STOCK WATCH

From providing telecom integration services to MNC’s, PSU’s and Defense sector, Spanco Telesystem’s (128.00) has evolved to extend its expertise into the dynamic space of Business Process Outsourcing (BPO) and Radio-frequency identification (RFID). Recently in March 2008, company has bagged huge orders to the tune of Rs 200 cr from Maharashtra, Bihar and Bhopal government. On the other hand it is executing a 10-year contract to set up, operate and maintain Interactive Voice Response System (IVRS) and Regional Call Centres (RCC) for the Indian Railways in joint venture with Spice group. For the first three quarters it has already recorded an EPS of Rs 17 which is higher than the entire FY07 EPS of Rs 16. Further it is expected to clock a turnover of Rs 625 cr and profit of around Rs 46 cr on a standalone basis. This works out to an EPS of Rs 22 on current equity of Rs 20.65 cr and EPS of Rs 19.50 on fully diluted equity of Rs 23.50 cr. At the same time, company has decided to transfer all its BPO related businesses including Respondez (international BPO), domestic call center operations and the IRCTC project (a 50:50 JV with spice telecom group) into a separate subsidiary. This step may be a precursor to unlock value by hiving-off or de-merging its BPO business into separate listed company in future. A screaming buy.

Couple of days back, Royal Orchid hotel (100.00) announced satisfactory nos for the March quarter as it reported revenue of 40 cr and profit of Rs 9 cr on consolidated basis. But the silver lining is 60% dividend which gives a yield of whopping 6% at CMP. For the entire FY08, its total revenue increased 15% to Rs 130 cr but net profit declined by 10% to nearly 32 cr due to fall in other income and rise in interest and depreciation cost. Notably company manages eight properties including five star hotels, budget, resort, serviced apartments etc with a total room strength of around 655 rooms. In coming years it intends to open four star and five star hotel in Pune, Hyderabad, Mumbai, Bangalore and Delhi. It is also contemplating to set up a chain of 50 budget hotels across India under the brand ‘Pepper Mint’ in next 3 to 5 years. It has formed a joint venture with Parsvanath to develop 10 hotels at an investment of Rs 500 cr. Oflate it has acquired 50% stake in Galaxy Beach Resort (65 rooms) in Goa. For FY09, it may report total revenue of Rs 160~170 cr and NP of Rs 38 cr on consolidated basis i.e. EPS of Rs 14 on equity of Rs 27.25 cr.

After posting encouraging result for March quarter, Kamanwala Housing (135.00) has announced 1:1 bonus alongwith 25% dividend for FY08. For the March qtr its topline shot up 120% to Rs 28.50 cr and bottomline increased by 85% to Rs 9.40 cr posting a whopping EPS of Rs 17 for the single quarter. But being in the real estate & construction sector and following the revenue model on sale of agreement basis, company is bound to post erratic and lumpy results on quarterly basis. For full FY08 it reported total revenue of Rs 96 cr and net profit of Rs 24.40 cr i.e. EPS of Rs 43 on current equity of Rs 5.65 cr. Notably, company paid a tax of Rs 8.50 which substantiates the profit. Company is mainly operating in Mumbai and has few good residential projects in Malad & Santacruz and huge commercial project in Bandra Kurla complex. It has several projects lined up for future in Andheri, Mahim, Goregaon etc and even in Hydrabad. Lately it also bought 10,000 sq mtr land in Turbhe for 15 cr. Recently company has allotted nearly 20 lac preferential warrant to promoters @ 98 Rs. At current market cap of Rs 75 cr, scrip is trading fairly cheap and has the potential to cross 200 level in medium term.

After reporting dismissal performance for last two years, Tata Sponge (250.00) finally seems to be on track with encouraging performance for FY08. On the back or better capacity utilization and higer price realization it registered a healthy OPM of 28% in FY08 in comparison to 12% & 16% for FY07 and FY06 respectively. Sales increased by 55% to Rs 433 cr whereas net profit more than quadrupled to 95.50 cr thereby posting an EPS of Rs 62 on small equity of Rs 15.40 cr. Notably, company has been allotted coal block at Orissa where development of mine is under progress and company is expected to start getting coal from mid 2009. Moreover, since 2006 company is following with govt for acquiring iron ore mines to secure its raw material reqirement. The day it gets the allotment of iron ore mine, the scrip may be re-rated as it will emerge as a fully integrated sponge iron manufacturer. For long term growth, it has plans to double its sponge iron manufacturing capacity, install a fluidized bed boiler of 100 MW to produce power from char & coal fines, forward integrate to steel making to produce 1.5 MTPA billets etc. Although iron ore and coal price are trading high but at the same time sponge iron prices are also ruling firm. So if not more it can post an EPS of same Rs 60 for FY09 as well. Accumulate at sharpl decline only.