Multibagger Series - a cooling stock

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Dear Readers,

Markets are witnessing outrageous bleeding on collective sentiments related to various national and international issues. Some good stocks even fell more than 50% from their year high and offering a wonderful opportunity for patient investors. But considering the dense of ongoing negative pulses and associated sentiments, we should be very careful on any investment decisions related to equities. I hope market may provide better discounts in recent future, probably with in the first half of year. There are no visible serious fret factors for long term investors and whatever happening is a cycle of provisional actions, based on sentiments derived from series of negative cues.

It seems the level of crashes were not corresponding to the depth of sentiments or its at the lesser side. The overall impacts on the recent series of negative reports were strong enough to bring our indices down to some 25-30% but it was just below 20%. Even after a flood of negative issues and unparallel corruption revelations in the recent past, people are still buying our stocks and keeping faith on the market, FII's are still pouring money to our market even smaller in size. Remember, there is a buy for every sell. Just list out the chain of scary issues occurred in last couple of months; Alarming figures on inflation, negative IIP data, negative bank rates, increasing fuel price, spreading middle east anarchy, gigantic corruption revelations including Adarsh Flat, commonwealth games, 2G Spectrum, S-Band, harassing Radia tapes and now the obscurity raised by DMK on Govt’s existence..

There is some sure and different charm exists with our market/economy; otherwise the above reasons were more than enough to bring our indices to another historic lows. But there is some stubborn strength is underlying somewhere with our economy. The main pillars are still strong, which affirms my confidence or makes me more positive on our market. Market is really struggling to regain the charm, I would like to suggest you all, keep your faith on good companies headed by genuine management, which will surely bestow you good returns in the long run. Putting entire money in few stocks or having big numbers in certain stocks at a go, will not exactly the smart side in view of the ongoing scenario. This tact may prove hazardous considering the dynamic response of market to even trivial negative news threads. Accumulation in small batches at possible lower levels, the only strategy which will be beneficial or at the safer side in future. Because market is started responding quicker than ever and like anything corresponding to the tempo of our times.

I would like to place few inputs on an outstanding company as promised earlier. First of all, let me thank to Mr Mahesh, Bangalore, who grabbed my attention to this company in last year, reminded as well encouraged me to talk on the scrip. After a close scrutiny, I hope this company can provide superior returns in the long run for patient investors. Myself, already been analyzed and firm to consider it as a multibagger on the basis of differentiation and sensible monopoly in the segment. Moreover, I am confident on this company and the products/services they are configuring as an essential service to the vibrant Power/Energy/Oil sectors. Subsequent lines are plain personal conclusions, compilations or convictions to have this stock, I am satisfied with the horizon developing by this company considering the available data and feels the path ahead is promising. I have good faith on this company, their business model as well on its proficient management.

BSE Code - 530743

Scrip - GEI Industrial Systems Ltd

CMP – 170.55 (07/03/2011)

EPS – 15.34

PE – 11.12

BV – 52.57

FV - 10

52 Week L/H – 91.10/238.90

Promoter’s holdings – 41.41%

Chairman/MD – Mr. C E Fernandes

GEI Industrial Systems Ltd, an ISO 9001-2000 certified company with ASME’ "U" Stamp engaged in design, engineering, manufacturing, installation, commissioning and maintenance of extended surface heat transfer technology mainly for Power, Oil and Gas industries. The company is specialized in Heat Transfer Technology, an obligatory element for entire engineering processes irrespective of nature and size. It offers a wide range of equipments/installations including air cooled vacuum steam condensers, air cooled heat exchangers, process gas coolers, cooling water systems, transformer oil coolers etc. The company provides its products/services to a vast range of engineering installations such as power plants, crude oil/Petroleum refineries, CNG/LNG terminals, petrochemical/chemical plants, Oil and Gas fields, off shore gas processing platforms, fertilizer plants, metallurgical industry, electrical locomotives, cement plants, Sugar industry etc.

