BSE Code: 522085,
CMP: Rs.127.9
EPS: Rs.15.28
Dividend: 10%
Face Value: Rs.10
Target: Rs.170--Rs.250—plus in 12 months time frame.
Nature of the scrip: Stable return over a period.
Stop loss: Rs.125 and Rs.118 (Exit)
Performance: Market Performer
Introduction: Stone India, a multi-product engineering company located in Kolkata, has been serving the Indian rail road industry for over seven decades. A pioneer in brake systems and train lighting alternators, today Stone India is the undisputed leader in locomotive brake systems and has a wide range of mechanical and electrical products for the rail road industry.
Over the years, the company has grown from strength to strength. Today, stone India is part of multi billion Duncan Goenka Group. It is an ISO 9001 accredited company that can boast of cutting-edge manufacturing facilities, systems and practices. The company is committed to achieving international standards of performance in quality, costs and delivery. Stone India takes pride in its values and ethical business practices and is environment friendly.
Other than the corporate office and the manufacturing facilities in Kolkata, Stone India has branches and service Centres located at all major towns and cities of India.
The journey of Stone India in the recent past has been one of meteoric growth, fuelled by the quest for excellence. In the process, the company has made an indelible mark in the industry – the mark of a leader.
Being a pioneer in the brake systems and train lighting alternators, SIL is the undisputed leader in locomotive brakes systems and has a huge range of mechanical and electrical products for the railroad industry.
It also manufactures few critical products for defense departments. Currently, it generates about 90% of its revenue from the railways and has a market share of about 25-30%.
The company operates in the following segments:
Carriage Business Group: The Carriage Business Group deals with pneumatic Brake Systems for Carriage & Freight stock for Railway rolling stock operation. The other important equipments like Brake Cylinders, Angle Cocks, Dirt Collectors, Hoses, etc. are manufactured either as per Stone India's in-house design or as per customer requirements. Recently it has developed its own patented beam mounted brake system for all types for freight wagons.
Locomotive Business Group: The Locomotive Business Group deals with Locomotive Brake Systems for Diesel and Electric Locomotives.
Stone India Ltd has been the first Indian Company to indigenously manufacture and supply Pneumatic Brake System - type 28LAV-1 for Indian Railways as per the license agreement with WABCO-USA (now known as Wabtec Corporation).
Apart from manufacturing critical brake valves as required for the Brake System, Modular Panel Mounted Brake Systems are also manufactured in both Bi-plate as well as in Tri-plate version for both Diesel & Electric Loco application. Heatless, regenerative "VAPORID" Air Dryers are manufactured as per the license agreement with Wabtec Corporation, USA for Locomotive, Metro Motor Unit and Electric/Diesel multiple units.
Installation & commissioning work are also undertaken on the locomotives for Brake Systems as well as for Air Dryers. In addition the company specializes in conversion of Vacuum to Air Brake System in Locomotives.
Train Power Business Group: It manufactures and supplies brushless alternators, electronic rectifier regulators and pantographs. Alternators are actually power generators used in coaches and pantographs are used in the electric locomotives & electric multiple units (EMUs) to draw power from the overhead traction.
Shareholding Pattern: The promoters hold 37.06 % while the public holding is 62.94%. Among the public are heavy weights like Prudential ICICI Trust Ltd Emerging Star Fund, BSMA Ltd, National Insurance Company Ltd who hold sizeable number of shares of the company. Another interesting part is that percentage of holding more than 1% in the public category has increased from 24.47% Q2Fy08 to 25.12% inQ3Fy08, which is an encouraging sign implies HNIs and Mutual funds are bullish on the counter.
Financials: For Q3FY08, the total income of the company was Rs.18.6 Cr as against Rs.16.8 Cr in the same period previous year. The net profits of the company also increased from Rs.1.8 in Q3Fy07 to Rs.1.9 Cr in Q3FY08. This is on a very small equity capital of Rs.7.6 Cr. For the nine months ending 31st December, 2008, the net EPS of the company is Rs.11.61. For the Full year the net EPS of the company could be in the range of Rs.15—Rs.16, which is quite good considering the EPS for FY07.
Triggers:
- To diversify its product portfolio, it has set up a greenfield facility at Nalagarh, Himachal Pradesh, which is likely to go on stream in this fiscal itself. Besides, it intends to put up a third plant in South India.
- As the company manufactures sophisticated and critical components involving high precision and accuracy, it has collaborated with several global industry leaders for its high technology products. Faiveley S.A. of France, SAB of Sweden, WABTEC Corporation of USA, SAB WABCO of France etc are some to name a few. This tie ups are already helping it to get high end orders.
