GUJARAT APOLLO INDUSTRIES LTD

GUJARAT APOLLO EQUIPMENTS LTD  CMP 170 market cap 280 crores.

The company is a leading player in different products used in road construction and has been in this field for over four decades.  The products manufactured by the company and its subsidiaries can be classified into two main categories:

First, Mobile construction machinery which includes paver finishers of all types and sizes and bitumen pressure distributors. These are high margin products on which the company has increased its focus.

Second type is industrial plant such as batch mix plants, drum mix plants, wet mix plants and crushing and screening plants. 

During FY 10 the company restructured its operations wherein manufacturing of all products under industrial plants are consolidated at Guj Apollo Inds and manufacturing of mobile construction machinery is now being done by Apollo Earthmovers Ltd and its subsididary Apollo Inds Products.

The company has more than 30% market share in most of the products it manufactures

.

Demand for the company’s products is likely to remain robust due to Persistent spending of various state govts on maintenance of existing roads and NHAI notifying contractors for having mandatory ownership of construction equipment.

The company has diversified product portfolio dealing with road construction segment. And since past few years the company is focussing more on mobile equipment group which offers higher margins.

Company has presence all around India by having branches which stock and sell spare parts and provide services. Exports continue to be the focus area for the company and during FY 11, the company is targeting markets in South Africa, New Zealand, and South America.

FINANCIALS:

The equity is 17 crores with 1.7 crores of Rs 10 each. Promoter holding is around 48% with FII holding around 3% and DII holding at around 8% as on Sep 10.  Promoter holding has reduced by around 1.5% due to selling of shares by distant cousins of the promoters during past 1 year.

DEBT has been low over the years with debt as at Sept 10 being at 38 crores.  ROE has been consistently above 20% since past six years.

Last six  years results

Year	05	06	07	08	09	10	HYsep10
Sales	68	113	156	187	181	214	111
NP	5.4	10.5	18	25.8	21.6	27	11.8

QUARTERLY RESULTS AND PROJECTIONS:

Coming to the stock performance, the stock price has corrected from a high of around  246 in Sep 2010 to a low of 162 in Dec 2010, mainly due to poor Sep quarter numbers.  These numbers were affected due to extended monsoon due to which the user companies did not place orders for the products and contribution from the lower margin products was higher leading to margin pressure as well.   But the pent up demand should give rise to good  Q3 and Q4 numbers. According to various estimates by brokerages, the company is likely to report sales of around 285 crores and net profit of around 34 crores, which yields EPS for FY 11 of around 20. For FY 12 company is projected to do eps of around 26-27 and current correction seems to offer a good entry point into a good company with bright future prospects.

POSITIVES:

1.       Company with good growth  available at reasonable valuation due to a poor quarter.

2.       Low debt

3.       Good balance sheet and return ratios

4.       Demand likely to be good due to govt focus on road development

5.       Company having good market share in the products it manufactures

NEGATIVES:

1.       Fortunes of the company largely depend upon govt spending on road projects

2.       Competition from foreign players is likely to intensify in view of high govt spending on road projects

3.       Sharp increase in raw material prices

4.       Competition from un organised sector

5.       Poor acceptance of new product like Crushers and Compacters on which the company is focussing.

ARIES AGRO LIMITED

ARIES AGRO

CMP 135 MARKET CAP 183 CR  BV 75, DEBT 99 CRORES AS ON SEP 2010

PRODUCTS:

NONE OF THE FOLLOWING PRODUCTS HAS GOT ANY SUBSIDY FROM GOVT OR HAS ANY PRICE CONTROL FROM GOVT.

1.       WATER SOLUBLE NPK FERTILISERS (12% OF SALES, GROSS MARGINS OF 12%),

2.       SECONDARY NUTRIENTS ( 10% OF SALES, 30% GROSS MARGINS),

3.       VALUE ADDED MICRO NUTRIENTS ( 58% OF SALES, 55% GROSS MARGINS),

4.       INORGANIC MICRONUTRIENTS (9% OF SALES, 15% GROSS MARGINS)

IN ALL, ARIES HAS  A PRODUCT RANGE OF 76 PRODUCTS ACROSS  VARIOUS SEGMENTS.

CAPACITY UTILISATION: TOTAL INSTALLED CAPACITY OF STANDALONE ENTITY IN INDIA IS 84,600 TONS SPREAD ACROSS 6 LOCATIONS AND UTILISATION FOR FY 10 WAS 42% WHICH IS SLATED TO INCREASE TO 57% IN FY 11 AND 71% IN FY 12.  THROUGH THEIR SUBSIDIARY IN FUJAIRAH AND SHARJAH, THE COMPANY HAS AN ADDITIONAL CAPACITY OF ANOTHER 70,000 MT.

