Sharekhan Investor's Eye dated September 25, 2006

[Sunil]

 

Investor's Eye [September 25, 2006] Please see the attachment for details Share khan www.sharekhan.com

Summary of Contents STOCK UPDATE WS Industries India Cluster: Vulture's Pick Recommendation: Buy  Price target: Rs112 Current market price: Rs49 Annual report review We recently analysed the annual report of WS Industries (WSI) and here we present the highlights of the same.  During FY2006 WSI's revenues grew by a decent 22.5% to Rs147 crore. A flat interest charge for the year and reduced depreciation caused WSI's net profit to grow at 104% year on year (yoy) to Rs4.3 crore. WSI's operating profit margin (OPM) remained largely flat at 10.1%, restricting the operating profit growth to 21%. A 32.7% increase in the raw material cost and a 35.4% rise in the power and fuel cost as against a 22.5% growth in the revenues negated the benefit of operating leverage. The management says that the market for its product in the short to medium term is very encouraging. The company has participated in several large tenders and is confident of converting a sizeable portion of the same into firm orders that will sustain its strong order book position of Rs110 crore.  The management has devised a three-pronged strategy to transform WSI's approach towards business: (1) expand the capacity at the current facility at Chennai; (2) set up a greenfield plant for hollow core insulators; and (3) stabilise the source of income through the realty venture.  The strong investments lined up for the transmission and distribution (T&D) sector will drive the order book in future. We have valued WSI's core business at Rs60 per share (8x FY2008 earnings), but the stock offers significant upside due to the huge value offered by the realty venture. We estimate the value of the realty venture to be close to Rs80 per share of WSI. We remain positive on WSI and maintain our Buy recommendation on the stock with a price target of Rs112.

Regards, The Sharekhan Research Team myac...@sharekhan.com

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