M.M. Forgings - Rs.171.00

Established in 1974, MM Forgings Ltd. (MMFL) is one of the leading manufacturers of carbon, alloy and stainless steel forgings for high pressure valves, drivelines, engine and transmission parts for automobiles and railroad applications. Its product range boasts of a wide variety of parts for gears, shafts, forklift rods, connecting rods etc. for use in automobiles, tractors, earthmoving equipments, power, material handling equipments and core engineering industries. MMFL is one of the largest exporters of steel forgings in South India and has received 14 consecutive annual awards from the Engineering Export Promotion Council for its export performance. In the domestic market, it is a major player in closed die-forging enjoying 15% market share and forges anything and everything in the range of 60 kgs to 300 kgs. Its major clients are Ashok Leyland, L&T, KSB Pumps, BEML, BHEL and Hyundai Motors.

Presently, MMFL, has 4 manufacturing plants spread across Tamil Nadu and one windmill farm at Nagerkoil. The company has continuously expanded by adding state-of-the-art forging facilities and machining capabilities to cater to the requirements of its international customers. It is ISO 9001: 2000 certified by NQAQSR, USA, and is working towards TS 16949 certification. Last fiscal, the company increased the installed capacity of forgings by 3500 MT to 30000 MT at an investment of Rs.22 cr. To meet the rising demand, it is further increasing it by 5000 MT at a capex of Rs.35 cr. to be completed by September/ October 2007. To cater to the demand of parts in machined condition, MMFL has forayed into machining of forgings and plans to venture into the field of non-ferrous forgings also.

Fundamentally, the company is quite strong with 47.43% return on net worth and 26.54% return on capital employed. Importantly, the company tries to maintain margins instead of running after volumes. For FY06, it reported a marginal single digit growth for both its top-line as well as bottom-line. Sales stood at Rs.165 cr. with net profit of Rs.12.10 cr. compared to Rs.158 cr. and Rs.11.80 cr. respectively in FY05. Maintaining the same growth record, it reported flattish numbers for the June’06 quarter with single digit growth. For FY07, it is estimated to report sales of Rs.180 cr. and PAT of Rs.13.50 cr. leading to an EPS of Rs.22 on its equity of Rs.6 cr. Although no super growth is expected, still it can grow at a CAGR of 15% for the next 3 years. Having a 52-week high/low as Rs.315/ Rs.118, the scrip is a good bet and can appreciate by 50% in 18¬24 months.

Kwality Dairy - Rs.16.00

Incorporated in 1992, Kwality Dairy (India) Ltd. (KDIL) is a premier dairy foods company manufacturing a wide range of dairy products like skimmed milk powder, dairy whitener, whole milk powder, ice cream mix powder, butter & ghee both in bulk as well as in consumer packs. It is operating under the brand name of ‘INDANA’, ‘KREAM KOUNTRY’ and ‘GOOD HEALTH’, having niche markets. The other activities of the company comprise pasteurising and packing of fresh milk on job work basis. It has supplied its goods and won appreciation from renowned companies like Nestle India Ltd, Hindustan Lever and Mother Dairy, Vadilal Industries, Cadbury, Britannia, Parle Products and Smith Kline Beecham to name a few. It also exports its products to various countries.

Its ISO 9001-2000 and HACCP certified manufacturing facility is spread across 6.5 acres in Faridabad, Haryana near New Delhi has ultra modern dairy machinery and has incorporated the latest technology and key equipment from Alfa Laval (India) Ltd. a Tetra Pack Group, with design back-up from APV Anhydro Pasilac AS, Denmark. The plant has a capacity to process 4,50,000 litres of milk per day and 1000 MT of ghee per month. Being in a rich milk belt, the company follows a well-formulated and comprehensive strategy for the procurement of milk on a daily basis. For additional revenue, KDIL has developed and leased out packing facilities to Gujarat Milk Co-operative for packing ‘AMUL’ fresh milk. KDIL is undergoing an expansion to increase its milk processing capacity by another 4,00,000 litres per day and proposes to launch new items like sugar free Rasgulla and Gulab Jamun, Fresh Paneer, Flavoured milk, Malted foods etc. India accounts for half of total milk output of Asia, and is sustaining its position as the world's largest milk producing country. With the growing awareness about health, the increasing urbanization and the rising standard of living, the dairy industry is expected to witness the fastest growth at over 20%-30% as reported by the Ministry of Food Processing Industries, Government of India. Moreover, the international demand for dairy products continues to grow particularly in Asia, North Africa, the Near East, Central America and the Russian Federation in Europe.

