Allsec Technologies Ltd - 135.00 Rs

Incorporated in 1998, Allsec Technologies Ltd (ATL) is a pure Business Process Outsourcing (BPO) company providing support services for inbound customer care, technology helpdesk, inbound / outbound teleservices (sales, collections, lead generation, market research), third-party quality assurance and HR & payroll processing. It offers response and contact management solutions cutting across all media of delivery i.e. voice, e-mail, web chat and offline processing. Its key focus areas are customer life cycle management, call quality monitoring for other call centres, F&A BPO, collections, technical support, and payroll & benefits administration. ATL derives more than 90% of revenue thru exports mainly to US clients including 'Fortune 50' PC manufacturer, a leading mortgage & debt consolidation lender, a mid-sized ISP, a world-renowned automobile company a Student Loan Consolidator and of course its major client Compu credit. Hence in a very short span of time ATL has emerged as a global corporation, servicing veritable corporate majors across the world on a 24/7/365 basis. Incidentally, ATL has the pride of being the first pure play BPO Company to be listed in the Stock Exchanges in India during 2005.

Currently, ATL is operating with a capacity of 2,300 seats across 3 delivery centers in Chennai and one in Bangalore. In last couple of years company has concentrated on capacity expansion by setting up the 1000-seat facility in Chennai which became fully operational in fiscal 2006 in addition to its original 700 seats. Earlier, it took over B2K Corp - a Bangalore-based knowledge process-outsourcing firm with 600 seats, 51,000 square feet facility located in Whitefield, Bangalore. Maintaining its inorganic growth, few weeks back ATL acquired 100% equity of M/s. Kingdom Builders Inc (KBI) a BPO company based out of Manila, Philippines for 1.50 million US $. The operations in Manila will cater to the needs of existing and proposed customers from the US, Australian and Asian markets. Hence company intends to expand this 150 seats operation to 750 seats by Jan 2008. Further, ATL is in the process of setting up a 200 seat call centre facility at Trichy, which is expected to become fully operational soon. In short, a combination of organic & inorganic growth would lay the foundation for the company to maintain its growth for the years to come.

Importantly to funds its expansion, ATL raised approx 80 cr by private placement to high profile international venture capital fund - First Carlyle Ventures Mauritius @ 260 Rs per share. With the participation in the ownership, Carlyle is committed to help ATL become one of the top, full service BPO companies in the global markets in future. Financially, apart from being debt free, ATL is holding liquid cash to the tune of 110 cr which translates into whopping 70 Rs per share. That means at CMP of 135 company is actually available at a throw away price of 65 Rs per share. And notably out of that 110 cr company has invested around 70 cr in mutual funds, in which it may generate other income of around 8~10 cr. Meanwhile, ATL is planning to merge B2K Corp with itself which is expected to become profitable at the net level in FY08 and will make ATL fundamentally much stronger. However, company is not so aggressive in hedging and hence has been badly hit by the sharp rupee appreciation. But this negative has been fully factored, as the share price has become one third from its recent high of 375 Rs. Despite this it is estimated to post an OPM of 20~22% (against 29% in FY07) and end FY08 with topline of 125 cr and bottomline of 25 cr. This works out to an EPS of 15 Rs on fully diluted equity of 16.25 cr. As ATL may continue to face margin pressure in short term, only long term investors are strongly recommended to buy at current levels with a price target of 210 Rs (50% appreciation) in 12~15 months.

Blue Bird (India) Ltd - 55.00 Rs

Incorporated in 1999 and promoted by Mr. Nitin Sontakke, Blue Bird India Ltd (BBIL) is one of the leading manufacturers of paper based notebook products such as students / exercise books etc. With promoters having rich experience of more than 30 years in printing, company has made a strong presence in western India thru its “Blue Bird” brand commanding 48% market share of the total organized segment across country. Broadly, company has segmented its business into three divisions - stationery, publication & commercial printing. In addition to finest quality notebooks, it also produce a range of office stationery products like executive notepads, diaries, arch-lever files, perforated pads, registers, filler papers and folders. Although notebook forms the core business with more than 80% revenue, BBIL has off late ventured into publishing academic textbooks and self study books for children apart from general publications in subjects such as ayurveda and biographies. It has its own in-house academic publishing team which works with external authors to develop content for educational books. Under commercial printing, it designs and prints annual reports, brochures, catalogues, offer documents, coffee table books, calendars, greeting cards, magazines, text books, publications etc

BBIL has got ultra modern factory set up in Pune which can be treated as one of the best in Asia. In order to cater the central and south India market efficiently, company has put up two new plants at Indore and Bangalore, which started production in last couple of months only. Besides, company has a strong distribution network of around 600 dealers and 9000 retailer spread across 18 cities in India. Moreover, company has just started to export its products to Ghana, Kenya and South Africa. Recently, it has been successful in acquiring a big order from a US based conglomerate and leading student materials manufacturer. Notably, BBIL has ambitious growth plans for publication division and intends to increase its share substantially in coming years. Hence it is entering into a joint venture with a well known publication bureau in Maharashtra. Accordingly it has imported specialized machine used in printing of glossy papers especially used in news paper supplements etc. To have a strong pan India presence and to penetrate in untapped market, BBIL has plans to add approximately 100 regional sales and marketing offices over the next five years. Meanwhile, it will also be augmenting its existing Pune plant’s manufacturing capacity thru a capex of approx 25 cr. It has recently acquired some land in Pune for the same.

