STOCK WATCH

Mid caps are back in action and hitting new highs. With 52W high of Rs.29, Manali Petro (Code No: 500268) (Rs.19.60) has the potential to rise 25~30% in the short term. It is engaged in the manufacture of Propylene Oxide, Propylene Glycol and is the sole producers of Polyols in India. To strengthen its balance sheet, the company is implementing financial restructuring to wipe off its accumulated losses by reducing its share capital to the extent of 25%. Post restructuring, the face value of the share will stand reduced to Rs.7.50 and the equity capital will be Rs.86 cr. For FY07, its topline and bottomline is estimated to be Rs.475 cr. and Rs.52 cr. respectively, which translates into an EPS of Rs.5. The scrip can shoot upto Rs.35 in a year’s time.

Kilburn Engineering (Code No: 522101) (Rs.43) belonging to the Williamson Magor Group operates process design, engineering, manufacture installation and commissioning of turnkey plants and systems catering to industries such as petrochemical, chemical fertilisers, refineries, oil and gas and food processing. Recently, it bagged a huge order or around Rs.19 cr. from a Malayasian company. For FY07, it is estimated to report a turnover of Rs.90 cr. and NP of Rs.7.50 cr. This works out to an EPS of Rs.6 on its expanded equity of Rs.13.50 cr. The company is even expected to return to the dividend form FY07 after a gap of 10 yrs. Scrip has the potential to hit Rs.75 in 6~9 months time.

Apart from being a leading integrated diamonds and jewellery manufacturer & exporter, Gitanjali Gems Ltd (Code No: 532715) (Rs.178) is the largest player in the branded jewellery segment with well-known brands like GILI, NAKSHATRA, ASMI & D’DMAS. Recently, it formed a joint venture with Sanghvi Exports to manufacture and market SANGINI brand of diamond jewellery. It already has a large retail set-up with 26 exclusive distributors and 620 outlets across 30 cities in India. To increase its market share, it is setting up further 10 Asmi retail outlets, 100 D'damas stores, 90 kiosks at Shoppers Stop departmental stores, 6 Nakshatra flagship stores and 25 outlets for Fantasy Diamond. For FY07, it is estimated to report sales of around Rs.2000 cr. and NP of Rs.50 cr. posting an EPS of Rs.12 on its equity of Rs.59 cr. Considering its brand image and expansion plans, it should trade between Rs.220~260 at a reasonable discounting of 18¬22 times.

GM Breweries Ltd. (Code No: 507488) (Rs.104) has come out with terrific set of numbers beating the expectations of the most optimistic analysts. For March’06 qtr., its Sales increased by nearly 50% to Rs.44 cr. whereas the NP zoomed 250% to Rs.7.40 cr. reporting a. quarterly EPS of Rs.8 on its current equity of Rs.9.40 cr. Its OPM improved substantially to 28% for the qtr. compared to 12% in the corresponding previous quarter. It even declared 15% dividend. With FY06 EPS of Rs.14 and having a market cap of less than Rs.100 cr., it is trading very cheap. For FY07, it can even report sales of Rs.175 cr. with NP of Rs.18 cr. i.e. an EPS of Rs.19. Scrip has the potential to touch Rs.220 in a year or so. Just grab it!

Some analysts feel that sugar as a commodity is in secular bull run for another 5 years at least. In such a scenario, Mawana Sugars (Code No: 532512) (Rs.127) can give extraordinary return if held for 2~3 yrs. It has already merged its 100% subsidiary, Nanglamal Sugar Ltd., which recently expanded its capacity to 8000 TCD. With this, Mawana Sugars total capacity stands enhanced to 30,000 TCD. Besides, it is implementing aggressive expansion plans to further add around 8500 TCD by Nov 2006. It’s also setting up 30MW co-generation plant and ethanol distillery units to produce 40 million litres per annum. Considering all this, for FY07 ending 30 Sept.’07, it is expected to report Sales of Rs.850 cr. and NP Rs.85 cr., which means an EPS of Rs.20 on its equity of Rs.42.50 cr. Although, the company is expected to raise more than Rs.200 cr. through FCCB/ADR route that may dilute the equity by Rs.15 cr. or so, still it’s one of the best bets in the sugar sector for the long-term.

Steel Strip Wheels - Rs.121.00

Incorporated in 1988, Steel Strip Wheels Ltd (SSWL) is the flagship of the Steel Strips Group, which has operations in high tech manufacturing, synthetic fibre production, information technology, construction and the retail sector. SSWL is basically engaged in the manufacturing of single piece steel wheel rims in the range of 10 to 30 inches diameter for scooters, passenger, cars, utility vehicles and tractors. Ironically, there are just a dozen odd wheels manufacturers worldwide and the company enjoys a mutually beneficial partnership with Kanai Motor Wheel Company, of the Sumitomo Group, which is a major OEM supplier to Honda Motors, Mitsubishi Motors, and Fuji Heavy Industries, in Japan. Apart from breaking the monopoly of Wheels India, the company enjoys more than 50% market share in India. It has a huge clientele including all biggies like Maruti, Tata Motors, M&M, Bajaj Auto, Honda Motorcycle & Scooters, General Motors, Punjab Tractors, Eicher Motors etc. And Piaggio Vehicles, Peugeot, Rover, L&T John Deere etc are few of its international customers.