GEI have clear domination in the segment as well there is no Indian or listed Indian entities as competitors except a couple of foreign players. The company holding a market share of 45% in Air Cooled Heat Exchangers in the Oil & Gas Sector and about 70% in the Power segment. It has an admirable track record in the Oil, Gas and Power sector installations in both American continents, Europe, Africa, Asia and Australia. GEI has also entered into marketing agreement with X-Wire, an American company, to tap the US market and to meet up its outsourcing requirements in the heat exchange platform. GEI is also engaged as a major contractor to the massive Rural Electrification schemes of Govt. of India, targeting electrification of more than 1 lakh villages in different provinces of our nation, to be completed over the next 3-4 years.

GEI having the essential expertise and proved experience in the air cooling space is likely to be the key advantage to their rising demand. The conventional water cooling system depends on constant water availability and the paucity of water is the main obstacle for cooling processes at certain engineering sites. Water shortage has been detected as one of the prime reasons for many recent disorders/shutdowns in power plants all over India. GEI’s indigenously designed air-cooling concept work on freely available air, instead of diminishing water for cooling processes.

In a survey of India’s water situation, about 21 million wells drilled are lowering water levels in most of the country. In North Gujarat, the water level is falling by 6 meters (20 feet) per year. In Tamil Nadu, wells are drying almost everywhere and falling water tables have dried up 95% of the wells owned by small farmers. And the story is same or more worsen in other states. You can estimate the future business potential of this company by connecting the above stunning facts on water scarcity; moreover 70% of our planned power additions are setting up in water-scarce areas. The company will surely benefits from the rising demand for its air-based cooling systems from power/energy and petroleum industries, since accessibility of water is drastically retreats. In India, these two industries are highly reliant on water for their cooling requirements and are facing operational troubles at times when sufficient water is not available.

GEI is prepared to gain from the anticipated massive power projects by providing air-cooled solutions that offers remarkable benefits over conventional water-cooling systems. The company is undergoing a 100cr expansion plan, which will greatly enhance its capacity by end of this year. The expansion will allow GEI to double it’s order intake capacity to Rs. 1000cr from the current 500-600cr levels. It is estimated that, on the completion of proposed expansion plan, the company will emerge as one of the top three players in the segment globally.

Any threat of new entries in the segment is limited because the entries in such businesses are purely related to proved expertise/experience. Conglomerates who make considerable investments on large projects must verify the technical expertise, competence and capability on prompt deliveries from the partner. I don’t feel any fresh player’s entry as a threat in recent future, because the experience or past performance is appreciated largely in such service segments and that’s the lone eligibility condition to adopt such a partner. Normally, our power players will hardly try their luck with any newbie in the sector to play on their huge investments. .

There will be a huge investment in the power transmission and distribution area which is estimated to be around Rs. 4500 bn .Considering the vast prospective in this field, GEI has also stepped in to the power transmission business. A separate group, GEI- Power Transmission Business Group has been shaped in the company itself and experts in these fields have been recruited recently. The company also prepared to enter in to the area of Power Generator components, heavy fabrication and machining of generator components etc. GEI is planning to expand this potential business to the tune of around Rs. 2.5bn by next 3-4 years.

The dominant client base including established players and the probable demand on their products/services are indicating a clear horizon for the company in the future. I have listed few selected domestic and international players who are constantly getting cooled by GEI:-

