Pitti Laminations Ltd (Code 513519) - HBJ Capital's Inside Value Pick Stock Reco for Sept'11

Pitti Laminations Ltd. (BSE Code : 513519)“Inside Value Pick” stock for the month of Sept 2011 HBJ Capital Services Pvt. Ltd Web: www.hbjcapital.com E-Mail: info@hbjcapital.com Call: +91 98867 36791 SMS: HBJ to 56161

Buying Price | Selling Price | Stop Loss Price Best Buying Price : Between INR 35-40 [Strong support is around INR 39-40 levels, Rs 39.15 is the price at which promoters has subscribed to preferential issue & Open offer is at Rs 41 per share] Best Selling Price : Above INR 80-100 [An appreciation of 100% in next 6-12 months is most likely possible] Stop Loss Price : INR 25 – Stop Loss Price means if the share price falls below INR 25, one MUST exit without any question. Expect at least 100% return in next 6-12 months time frame!!!

Why Pitti Lamination Ltd? Company is a well managed entity with a respectable client list. They have expanded capacity and nowgoing to benefit from increased capacity utilization.The Company is trading at attractive valuations compared to its peers, a turnaround in the operations notclearly visible/factored in the share price. The Company expect to show a performance of 30% CAGR inboth top line and bottom for next two years.The product range it offers to its client, make this company a ‘one stop solutions’ for each and everyrequirement in the field of electric lamination, the result is it is the only supplying laminations to SiemensLtdThey have recently done diversification of operation by extending its machining business to domesticclientele is clearly visible on its top line and bottom line which has increased nearly 125% and 245% in theQ1 FY 12The Increase in promoters holding from 42% to 60%, makes this a confident buy.

Contd. The Company posted an EBITDA margin of 17% for FY11 resulting the company to trade at MCAP/EBITDA margin on 0.76x. Currently, the stock is trading at MCAP/Sales of 0.15x. According to the annual report of the company, its expected grow at 30% for next two year, clearing cashing the increase capacity. Increased in Capacity from 10,000 MT to 25,000 Mt to meet the growing demand of the products. Company is also making tools and dies for use by Siemens Ltd (India), Alstom, Bharat Heavy Electricals Limited, New Age electrical India limited, and exporting to USA. Currently, the company has over 300 models of various sizes of laminations to suit a variety of applications. Also, the company has post-manufacturing facilities like cleating, riveting, welding and die cast rotors for the clients. Planning to sell 900 nos. of stator frames in the current year based on the inputs received from the existing and prospective clients The Company is expecting a bottom line of 26.15 Cr in FY 12-13 which is nearly 3 fold from current profitability, the pace at which it is moving is quite achievable.

Pitti Laminations – An Overview

Basic Details Patti Laminations (BSE: 513519), manufactures electrical laminations up to a diameter of 1300 mm (51”) for application in Industrial motors, DC Machines, Alternators, Traction Motors, Pumps, Train lighting generators, Aeronautics, Medical diagnostics equipment and Windmill generators. Company produces Laminations up to 700 mm (27 inches) diameter by single blow (gang punching) operation and up to 1300 mm (51 inches) diameter by single point notching including skip notching. Company also produces, small laminations via High Speed Press for compressors, Press tools, Progressive tools and fixtures. The Company is based in Hyderabad and has two plants operational with in a radius of 50Km of the city. The installed capacity in both the plants are 25,000 tons per annum, which was recently increased from 10,000 tons. The Company has a dedicated capacity of 17,000 tons for export market.

Contd. The Company also has a associate company called Vaksh Steel Private Limited, a modern infrastructure facility to supply best quality castings at the competitive rates. The products includes Rotor hub, EMD Turbo Main, Main Carrier, Blade Adapter, Bracket, Gear Housing and Pump casing Pitti Lamination has a credible client list which includes companies like General Electricals, BHEL, Crompton Greaves, Siemens Ltd, ABB,Alstom and Kirloskar Electric Company Limited. General Electric is one of the major revenue drivers of the Company contributing nearly 40% to the revenue of the Company The Export revenues contributes 66% to the revenue while 34% comes from the domestic sales to its customer across India. Pitti Lamination has already racked in 100 Cr (66% of FY 11 Revenue) in the first quarter and expected to out perform its own expectation The Management of the Company expects it to grow by 30% in the coming two years, fully utilizing the expanded facilities. The Increased in the promoters stake from 42% to 60% and then to 80%, defines the confidence.

