Pick of the Week:
W S Industries Ltd
BSE Code: 504220
CMP: Rs.44.40
EPS: Rs.3.21 (Standalone basis)
Dividend Yield: 2.25%

Introduction: W S Industries Ltd (WSIL) incorporated in 1961, is a leading manufacturer of high voltage electro-porcelain transmission insulators and sub-station insulators. The Company operates in two business segments namely (a) Insulators and (b) Turnkey Projects. Insulators being nonconductors are basically protective tools, which subdue the current and are used in transmission and distribution (T&D) of electric power. Ranging from 220 KV to 1200 KV, the company produces only high-end insulators in various types such as suspension insulators, pin insulators, solid core insulators, and hollow porcelain insulators, shackle & stay insulators etc. Besides, it also deals in other products like dropout fuses, isolators, lightning arresters, coupling capacitors, capacity voltage transformers, instrument transformers, line traps and reactors.
Of late, the company has also ventured into turnkey project execution i.e. designing, execution and construction of insulators and transmission lines below 220 KV. Currently, WSIL derives 15% revenue from this segment while the balance 85% comes from the sale of insulators.
Power Grid Corporation, NTPC, State Electricity Boards are among its domestic customers whereas ABB, Siemens, Areva etc. are a few of its international clients. Interestingly, 95% of transmission insulators are sold domestically whereas the majority of the substation insulators are exported.
Shareholding Pattern: The promoters hold 42.54% while the general public holds 57.46%. Among the non-promoters, Life Insurance Corporation of India holds 5.48%, Oriental Insurance Company Ltd holds 1.79%, Religare Securities Ltd holds 1.13%, Schroder Credit Renaissance Fund Ltd. holds 11.92%, Schroder Credit Renaissance Fund Ltd. holds 2.98%, GMO Emerging Illiquid Mauritius Fund holds 5.40% and United India Insurance Company Ltd holds 1.38% of the shares of the company.

Financials: On a consolidated basis the net sales of the company for FY09 came out to be Rs.224.5 Cr as against Rs.226.99 Cr in the same period previous year. The net profit of the company for FY09 is Rs.13.75 Cr as against Rs.16.90 Cr in the same period previous year. The EPS of the company for FY09 came out to be Rs.6.24 as against Rs.7.73 in the same period previous year.
For Q1FY109, the total sales of the company came out to be Rs.45.02 Cr as against Rs.51.94 Cr in the same period previous year. The net profit of the company for Q1FY10 came out to be Rs.66.6 lakhs as against Rs.1.97 Cr in the same period previous year. The net profit is expected to improve growing forward.
Triggers:
• To cater to the domestic demand for substation insulators, WSIL has set up a Greenfield plant with a capacity of 8000 tonnes in Visakhapatnam, Andhra Pradesh. The Company's new unit established at APSEZ, Duppituru Village, Visakhapatnam, Andhra Pradesh has started commercial production of Porcelain Insulators effective from July 06, 2009.
• It is looking to scale up its capacity for executing turnkey projects and is even scouting for a strategic alliance for this business.
• WSIL had around 14 acres of surplus land, which it transferred to its subsidiary, WS Electric Ltd, which in turn developed that property into a 16 lakh sq. ft. Software Technology Park through a joint venture. The construction of the 1st phase of the Software Technology Park co-promoted by the Subsidiary Company W.S.Electric Ltd. has been completed which WSIL may start earning a lease/rental income of around Rs.3 Cr per year. The balance three phases will get completed in the next four years.
• Given the huge expansion and modernisation in the power sector, WSIL’s core business is expected to get best business going forward.
Chart-Check and Conclusion: The company has good order book position which is likely to be scaled up as the Government is giving thrust to the Power Sector in the 11th Plan as well as activities are taking place in the construction, rehabilitation and upgradation of electricity networks in many parts of the world. Thus, the demand for the Company's products and project capabilities will continue to remain vibrant in the days to come.
From the charts it has been found that the stock is on a consolidation mode for quite some time, getting a support around Rs.42. The stock has a strong support in the range of Rs.39-Rs.42, which will be difficult to break on the downside, unless a major correction takes place. The investors are advised to buy the stock on all declines for a target of Rs.80, in the next 12 months time frame. Please keep a SL of Rs.35.4 for any short term play to XXXX.

Note: The stock was recommended to the Paid Groups in the recent edition of the Sunday Report (20th, September, 2009) sent to the Paid Groups.