SSWL’s ultra modern manufacturing facility is spread across 28,000 sq metres of built up area within a 1,60,000 sq. metres land holding in Patiala, Punjab. Its present capacity is around 6 million wheels per year, which is being increased to 7.5 million by the end of this calendar year. To cater to the export market and the rising domestic demand, SSWL is expanding and modernizing, its huge expansion plan is to take the production capacity beyond 10 million wheels. As the southern belt of India is a strong hub for car manufactures, the company is setting up a 3 million capacity manufacturing plant for passenger cars and multi utility vehicles in Hosur near Bangalore for which it has already procured 20 acres of land. Besides, it is also a strategic location for exports due to its proximity to Chennai port. It is also putting up a joint venture company for setting up a 0.8 million capacity manufacturing plant at Jamshedpur, primarily to cater to Tata Motors growing requirement. Moreover, it has established a dedicated line for the manufacture of 1,60,000 rims per annum for 3-wheelers to be supplied to Piaggio. With Europe and North America being a huge potential market, SSWL has floated a wholly owned subsidiary in the Slovakia Republic to set up a 4.0 million capacity wheel plant. On the export front, SSWL has signed contracts with PSA Peugeot Citroen, Europe, for export of 2.25 million steel wheel rims, worth Rs.120 cr. approximately to their plants in Spain and France for their car models namely, Berlingo Citroen and 407. It has also received orders for the manufacture and export of 1,25,000 wheels for the trailer market in Germany, and 12,000 wheels for Daewoo Matiz for the replacement market in Poland. Besides it has received many enquiries from different countries such as Turkey, France, Germany, America, South Africa, Poland and Australia etc. General Motors Holden, Australia, has also awarded a contract to the company to supply steel wheels for a period of three years starting from June 2006.

With India emerging as an auto component sourcing hub and the company having ambitious expansion plans, the future looks good for SSWL. For FY06, it is expected to clock a turnover of Rs.160 cr. and NP Rs.9.50 cr., which is lower due to the rise in steel prices. But for FY07, it can report Sales of Rs.220 cr. and NP of Rs.14 cr. i.e. an EPS of Rs.12 on its expanded equity of Rs.12 cr. It has already made preferential allotment of Rs.9.10 lakh optionally convertible preferential shares @ Rs.145. As rising steel price is a bit of concern, only aggressive investors are advised to buy this stock on declines with a price target of Rs.180 in 12~15 months. Its 52-week High/Low is Rs.202/80.

Poly Medicure - Rs.85.00

Incorporated in 1995, Poly Medicure Ltd (PML) was conceived and established by a group with the purpose to make modern healthcare available to mankind at an affordable price. And in a short span of time, PML has grown into one of the most dynamically versatile manufacturers of disposable healthcare products with over 40 different products. With the help of its strong R&D division, PML has developed and innovated several high quality medical disposables products for Infusion Therapy, Anesthesia, Urology, Blood Management, Surgery, Wound Drainage, Gastroentrology etc. At present, exports constitute around 85% of its turnover and its products are exported to more then 40 countries across the globe. It has successfully implemented a quality management system and has been accredited by SGS Yarsley International Certification Services, United Kingdom, with ISO 9001:2000, ISO-13488: 1996 and CE mark for some of its products. For the rest of the products, the company has been accredited CE mark by DNV of Norway making its entire product range worth of International Quality Standards

PML manufactures its products using state-of-the-art technology in ultra modern factories covering over 1,00,000 square feet of manufacturing floor space. A tool room with modern facilities and CNC machines support the production processes. A high degree of automation and an effective process control help in complying with GMP requirements. Its quality assurance system encompasses a comprehensive and exhaustive series of visual, physical, chemical, biological & microbiological tests and inspection at different stages in the production cycle. To keep pace with the ever-changing requirements of the market the company has the latest CAD / CAM technology and well-equipped R & D section to design and develop new and innovative products. With a total investment of more than Rs.50 cr., the company has upgraded, modernized and increased its production capacity to meet the growing demand. Currently its installed capacity is more than 120 million units of Medical Disposables.

To increase its presence in the international market, PML has recently acquired a majority stake in an USA based company in the field of medical devices. The annual demand for medical disposables is increasing globally at the rate of 10-12% as India gears to become the ultimate health tourism destination by upgrading the existing infrastructure to global standards. All this augurs well for the company. For FY06 it is expected to make sales of Rs.70 cr. and NP of Rs.5.75 cr., which may rise to Rs.90 cr. and NP of Rs.6.75 for FY07. This translates into an EPS of Rs.11 & Rs.13 respectively on its current equity of Rs.5.40 cr. With its 52-week High/Low at Rs.147/70, investors are recommended to buy this scrip with a price target of Rs.125 for 50% appreciation in 12~15 months.

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.