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.

Shree Ganesh Forgings Ltd - Rs 36.00

Established in 1982, Shree Ganesh Forging Ltd (SGFL) is one of the well known manufacturer and exporter of flanges, fittings and automotive components. It specializes in producing complete line of stainless steel, carbon steel and alloy steel forgings for industries like oil, gas, petrochemical, food, dairy industries, breweries, nuclear application, automobile industry, two wheeler industry, earth moving industry, tractor industry, defense, railway etc. Over the years it has developed special grades of stainless steel, duplex steel, special chrome molly, special alloy steel, carbon steel etc. SGFL boasts of making more than 2500 varieties of specialized items on piecemeal production and manufactures different variety of flanges and fittings such a weld neck, slip on blind, lap joint, threaded, socket weld, forged vales etc weighing from 0.5 kg to 1000 kg. Moreover it also manufactures hot forged components such as gears, shafts, crankshafts, crown wheels and pinions, propeller shaft components like sleeve yokes, flange yokes, universal joint crosses, connecting roads, steering knuckle arms etc. for four wheelers, two wheelers etc. Interestingly, it also has capabilities to supply vast range of steel forged finished products like eye, shank, single, double, and swivel hooks for the lifting industry.

SGFL’s manufacturing plant, located in the industrial belt of Pawane in Navi Mumbai is well equipped with facilities right from raw material & cutting section, die making, upset forging, ring rolling, heat treatment, shot blasting up to machining and testing. Ironically, company products has been qualified, approved and certified by numerous foreign agencies across the globe. Its product are well accepted in international market and being exported regularly to USA, Canada, U.K., Ireland, Europe (Germany, Netherlands, Belgium, Denmark, Spain, France, Greece, Austria, etc ) and Middle East markets. Offlate company has shifted its focus back on high value stainless steel products (vs the cheaper carbon steel products) and is trying to restore its exports to total sales ratio to the hitherto 70%. Meanwhile, in India, SGFL is preferred supplied to biggies like Alfa Laval, BEML, Greaves, L&T, Voltas, BARC, Kirloskar, KSB, Godrej, M&M etc. On the other hand, SGFL has implemented an expansion plan in late 2005 to double its forging capacities from 11000 MT to 22800 MT at the existing location by installing two new press lines - 2500 MT press and 4000 MT press with additions of 48 automated C.N.C robotic application Machines. The project is almost completed and is expected to start commercial production soon which will give a great fillip to its financials in FY09.

Besides to increase its global presence, last year SGFL acquired 100% stake in two European companies - Hertecant N V - a manufacturing concern located in Belgium and ELFE - a distribution company located in France from Outo Kumpu. This was the best deal and turning point for the company as it paid only Rs 23 cr for a company which generates sales to the tune of Rs 100 cr and PAT of roughly around Rs 10 cr. Further it has established a successful joint venture with Geldbach UK Ltd - a marketing arm which supports all of SGFL’s main customers. Accordingly on a consolidated basis, SGFL is estimated to clock a turnover of Rs 225 cr and profit of Rs 17 cr. This works out to an EPS of Rs 14 on current equity of Rs 12.50 cr. Unfortunately, scrip has corrected more than 75% from high of Rs 135 and is now available at an EV of less than Rs 125 cr. Despite input cost being volatile and rising, investors are strongly recommended to buy at current levels with a price target of Rs 75 (100% return) in 15~18 months.

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Small & Beautiful (Guj)

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Cera Sanitary (120.00) is the third largest company in the organized
sanitaryware segment with over 20% market share in domestic market. It has wide product range including WC’s, wash basins, whirlpools, bath tubs, shower panels, shower cubicles, shower temples, bath fittings, kitchen sinks, tiles etc. It even has a strategic tie-up with Pozzi-Ginori, an Italian designer sanitaryware for importing premium sanitaryware and marketing it in India. To take the benefit of high demand, it has recently expanded its production capacity to 24,000 MTPA from 16,500 MTPA. For FY08, it has clocked a turnover of Rs 128 cr and PAT of Rs 10 cr leading to an EPS of Rs 16 on small equity of Rs 3.10 cr having face value as Rs 5/- per share. Couple of months ago company made a pref allotment of 8 lac warrants @ Rs 162 to promoters. Considering the strong brand value and robust fundamentals, it is available extremely cheap at an enterprise value of Rs 100 cr.

South India Paper Mills (65.00) announced disappointing nos for the March qtr as sales remained flat at Rs 29 cr and PAT fell by 25% to Rs 2.10 cr. Despite this, for entire FY08 it registered 10% growth its topline to Rs 122 cr and 15% rise in net profit to Rs 11.90 cr. Hence it posted an EPS of Rs 16 on equity of Rs 7.50 cr. It maintained the dividend at 30% which gives a yield of nearly 5% at CMP. Company is having strong presence in packing paper and paper boards apart from manufacturing writing and printing paper. On back of robust demand, company is implementing a brown field expansion with an investment of about 110 cr under which it will more than double its paper manufacturing capacity to 115,000 TPA from 55,000 TPA currently. It will also be augmenting its captive power generation capacity by 3.50 MW. Besides expansion, company is going for forward integration into high quality corrugated boards and intends to have at least one 100% owned facility and possibly one facility under joint venture near Chennai. With new paper capacity expected to be commissioned by early 2009 and corrugated boards facility to start within this calendar year the future prospect looks very promising. It can report an EPS of Rs 18 for current year. Buy with a price target of Rs 100 in 9~12 months

