Micro Technologies - Rs.211.00

Established in 1992, Micro Technologies (India) Ltd. (MTIL) is a global provider of security, safety and life-support solutions and offers a host of software products for the security, messaging and wireless industries. In fact, it has a monopoly in the niche segment that it operates in and uses patented technology, which is difficult to replicate. It has been working on innovative hi tech software solutions for security in banking, Internet, door security, automobiles etc which have tremendous market potential both locally and internationally. For few of its products, the company has received WIPO Switzerland acceptance for its international patent application in 123 countries including the USA.

Being a product focused IT company, MTIL has developed more than 80 products and some of them enjoy a phenomenal demand. For technical assistance, the company has an agreement with global giant Siemens to collaborate on pioneering R&D efforts and identify new partners for development of wireless technologies. Some of its products like Lost Mobile Tracking System, Secure-Bank Black Box for the banking industry, Vehicle Black Box, disaster management system, home security system, access control solution, micro life line etc are doing exceptionally well and have brought a revolution in the industry. Its other inventions like ATM Black box, Intelligent Black Box, Portable Black Box etc have not been fully commercialized but hold immense potential. To fulfill the huge demand, the company is in an aggressive expansion mode to quadruple is production capacity and is on the verge of achieving critical mass. Currently, it has customers spread across South East Asia, Africa and the Middle East and distributes its products through its partners in Dubai, Kuwait, Yemen, Egypt, Japan and Indonesia. It plans to set up offices in UK and USA and increase its presence through JVs in these markets. For the domestic market, MTIL is setting up franchisee outlets under the name of ‘Micro Shoppe’ which will create product & brand awareness in the public at large. It already has 5 outlets and the company intends to take them up to 50 by December’06. It is also setting up Micro Service Centre to provide maintenance and support facilities.

MTIL has an order in hand of around Rs.400 cr. to be executed in the next 3 years and is expected to get another Rs.200 cr., which provides visibility of revenue for coming years. For FY06, its top-line increased by 120% to Rs.59 cr. whereas its PAT zoomed 140% to Rs.17 cr., thereby reporting an EPS of Rs.17 on its current equity of Rs.10 cr. For FY07, sales may cross Rs.100 cr. and net profit may be around Rs.29 cr., which means EPS of Rs.30. Although there is risk of equity dilution, still the share is available fairly cheap and has the potential to double in 12-15 months. Investors are strongly recommended to buy at current levels and hold for 3-4 years as it can turnout a multibagger.

LIC Housing Finance - Rs.156.00

Incorporated in 1989 and promoted by LIC of India, LIC Housing Finance Ltd. (LHFL), is one of the largest housing finance companies in India and only second to HDFC. The main objective of the company is providing long-term finance to individuals for purchase, construction, repair and renovation of their new or existing homes. It also provides finance on existing property for business/personal needs and gives loans to professionals for purchase or construction of clinics, nursing homes, diagnostic centres, office space etc. The company also lends to corporate bodies under different schemes for purchase/ construction of office premises for their own use, construction of staff quarters and also for onward lending to meet the requirements of employees. It also lends to builders and developers for residential and commercial projects.

LHFL possesses one of the most extensive marketing networks with 6 regional offices and 115 area offices backed by chain of camp offices nationwide, an offshore office in Dubai and registered and corporate office at Mumbai. It has a team of 875 dedicated employees apart from 5500 Direct Sales Agents and Home Loan Agents to extend its marketing reach. It has set up a representative office in Dubai to cater to NRI in Bahrain, Dubai, Kuwait, Qatar and Saudi Arabia. LHFL has so far disbursed more than Rs.25,000 cr. and has over 8,00,000 prudent house owners who have benefited by its financial assistance. Interestingly, LHFL has launched a fully-owned subsidiary by the name of ‘LICHFL Care Homes Ltd.’ for the purpose to set up and run Assisted Living Community Centres / Care Homes for senior citizens within the country. It has started its first care homes project at Bangalore in an eco-friendly self-contained retirement village situated in a suburb of Bangalore and which fetched good response from the market.

Notably, 85% of its loan portfolio comprises floating rate loans. Hence rising interest rate will have a positive impact on its spread and on its bottom-line. Although its net NPA is high at 2.80% but it is under control and will decline gradually going forward. With various fiscal benefits, aggressive infrastructure development and rising standards of living in urban as well as semi-urban areas, the future prospects of LHFL is very promising. For FY06, its total revenue grew by 21% to Rs.1,269 cr. but the bottom-line jumped by 45% to Rs.209 cr. due to better operating efficiency and lower tax provisioning. This works out to an EPS of Rs.25 on an equity base of Rs.85 cr. It declared 60% dividend compared to 50% last year which means a dividend yield of more than 4% on CMP. For FY07, it can post an EPS of Rs.28. Hence scrip is trading at a forward PE of just 5 times. This shows there is vast gap in valuation of HDFC and LHFL, which should narrow down going forward. Investors are strongly recommended to buy LHFL with a price target of Rs.230 (50% appreciation) in 6-9 months.

