STOCK WATCH

Amex Information Technology (Code No: 532311) (Rs.33) is a relatively small player engaged in BPO and IT enabled products and services. It also provides biometric solutions and offer a range of products from PC based biometric devices to biometrics embedded devices used by OEM's in their Access Control Devices. The company has an enviable clientele in India and abroad. For the qtr. ending Dec. 2005, while it’s total revenue grew by nearly 30% to Rs.11.50 cr., its NP jumped by 80% to Rs.3.30 cr. i.e. EPS of Rs.2 on its current equity of Rs.16.75 cr. For the full year FY06, it is expected to post an EPS of Rs.7. Although the promoters’ stake is only 14%, it’s a dividend paying company and the scrip has the potential to give 50% return in the medium term.

Small cap pharma scrips have been written off by marketmen as if there was no tomorrow! Syncom Formulation (Code No: 524470) (Rs.62.50) too has corrected sharply and is hitting new lows daily. For the nine months ending 30th Dec 2005, it has clocked a turnover of Rs.41 cr. and NP of Rs.5.30 cr. For the full year FY06, it may report a topline of Rs.55 cr. and NP of Rs.6 cr. which translates into an EPS of around Rs.11 on its equity of Rs.5.62 cr. It has prepaid its entire loan and has become a debt-free company. Besides, it is also planning to diversify into power, construction, coal business and investment. For FY06, the company is expected to declare Rs.1.50 dividend, which means a dividend yield of 2.50%. Since it’s an operator driven scrip, only aggressive investors are advised to buy.

After a dream run till Rs.60, Indian Sucrose (Code No: 500319) (Rs.44) has cooled off sharply due to profit booking on the back lacklustre Dec.’05 numbers. From this season, the company has increased its crushing capacity to 5000 TCD from 3500 TCD. Besides it has also acquired a company called Cosmos Industries Ltd with a sugar manufacturing unit at Dhuri in Sangroor district of Punjab with an installed capacity of 2500 TCD. Earlier, it had acquired a distillery that owns 4 well-known brands of Rum. For FY06, it may report Sales of Rs.100 cr. and NP of Rs.12 cr. which translates into an EPS of Rs.8. With the sugar price expected to rise in future, it can report Rs.10~12 EPS for FY07.

Before listing of Gitanjali Gems, we may see some action in the Gems & Jewellery sector. Earlier, this industry was avoided by markemen but with the evolution of retailing and gold prices hitting new highs, it has caught market fancy and the attention of some big operators. Su-raj Diamond (Code No : 507892) (Rs.62) is also positioning itself in the retailing segment in the domestic market through its subsidiary and associate company ‘Su-Raj Diamond Dealers Ltd’ and ‘Forever Precious Jewellery and Diamonds Ltd’. It has nine manufacturing units in the country and also has permission to set up jewellery manufacturing units in SEZ at Kolkata and Kochi. For FY06, it can report a turnover of Rs.1200 cr. and NP Rs.36 cr. which means an EPS of Rs.9. A safe bet.

Steel scrips are coming back into action and most of them registered smart gains last week. National Steel & Agro (Code No: 513179) (Rs.23), belonging to the renowned Ruchi Group has not risen and is still trading very cheap. For FY06, the company may report a turnover of Rs.1750 cr. and NP of Rs.16 cr. Against this, it is available at market cap of only Rs.75 cr. and is discounts its FY06 earnings of Rs.5 by 5 times only. The scrip has the potential to rise 20~25% in the short term. Moreover, the Ruchi Group is consolidating all its business and is planning to focus mainly on its metal business in future. Hence it’s a good long-term bet as well.