ABB Ltd
Bharat Oman Refineries Ltd
Bharat Pumps and Compressors
BHEL
BPCL
Cairn India Ltd
Chennai Petroleum Corporation Ltd
Crompton Greaves Ltd
Davy Power Gas
Dresser Rand, USA
Engineers India Ltd
Essar Oil Ltd
G.S. Engineering, Dubai
General Electric, USA
Hanover Middle East, Oman
HPCL
IOC
IPCL
Kirloskar Pneumatics Co. Ltd
Larsen & Toubro Ltd
MRPL
ONGC
Oil India Ltd
Oman Refinery Co, Oman
Petronet LNG Ltd
Punj Lloyd Ltd
Reliance Industries Ltd
Samsung Engineering Co. Ltd
Sarda Energy
Shell LNG
Shree Cement Ltd
Shree Renuka Sugar
Solar Turbine, USA
Sri Ram EPC
Tata Electric Co. Ltd
Tharmax India Ltd
Thyssen Krupp
Toyo Engineering
Transturbo Engineering Sdn Bhd, Malaysia
Veco Engineering, Abudhabi
Walchandnagar Industries

The company also grown in a consistent manner, profits in the past 5 years grew at a CAGR of around 50%. I would not like to talk much on the technical side as it is easily available. With the outstanding track record in engineering expertise, manufacturing capacity, product innovation and global cost competitiveness, GEI remains solid to work out the best business with in the sphere.

Let me conclude, the majority is confident on the power sector and its a fact that power/energy is one of the most demanding business of the time. Ample funds have been committed by Govt as well private players in the Power/Energy sector as its the key to economic growth of any developing nation. A rough statistics, India is likely to commission 50000MW in the 11th 5 year plan and an anticipated 100000MW in the 12th Plan. Its sure that, increased investment in the Power & Oil sector by the Govt as well private players will provide enormous business opportunities to the company. I think, it will be a wise decision to accumulate GEI in small batches, who cools the head of power/energy/oil sectors, it will surely cool us too in the long run.

Comment please…..

Regards

Shabu Thachat – sthachat@gmail.com

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Multibagger series - a solid player

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Dear Readers,

The following is a guest post by Mr Jagadeesh Reddy Yaramada, one of my esteemed clients and a young, fervent investor from Hyderabad. He has prepared an admirable research on an emerging company involved in the niche, LED Lighting and Display sector. The article is with ample statistics and he has concluded with his viewpoint on the business model and the future potentials of the product range with logical means. I am publishing this article with pleasure. Request my readers/clients to have a close read and comment…

MIC Electronics

With current numbers there is a huge gap between the demand and supply of electricity in India and this gap is expected to widen in future, with only so much of electricity available and though new power projects are being built, but the demand is also expected to rise at the same pace. So it is very critical to use the electricity produced efficiently and the company we are talking about operates in the area of LED Lighting and displays, which are 10 times more efficient.

It is estimated that electricity for lighting costs about $185 billions annually, the globe consumes 2300 TW.h of power and generates about 2bn tones of toxics annually. Since LEDs are about 10 times more efficient and since Governments all over the world are looking to reduce carbon emissions, I think MIC stand to gain from this.

Company Snapshot

BSE Code: 532850

Market Cap: 443.87 Cr

CMP: 43.75(09/02/2010)

EPS: 5.72

P/E: 7.65

52Wk High/Low - 59.90/14.35

Book value: 28.80

Face Value: 2.00

Chairman: Dr. M V Ramana Rao

LED Lighting

MIC has a vast range of LED lighting solutions available to cater from homes to large industries. The application potentials of the LED lights are enormous. The lighting gamut covers Architectural lighting, Channel letter/contour lighting, Consumer portable lights, Residential lighting, Retail Display lighting, Entertainment lighting, Safety/Security lighting, Outdoor lighting, Off-grid lighting(solar powered and others), Commercial / Industrial lighting and Automotive applications.

Indian Railways planning to modernize over 599 railway stations across the nation and decided to replace the single color LED displays with the multi color LED displays. MIC being the only Indian company approved by the RDSO and there is a noteworthy business break of more than Rs.700 cr over the next four to five years.

MIC has secured an order for transforming 10000 street lights of various kinds to LED lights in the city of Rajahmundry (Andhra Pradesh). More cities from in and out of India are expected to transform to the high efficient LED solar lighting systems as a better power saving option. City of Pittsburgh (USA) and Campbell (Australia) has been selected MIC's street lights for evaluation and the lights are undergoing trials. Is the beginning?

