Medi Caps - Rs.68.00

Incorporated in 1986, Medi Caps Ltd (MCL) is the flagship company of Medi-Caps Group and is India’s second largest manufacturer of empty hard gelatin capsules. Its product range comprises sizes ranging from 00, 0, 1, 2, 3, 4 and elongated, fortified in more than 1000 shades. Its capsules are CONI-SNAP type, which have a double lock feature to ensure that the capsule’s body and cap are not easy pulled out unless filling and closing are finished by high speed filling machine. MCL also makes Halal Gelatin Capsules manufactured only from Halal Gelatin procured from Halagel-Malaysia as the Muslim community only consumes animals slaughtered according to Islamic procedure. It also produces Lifill-Caps capsules that have been specially designed to be sealed for secure containment of liquids and semi-solids. Currently, there is a growing trend of clear capsules being used widely for health supplementary foods. Hence to cater this segment, MCL is making capsules without using any sodium lauryl sulfate in the manufacturing process.

MCL’s ultra modern GMP certified manufacturing facility is spread across 80,000 sq. ft. at Pithampur in Dhar district of MP. Presently, it has an annual capacity of 3500 million capsules and supplies to most of the pharma majors like Wockhardt, Glaxo, Nicholas Piramal, Pfizer, Cadila, IPCA Labs, Searle India, Wyeth, Lupin Lab etc. The company has pioneered some advanced features in product development such as Perlz Capsules in metallic color made from a special herbal substance, which is effective in stabilizing emotions; allay fears and ease frustration and anger. It also brightens the eyes and help regenerate tissues. For further convenience of its customers, MCL has mastered capsule printing and offers Python printing which is a modern technology that allows printing around the capsule in a unique pattern. To maintain its growth momentum, the company is continuously launching new variety of capsules and variants and is also expanding its marketing reach in other countries for export growth. In the domestic market, it has added many multinational clients with the improved quality of its products and services.

MCL is a debt-free company with huge surplus funds of about Rs.20 cr. invested in mutual funds and listed equity shares. This itself works out to Rs.64 per share. Besides, it has massive reserves of Rs.27 cr., which leads to a book value of Rs.88. So financially & fundamentally, the company is on a strong footing. For FY06, its sales witnessed a fall of 15% to Rs.17 cr. but net profit jumped by 55% to Rs.6.20 cr. on the back of strong profit-booking in its share investments. It has reported good numbers for the June’06 quarter and for the full year FY07, it is expected to report a top-line of Rs.23 cr. and bottom-line of Rs.5.75 cr. This works out to an EPS of Rs.18 on its tiny equity of Rs.3.12 cr. At the current market cap of Rs.22 cr., this stock is available very cheap and can appreciate 50% in 9-12 months.

Liberty Phosphate - Rs.21.00

Established in 1977, Liberty Phosphate Ltd (LPL) is the flagship company of the Liberty Group engaged in manufacturing Single Super Phophate (SSP) and NPK fertilizers. SSP, known as the poor farmer's fertilizer - price-wise, is a straight phosphatic multi-nutrient fertilizer that helps treat sulphur deficiency in soils (40% Indian soil is sulphur deficient) as well as enhance yields at the least cost. In various crops, which require more of sulphur and phosphate like oilseeds, pulses, sugarcane, fruits & vegetables, tea etc, SSP is an essential fertilizer. LPL is the largest manufacture of SSP commanding more than 14% market share and the Liberty Group including group companies Liberty Urvarak and Tungabhadra Fertilizers cater to 18% of the SSP fertilizer demand in the country. Its ‘Double Horse’ brand is very popular among farmers and is said to have the having highest sale in India.

The group has six manufacturing units situated in different parts of the country. The plants at Udaipur & Kota in Rajasthan, Baroda in Gujarat, Pali in Maharashtra belong to LPL whereas the plants at Nimrani in MP & Hospet in Karnataka is under Liberty Urvarak and Tungabhadra Fertlizers respectively. Because of its multi-locational establishment, the company has the advantage of viable cost-effective manufacturing and marketing to reach farmers even in the interiors of the country. Presently, the group has a manufacturing capacity of 7,25,000 MTPA of SSP fertilizer and 1,65,000 MTPA of NPK. Due to the strong demand and popularity of its brand and product, the company is planning to put-up new projects in other states like UP, Haryana and Central MP by 2007 and thereby increase its production capacity to 10,00,000 MTPA. It is also considering to establish a SSP plant at Visakappatnum with capacity of 1,32,000 MTPA to fulfill the demand of farmers of southern India. By various initiatives, the group will establish 4-5 mobile laboratories for testing fertilizer/soil for the farmers of Rajasthan, Gujarat and M.P. The group has also created a separate budget to adopt 45 villages for its product promotional activities.

To fund its growth plan, the company is raising around Rs.5 cr. through preference shares and Rs.5 cr. through equity shares by private placement of 20 lakh equity shares at Rs.25 per share. Earlier it had planned to raise money through a rights issue but cancelled. Incidentally, LPL is also planning to merge its other two group companies with itself, which will consolidate its position and will lead to economies of scale to some extent. For FY06, its sales increased by nearly 20% to Rs.87 cr. whereas net profit jumped 55% to Rs.2.60 cr. yielding an EPS of Rs.6. For the June’06 quarter, also, its sales almost doubled to Rs.36 cr. and net profit increased by 50% to Rs.1.50 cr. Hence for the full year FY07, it is estimated to clock a turnover of Rs.125 cr. with net profit of Rs.3.25 cr. This works out to an EPS of Rs.8 on its current equity of Rs.4.13 cr. and Rs.5 on its diluted equity of Rs.6.13 cr. Investors are recommended to buy the stock at current levels as the scrip can easily appreciate 50% in a 12¬15 months.

