STOCK WATCH

Shrachi Infrastruture Finance Ltd (Code No: 511591) (Rs.43) offers a wide range of financial products and services from financing passenger cars and light commercial vehicles to heavy commercial vehicles and importantly construction equipment. It operates through 57 branches covering 12 major states and has a consortium of 12 banks led by Bank of Baroda. It’s a professionally managed company with NPA level of around 1.50% only against the industry average of more than 5%. For FY05, it gave 15% dividend, which means a dividend yield of around 3.50%. Earlier, it made preferential allotment of 19 lakh share warrants @ Rs.53 per shares to promoters and others. For FY06, it is estimated to register total revenue of Rs.30 cr. and NP of Rs.9 cr., which leads to an EPS of Rs.9 on its diluted equity of Rs.10.40 cr. A strong buy with minimal downward risk.

Last week, Hazoor Media and Power Ltd (Code No: 532467) (Rs11) came out with its result for the qtr. ending 28 Feb. 2006. Sales were flat at Rs.4.75 cr. whereas NP was marginally up by 5% at Rs.1.32 cr. Company is planning to come out with ADR/GDR issue in the near future and is taking all initiatives to list its securities on NSE. Ironically, it has huge property of around 1,22,000 sq ft near Aamby Valley - the lake city of Sahara India at Lonavala. It recently forayed into real estate development and is looking at several properties in Pune, Lonavala & Mumbai for medium and premium segment projects. For future growth, it is setting up a 10MW Wind turbine power project in Maharashtra. Recently, it also gave 10% dividend and made preferential allotment of 20 lakh share warrants to promoters @ Rs.15 per share. For FY06 ending 30 August 2006, it may report Sales of Rs.19 cr. and NP of Rs.5 cr. i.e. an EPS of Rs.5 on the face value of Rs.4 per share. A good short term bet.

Kovai Medical Centre (Code No: 523323) (Rs.60) located in South India is rated as one of the best medical centres in the world equipped with the most modern equipments like CT scanner, Angiography equipment with DSA, Operating Microscope, Mammography, C-arm, Colour Doppler etc. Super-speciality procedures like Coronary Bypass surgeries, Coronary Angioplasty, Stent Implantation, Laproscopic & Vascular Surgeries, Hip & Knee replacements, Kidney transplants and complex Neuro surgeries are regularly done at the hospital. It has recently enhanced its bed capacity, which will have its impact in coming qtrs. For FY06 and FY07, it is estimated to report an EPS of 5 & 7 respectively. Though it is not as big as Apollo Hospital, but still its available fairly cheap and has potential to double in 15~18 months.

Whereas share prices of all the housing construction companies are hitting new highs, the share price of Vijay Shanti Builders (Code No: 523724) (Rs.35) is trading 40% lower than its 52W high of Rs 57. The company is engaged in developing residential projects to suit middle income and higher income groups of Chennai and in its outskirts. It is gradually shifting focus to the more lucrative premium segment catering to high society. Few of its elite ongoing projects include Courtyard in Nugambakkam, Astalakshmi - row houses in Adyar, Krsna in Egmore, and Rain Tree at Alwarpet etc. Importantly, the company has finalised 40 acres of land at Pallavaram and another 15 acres is to be finalized soon. It is expected to show exponential growth in coming years and may report EPS of Rs.4 and Rs.6 for FY06 and FY07 respectively.

All tech companies have witnessed a smart rally recently barring Paradyne Infotech (Code No: 532672) (Rs.65). It’s an ISO 9001:2000 certified end-to-end IT services company with core competence in Software Services, Managed Services, System Integration and BPO Services. It is one of the Level 1 Turnkey Solution Provider empanelled by Government of Maharashtra along with a few selected major IT companies like IBM, TCS, Wipro, CMC, Tata Infotech, etc. PIL’s services and solutions are concentrated in the areas of e-Commerce, Business Intelligence, Business Process Management (BPM) and Customer Relationship Management (CRM). For FY06, it is expected to clock a top-line of Rs.90 cr. and NP of Rs.7.50 cr. This works out to an EPS of Rs.7 on its current equity of Rs.10.90 cr. Due to lower profit margins, the company does not enjoy rich valuation but is still a value buy and has the potential to perform well in future.