The portable Solar Rechargeable LED Lantern has been recognized by The Energy Resources Institute (TERI) and they have declared the adoption of MIC’s solar lanterns for their prestigious 'Light a Billion Lives' (LaBL) program. It is expected that, each Lantern is expected to replace 500-600 liters of Kerosene in general, thus mitigating about 1.5 tons of Carbon Dioxide emissions.

LED Displays

MIC's flagship products, LED Video Displays (indoor/outdoor/mobile) have become an integral part of Sports Stadiums, Transportation Hubs, Digital Theatres and Theme Parks, Advertisements and Public Information Displays in Railways and Airports. MIC has already partnered with IPL for providing LED displays. The company is mastered in following range of LED displays.

Indoor Video Screens
Digital Posters
Outdoor Video Walls
Mobile Video Displays
Digital Billboards
Digital Posters
Ticker Displays
Perimeter Displays
Variable Signage Displays
Networked Displays
Interactive Displays
Passenger Information Displays
Digital Theme Parks
3-D Displays


Recognitions

ISO 9001: 2008 certification.

Approval from MNRE for Solar LED Lantern.

Selected for "Best Under 1 billion" by Forbes Asia, one of the 22 Indian companies among 200 of Asia Pacific region.

RDSO Approval for True Colour Passenger Information Display System.

Only Indian company having ‘Design-to-Display’ capabilities in True colour LED video display Segment.

The first company to introduce LED Mobile Video Display in India, Middle East & South Africa

My View:-

Over 1.6 billion people in the world lack access to electricity and 25% of them live in India. I am expecting these solar lanterns to find more demand in future. Governments have already started talking about reducing emission and saving energy, the LED lighting developed by MIC would find usage in more and more cities across the globe in coming years. Few cities have already started the transformation process. With India’s focus on improving Infrastructure, MIC Electronics appliances like LED sign boards, advertising screens would find a good demand in areas like Expressways, new Highways, Airports or in such public venues.

MIC’s LED Displays have already been deployed at a number of sports stadiums across the world and many more stadiums would soon be follow the suit. There is around 1000 cr marketplace with Indian Railways itself for supplying coach lights, signal lights, emergency lights and for coloured display boards, sign boards and advertising screens. MIC as the only company approved by Research Design and Standards Organization (RDSO) has set to gain good business from the world’s largest Railways.

I am expecting, much more organizations will transform their Industrial and Outdoor lighting systems to more efficient and renewable solar LED lighting systems, which could provide a very good opportunity to MIC. LED lights with their long life span and less maintenance costs are expected to find use in Refrigerators, Traffic lights, Petrol pumps, mobile phones and for a lot others in the 24x7 category.

by Mr Jagadeesh Reddy Yaramada, Hyderabad

Thanks a lot Jagadeesh. I too believe that MIC is in the path of making a multibagger, but we have to offer adequate time to the management. The appealing range of products is compelling me to think vibrant on this scrip. Like all the other products, the fast growing advertising industry will undeniably boost the MIC business in very near future. It seems the flex board advertising trend may shift to the MIC LED displays in short span of time which will illuminate our malls, cities and highways.

Thanks again and keep it up...

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Mobile VAS – The Future Hotspot

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A lot of discussions are going on the fast growing Mobile Value Added Services and their growth prospects. I would like to light on some personal thoughts on this subject. The sector is doubtlessly emerging and in my opinion, the growth of this sector has no limits. It is sure that the Mobile phone or the tiny piece of hardware going to make fabulous changes in the lives of next generation.

Scientists working on what all other utilities can merge more, inside this tiny piece of Hardware. In other words they are gradually making the mobile phone as a platform to incorporate variety of utilities for which we used different hardwares till the time. Its even became a threat to some existing utility hardwares which were treated as an essential part of day to day life. We often use the concept “endangered species” as a biological terms, but here, I think there is such species in utility hardwares only cause of the appearance of Mobile Phones.