For FY06, KDIL’s sales increased by 35% to Rs.99 cr. but net profit jumped 135% to Rs.4 cr. (after deferred tax) posting an EPS of Rs.2 on its equity of Rs.18.20 cr. For the June’06 quarter, also it reported a healthy set of numbers with Sales rising 60% to Rs.28 cr. and net profit up by 22% to Rs.0.96 cr. Hence, it may end FY07 with total revenue of Rs.135 cr. and profit of Rs.5.50 cr. after deferred tax i.e. EPS of Rs.3. Besides, it has wiped out all its accumulated losses in FY06 and its book value stands at Rs.10 now. With a 52-week high/low as Rs.27/Rs.10 and quoting at the P/E of 5, this scrip is a value buy at current market cap of less than Rs.30 cr. Investors are advised to buy it at sharp declines with a price target of Rs.24 in 15-18 months.

STOCK WATCH

Hyderabad Industries (Code:509675) (Rs.300), the flagship company of the CK Birla group is the pioneer and leader of the building products industry with 24% market share. Its product range include fibre cement roofing sheets, autoclaved aerated concrete blocks and panels called AEROCON, calcium silicate insulation product called HYSIL and jointing material for gasket. Recently, it started commercial production at its new asbestos cement sheets plant in UP taking its total capacity to 6,52,000 MTA, and is expected to report better numbers for the Sept’06 quarter. For June’06 quarter, it reported lower profit due to provision of exceptional item to the extent of Rs.4.40 cr. For future growth, it is implementing a Rs.100 cr. expansion involving setting up of two fibre cement sheet units and one autoclaved aerated concrete blocks manufacturing facility. It may end FY07 with a turnover of Rs.500 cr. and net profit of Rs.40 cr. i.e. EPS of Rs.56 on its tiny equity of Rs.7.50 cr. With 52-week high of Rs.585, it’s a screaming buy, which can easily appreciate by 50% in 6-9
months.

Surya Pharma (Code:532516) (Rs.86) is among the top five manufacturers of the Betalactum and Cephalosporin range of anti-infectives. It has also diversified into the high-margin lifestyle segments like anti-histamines and cardio vascular drugs and is enhancing its exports. Nearly half the production is exported to more than 60 countries across Europe, South East Asia, the Far East, Middle East, Latin America and Africa. Apart from carrying out massive capacity expansions at its existing facilities in Baddi and Banur, the company is setting up a new US-FDA compliant facility in Jammu. Last year, it raised around Rs.50 cr. via the FCCB route to be converted into equity shares at Rs.160 per share. For FY07, it is expected to report a top-line of Rs.275 cr. and bottom-line of Rs.27 cr., which translates into an EPS of Rs.15 on its fully diluted equity of Rs.18.25 cr. A good bet in the pharma sector, which can give 30% return in 12 months.

Bilpower Ltd. (Code:531590) (Rs.120) is the pioneer in the field of manufacturing of Electrical Laminations, Stampings and Cores and produces the largest range of transformer cores in India. It also enjoys highest brand preference for superior quality and performance. A few days back it declared terrific numbers for Sept’06 quarter as sales doubled to Rs.56.50 cr. while net profit increased by 50% to Rs.4.50 cr. registering a quarterly EPS of Rs.7.50. Although its OPM witnessed a 3% fall, higher volumes made up for compensated it and led to a sharp increase in bottom-line in the absolute terms. For FY07, it is estimated to clock a turnover of Rs.210 cr. with net profit of Rs.14 cr. This works out to an EPS of Rs.23 on its current equity of Rs.6 cr. and Rs.16 on its full-diluted equity of Rs.9 cr. Its one of the cheapest share in the power ancillary sector and can give handsome returns in the medium to long term. Just buy and wait.

Infosys has beaten the expectations of all analysts and gave a robust earning guidance, which indicates that future outlook for IT sector is promising. Aftek Infosys Ltd. (Code:530707) (Rs.58), a mid-cap tech company is trading extremely cheap and can shoot up sharply once its Sept.’06 numbers are out. Interestingly, the company is growing aggressively through the inorganic route and has taken over various small companies, which now form its subsidiaries with each one focused on a niche area in enterprise business management. It has a wholly-owned subsidiary by the name of Opdex in USA and Arexera Technologies GmbH in Switzerland. It also holds 33% in Seekport, 25% in Digihome, 17% in V-soft, and 15% in Elven. It reported fabulous numbers for the June’06 quarter and for the full year FY07 it may report a top-line of Rs.300 cr. with a net profit of Rs.89 cr., which would lead to an EPS of Rs.9 on fully diluted equity of Rs.19 cr. On a consolidated basis, it is a much stronger company and deserves much higher valuation than its current market cap ofaround Rs.530 cr.