The forthcoming Budget is estimated to be favourable for the food processing industry and Agro Dutch Inds. (Code No: 519281) (Rs.38) is tipped to rise sharply post budget. The company has recently raised money through a right issue and is implementing Rs.86 cr. capex plans whereby it is increasing its total capacity to produce 50,000 tonnes of mushroom. This whole expansion will be for frozen mushrooms for which the realization is better than canned mushrooms. Hence it is setting up a plant for individual quick frozen (IQF) mushrooms. Moreover, it is also putting up a Rs.40 cr. facility to manufacture tin cans in Chennai. With lower anti dumping duty in USA and better price realization, the company is estimated to earn a NP of Rs.18 cr. on sales of Rs.210 cr. for FY07. With an EPS of more than Rs.6, the scrip can appreciate handsomely in future whereas the downfall is minimal form the current level.

Rain Calcining - Rs.42.00

Incorporated in 1989, Rain Calcining Ltd (RCL) was promoted by Jaganmohan Reddy and associates, HIE-Rain and AMICOR. Today, it is Asia’s largest and the world’s 5th largest producer of Calcined Petroleum Coke (CPC) catering to 8% of the world's total requirement. CPC produced by calcining Green Petroleum Coke (GPC), is a high purity carbon used largely in the electrolytic smelting process that produces aluminium. CPC is also used in making graphite electrodes for arc furnaces, titanium dioxide, polycarbonate plastics, steel, carbon refractory bricks for blast furnaces and as a material for cathodic protection of pipelines. Presently there are no known viable substitutes for CPC.

Being a 100% EOU, RCL’s manufacturing facility is located on a 42.5-acre site in the Visakhapatnam Port Area and very close to deep water dock where CPC is discharged and export shipments of CPC are loaded. Last year, RCL completed the capacity expansion of its CPC plant from 3,00,000 to 4,80,000 MTPA and has started commercial production from May'05. Incidentally, this capacity expansion has come at a very appropriate time when aluminium smelting capacity is on the rise and CPC prices are ruling high at around US$200 per tonne and expected to rise further to US$ 220 in FY07. In addition, the company operates a 49 MW power plant, form which it partially consumes power and sells the balance to other industrial consumers in Andhra Pradesh. Importantly, RCL has entered into definitive revised agreements with Oxbow for the marketing of CPC and also for supply of raw material viz. GPC. Oxbow is one of the world's largest marketer and distributor of petroleum coke and currently holds 5% equity stake in the company as a foreign promoter. Moreover, RCL along with other leading Kuwait companies is setting up a green field calciner project in Kuwait with a capacity of 3,50,000 MTPA. Post completion, RCL and Oxbow are expected to have exclusive operating/maintenance contract and a CPC marketing contract.

Last fiscal, RCL’s profit took a plunge because of a sharp and sudden run up in sea freight and lower revenue from the power division due to a damaged turbine. Since then, however, things have improved a lot with freight rates remaining low in FY06 and CPC prices shooting up due to strong demand and low supply. Besides, the damaged turbine blade is expected to be replaced by a new one this month when it will regain back its power generation capacity to 49MW from 39MW currently. Taking into consideration these factors, RCL is expected to end FY06 with Sales of Rs.525 cr. and NP of Rs.60 cr. and FY07 with sales of Rs.625 cr. and NP of Rs.80 cr. This will lead to an EPS Rs.5 and Rs.6 respectively. Investors are strongly advised to buy at CMP with a price target of Rs.75 (75% return) in 9~12 months.

Vijay Shanthi Builders - Rs.36.00

Incorporated in 1992, Vijay Shanthi Builders Ltd (VSBL) was promoted by Mr. V.C. Jain who is in housing construction for over 15 years. Since then the company has successfully positioned itself as a quality builder because of quality construction and timely delivery. VSBL is well-known for offering luxury houses at affordable prices to the discerning citizens of Chennai. Till now, the company has constructed nearly 240 buildings and made 7500 families happy. It is presently handling residential projects to suit middle income and higher income groups of Chennai and in its outskirts.