STOCK WATCV

Canfin Homes (Code:511196) (Rs.59) has been a laggard for quite some time in spite of its strong fundamentals and great dividend yield. The reason was the constant selling by the promoter group institutions like HDFC and UTI. In the last two years, the promoters stake has come down to 29% from 54%. But importantly Canara Bank now holds the whole 29% stake and it does not want to dilute its stake. For the Sept.’06 quarter the company has once again come out with flying colours. Its total revenue grew by 35% to Rs.48 cr. whereas PAT increased by whopping 60% to Rs.8.90 cr., thereby registering an EPS of more than Rs.4 for the quarter. For the full year FY07, it may report a top line of Rs.190 cr. and net profit of Rs.33 cr. i.e. EPS of Rs.16. This means that the scrip is currently trading at a P/E ratio of less than 4. With a staggering book value of Rs.85 and dividend yield of around 5%, this scrip is bound to cross Rs.100 in the medium term. A screaming buy.

Thirumalai Chemicals (Code:500412) (Rs.180) has world scale plants for manufacturing diverse products including Phthalic Anhydride (PAN), Maleic Anhydride (MAN), Fumaric Acid, Food Acids etc. Due to some changes in its marketing strategies, the company has improved its capacity utilization leading to higher sales volume and thereby bringing economies of scale. For the Sept.’06 quarter, sales increased by 15% to Rs.139 cr. and net profit increased by 25% to Rs.10 cr. posting an EPS of Rs.10 for the quarter. For the six months ending Sept.’06, its net profit is Rs.20 cr. compared to Rs.14.50 cr. for the entire last year. For the full year Fy07 it may clock a turnover of Rs.525 cr. and net profit of Rs.35 cr. i.e. EPS of Rs.35 on its current equity of Rs.10.25 cr. However the shutting down of its Maleic Anhydride plant last month will affect the bottom-line marginally. Buy on declines.

Although Sagar Cement (Code:502090) (Rs.131) has doubled in the recent rally, but it still has great potential to rise further. After reporting stunning numbers for the June’06 quarter, the company has once again declared mind-blowing numbers for the Sept.’06 quarter. Sales have jumped 70% to Rs.27 cr. whereas net profit stood at Rs.5.25 cr. in spite of a huge tax provision of Rs.4.20 cr. For the current six months its sales were Rs.56 cr. and net profit was Rs.15 cr. compared to Rs.32 cr. and loss of Rs.1 cr. in the previous corresponding period. Notably, its OPM has improved substantially to 40% from 6% last year because of better price realization and a drastic fall in ‘other expenditure’. Assuming the same trend for the second half, it may end FY07 with sales of Rs.120 cr. and net profit of Rs.26-27 cr. resulting in an EPS of Rs.21 on its fully diluted equity of Rs.13 cr. At a reasonable P/E ratio of 8, the scrip can touch Rs.175 in the short to medium-term.

Easun Reyrolle (Code:532751) (Rs.590) is as a strong and independent solutions provider in the areas of power system protection, control, automation, metering and switching segments. It has recently ventured into a new business area i.e. construction of projects on turnkey basis under which it will mainly concentrate on substation projects and power system automation projects. Recently, it announced encouraging numbers for the Sept’06 quarter. Total revenue jumped by 25% to Rs.31.70 cr. and net profit grew by 10% to Rs.3.9 cr. For future growth, it is setting up a 45,000 sq. ft. world class manufacturing facility at Hosur for medium voltage switchgear at an investment of Rs.12 cr. For the full year FY07, it is estimated to report a top-line of Rs.125 cr. and bottom-line of Rs.15 cr. This works out to an EPS of Rs.48 on its tiny equity of Rs.3.33 cr. With a huge reserve of Rs.35 cr., it is a strong bonus candidate as well. Accumulate at dips.

GNFC (Code:500670) (Rs.106) basically manufactures and distributes fertilizers like Urea, Ammonium Nitro-phosphate, Calcium Ammonium Nitrate and chemicals like Ammonia, Weak Nitric Acid, Concentrated Nitric Acid, Methanol, Acetic Acid, Formic Acid etc. Purely on fundamental basis, it is trading fairly cheap and with a nominal risk of major correction from the current level. Its Sept’06 quarter was not that encouraging on account of a fall in margin due to increased in power cost and other expenditure. Its turnover grew by 25% to Rs.688 cr. but net profit was flat at Rs.74 cr. However for the full year FY07, it is estimated to report sales of Rs.2450 cr. and net profit of Rs.275 cr. on standalone basis. This works to an EPS of Rs.19 on its equity of Rs.146.50 cr. Besides, the merger with Narmada Chematur will make it fundamentally much stronger as it will bring in additional profit of around Rs.60 cr. but the equity dilution will be of only Rs.9 cr. So on a consolidated basis, it may report an EPS of Rs.22. Notably, GNFC has brought down its debt to Rs.270 cr. from Rs.500 cr. and has huge reserves of more than Rs.1000 cr. Besides, it is a good dividend paying company with an uninterrupted dividend track record for the last two decades.