International Combustion - Rs.320.00

In 1936, International Combustion Ltd (ICL) commenced operations in Calcutta as a trading house representing the interests of International Combustion, U.K. In 1974, this FERA company changed its status from a private limited to public limited company. But in 1990, the foreign promoters sold their stake to the NRI Directors. It has foreign technical collaborations and licensing agreements with world leaders in the respective product groups for manufacture of premium equipment. Besides, its strong marketing and service organization across the country enables quick and direct contact with customers during all phases of consultation, contractual negotiation, followed by execution and after sales service. It has a large clientele with major players from across all industries including metal, mining, chemical, pharma, construction, sugar, cement, power, textile, paper, fertilizer, plastic etc. ICL has fully equipped manufacturing facilities at Calcutta, Nagpur and Aurangabad which ensures total control over production and product quality. Presently, ICL has following three manufacturing division:-

Heavy Engineering Division :
With technical knowhow from Carl Schenck ZchBehenck AG of Germany, ICL manufactures and markets a wide range of mechanical and electro-magnetic vibrating screens, feeders & conveyors to handle all types of bulk solids, whether large lumps or very fine grains, whether wet or dry, whether abrasive such as scrap, flux and sinter. Under bulk material handling, the company deals in Spiralling Belt Elevators, Scooping Belt Conveyers, Girdle Pocket Elevators, Apron Feeder, Mining Haulages etc. As accessories it manufactures Exciters, DC Brake Unit & Monitoring System for vibrating machines. ICL also manufactures multi-deck sizers, bar sizers, vibro bar sizers, flip flop screens in technical collaboration with Mogensen GmbH, Germany. ICL also has a Grinding, Classification & Drying unit under which it markets ‘Raymond” American brand roller mill, pulverisers, grinding mills, mechanical air separators and flash drying system, which can reduce many products by 95~98% or refine them below 10 microns. The company has also entered into a licence agreement with Ecutec, Spain to manufacture Microfine Classifiers from this year.

Polymer Division :
With technology from Gummi Kuper GmbH, Germany, ICL produces various Polyurethane and Rubber Screen Decks and Liners for wet and dry applications including scalping, load relieving, sizing, washing and dewatering in this division. The operation in this unit was suspended for some time and has resumed from this fiscal to manufacture modular screen decks.

Bauer Division :
Under license from Danfoss Bauer, Germany, ICL offers a comprehensive range of Geared Motors, Gear Boxes and Electric Motors manufactured on specially designed inter-linked CNC production lines. Major growth is expected is this segment as the company has introduced Bauer current generation B-2000 series, in India and neighbouring countries. These equipments have strong global presence in Steel, Automobiles, Beverages, Material Handling Systems and various other industries.

With strong industrial growth and major expansions by manufacturing biggies and in the construction sector, ICL has a very promising future ahead. Moreover, it is eyeing major business from exports by tapping newer markets in Europe and South America apart from supplying to Kazakhstan and some countries in South East Asia. It is also enhancing its production capacity at Aurangabad and Nagpur with a capital investment of Rs.5 cr. for which it has made a preferential allotment of 2,30,000 warrants @ Rs.178 to the promoters. For FY06, it is estimated to clock a turnover of Rs.65 cr. and NP of Rs.5.50 cr. For FY07, Sales may rise to Rs.85 cr. and NP to Rs.7 cr. This works to an EPS of Rs.23 and Rs.29 respectively on its diluted equity of Rs.2.40 cr. With a reasonable forward discounting of 14~18 PE, the scrip has the potential to trade between Rs.400-Rs.500. A solid buy.

Gujarat Reclaim & Rubber Products - Rs.250.00

Established in 1974, Gujarat Reclaim and Rubber Products Ltd (GRRP) is the largest manufacturer and exporter of reclaimed rubber in India. K. M. Philip, founder director of MRF Ltd and the president of the Indian Rubber Manufacturers' Research Association (IRMRA) is the Chairman of the company. Apart from producing a range of natural reclaimed rubber grades, it also produces synthetic rubber reclaims such as Butyl reclaim, Nitrile reclaim, EPDM reclaim, Latex reclaim, Fluro-elastomer reclaim, etc. Reclaimed rubber is produced from used tyres and waste rubber and is considered to be the third source of rubber after natural and synthetic rubber. 'Reclaiming' is a process of de-polymerization wherein vulcanized waste rubber is ground, then treated with heat, chemicals and is then intensely worked mechanically. Reclaim Rubber has established its worth and versatility by use in automobile tyres, butyl tubes, cycle tyres & tubes, battery containers, tread rubber, belts & hoses, moulded & extruded products etc.