Balance Sheet  Equity: Promoters have increased their stake to 60% and announced an open offer for further increase of stake to 80%.  Debt: The rising debt level and the interest rate is bit of concern for the company, which they will be reducing after increasing their capital base in the coming quarters.  Dividend: The company has paid Re 1 as dividend during this year. The Stock seems to be quite unresponsive after some good results and dividend declaration  Restructuring: In 2011, company appointed new CFO, changes some policy and has went through some restructuring in the operation in last one and half year, result of which quite visible on the scorecard

Income Statement  Turnover: The sales increased nearly 2.5 times posting a growth of 15% CAGR in last five years  Interest: Though, interest expenditure nearly doubled in last three years which the management has decide to check out with the increased equity.  Operating Profit: The Operating profit of the company face some patchy situation last year due to exceptional loss which company face otherwise its in the strong hand  Expansion: Process of increasing the production capacity to cater the rising demand, specially the export oriented demand. Capacity increased from 10,000 Mt to 25,000 Mt  EBITDA: Company portrayed an EBITDA margin of 17%, making it to be 30 Cr, just 0.76x of market capitalization

Sales rises 125% in the June 2011 quarter (Y-o-Y) The Sales has zoomed up by 125% in Q1 FY 12, covering 60% Sales of FY 12 revenue making it possible to attained 30% CAGR for next two years The operating profit has increased two folded from 5.81 Cr to 11.74 Cr, nullifying the exceptional loss charges during the previous year The Only concerned which management are addressing the rising interest expense.

Shareholding Pattern The Promoters have increased their share holding to 60% from 42.84% through preferential allotment at a price of Rs.39.15 The Promoters have declared an open offer at Rs.41 for additional 20% which would increase their stake to 80%

Management is good in providing future expectedsales and profit figures thru Annual ReportsFrom 2010 Annual report…. From 2010 Annual report…. March 2011 net profit has been stated as 5Cr with topline of 227Cr March 2012 net profit has been stated as 8.34Cr with topline of 264Cr Now if we see March 2011 actual results… Topline: 255.64Cr & Profit: 8.48Cr Both are in-line with the projected numbersFrom 2011 Annual report…. Lets see what the March 2011 Annual report has to say….. The company management has predicted a 100% increase in net profits for 2012 (19Cr) And 200% increase in profits in 2013 (26.15Cr)

Stock price yet to factor the increase in profits?The surprising part is the stock has not responded to the rise in profitability. The TTM (Twelve Trailing Months) PBITDAis 37.30Cr while current market cap is just: 38Cr. Digging a little deeper we see that the promoters has done:- Preferential allotment of equity @ Rs 39.15/share, increasing their shareholding to 60% (from 42.84%)- Equity of Pitti Laminations will increase from 9.44Cr to 13.50Cr that’s a 43% increase in Equity.- 20% Open Offer of Equity from Public is also proposed at Rs 41/share, this would theoretically increase promotershareholding to 80%

40.5 Lacs of preferential shares to promoters@39.15/Share. Open Offer for 20% @41/ShareTotal Equity Shares of the company is 94,41,700. Promoters are issued 40,50,000 equity shares on preferential basis atRs 39.15 per share. Which is equal to investment of Rs 15.85 Cr by the promoters. While promoters are injecting 15-16Cr in their own company, cant we just park Rs15-20K or 3-5% of our portfolio behind their confidence.Open Offer for 20% of the paid up equity capital at a price of Rs. 41 per. Date of Opening of the Offer - October 31,2011. Date of Closing of the Offer - November 19, 2011.

Investment Rationale Company is a well managed entity with a respectable client list. Promoters have expanded capacity and are now going to benefit from increased capacity utilization. The Company is trading at attractive valuations compared to its peers, a turnaround in the operations not clearly visible/factored in the share price. The Company expect to show a performance of 30% CAGR in both top line and bottom for next two years. Increased in Capacity from 10,000 MT to 25,000 Mt to meet the growing demand of the products. They have hired Sanjay Srivastava from GE in their company. Considering the better earning prospects management is increasing their holding in the company from 42.8% to 60%. They are also planning for an "Open Offer" to the public after the preferential issue which could increase holding to 80%. The company management in the annual reports has been providing forward looking earnings numbers which have been true in the past and if true for the future ..its a great opportunity to Buy.

RegularIncome For YOU E-Mail: Info@hbjcapital.com Call: +91 98867 36791

HBJ Capital™ Services Pvt. Ltd. #912, 1st ‘F’ Main, Girinagar II Phase, BSK 3rd Stage, Bangalore - 85 Contact: +91 80 65681133/34, Mob : +91 98867 36791E-Mail: Info@hbjcapital.com | www.hbjcapital.com Bangalore |Chennai |New Delhi |Hyderabad

DisclaimerThis document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. This material is for the personal information of the authorized recipient only.The recommendation made herein does not constitute an offer to sell or solicitation to buy any of the securities mentioned. No representation can be made that recommendation contained herein will be profitable or that they will not result in loss. Information obtained is deemed to be reliable but do not guarantee its accuracy and completeness. Readers using the information contained herein are solely responsible for their action.HBJ Capital, or its representative will not be liable for the recipient’s investment decision based on this report. HBJ Capital, officers, directors, employees or its affiliates may or may not hold positions in the companies /stocks mentioned herein.

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Pitti Laminations Ltd (Code 513519) - HBJ Capital's Inside Value Pick Stock Reco for Sept'11

by HBJ Capital on Sep 20, 2011

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Pitti Laminations Ltd (Code 513519) - HBJ Capital’s Inside Value Pick Stock Reco for Sept’11 — Presentation Transcript