 million over the next two years. The company is likely to spend Rs.220 million on energy conservation devices, Rs.35 million in the power retail domain and Rs.65 million on Bio Fuel project. This capital expenditure is expected to be funded through equity and internal accruals.

Key Concerns: - EPIC is likely to raise money through equity in the coming months to finance the capital expenditure requirements. �Increase in competitive dynamics.

Valuation: - We have a positive outlook over the strategic moves made by the company. Acquisition of Hydragen and SRS Engineers and setting up of retail chain under brand name S-URJA is likely to improve its revenue visibility on a consolidated basis. However in the short run the company would raise money both through equity and debt to finance its capex. At CMP of Rs.127, EPIC trades at a P/E of 45x FY07 EPS.

Multibagger: Axis Bank

Multi Bagger:Axis Bank
Recommended Price Rs. 697.60

Company Profile:
Axis Bank was the first of the new private banks to have begun operations in 1994, after the Government of India allowed new private banks to be established. The largest and one of the best known Financial Institutions of the country, UTI has promoted Axis Bank. The Bank's Registered Office is at Ahmedabad and its Central Office is located at Mumbai. Presently, the Bank has a very wide network of branches and it has one of the largest ATM networks in the country. The Bank has strengths in both retail and corporate banking and is one of the most technology driven banks in the country.

Financial Position:
For the first quarter of the FY’09 (ending 30th June, 2008), Axis Bank reported a stellar set of numbers with the net income growing up by 81.9% at Rs 1435.2 crore and the net profit registered a growth of 89% yoy to Rs 330 crore (including depreciation on bank’s investment portfolio of Rs 225.2 crore) compared with Q1FY08.

This is excellent growth by any standards and we expect this momentum to continue in the next few years. Its NII (Net Interest Income) grew by 93% yoy in the current quarter to Rs 810, due to credit growth and improvement in NIMs (Net Interest Margins). On a sequential basis there has been a decline in the NIMs mainly on account of rising cost of funds and lower proportion of demand deposits in Q1 as compared to the last quarter. Asset growth has been strong across all the broad segments including retail, corporate and SMEs. Retail assets have grown by 52% yoy to Rs 14,638 crore, which constitutes 59% of the housing loan. The total net advances grew by 48% yoy to Rs 61,160 crore. The demand deposits constitute 40% of total deposits. The fee income during the quarter has grown by 80% to Rs 484 crore, particularly in the capital markets and corporate banking. Trading income has also grown during the quarter amounting to Rs 52.78 crore. Total investments have grown by 34% yoy r ising to Rs 35,718 crore. Axis Bank has witnessed a sharp increase in NPAs (Non performing Assets) as the net NPAs% has grown from 0.36 in Q4FY08 to 0.47 in Q1FY09.

Investment Positives:

1. Rapid growth in the bank’s core business.
2. In the current quarterly report Axis Bank has shown great strength with increase in NIIs, net advances and fee income.
3. A dominant player in handling debt issues.
4. Axis bank has a wide network. It has added another 42 branches and extension counters and 140 ATMs during the quarter making the total to 713 branches and 2,904 ATMs. It has increased its coverage covering 433 centers.
5. Progressive globalization and achieving international standards.
6. Axis Bank adopts Misys tech to support growth in derivatives and boost risk management.

Concerns:
NPAs are growing. But its level of NPAs is below 1 %.Also among the new private banks Axis has the least exposure to the retail segment and this cushions against the bad debts.

Risk associated with the financial sector due to increase in the rate of interest. This is a real threat but the results for this quarter are still excellent considering that we saw the worst interest rate scenario in the last few months. Going forward we expect interest rate to soften.

Valuation:
Axis Bank has shown a strong growth in income and profits during a period which has been tough for all financials. The Bank is expected to have an EPS of around Rs 40 per share for FY09. At CMP of Rs 697.60, it trades at a P/E of over 15.75, which is very attractive. The PEG ratio ( PE/growth in NP) comes to a mere 0.18 which shows good scope for appreciation. The stock has corrected appreciably from the high of Rs 1150 earlier this year. We recommend stock as an excellent investment in the beaten down financial space with a target price of Rs 900.