REGION WISE SALES: MAJORITY OF SALES COMES FROM ANDHRA PRADESH -23%,  WEST BENGAL – 15%, MAHARASHTRA – 15% , UP – 10%, PUNJAB – 7%, AND MINOR CONTRIBUTION OF AROUND 1-4% COMING FROM VARIOUS OTHER STATES AND 3% FROM EXPORTS.

DISTRIBUTION CHANNELS -- COMPANY HAS 25 BRANCHES SPREAD ACROSS 22 STATES, MORE THAN 5600 DISTRIBUTORS, AND DIRECT LINK TO 79000 PLUS RETAIL DEALERS.

FOR DISTRIBUTION OF ITS PRODUCTS AND APPROACHING RURAL REGIONS, COMPANY HAS EMPLOYED A FLEET OF 100 KRISHI VIGYAN VAHANS – VEHICLES TO PROMOTE ITS PRODUCTS.

SUBSIDIARIES: 

COMPANY HAS OVERSEAS PRESENCE IN SHARJAH THROUGH GOLDEN HARVEST MIDDLE EAST FZE WHERE IT MANUFACTURES CHELATES. THIS UNIT COMMENCED COMMERCIAL PRODUCTION IN OCT 2008.

IT HAS ALSO ESTABLISHED AMARAK CHEMICALS FZC IN UAE TO TAP THE EASY AVAILABILITY OF SULPHUR BYPRODUCTS (WHICH ARE MAJOR RAW MATERIALS FOR THE COMPANY) FROM THE OIL REFINERIES LOCATED THERE.  TRIAL PRODUCTION COMMENCED IN JULY 2010. FINAL INSPECTION AND REGULATORY APPROVALS ARE PENDING.

THE COMPANY IS TARGETING INTERNATIONAL MARKETS IN VARIOUS COUNTRIES ( ASIA, MIDDLE EAST, AFRICA, EUROPE) AND EXPECTS INTERNATIONAL SALES TO BE 21% OF TOTAL REVENUES IN FY 11 AND 33% OF TOTAL REVENUES IN FY 12. IN FY 10, INTL SALES CONTRIBUTED 9.85% TO TOTAL SALES.

QUARTERLY RESULTS FOR LAST SIX QUARTERS

QUARTER	JUN 09	SEP 09	DEC 09	MAR 10	JUN 10	SEP 10
SALES	18.19	33.6	51.72	36.29	21.75	46.64
PBIDT	2.93	7.1	11.88	5.33	5.17	9.74
INT	1.36	1.89	2.06	1.9	2.67	2.68
TAX	0.3	1.5	3.1	0.8	0.55	2.11
NP	0.06	3.41	6.46	2.24	0.84	4.83

THERE IS SEASONALITY IN THE BUSINESS WITH DECEMBER BEING THE BEST QUARTER FOLLOWED BY SEPT, MARCH AND JUNE WHICH IS THE WORST.

LAST SIX YEARS RESULTS:

YEAR	05	06	07	08	09	10	H1 FY 11
SALES	39	59	74	103	110	139	68
NP	0.81	6.67	8.45	11.16	1.28	11.14	5.67

FOR FY 10, CONSOLIDATED SALES WERE WAS 152 CRORES AND CONS NET PROFIT WAS 14.81 CRORES, YIELDING AN EPS OF 11.4 BASED ON FULLY DILUTED EQUITY.

THE COMPANY EXPECTS TO DO CONS SALES OF 225 CRORES AND NET PROFITS OF 29 CRORES FOR FY 11 (STANDALONE SALES FOR FY 11E 175 CR AND NET PROFITS 19 CR) AND CONS SALES OF 295 CRORES AND NET PROFITS OF 40 CRORES FOR FY 12 (STANDALONE SALES FOR FY 12E 205 CR AND NET PROFITS OF 23.75).  IF THE COMPANY DOES MANAGE TO MEET ITS TARGETS THEN BASED ON FY 12 EARNINGS OF 30 PER SHARE, THIS STOCK DOES LOOK VERY APPEALING AT CMP OF 135.

BUT THE MANAGEMENT PROJECTIONS HAVE TO BE TAKEN WITH A PINCH OF SALT BECAUSE IN NOV 09 PRESENTATION, THE COMPANY HAD PROJECTED SALES OF 165 CRORES (ACTUAL ACHIEVED 139 CR) AND NET PROFITS OF 13.4 CR (ACTUAL ACHIEVED 11.14 CR) FOR FY 10.