Nov 11, 2010

Stone India: A Defensive multi-bagger

STONE INDIA        
 A Defensive multi-bagger                                                                             

Investors with a long-term perspective can buy this stock in a lump sum or in a SIP mode. Investors can take exposure in the stock, considering the company's ability to diversify its business verticals.


A Brief Background & Company Profile
Stone India, a multi-product engineering company located in Kolkata, has been serving the Indian rail road industry for over seven decades.

A pioneer in brake systems and train lighting alternators, today Stone India is the undisputed leader in locomotive brake systems and has a wide range of mechanical and electrical products for the rail road industry.

Over the years, the company has grown from strength to strength. Today, stone India is part of multi billion INR Duncan Goenka Group and employs 320 people. It is an ISO 9001 accredited company that can boast of cutting-edge manufacturing facilities, systems and practices. The company is committed to achieving international standards of performance in quality, costs and delivery. Stone India takes pride in its values and ethical business practices and is environment friendly.

Carriage business group:
The Carriage Business Group deals with pneumatic Brake Systems for Carriage & Freight stock for Railway rolling stock operation. Stone India Ltd has been a pioneer supplier of Air Brake systems since the introduction of Air Brakes for Indian Railways in 1980's. Distributor Valve type C3W to SAB WABCO design for Carriage & Freight operation is manufactured in Aluminium body for Carriage and Cast Iron body for Freight wagons. The other important equipments like Brake Cylinders, Angle Cocks, Dirt Collectors, Hoses, etc. are manufactured either as per Stone India's in-house design or as per customer requirements.

Locomotive business group:
The Locomotive Business Group deals with Locomotive Brake Systems for Diesel and Electric Locomotives. Stone India Ltd has been the first Indian Company to indigenously manufacture and supply Pneumatic Brake System - type 28LAV-1 for Indian Railways as per the license agreement with WABCO-USA ( now known as Wabtec Corporation). Apart from manufacturing critical brake valves as required for the Brake System, Modular Panel Mounted Brake Systems are also manufactured in both Bi-plate as well as in Tri-plate version for both Diesel & Electric Loco application.

Train power business group:
The Train Power Business Group deals with Electro-Mechanical, Electrical & Electronic products used in Indian Railways. The products include Brushless Alternators, Electronic Regulators and Pantographs. Brushless Alternators are power generators used in the coaches. Stone India manufactures and supplies 3, 4.5, 18 and 25KW Brushless Alternators to Indian Railways. Electronic Rectifier cum Regulator convert and maintains the supply at a steady 110V DC. 25 KW Alternators are used in the Air-conditioned coaches in Indian Railways. The Electronic Rectifier Regulator has inbuilt data recorder & data storage device. It also has a PC interface for data manipulation. Stone India also manufactures Rectifier Regulator of 4.5KW and 25KW capacities in the Magnetic Amplifier design.

International Collaborations of Stone India:
Stone India has collaborated with various global industry leaders for its high technology products among them are:
1. Faiveley S.A. of France for Pantographs.
2. SAB, Sweden for Slack Adjusters.
3. Wabco Westinghouse, USA (also known as WABTEC Corporation) for Brake System and Air Dryer of Diesel and Electric locomotives.
4. SAB WABCO France for Freight Brake system and Tread Brake Units for Diesel and Electric Locomotives.
5. MZT Hepos Ad, Macedonia for Brake Control Relay Valves for Passenger Coach Brake System and Tread Brake Units for High Speed Locomotives
6. Stone India Ltd has entered into an understanding with Sumitomo Electric Industries of Japan to form a joint venture in phases to locally manufacture air springs for the rail.

Stone India arm signs agreement with Railrunner: The Real Game changer
To introduce new generation seamless transportation system Stone India through its wholly owned subsidiary company Stone Intermodal executed an exclusive collaboration agreement on 30 September 2009 with Railrunner N.A. Inc., USA to manufacture, operate and sale the new generation freight cars for seamless door-to-door transportation service on rail and road. The collaboration provides exclusivity in marketing, manufacturing and operating rights in India for an initial period of 10 years.

Be and Make’s conclusion:
The stone India is a promising company for sure but is still just with Rs.70cr top line means it has done nothing in the last seven decades. The three recent events will be the key triggers for the company.
1.      The Stone India Ltd has entered into an understanding with Sumitomo Electric Industries of Japan to form a joint venture in phases to locally manufacture air springs for the rail.
2.      Stone India arm signs agreement with Railrunner
3.      Stone India to enter solar power biz
Now, all set to change the pace of the company. One needs to have the patience to reap multi-fold returns in this stock. The stock is trading with PE of 10 where as the industry PE is around 24. P/BV is at 1.3 levels is also very encouraging. Debt equity ratio is at 0.6 gives enough room to raise funds through debt for the first stage expansion. So, one can add this stock in SIP mode aiming for the long term means above 2 years. The stock has huge support at 55/- levels hence one can add this stock at the current levels aiming for the long term. In short term it may not have significant up move but in the long term definitely it will be a defensive multi-bagger.

With thanks
BE AND MAKE

To get the complete report in PDF form for free download here: Stone India_Be and Make

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