STOCK WATCH

The government has put special thrust on infrastructure development and construction work is in full swing throughout India. Hence demand for cement will continue to be strong and with no fresh capacities coming up in the near future, cement prices are also to remain robust. Hence, Mangalam Cement (CodeNo.:502157) (Rs.147.60) has made a strong turnaround and reported mind-boggling numbers for March’06 quarter. Its sales increased by 35% to Rs.110 cr. whereas its profit almost tripled to Rs.22.75 cr. on the back of a smart rise in OPM. In the last four quarters, its OPM has improved from 11% to 21%. For the full year ending September’06, it may report sales of Rs.375 cr. with net profit of Rs.40 cr. on a conservative basis. This means an EPS of Rs.14 on its equity of Rs.28.25 cr. For FY07, it can report an EPS of Rs.18. So at a reasonable discounting of 14-18 times, its share can trade in the range of Rs.250-320 in the coming 12 months.

Due to the depreciating rupee, the Indian IT sector will be the major beneficiary as it is a major exporter. Surprisingly, Rolta India (CodeNo.:500366) (Rs.149.20), which recently raised around Rs.470 cr. through a GDR issue at Rs.250 per share is currently trading at Rs.120. It declared very encouraging numbers for March’06 quarter and for the full year FY’06 is expected to report a top-line of Rs.450 cr. and bottom-line of Rs.135 cr. This will still lead to an EPS of Rs.16 on its fully diluted equity post GDR issue. And for FY07, it can register a net profit of Rs.165 cr. i.e. EPS of Rs.20. Fundamentally speaking, the share price can shoot back to Rs.240 in 9-12 months. A good bet in the IT sector.

In the recent carnage, good FERA companies were also beaten down mercilessly. Fulford India (CodeNo.:506803) (Rs.507.50), an associate company of Schering-Plough Corp. (USA), has come down to Rs.500 from Rs.700 level in a matter of few days. It is primarily engaged in the discovery, development, manufacturing and marketing of pharmaceutical and health care products worldwide. It markets innovative and science based products in different segments like - Sys-Anti invectives, Dermatologicals, Suncare, Antihistamines, Oral Steroids, Cardiovascular and Oncology and biotech. For FY05 ending 31st December, it registered sales of Rs.148 cr. and net profit of Rs.15 cr. i.e. EPS of Rs.47 on a small equity of Rs.3.20 cr. For FY06, it can post an EPS of Rs.56, which means this FERA company is trading at single digit PE against its forward earning. A great opportunity to buy.

After hitting a recent high of Rs.377, Lakshmi Electricals Controls (Code No.:504258) (Rs.191) is constantly hitting lower circuits since the last few days and has almost shed 50% in few days. It manufactures contactors, thermal overload relays, electrical control panels and industrial plastic components. For FY06, it recorded sales of Rs.50 cr. with net profit of Rs.5.30 cr., registering a growth of 25%. It reported an EPS of Rs.22 and declared Rs.5 as dividend. For FY07, it can declare an EPS of Rs.25, but the hidden value is its 100% profit making subsidiary ‘Harshini Textile’. On a consolidated basis, its EPS can work out to as high as Rs.35 due to its very tiny equity of Rs.2.50 cr. Hence it’s trading cheap and can shoot back to Rs.280 very fast.

Vishal Exports (Code No.:532618) (Rs.5.10), a four star export house is in the business of Import-Export of agro products, precious metals, garments and textile products, vitamins, marine and engineering items since the last two decades. For future growth, it has forayed into the renewable energy sector and has set up 30.45 MW wind farms in Tamil Nadu and Rajasthan. It is further setting up 100 MW wind farm in two phases to emerge among the largest wind farm operators in India. Meanwhile, it has chalked out plans to enter real estate development and has already participated in the tender for development of 65,000 sq. mtr of prime property in Surat. For FY06, its turnover was up 45% to Rs.3876 cr. and its net grew by 43% to Rs.37 cr. despite providing Rs.12 cr. as deferred tax. This translates into EPS of Re.1 on its equity of Rs.36 cr. and face value of Re.1 per share. It may declare 15% dividend. Scrip may rise 50% in 6-9 months.