I bothered less when my watch stopped in last week to change its cell, because I can manage the function with my mobile phone. I skipped using calculator in office/home which I uses regularly for even simple calculations, but I feel more feasible, my mobile key pad for that. The old time piece which always wakes me up in the morning is dead cause I did’nt changed the cell by few months. The villain is there again is my Handset itself. That much to me, but there are more such victims like walkie-talkies, Paging devices etc…

Its doubtless, we are saving space, money as well as time cause of this stuff. Its is expected that, after 4-5 years we will use Mobile Phones for a variety of other purposes than what they currently designed for. The application utilities which only can run in Desktops and Laptops will drastically shift to nextgen mobile handsets. Our kids will learn typical word processing/accounting /presentation/Internet application softwares as well as common utility softwares from such high tech hand sets instead.

The mobile phone is increasingly becoming a powerful computing device. The anatomy of mobile phones is undergoing avant-garde changes. Today we can find a processor running inside it and a memory of about 8-16MB. We are easily connecting to the internet using GPRS of a data transfer rate of about 30 Kbps. Most of these devices have a slot to carry a SD card that can store up to 1-2GB of data.

Means, such a phone today compares auspiciously with a Pentium-I PC of 1990s. The basic configuration of such system was some 133 MHz processor, 16 MB of RAM, 1-2 GB of HDD and was good enough to connect to the internet using a 33.6 Kbps dialup modem. It is significant to remember that the above said configuration was the base of PC revolution seeds thousands of utility/application/system softwares over more than a decade which changed the lives of billions.

I strongly believe that we are going to observe a similar revolution with the mobile phone over the next decade. If it works, How thousands of new mobile application utilities look like? What all the names of such softwares. Who will be stand in the place of Microsft or the leading operating system (OS) provider? Who will be the next IBM or Intel to provide excellent hardware support? How the then viruses will react to your handsets/applications? It is really interesting to find answers for such questions.

You will use your handset definitely for verbal communication and for messaging as usual. Its exciting to think on, as this tiny piece of hardware is capable to do all that what a computer can do today. In addition, it can take high quality Photographs, Videos. You will listen music, see movies, read news papers, operate your bank accounts, pay your bills, book your Air/Train tickets and a lot more….

You can think on this turnaround story in other way. Just try to recall, what all the facilities available in the initial Mobile Handsets you had before 8-10 years. Just use your fingers to count the added facilities by these years. Your Handset wake you up in the morning, its tell you the exact time, It counts the time u engaged in jogging or running accurately, You have a calculator in it, You have a Calendar in it, You have a camera in it, you are playing games in leisure, it reminds your engagements, you are listening music from that, viewing clips, sending Multimedia messages, you can brows a bit, sending emails… Fingers are not enough to count all the added service by last few years.

Yes, all these changes are nothing new to us now. Be prepared to be count and experience more such additions. Its almost sure that your mobile hand set will replace your Desktop or Laptop up to an extend. What else? Sometimes in future, your hand set may tell you odd things like your BP is increasing or instruct you to control the cholesterol count level frequently. It may guide you to reach certain place using GPS technology. It will make automatic calls to your near and dears in a case of any harm with you. Let us see what all “endangered species” of hardwares yet to come.

Some Indian companies also actively incolved in the business of fast growing MVAS (Mobile Value Added Service) working hard on developing compatible Hardwares/Softwares and to defining the required network infrastructure for future. The initial generation of such “Smart Phones” are now in market, but a big revolution still ahead.

Certain Indian companies working in this field doing exceptionally and preparing to make a boom in this sector. Investing in such companies may bring good fortune in coming 4-5 years.

My email- sthachat@gmail.com

Readers are requested to comment whether negative or positive will encourage me to share more in this line.

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