Emco: Powering on

ANALYSTS' CORNER

Sharekhan.com recommends a buy on Emco. The report states that the current investment boom in the power sector is driven by reforms initiated by the government to create more power infrastructure in the country.

Emco with its presence across the transformer market will be a major beneficiary of this thrust on infrastructure development. The company has entered the small transformer segment (of capacity less than 500 kva) and also executes turnkey projects in the transmission and distribution (T&D) segment.

The report adds, "The new ventures have opened new revenue streams for the company. We expect these new ventures to perform on the back of a strong order book, thereby driving the company's earnings in FY05-07. Emco is steadily ramping up capacities to capitalise on an exponential surge in demand for transformers.

The capacity expansion exercise will drive its earnings in FY05-07. Considering the strong growth in the earnings and an improving returns ratios, we believe the stock's current valuation at P/E of 9.2x FY2007E is attractive.

Asian Paints: Volume play

Edelweiss Securities maintains value buy on Asian Paints. The report states that the June quarter results are in line with expectations. The topline growth of 24.3 per cent was driven by domestic decorative business.

The revenue break up within the domestic decorative business seems to be slowly changing in favour of higher-end water-based paints, where Asian Paints has wiped out cement paints as an alternative.

The report assumes a 15 per cent revenue growth in the domestic paints business driven by 12 per cent growth in volumes. The stock quotes at P/E of 20.7x FY06E earnings. A strong domestic volume growth is expected to drive 23.5 per cent growth in earnings, which is positive.

However, raw material prices continue to pressure margins although Asian Paints has been able to take a price increase of 1.25 per cent in June 2005. This follows a 5.5 per cent hike in December 2004 in select categories.

Lloyds Steel: Better numbers

Khandwala Securities recommends a buy on Lloyds Steel. The report states the company has done well and expects better performance in the remaining quarters.

In the June quarter, net sales registered a 62 per cent y-o-y growth due to increase in volumes, though realisations fell compared with the previous quarter.

The report adds, "We do expect a further fall in realisations per tonne in the coming quarters, which has already been factored in."

EBITDA has shown a growth of 43 per cent and PAT has grown by 1,800 per cent during the quarter. Operating profit margin improved from 8.2 per cent to 11.8 per cent.