Due to the sharp upswing in the demand for plush housing in Chennai, VSBL has entered the high end market in 2004-05 as these premium flats easily get sold off due to the demand-supply mismatch. Although it will continue building budget houses for the masses, it is gradually shifting its focus to more luxurious apartments catering to high society. Its elite ongoing projects include Courtyard in Nugambakkam, Astalakshmi - row houses in Adyar, Krsna in Egmore etc. Notably, each flat in these project cost around 50 lakh to 1 crore and all the flats are fully-booked and the company has started giving possession. Another prestigious project of 1,10,000 sq.ft called Rain Tree at Alwarpet is under construction comprising of 42 exclusive lifestyle apartments priced at around Rs.1.25 cr. each. Its other projects are Atrium at Adyar, Whispering Meadows, Habitat, Aradhana, Gangotri etc all at Perungudi. VSBL is also coming with some prominent projects like Patio at Nugambakkam, Four Seasons at Mylapore, Tranquility at Alwarpet, Lake View at Amabattur, Palm Meadows at Velachery, Forest at Pallavaram etc. It is also developing a property at Udaipur by the name Lilly Pond. Moreover, its mineral water division is faring satisfactorily contributing around Rs.2 cr. in topline.

Recently, the company has negotiated and finalised 40 acres of land at Pallavaram and another 15 acres to be finalized soon. Due to the increasing number of software companies, Chennai has become a hub of housing activity. Moreover, with tax benefits, easy home loans and higher standard of living, the demand for housing will continue to rise in the foreseeable future. For FY06, the company is estimated to report a total revenue of Rs.55 cr. with NP of Rs.4.75 cr. which will amount to an EPS of Rs.4 In spite of such strong fundamentals and bright future ahead, the company has a market cap of only Rs.40 cr. and is trading at a cheap valuation of 9 times against its FY06 earning and 7 times against its FY07 earning respectively. Investors are strongly recommended to buy the scrip at CMP with a price target of Rs.75 (100% appreciation) in 12~15 months.

STOCK WATCH

Jhunjhunwala Vanaspati (Code No: 519248) (Rs.43) is the single-largest Vanaspati ghee manufacturing unit in India. It’s an ISO 9001:2000 certified company following a policy of perpetual technological upgradation. The company’s brand ‘Jhoola’ is the market leader in UP and other neighbouring markets. For Dec’05 qtr. it reported fabulous numbers with sales up by 41% at Rs.170 cr. when NP jumped by 155% to Rs.3.60 cr. due to huge ‘other income’ of Rs.2.20 cr. For the current nine month period it reported an EPS of Rs.11.50 which may rise to Rs.14 for full year 2005-06. After more than 10 yrs, company has returned to the dividend list and declared 10% for FY05. Though rising cheap imports is a concern but considering its huge market share, the scrip appears to be a good bet.

The Textile industry seems pretty confident that excise duty on man-made fibre will be reduced at least to 12% if not 8% in the coming budget. This will have a positive impact on synthetic yarn producers like Sarla Polyester (Code No: 526885) (Rs.128). For Dec.’05 qtr. its Sales increased by 20% to Rs.22 cr. and NP grew by 18% to Rs.3.05 cr. For the full year FY06, it is expected to report an EPS of Rs.18 and may declare Rs.3 as dividend. Domestic institutional investors are also bullish on the company. The scrip has corrected 25% from its recent high of Rs.172 and has the potential to hit Rs.200 in 12 months or so.

Kilburn Chemicals (Code No: 524699) (Rs.58) is the only manufacturer of Titanium Dioxide in India apart from SAIL. Due to increased demand from the user industry and higher anti-dumping duty, the company is witnessing the best of times. It is exploring the possibility of setting up new businesses in the area of Information Technology and also putting up windmills for generation of electricity at a lower cost. For Dec.’05 qtr, sales were up by 7% at Rs.17.40 cr. but its NP shot up by 40% to Rs.2.20 cr. i.e. qtrly. EPS of Rs.2.90. For the full year FY06, it will post an EPS of around Rs.9 and may declare Rs.2 as dividend. Long term prospects are even better. In short, a very good medium to long- term bet with a decent dividend yield.