GRRP has put up units in Ankleshwar and Solapur for the manufacture of surface treated crumb and for manufacture of commodities punched and split from waste tyres for use in engineering, civil construction and ground surfacing applications. In fact, GRRP is the first to offer technical collaboration (named Rubplast SDN BHD) for supply of machinery and technical knowhow to manufacture reclaimed rubber and was also the first to introduce a surface treated crumb rubber manufacturing facility in India, with technical knowhow from an American company. With electrical power being a major input, the company has installed a captive power generating capacity to ensure continuous production at its Ankleshwar unit. Starting with a modest capacity of 2400 MTA, it has grown leaps and bounds to the present capacity of 27000 MT. Further capital expenditure to step up production capacity has been planned. With a variety of grades of reclaimed rubber under its belt, the company caters to some of the largest tyre manufacturers in India and abroad including USA, Australia, France, Japan, Korea, Spain and UK among others. Its products are approved by 7 of the Top 10 to 12 out of the Top 20 tyre companies in the world and 4 of the Top 10 non-tyre rubber companies in the world. Importantly, GRRP has a distributor presence in 18 countries offering 'just in time' inventory management, logistics planning and local administration support. It has also been conferred the 'Export House' status by the Government of India for its steady export growth and performance. For future growth, it is focusing on sales of synthetic rubber reclaims which find more uses compared with the Natural rubber reclaims.

The need to counter the potential hazard of environmental degradation caused by waste tyres has led to the increasing popularity of the reclaim process and its use in rubber products. With the prices of natural rubber and synthetic rubber showing an increasing trend, the demand potential for reclaim rubber continues to be promising. Considering all these factors, the company is estimated to end FY06 with Sales of Rs.60 cr. and NP of Rs.6 cr. This works out to an EPS of Rs.45 on its tiny equity of Rs.1.33 cr. Being a consistent dividend paying company for more than a decade, it seems to be good bet for a target price of Rs.360 in 9~12 months.

STOCK WATCH

Excise authorities recently objected to certain cenvat credit availed by Ind Swift Lab (Code No: 532305) (Rs.112), due to which it share price has crashed. Besides, the promoters being not so investor-friendly, the scrip suffers from poor rating. Despite all this, the company is on a high growth trajectory and will report bumper results in coming years. The company is fully geared to enter into regulated markets particularly in USA and Europe. It has already filed 7 Drugs Master Files (DMFs) in US and 50 DMF in other European countries. Couple of days back, it inaugurated its state-of-the-art R&D Centre in Mohali. In short, the day it gets USFDA approval the scrip will shoot up like anything. One of the best long term bets for 2~3 years.

Steel scrips are back in action due to uptrend and price hike in the international market especially China. Mukand Ltd. (Code No: 500460) (Rs.98) being the largest manufacturer of specialty carbon/alloy steel and stainless steel is tipped to witness some sharp rally in the short term. Besides steel, it is also among the largest suppliers of high capacity EOT cranes in India. Moreover, the company has also taken a Rs.700 cr. highway construction project in collaboration with a Russian company. For future growth, the company is expanding its Hospet unit’s steel manufacturing capacity from 1,60,000 to 2,90,000 MTPA. Due to debt restructuring and other factors, the company is estimated to report an EPS of nearly Rs.18 for FY07.

Interest rates are on an uptrend and LIC Housing Finance (Code No: 500253) (Rs.188) has already raised the interest rate on home loans thrice in a short span of time. With 85% of its total loan portfolio on a floating rate basis, this will have a positive impact on its bottomline. Company is only second to HDFC in the housing finance business but in valuation it is available for a song compared to HDFC. For FY06, the company is expected to register total revenue of Rs.1240 cr. and NP of Rs.220 cr. This translates into an EPS of Rs.26 on its current equity of Rs.84.99 cr. With a book value of more than Rs.150, it’s a value buy at current levels with minimal risk of any further downfall.