In Nov 2006, company mobilized 92 crores thru IPO at 105/- Rs per share. Out of this nearly 60% has been utilized and balance is being deployed for capacity expansion and setting up regional offices. Fundamentally, company recorded sales and NP of 454 cr and 27 cr for FY07 respectively. Thus it posted an EPS of nearly 8 Rs on expanded equity of 35 cr on which company gave 12% dividend. In future, company may raise External Commercial Borrowings to the tune of $ 50 million by way of private placement. For FY08 it is estimated to clock revenue of 550 cr and PAT of 34 cr i.e. EPS of 10 Rs. However, the main growth is expected to come in FY09~FY10 due to full impact of expansion. Company has the potential to post 14 Rs EPS in FY09. Considering its IPO price of 105 Rs, book value of 50 Rs and 52 week H/L of 128/55 Rs, its one of the safest bet in such overheated market. Therefore long term investors are strongly recommended to buy at current levels as scrip can give 100% return in 12~15 months.

STOCK WATCH

In the textile segment, Garden Silk Mills (75.00) has posted stunning nos for the Sept qtr and the scrip is hitting new highs. It recorded 45% growth in sales to 435 cr but the NP zoomed up 130% to 17.75 cr registering an EPS of 4.60 Rs for the quarter alone. Company is one of the major players in the Indian polyester yarn and fabrics segment with strong brand name ‘Garden Vareli’. Importantly, it is backward integrated having second largest capacity to produce textile grade polyester chips in India. Few months back it signed a contract with CTIEI (China Textile Industrial Engineering Institute, P.R. of China) to set up a continuous polymerization plant with a capacity of 2,60,000 tons per annum of textile grade polyester chips which is expected to commence production by October, 2008. Besides, it also entered into an agreement with Oerlikon-Barmag of Germany and TMT of Japan for supply of a polyester yarn plant of a capacity of 55,000 tons per annum. Further, it has a capex plan of 240 cr for expanding its polycondensation and POY / FDY manufacturing capacities. Incidentaly, company is not into exports hence is not affected by the rupee appreciation. For financial year ending June 2008, it may clock a turnover of 1800 cr and PAT of 50 cr i.e. EPS of 13 Rs on equity of 38.30 cr. Despite having strong fundamentals and book value of 95 Rs, company is available at an enterprise value which is even less than its gross block.

Recently, Span Diagnostic (56.00) declared fantastic result as its sales grew by 25% to 18 cr but net profit shot up 60% to 1.70 cr for Sept quarter. Further for six months ending Sept’07 the picture is more interesting with sales up 55% to 32 cr and PAT up 375% to 2.50 cr. Notably, the company is a pioneer and trend-setter of high quality products used by pathology & clinical laboratories in the diagnostics industry and also one of the largest manufacturers of diagnostic reagents. Hence it supplies variety of instruments and consumables besides reagents and kits required by modern clinical laboratory. To strengthen its market share in overall diagnostic market, it has just now formed a new subsidiary especially for R&D of instruments. It has exclusive tie-ups with reputed companies worldwide for marketing, distributing and servicing diagnostic products in India. Moreover company also undertakes contract manufacturing of a wide range of quality reagents and kits in bulk for private labels. It may end FY08 with total revenue of 70 cr and PAT of 4.25 cr. This translates into EPS of 13 Rs on small equity of 3 cr. Scrip has the potential to double in a year’s time.

Bilpower (180.00) has once again come out encouraging set of nos for Sept quarter. Total revenue increased by 35% to 77 cr and net profit zoomed up 70% to 5.40 cr. It is one of the well known players in the field of manufacturing transformers of all types, electrical laminations, stampings and cores. Besides it’s a leading trader of CRGO & CRNGO and produces the largest range of transformer cores in India. For future growth, it tookover a private company namely Tarapur Transformers for 3.40 cr which has an installed capacity of 1500 MVA for repair of power transformers up to 200 MVA, 220 KV Class. Soon company is expected to start manufacturing power transformers also of its own. Besides, it acquired Sun Transtamp Private Limited, a company involved into manufacturing of electrical lamination. Importantly, Bilpower is foraying into transmission & distribution segment of power sector as it has been qualified as the ‘turnkey contractor’ for the EPC business by Maharashtra State Electricity Distribution Company Ltd. Further it is in the midst of setting up manufacturing activities for motor stampings in Wada, which is expected to commence operation by end of this calendar year. To fund its T&D venture, it intends to raise nearly 60 cr thru FCCB route in near future which may dilute the equity to extent of 30%. Meanwhile for FY08 it can register a topline of 300 cr and bottomline of 21 cr i.e. EPS of 23 Rs on current equity of 9 cr. Despite low promoter holding it’s a good bet for long term.

Last week, Bihar Caustic (60.00), a Aditya Birla group company reported excellet set of nos for the Sept qtr. Sales improved by 35% to 45 but PAT almost doubled to 14 cr due to better operating efficiency. With an impressive OPM of 51% it posted an EPS of 6 Rs for the quarter. Recently, company has set up an aluminium chloride project and is estimated to produce and sell about 12000 MT of aluminium chloride in FY08. It is also further expanding its caustic soda capacity from 225 to 265 TPD by addition of electrolysers as well by debottlenecking. Besides, it is putting up a stable bleaching powder plant at an estimated cost of Rs.7.50 cr to be operational by mid 2008. Accordingly for FY08 it may clock a turnover of 185 cr and profit of 40 cr which leads to an EPS of 17 Rs on equity of 23.40 cr. Thus the scrip is currently discounted by less thab 4x times. The EV/EBIDTA ratio of the company is also very low at 3x times. Considering reserves of 125 cr & gross block of 305 cr it’s a pure value buy at a present market cap of around 140 cr. The scrip can easily appreciate 50% in 9-12 months.