Pick of the Week: Bombay Dyeing

FOR SHORT TO MEDIUM TERM BUY : BOMBAY DYEING

Equity : 38.61Cr, BSE Code : 500020, CMP : 552.10

BUY BOMBAY DYEING @ 552 ; TGT : 590 to 595

Bombay Dyeing was incorporated in 1879 to set up the country�s first indigenous yarn dyeing facility to cater to the power-looms, which till then were totally dependent on yarn dyed abroad. The company started with grey yarns in 1895, and soon after had surplus production, which it exported to China. Currently, Bombay Dyeing is one of the largest manufacturers in the composite sector of the Indian Textile industry. As a part of its restructuring plan for its Textile Division and consolidation of its Manufacturing facilities at one location, the company has disposed off the old equipment at Spring Mills and right sized its workforce. The company�s Textile Division is also setting up a Processing and Stitching facility at an alternate location in Maharashtra. Further, the company's DMT Business is going head with its downstream project for the manufacture of polyester staple fibre (PSF), with a capacity of 1, 65,000tpa at its existing DMT plant.

During 2004-05, the company's new Real Estate Division set up and took initial steps to shape up. During 2005-06, the Division commenced development of the two properties viz., Spring Mills in Dadar and Textile Mills at Worli. First Phase of the Spring Mills Project commenced, which included Town/Shopping Centre development catering to the Central Mumbai residents. Meanwhile, development of Textile Mills, Worli has commenced in phases. These developments in real estate business will drive its future revenues. For this, the company proposes to utilize and capitalize on its historical land bank in Mumbai.

Apart from this, Bombay Dyeing has also chalked out long-term plans to turn-around its traditional Textile business, curb costs and improve Margins. It has forward-integrated to a PSF plant of 1,65,000 tones capacity and has shifted its Home Textile operations from Mumbai to Rajangaon to control operational costs.

Bombay Dyeing has a huge land bank at prime locations at Worli (20 acres) and Dadar (40 acres) in Mumbai, which is under development. Considering the dearth of prime locations in Mumbai, we believe this land would attract buyers even at premium valuations. We have valued the company's existing Real Estate business at Rs1,083/share on NAV basis. We have assumed that the projects would be completed in the next four years as against management�s estimates of 2-3 years.

We believe that Bombay Dyeing is a safe bet on Mumbai's Real Estate Sector as it has land at prime locations, clear title on property and property is fetching high prices in Mumbai. Bombay Dyeing has started shifting its two textile mills out of Mumbai to Ranjangaon and PatalGanga, to restructure and consolidate its manufacturing facilities. This would reduce its operational costs also. The company proposes to exploit the land that would be available at prime locations in Mumbai post the shifting of the textile mills.� Sales and NP for year ended 07-08 were 933.7Cr & 8.5Cr. Sales for latest Quarter were 347.7Cr. Dividend during year ended 07-08 was 35%

Pick of the Week: Gujarat NRE Coke

FOR MEDIUM TERM BUY: GUJ NRE

Equity: 337.09 Cr, BSE Code: 512579, CMP: 110.90

BUY GUJ NRE @ 111 / 112 TGT 160

Gujarat NRE Coke Limited, the largest non-captive manufacturer of Low Ash Metallurgical Coke in India, has been a profit making organization since its inception in 1986.

Production: The Company�s coke manufacturing facility located at Khambhalia, Jamnagar, started with 3 chimneys and a production capacity of 0.1 million tonnes per annum (TPA) in 1994-95. Since then, the company has added 8 chimneys to the unit. At present, it is operating with 11 chimneys and an installed capacity of 0.324 million TPA, it has also set up a Greenfield coke plant at Bhachau with an installed capacity of 0.324 million TPA which has become operational since March 2004. The Company has also promoted Bharat NRE Coke Limited, which has set up a coke unit at Dharwad, Karnataka with a capacity of 3.24 lac TPA, taking the cumulative coke capacity of the group to over 1 million TPA. In addition, it has invested in wind farms total power generation capacity of 27.5MW close to its plant site to get low cost power and save precious natural resources. The Company has set up a steel plant in Bhachau, Gujarat for the manufacture of steel rebars.