Diamines & Chemicals (Code No: 500120) (Rs.54) is a leading producer of ethylenediamine, polamines etc and the only domestic supplier of piperazine to the pharma and other industries. For Dec.’05 qtr., it reported stunning numbers with Sales registering 150% growth at Rs.6.20 cr. and NP increased by 65% to Rs.1.80 cr. in spite of no other income compared to Rs.2.38 cr. last year. This works out to a qtrly. EPS of Rs.2.80 on its current equity of Rs.6.50 cr. For the full year FY06, it is estimated to post an EPS of Rs.8~9. The company has already declared an interim dividend of Rs.1.50 and may declare another Rs.1.50 as final dividend later. The scrip is trading extremely cheap and has the potential to double in 12~15 months. A solid bet in the petrochemical sector.

Construction sector is in full boom and the govt. is seriously working as well as spending on building world class infrastructure to compete globally. In such a scenario, the future prospects of Triveni Glass (Code No: 502281) (Rs.68) looks very promising as it is among the few to make pyrolytic reflective glass which is used in construction and building exteriors. Besides, it is one of the largest (20% market share) and wholly Indian owned entity to manufacture international quality float glass. For Dec.’05 qtr. it came out with fabulous nos. Sales were up 50% to Rs.50 cr. and NP stood at Rs.3 cr. compared to Rs.8 cr. loss last year. It’s a strong turnaround candidate due to restructuring and other initiatives and can report Rs.12 cr. NP for the full year. A screaming buy in such a growing sector.

Karur KCP Packaging - Rs.66.00

Beginning as supplier of jute bags to cement companies, Karur KCP Packaging Ltd. (KKPL) has today become a one-stop shop for the packing requirements of any industrial sector. Since its inception in 1961, the group has grown into multi-dimensional and multi-product group manufacturing paper, paper bags, polypropylene bags and flexible intermediate bulk containers (FIBC). In fact, KKPL is the only company in India manufacturing extensible sack kraft paper (ESKP) that is used for making multiwall sacks. Currently, 75% of its revenue is contributed by the paper and paper bags division and the rest by PP bags and FIBC.

KKPL’s hi-tech plant for paper and paper bag division is located at Pondichery whereas its reputed manufacturing facility for PP bags and FIBC is at Mayanur near Karur. Its paper bag division produces eco friendly paper bag using imported ‘bottomer’ machines from Japan having an installed capacity of 9 million bags per month. The paper unit manufactures special paper called ESKP thru CLUPAC, which is a patented US technology and has a production capacity of 70 TPD. Catering mainly to cement companies, its PP bag division produces 5 million bags per month. Also, its latest plant for FIBC manufactures world-class Jumbo bags of 500 kg to 2500 kg capacity with the entire production earmarked for exports to USA and EU countries. Last year, KKPL diversified into the non-cement sector namely Carbon Black, Tea, Fertilizers, Grains, Spices, Chemicals and Dyes etc. Due to this increasing demand, the company is planning to increase its Paper production capacity from 65 TPD to 80 TPD. Similarly, the FIBC bags capacity will be increased from 300 TPM to 400 TPM.

From jute to polypropylene then paper and now FIBC, KKPL is continuously growing its product range and expanding capacity. For Dec.’05 qtr., its sales increased by 15% to Rs.56.50 cr. whereas profit after tax spurted by 125% to Rs.2.30 cr. Company is estimated to end FY06 with sales of Rs.220 cr. and NP of Rs.8 cr. i.e. EPS of Rs.8 on an equity of Rs.10 cr. Incidentally, company has a total debt of around Rs.115 cr. on which it pays an interest of Rs.19 cr. @ whopping 16% p.a. To fund its expansion and reduce its debt substantially, KKPL is coming out with FCCB to raise around Rs.70 cr. which may dilute equity to the extent of 100% going forward. Hence only aggressive investors are advised to buy as the scrip can give 50% returns in a bullish market in 6~9 months.