RAILWAY BUDGET 2011: 

I think  you have bought Kernex Micro Systems Ltd earlier, now buy Stone India Ltd (www.stoneindia.co.in), before the railway budget. This time lot of emphasis is expected to be given on laying of new tracks and the safety of railways. Some more prestigious "Duronto Trains" could be introduced, which would give clear advantage to the shareholders of Kernex Micro Systems Ltd (Rs.118.50) , Stone India Ltd (Rs.51.50) and to some extent to Titagarh Wagons Ltd (Rs.440.45). 

The 2011-2012 Budget session will begin on February 21. The date for the presentation of the Union Budget is February 28 and the Railway Budget will also be presented soon after that. Usually the railway budget is presented two days before the Union Budget.

The 2011-2012 Budget session will begin with a joint sitting of the two Houses that will be addressed by President Pratibha Patil.

Due to the numerous calamities and mishaps that took place in the year 2010 the railway department is expecting two times the budget allotted in the previous year. 

Currently the railway budget is undergoing a financial crisis and in order to overcome it; the department would require an increase in the budgetary support from the Finance Ministry of India.

The railway department has requested for Rs.39,600 crore as gross budgetary support in 2011 as compared to the Rs.15,875 crore that it received in the 2010 budget. This whooping expectation is not only to repair the damages but also for the ongoing and upcoming railway projects. The railway department also aims at further expanding and modernizing the railway infrastructure of the country.

The 2011 railway budget aims at increasing the production of wagons, coaches and locos, gauge conversion and doubling of tracks and laying of 1000 km of railway tracks. There will also be an increase in the number of trains and freight carriers. All these augurs well for the shareholders of Kernex Micro System, Stone India, Titagarh Wagons Ltd, etc. 

The target of the department is to increase the number of coaches from 3700 in the previous year to 4000 coaches in 2011-12. In the wagon manufacturing segment the department plans to churn out 18,000 wagons and as far as locomotives are concerned they are expected to increase by another 5000.

The 2011 railway budget will also give importance to safety and security issues like improving the signaling system, train protection warning system (TPWS) and installing safety related technology like Anti-collision devices (ACD).  

Stone India Ltd:

CMP: Rs.50.50
Market Cap: Rs.39.62

EPS (TTM): Rs.6.65

Price/Book:1.20

 P/E:7.84

Industry P/E: 20.88
Website: http://www.stoneindia.co.in

Introduction: Stone India is a multi-product engineering company located in Kolkata, has been serving the Indian rail road industry for over seven decades.
Shareholding Pattern: The promoters hold 38.58% while the general public  holds 61.42%. Among the general public National Insurance Company holds 1.39% of the shares of the company. 
Financials: Stone India Ltd came out with flat set of numbers for the Q3FY11, when compared on Q-o-Q basis. The total income of the company came out to be Rs.23.46 Cr as against Rs.23.47 Cr in the same period previous year. The net profit of the company came out to be Rs.1.13 cr in Q3FY11 as against Rs.1.03 Cr in the same period previous year. The EPS of the company for Q3FY11 came out to be Rs.1.49 in Q3FY11 as against Rs.1.35 in the same period previous year. 
Triggers: 
(i)  In the railway budget to be presented in this week (25th February, 2011 to be precise), there are chances of introduction of few more "DURONTO TRAINS',  by the present Railway Minister, Dr.Mamata Banerjee. The following "Duronto Trains" have been proposed:
(a) Howrah - Chennai Central Duronto Express (Fully A.C)
(b) Howrah - Secunderabad Duronto Express (Fully A.C)
(c) Chennai - Mumbai Duronto Express
(d) Bangalore - Mumbai Duronto Express (Fully A.C)
(e)  Sealdah - Guwahati Duronto Express (Fully A.C)
(f)  Mumbai - New Delhi Duronto Express (Fully A.C)

Stone India Limited earlier entered into an understanding with Sumitomo Electric Industries of Japan to form a JV in phases to locally manufacture air springs for the railways. This will help the company to provide complete end to end solution of pneumatic suspension system to the Railways through supply of primary, secondary suspension products and pneumatic control system with in built failure detection device. Stone India will now start exporting metal parts of air springs to Sumitomo Electric Industries.
(ii) Stone India is gradually switching over to high speed trains requiring the use of suspension systems---a beginning had already been made with "Duronto trains" which were using advanced suspension system instead of the conventional suspension system.
(iii) Its factory at Nalagarh, Himachal Pradesh has already started commercial production of Distributor Valve and Panel Mounted Brake System. The approval for other products are expected soon. The expansion plan is in progress at site for new products which will add to its production capacity. As was reported earlier Stone India Ltd has started manufacturing Air Springs and then supplying to Railway. The business of Air Springs is expected to grow substantially in the coming years as Indian Railways have decided to turnout all EMU as well as Main Line Coaches duly assembled with AIR Springs to improve passenger comfort. The enhancement of sales of Air Spring will further contribute to increase the turnover. 
(iv) The Company established a Railway Electronic Division to undertake design and development of Different Electronic equipments required for railway in order to improve the performance and safety of railway wagon and coaches and also to improve the control and information system. As a part of this it has already come up with new products which are being tested and approved by RDSO.
(v) The company has received the first development orders for FDCS from Railways Chittaranjan Locomotive Works which will ensure better safety features. The company has achieved a major break through in Bio Toilet and controlled discharge Toilets and already some of the Toilets has been fitted in some Trains for Trial runs. The products are running successfully for the last one year. It has also got orders for Controlled Discharge Toilet to be supplied to Railways. Moreover, electronic Brake System for Diesel Locomotive is being pursued. For Electric Locomotive it has been recommended for the placement of the first developmental order by Railways. 
(vi) Stone India Ltd recently informed BSE that it has entered into an exclusive co-operation with NRT Co. of Korea to undertake Platform Screen Projects for Metros. This co-operation comes into immediate effect and will serve different Metro Projects across the country.
Thus investors can buy the scrip of Stone India Ltd at the CMP of Rs.50-51, for a target of Rs.71-72, in the short term. The scrip trading at a P/E of 7.71 againt the industry P/E of 20.88. Now giving a suitable discounting and considering a fair P/E of 15, the scrip can have a target of Rs.85.90, in the medium term, especially in the view of the new JV with NRT Co. of Korea to undertake Platform Screen Projects for Metros.