X-Stocks.

Kashyap Pujara of Sushil Finance picks up Automotive Axles and Concor. According to Pujara, Automotive Axles has a good growth in volume terms and this stock should do well over a period of 6-8 months. Concor saw a good improvement on the margin front and there seems to be room for further growth, he comments.

Tarun Sisodia of Anand Rathi picks up Gujarat Ambuja and Anant Raj Industries. According to Sisodia, Gujarat Ambuja has seen a strong volume growth which will give it a boost in the market share. On Anant Raj Industries, he says that it has a strong business model which will create a much healthier balance sheet.

Q: Do you like the Gujarat Ambuja's exports numbers?

Sisodia: I think it should qualify for a hit, the primary reason being they have seen a strong volume growth, especially from the maize and the cotton yarn segment and both of these have shown improvement in the margin part of it.

They have also introduced Sorbitol in the base segment, which is a very high yield product. They get better margins as well as realizations in that product, so that is the second reason why it is really good.

Third reason is the increase in the capacities in maize, which is going up from 500 tonnes per day to 700 tonnes per day and that should happen by the end of this quarter.

Q: Is Automotive Axles a hit for you?

Pujara: Yes, because if one looks at the capabilities that the company has in terms of axle then it is one of the largest in the country today. The topline growth was close to 43-44% for this quarter and even the operating profits grew by another 28%, so these are good signs.

There were some concerns on margins being under pressure but due to higher input costs, since nickel prices have moved up, but overall if one looks at the quarterly earnings, we are looking at Rs 9 earning for this quarter and for full year one could expect Rs 36 earning in ’07 and that would move to Rs 45 in FY08.

There is good growth in volume terms and looking at the kind of ROC and return on net worth which the company enjoys is evident that this stock should do well over a period of 6-8 months. We have a buy on it with a target price of Rs 750.

Q: You didn’t think much of RPG Transmission numbers - were the numbers disappointing?

Sisodia: It qualifies for a miss because the whole space has been growing so dynamically that RPG has posted good numbers as a part of it but the disappointment is that there is very little happening on the transparency front in terms of declaration happening from the management on the order book size etc.

Secondly, on the margin front, if one looks at all the other players and the kind of improvement they have shown in margins especially KEC, Jyoti etc, RPG has not shown that kind of improvements in the margins, they are about 12% whereas that of the other players was at 14%. YoY the margins have definitely gone up but relative to other players they are still a laggard and though despite the fact that the profits have grown to almost 2.5 times on a YoY basis, we still think there are other players who are better placed in this market right now. So it is purely relative call that we are taking.

Q: On Concor, it is a hit for you?

Pujara: If one looks at the overall economy and the kind of industrial growth that we are displaying, clearly with such kind of growth the companies in the logistic space are bound to do well and that is reflecting the way Concor is shaping up.

In Concor we are seeing a good improvement on the margin front and there seems to be room for further growth in both its segments be it the export or the domestic front, which has witnessed good topline growth and the margin growth is also coinciding with that.

So looking at all the ingredients in place with the kind of industrial growth that is shaping up, Concor numbers are a hit and should do well in the future.

Q: You have qualified Anant Raj Industries at hit, why?

Sisodia: It is one of the preferred picks in real estate plays and that is evident from the the Ceramic tile business which was almost 32% of the total revenues a year back, it is now down to 11% and that has a significant impact because whatever is coming to the topline straight away goes to the gross margins levels and that is why gross margins are at about 98%. Similarly on the EBITDA levels are almost 90% margins because of the real estate business.

Secondly it has got a strong business model in that it is not looking at one time cash flows happening from realty business. There is lot of rental business and rentals are where regular cash flows coming in without further costs attached. Obviously a much healthier balance sheet is created.

These two things put together are why we are looking at it and currently it has got almost Rs 250-300 crores run rate happening. We believe that in the next 2-3 years time they will be touching Rs 700 crore plus run rate and all this happening on a steady cash flow business.

Q: You like the South Indian Bank?

Sisodia: On the Net interest margin it is about 3%, it has got a slight improvement on a sequential basis from over 2.9% but it is the other revenues which are coming into play. There are lot of new product revenues which have come in - whether it is from Internet banking or mobile banking. They are distributing about 4-5 large mutual fund products right now and all this is contributing to the overall total income apart from the net interest income coming into play.

We have seen NPAs down to about 1.49% and by the end of the year it will probably go down to about 1% and probably near to 0% by next year. There is 25% growth in total business from loans and deposits point of view. So all these numbers are fairly healthy plus coupled with the fact that it is a South India based bank and specifically in Kerala, the remittances itself has lent significant amount of growth. It has almost two-third of its business coming from the retail segment, which is a high margin business.

So as a package it comes out as an attractive bank right now and from regional perspective also it should start getting better premiums on the valuation primarily because then it also becomes one of the prime-acquisition candidate. It may or may not get acquired but the fact remains if any acquisition happens, people will start reflecting on the other standalone banks, which are more region specific and from valuation also it is fairly undervalued right now.