Because of loan waiver scheme for farmers and regular CRR hike coupled with liquidity crunch and hardening of interest rate, public sector banks has tumbled down badly in the recent past. Syndicate bank (60.00) which reported decent nos for the March’08 quarter is also hitting new lows on the bourses. For 2007-08, its total income increased by 30% to Rs 8796 cr whereas net profit increased by 20% to Rs 848 cr thereby posting an EPS of Rs 16 on equity of Rs 522 cr. It declared 28% dividend which gives a yield of nearly 5% on CMP. As on 31st March 2008, banks Gross NPA and Net NPA stood at 2.71% and 0.97% respectively. With a capital adequacy ratio of more than 11% its net worth increased to Rs 3862 cr and book value got enhanced to Rs 82. Bank is also looking to raise capital via QIP route thru allotment of 8 cr equity shares to Public Sector Enterprises and Mutual Funds. Keep accumulating at declines.

After hitting a high of Rs 40, share price of Liberty Phosphate (16.00) has crashed more than 60% in matter of few months. Company is the largest manufacture of Single Super Phosphate, commanding more than 14% market share. Presently, it has four manufacturing units having total installed capacity of 463,000 MTPA of SSP fertilizers. However it is working at nearly 75% capacity utilization. In order to fund its working capital requirement and improve the operating efficiency, company earlier allotted 20 lac shares @ Rs 25 to promoters. Further in March’08 it allotted another 5.50 lac shares @ Rs 31.60 to promoters thereby raising their stake to currently 45% from 36% in Dec’06. For FY08 it is estimated to register sales of Rs 120 cr and profit of Rs 2.50 cr i.e. EPS of Rs 4 on equity of Rs 6.70 cr. With good rainfall expected this year and loan waiver scheme for farmers, company can report an EPS between 5~6 for FY09.

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Smart Investments (Guj)

Gontermann Peipers Ltd

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Pitti Laminations Ltd

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Quintegra Solutions Ltd - Rs 78.00

Established in 1994, Quintegra Solutions Limited (QSL) is a global Information Technology services and consulting company, delivering measurable business results for clients through innovative, customized solutions. It delivers a full range of application development, testing, enterprise solutions, business process consulting, systems integration and staffing services as well as pre-defined solution frameworks. Leveraging its proven global delivery model, QSL provides a full range of custom software development solutions, focused software products as well as consultancy services in IT on various platforms and technologies. Its strategy is to focus on the high-growth, high-value segments of the IT industry. Hence its broad capabilities include application management, product engineering, enterprise solutions such as SAP, testing & validation, technology consulting, professional services and proprietary product suites. Presently, company focuses on six main business verticals including BFSI, Heatlhcare, Education & Training, Engineering Services, Logistic and Telecom. Unlike other Companies, QSL solutions have invested in creating products in its chosen verticals. This underlines its business knowledge of those verticals and allows it to provide value added services in those business domains.

QSL has more than dozen offices spread across USA, UK, India, Germany & Africa with five world class offshore development centers in India, Singapore and Malaysia. Company’s strongest advantage is its excellent pool of skilled resources, recruited from the finest clan of professionals in the industry. It enjoys long-term business relationships with clients across diverse sectors including some of the best-known global corporations like Walmart, E-bay, E-trade, Citigroup, Capgemini, Hitachi, Sun Microsystem, IBM, LG CNC, TIBCO etc. Being a SEI CMM 4 level assessed company, it believes that operations cannot be separated from technology and therefore it provides a wholistic service to its clients using its Operations-as-a-Service (Oaas) methodology which combines shared KPO services with its products run in a Software-as-a-Service (SaaS) model. This OaaS-SaaS methodology is unique in the industry as it provides operational benefits to its clients by focusing on operations and technology simultaneously. Moreover recently, company has ventured into Knowledge Process Outsourcing Services by setting up additional 70,000 sq ft of IT space in Chennai. It plans to focus its KPO services on the telecommunication, healthcare and BSFI industries to begin with.

Importantly in Oct 2007, as its strategy to grow inorganically QSL acquired M/s. PA Corporation, Virginia, USA (PAC) for a consideration of Rs 148 crores (USD 37 Million) in an all-cash deal. QSL will pay 0 cr (USD 20 Million) upfront and the rest over a period of 3 years, depending on PAC meeting certain performance milestones. PAC specializes in high end IT consulting and leadership in middle-space IT services such as enterprise application services, date architecture & data validation, audit compliance documentation, business process management, integration architecture & deployment and testing & configuration management. With this acquisition QSL global headcount now stands to over 1,000 professionals.

Financially, on a consolidated basis company has posted satisfactory nos for the March’08 quarter but for entire FY08 its topline as well as bottomline has increased by 5x times to Rs 390 cr and Rs 35 cr respectively. Hence it has registered an EPS of Rs 13 on current equity of Rs 26.80 cr. To fund its inorganic growth company has made a preferential allotment of approx 26 lac warrants to be converted @ Rs 135 per share. Although there is a risk of rupee appreciating again, still company is expected to earn a PAT of Rs 42 cr on revenue of around Rs 600 cr i.e. EPS of Rs 14 on diluted equity of Rs 29.50 cr. At a modest discounting by 12x times scrip can shoot upto Rs 175 (125% appreciation) in 12~15 month. It’s a screaming buy at current market cap of merely Rs 200 odd cr.

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