DHP India (Code No: 531306) (Rs.23) is a leading manufacturer and exporter of domestic and industrial pressure regulators for LPG, Propane and Butane cylinders. Recently its new factory became operational w.e.f from 1st March 2006 which has almost doubled its manufacturing capacity. Besides, it has also shifted its old factory from Belgachia to Sankrail, Howrah, to consolidate and benefit from economies of scale. To shore up revenue, the company is concentrating more on exports, which has a huge potential. For FY07, it is estimated to report Sales of Rs.13 ~ 14 cr. and NP of Rs.1.75 cr., which will lead to an EPS of Rs.6 on its equity of Rs.5.30 cr. Dividend of 10%, provides a cushion for any further downfall in its share price making it a good bet for the medium to long term.

ITL Industries Ltd (Code No : 522183) (Rs.35) is the pioneer and leader in high speed sawing technology offering 60 different models of bandsaw machines ranging from 100 mm to 1500 mm cutting capacity with manual, semi-automatic, automatic and fourth generation CNC machines. It is also engaged in trading hydraulic power packs and hydraulic presses. Apart from making Industrial Blades, Power Hackshaw Machines, Special Purpose Machines, Hydro Testers, lubricants and other supporting equipments it is also manufactures Tube and Pipe Mills, Section Mills, Straightening Machines, Draw Benches, Automatic Cut-offs, Accumulators etc. Considering its strong order book position, it may report Sales of Rs.35 cr. with NP of Rs.2.50 cr. i.e. EPS of Rs.8 for FY07. With dividend expectation of around 15% for FY06, this is another company with a good dividend yield.

Hariyana Ship Breakers - Rs.26.00

Established in 1981, Hariyana Ship Breakers Ltd (HSBL) is the flagship company of Hariyana Group, which has diversified interest in Ship-breaking activities, Sponge iron, Steel, Power, Dealing in properties, Stock & shares investment and Housing construction. Inducto Steel, Hariyana Ship Demolition Pvt. Ltd, Hariyana International, Bapa Real Estate etc are some of its group companies. HSBL is an ISO certified company by BVQI. It is among the few ship-breaking companies to have been listed on the BSE. It had come out with a public issue of Rs.2.80 cr. at a premium of Rs.10 in 1995.

HSBL carries out its ship-breaking activities at Alang in Gujarat, which is the main port for the ship-breaking activities not only in India but also in the world. Interestingly, it has imported one of the largest ships ‘Pacific Blue’ of 57000 tonnes ever imported into India for breaking. The company also has trading activities of import/export of iron & steel goods. Due to wide fluctuations in the prices of old ships in the international market, HSBL is exercising caution and has not purchased any new ship this fiscal. But it is expected that the market for old ships will stabilize in the near future and it will be able to carry on the activities accordingly. To compensate for this delay, the company has set-up a sponge iron, power & concast plant at Hassan with an installed capacity of 1,00,000 TPA. This division of the company was put up under the name of ‘Hariyana Steel & Power’. It has already completed the installation on the first kiln of the sponge iron plant and started the commercial production in March 2005. The second kiln is in an advanced stage of installation and is expected to go into stream by June 2006. HSBL is also implementing a power plant using flue gas from the sponge iron plant.

Meanwhile, the company has undertaken trading of various ferrous and non-ferrous metal as well as shares, which has helped to maintain the bottomline. For FY06, it is expected to register total revenue of Rs.110 cr. and NP of more than Rs.32 cr. This works out to an EPS of Rs.6 on its current equity of Rs.5 cr. It may declare 10% dividend, which means a dividend yield of 4% at its current market price (CMP). With the Steel & Power division expected to contribute substantially to the revenue in coming years, it may post an EPS of more than Rs.8 for FY07. Having a market cap of only Rs.13 cr. and 52W H/L of 42/19 and a forward discounting of only 3x, this scrip seems a good bet. Yet, only aggressive investors are recommended to buy as currently it’s more of a trading and metal company rather than ship-breaking one.