Mining :- The company has also acquired a coking coal mine in Australia, NRE No. 1 Colliery, having coking Coal reserve of above 300million MT located near Sydney, in December 2004 through its subsidiary, Gujarat NRE Australia Pty. Ltd. (now Gujarat NRE Minerals Limited) thus creating the first industry instance in the country. In July 2005, it acquired the coal mining leases comprising the whole of old Avondale Colliery and part of Huntley Colliery in the Southern Coalfields of New South Wales, Australia, through its Australian joint venture company, Gujarat NRE FCGL Pty Ltd. The colliery, known as NRE Avondale Colliery, having coking coal reserve of above 96million MT given its vicinity to NRE No. 1 Colliery, has the potential benefits of ownership in two nearby collieries.

Mineral Resources: - The Company had acquired an 18.63 per cent stake Zelos Resources NL, an Australian mining company listed in the Australian Stock Exchange (ASX) having exploration license in coal, iron ore and other base metals like gold, platinum etc. The acquisition has made Gujarat NRE Coke the single largest shareholder in the Australian mining company and help gain further exposure to the minerals industry in Australia. Later on, the operation of "NRE Avondale Colliery" was transferred to Zelos Resources NL in pursuance of Shares & Optus resulting into the NRE Group become the largest shareholders presently holding above 84%. The name of Zelos was subsequently changed to Gujarat NRE Resources NL the first Australian company of the group listed in ASX.

It has made 19.9 per cent investment in Sydney based Rey Resources Limited which gives it the exploration access to a previously unexplored area of about 4000 sq kms in Western Australia. The wholly owned subsidiaries of Rey Resources Limited are also scouting for copper and gold in South America, which too will add to the NRE basket of resources. Such partnerships will strengthen the position of the Company in terms of long-term coal supply and market positioning in commodity market.

The company also has a strategic investment, of over 12 per cent equity interest in Plouton Resources Limited (also listed in ASX). The investment would be directed towards securing various exploration licences and exploratory work in Australia, targeting gold, silver, copper, iron ore and possibly uranium amongst other minerals.

The company with startegic investment of around 11% also executed coal-off agreement with Pike River Cola Ltd, the producer of Ultra Low-ash Metallurgical Coke, for supply of 0.4million tones per annum. That coal having about 1% ash content can be termed as blending sweatner.

Sales and NP for year ended 07 / 08 were 874.4Cr & 169.5Cr. Sales and NP for latest Quarter 380.6Cr & 64.2Cr., On YOY basis NP has increased by 205% & based on quarter latest its increased by 26%

Pick of the Week: Hindalco

FOR MEDIUM TERM BUY BUY BUY HINDALCO
Equity – 122.71Cr
BSE Code – 500440
CMP – 138.05

BUY HINDALCO @ 138 – 139 TGT 158 - 160

Hindalco Industries Limited, a flagship company of the Aditya Birla Group, is structured into two strategic businesses — Aluminium and Copper — and is an industry
leader in both. A metals powerhouse with a turnover of US$ 14 billion, Hindalco is the
world's largest aluminum rolling company and one of the biggest producers of primary
aluminum in Asia. Its copper smelter is today the world's largest custom smelter at a single
location.

Established in 1958, Hindalco commissioned its aluminums facility at Renukoot in
eastern U.P. in 1962 and has today grown to become the country's largest integrated
aluminum producer and ranks among the top quartile of low cost producers in the
world.

With a strategic intent to achieve vertical integration in the copper business, Hindalco
acquired two captive copper mines in Australia — Nifty and Mt. Gordon through
Aditya Birla Minerals Limited. The aluminum division's product range includes alumina chemicals, primary aluminum ingots, billets, wire rods, rolled products, extrusions, foils and alloy wheels.

The company's copper product range includes copper cathodes and continuous cast
copper rods. It also produces precious metals, sulphuric acid, phosphoric acid, diammonium
phosphate (DAP) and other phosphoric fertilizers, and phosphor-gypsum.
Buzzingstock 05.07.08

In May 2007, Novelis became a Hindalco subsidiary with the completion of the
acquisition process. The transaction makes Hindalco the world's largest aluminum rolling
company and one of the biggest producers of primary aluminum in Asia, as well as being
India's leading copper producer.

Sales and NP for year ended 07 – 08 were 19201Cr & 2860.9Cr. Sales and NP for latest
Quarter 5010.2Cr & 1077 Cr.

On YOY basis NP has increased by 13% & based on quarter latest its increased by 49%

The stock has come down sharply on account of below expectation results… from over
200 levels to around 140. one can buy at current levels for a gain of 30 – 40 % upside in 4
– 5 months.