- Of late, SIL has also ventured into railway electronics with the introduction of a slew of high value power electronic products like inverters, converters and power supply system for coaches, locomotives, EMUs and metros. Accordingly, it has gone in for a technical collaboration with SMA Technologies AG, Germany for producing 180 kilovolt-amps (KVA) auxiliary power converters for railways. The other product of this new division viz. end of train telemetry device has also been approved by the railways.
- Earlier, SIL had entered into an exclusive understanding with ZRJC, Guangzhou, China for manufacturing & supply of air conditioning system along with microprocessor based control systems for passenger coach rolling stock and metro coaches.
- In order to de-risk its business model, SIL is looking to increase its revenue from projects & services for which it is executing a huge order for refurbishment and upgradation of 1115 wagons from the Ministry of Defence. Notably, it is the only private company selected to execute this order, which was earlier done by the Indian Railways. Moreover, the company has already entered the Asian rail market and has appointed Telewira Tegas SDN BHD, Malaysia, as an exclusive agent for turnkey project work relating to freight car, passenger coach and locomotive upgradation and maintenance for Malaysian Railways.
- It has also been exporting air brake systems to an internationally reputed wagon manufacturer in China. And importantly, SIL has recently partnered with the Sumitomo group of Japan to gain technical know-how for manufacturing of air springs which are technically far superior to the existing mechanical suspension system. To conclude, the ongoing major restructuring of Indian Railways and large capacity expansion of its network augurs well for SIL which is well poised to take on all the future opportunities in line with its strength & core competencies. Hence, SIL will continue to grow at a scorching pace in future as well.
- For H1FY08, sales grew by 60% to Rs.41 cr. and net profit increased by 70% to Rs.6.90 cr. Despite such excellent performance, its share price has tumbled down sharply from a high of Rs.220 in December 2006 to the current level. This may be because of the delay in commencement of its new plant in HP and also due to the fact that in April 2006 warrants holders didn’t exercise their right to convert 14,32,000 warrants even at a low of price of Rs.97 after the allotment in 2005. For FY08, the company is expected to register sales of Rs.100 Cr—Rs.120 Cr with PAT of Rs.14 Cr. i.e. EPS of Rs.15-Rs.16 on its equity of Rs.7.60 Cr.
- The Company, subject to the approval of Hon´ble High Courts, has proposed a Scheme of Arrangement for demerger of the Rubber undertaking from Skylark Rubber Products Ltd, a wholly owned subsidiary company with effect from January 01, 2007 and transfer to the Company and for transfer of Investments and certain loans and interest thereon to the said subsidiary. Consequential impact, if any, in this respect will be given effect to against reserves of the Company and therefore is not likely to have any impact on the results of the Company. Necessary applications have been filed with the Hon´ble High Court at Calcutta and Bombay. The Hon´ble High Court, Bombay has since sanctioned the Scheme of Arrangement.
- It has recently announced that it has received the second order for End of Train Telemeter (EOTT) device from Konkan Railway Corporation Ltd. The Company received the first order of EOTT from Indian Railways which is being executing shortly. The EOTT device is an advanced Telemetric system which continuously monitors train brake system integrity, train completeness, train speed & train position. It consists of two units, one which is mounted in the locomotive and another at the end of the last wagon / coach. These two units communicate with each other continuously. When the driver applies brake from the locomotive the EOTT device automatically applies brake from the rear of the train as well. This helps to reduce the train stopping distance enabling longer train formation, as well as increase train safety. The railway budget being very near or the fact that the Indian Railways after a long time is making profits, the chances of this company to grow exponentially from here has increased or will increase in the days to come.
- Indian Railways proposes to adopt EOTT devices in all its goods train. This cutting edge high technology, sophisticated device incorporating latest GPS, GSM & Radio Communication Technology along with electronic brake control systems will form one of the highest contributing product in its wide range of product portfolio. This will be Stone India's first patented product aimed for the Global Market. This is an outcome of the large R&D Investments the Company has been undertaking since last couple of years. Similar such unique & sophisticated high value products are in the pipe line.
Conclusion: Considering all the factors mentioned above it has been found that at the CMP of Rs.127.9, the scrip looks undervalued and is bound to get re-rated in the days to come. If the market remains too volatile then in-between profit booking should be done by the short term players considering the levels: Rs.151, Rs.165, Rs.170 and Rs.194. If it crosses Rs.190 with good volume and stays there for some days, there are chances that it could cross Rs.230—Rs.250 range.