Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

HBL Power Systems:-The scrip to rock in the coming days

2 min read

Suggested very recently to members at 350rs.Everybody sud make money be it subscribers or my blog visitors.Here u go.

Scripscan:HBL Power Systems Ltd
CMP:349
Target:560
Returns expected:60%
Duration:6 months
Traded in Bse-nse

Introduction:HBL power is engaged in the business of making specialised batteries, electronics and DC power systems and caters to a variety of end-user requirements across industries.The customer segments include telecom, railways, defence, power, solar energy, petroleum, oil and gas, and uninterrupted power supply systems.

"10 points which justifies and favours my bullishness in the scrip".

1)A secured communications product,(a gateway encryptor) developed by HBL has passed all the tests required and is likely to be used widely by several government agencies,beginning early 2008.The product can prove to be a blockbuster for the company.

2)The company made 2 bids during early 2007 for defence electronics contracts, totaling over 500 crores. The time lines in defence are such that the final result will be known only in end of 2008.The products are already in field trials.Further, Its JV with IAI-ELTA of Israel has commenced exports recently.Two bids were made by the JV to the Ministry of Defence.Results may be known in mid 2008.

3)Railway field trials for signaling products developed by the company commenced late and has just been completed,Almost a year behind expected schedule.Orders are expected to pour in going ahead.Also,Several export enquiries have been received by the company for contract manufacturing of Power Electronics equipment.The management sounded very confident in bagging at least one of the significant orders these year.

4)The batteris market share for the company in Telecom segment continued to be about 50% and its growing all the time.New markets for Military use (Thermal, Reserve and Torpedo batteries) have emerged last year mostly in the international markets, these are ultra high specialties with very few producers in the world. The number of export customers for passenger and military aircraft batteries has also grown for the company.

5)The companys main raw material Nickel prices had gone up to unprecedented levels last year but have already declined considerably.Lead prices seem to have hit their peak in mid July 2007,and appears to be coming down.The both factors should further boost the bottomline for the company.

6)The management expects to increase its margins as each and every contracts of the company are now on variable cost and the price hike has been pass on to the clients.Last year the company faced several problems because of the high volatility of input cost prices, this fiscal they have given a decent check in managing the raw material procurements.

7)In these sort of competitive environment where most companies are struggling to grow by 20-25%,Hbl is going to double its turnover and Profit these fiscal.The company has guided a turnover of in excess of 1000crs these year vs 511crs last year.Profit after tax should touch around 70crs vs 32crs last fiscal.It should be prudent to note that the company guided 500crs revenue in 07 and ended up doing 511crs.

8)Further the company is expected to post turnover worth 1650crs in 09 and profit is expected to inch to around 120crs.Eps for 08 and 09 are expected to be 29 and 50 respectively.At present price of 349 the company is quoting at 12 times its 08 and just 7 times its fy09 earnings.

9)Reliance via its subsidary sonata investments has been holding over 7% stake in the company for quite some time now.Everyone is aware what brand relaince can prove for a company to be and it entails tremendous confidence in the mind of investors.

10)The company as on march 2007 has got over 215crs reserves in its book which is around 9 times its equity capital.Its of one"s easy assumption that HBL remains one of the primate candidates for a liberal bonus issue.If the assumptions vindicates that can certainly as a big trigger for the company.

Conclusion:Given the many opportunities in core applications such as telecom and power, the company has huge growth prospects.At 349rs its quoting at 27 times its 07 trailing earnings,12 times its 08 earnings and just 7 times its 09 earnings.Now folks you certainly can differentiate between 7 and 27,isnt it?Take out your calculator and value the company.I have valued it at 11.2 times its 09 expected earnings and can only say its a screaming buy.

Regards,
Arun
I can be reached at: arunanalyst@rediffmail.com

 

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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