STOCK WATCH

Although its Q4FY06 results were quite flat, Indian Sucrose’s (Code No: 500319) (Rs.50) full year figures look very impressive while its revenue grew by 50% to Rs.102 cr., its net profit zoomed 162% to Rs.15.50 cr. registering an EPS of Rs.10 on an equity of Rs.15.50 cr. Its OPM of 24% is one of the best in the industry. And this is just standalone figures. Consolidated figures will be far better as recently it acquired a sugar unit - Cosmos Industries in Dhuri, Punjab, having a capacity of 2500 TCD. Moreover, the company has also expanded its own capacity to 5000 TCD from 3500 TCD, the full impact of which will be visible in FY07. It may report an EPS of Rs.13 for FY07 and may even return to the dividend list. The scrip is trading cheap currently only because it’s in Z category. The share price is bound to cross Rs.100 sooner than later.

Riding the infrastructure boom, Ador Fontech (Code No: 530431) (Rs.138) came out with fantastic results for the March quarter. Its topline increased by nearly 30% to Rs.22 cr. but net profit more than doubled to Rs.2 cr. due to better margins. For the full year FY06, it registered a turnover of Rs.69 cr. (up 26%) and a net profit of Rs.4.45 cr. (up 134%) with an EPS of Rs.13 on its tiny equity of Rs.3.50 cr. It even declared Rs.4 as dividend. Based on the same pace, for FY07 it can report a net profit of Rs.6.50 cr. on a topline of Rs.90 cr. i.e. an EPS of Rs.19. That means the scrip has the potential to double in 12-15 months. But the only concern is its merger with Ador Welding, in which the swap ratio may not favour the company. Otherwise, it’s a great buy even at current levels.

With the markets hitting an all time high, retail participation in rising volumes are healthy and stock broking firms are making merry. And Twentieth Century Management (Code No: 526921) (Rs.49) run by Mumbai based broker, Sundar Iyer is no exception. This debt free company ended FY06 on a very buoyant note. Its total revenue increased by 140% to Rs.19.65 cr. whereas its net profit tripled to Rs.17.75 cr. This translates into an EPS of Rs.17 on its equity of Rs.10.50 cr. It is learnt that the company is still holding shares of some reputed construction companies whose market value is much higher than its cost. Moreover, the company is planning to approach RBI for restoration of its NBFC registration. But in spite of being a profit making company, it did not declare any dividend. Hence only aggressive investors are advised to take exposure as it’s a risky bet.

After reporting disappointing results for the first half, the second half of FY06 has been quite good for Rajratan Global Wire (Code No: 517522) (Rs.127). For Q4FY06 though its sales was down 15% to Rs.26 cr., its net profit more than doubled to Rs.2.80 cr. on the back of a higher operating margins. For the full year its sales was marginally up to Rs.99 cr. but its net profit increased by 30% to Rs.6 cr. which led to an EPS of Rs.14 on its small equity of Rs.4.35 cr. Its OPM stood at healthy 13%. With the rising demand for tyres from vehicle manufacturers as well as the replacement market, the company is expected to perform well in coming years. Assuming the same profit margin, the company can register an EPS of Rs.20 for FY07. Hence investors can buy this scrip with an expectation of 25-30% return in a year.

Post the amalgamation of Pranay Sheetmetal and Valueline Hotel & Console Estate, Mahindra Ugine (Code No: 504823) (Rs.160) came out first time with the consolidated results and surpassed analysts’ expectations. For Q4FY06 its sales increased by 22% to Rs.186 cr. whereas its first time spurted 130% to Rs.35 cr. in spite of tax provision of a whopping Rs.17 cr. amazingly, it reported an OPM of 30%. If it continues to perform in the same fashion, it will register an OPM of 20-25% on a conservative basis and can report sales of Rs.775 cr. with a net profit of Rs.90 cr. for FY07 i.e. an EPS of Rs.28. Investors are strongly recommended to buy it at declines as the scrip can touch Rs.225 in the medium term.

Uniproducts India - Rs.54.00

Incorporated in 1982, Uniproducts India Ltd (UIL) is a pioneer in the manufacture of non-woven fabrics setting up the first fully integrated non-woven plant in technical collaboration with Uniproducts, Canada Inc. It was also the first to introduce wall-to-wall carpet, manufacture microdot fusible interlining and manufacture moulded carpets, NVH components and heatshields for automobiles. Presently, its product portfolio is segmented into three divisions viz: automotive, flooring and interlining. Under the Flooring Division it deals in tufted boardroom carpet and wooden laminate flooring which it markets under the brand name ‘Sheerwood’ laminates. Its Interlining division makes fusible as well as non-fusible interlining using chemical bond and thermobond technique and sells under the brand name as ‘Unitex’. But the major revenue driver for the company, which constitutes more than 80% of sales, is its Automotive Division wherein it manufactures as many as 190 different components of carpets, trims, NVH parts and heat shields for practically all major automobile manufacturers in India.

UIL has two manufacturing units, one near Rewari in Haryana and the other one at Noida near Delhi. Both its units are ISO / TS 16946 certified whereas its Rewari unit also holds ISO: 14000 certification. For manufacture of heat shield components, the company has a technical collaboration with Rieter Automotive Systems of Switzerland, which is among the world's largest and most reputed companies in this field. Last year, the company formed a joint venture with Juken Technology Ltd, Singapore, for production of mould fabrication and plastic injections components. Besides, it has already commenced production of state-of-the-art line from Dilo Systems, Germany, for the manufacture of high quality needle punch roof-lining and random velour fabrics. The company is a vendor to virtually all automakers like Fiat, Tata Motors, Maruti, Ashok Leyland, Honda, M&M, Toyota, and GM etc. apart from international auto ancillary biggies like Lear Corporation and Antolin group. Ford, UK, has also approved UIL for the supply of carpets and interlining for cars being manufactured in Great Britain.

According to estimates, the domestic automobile industry is expected to touch an annual sale of 20,00,000 cars by 2010, which will be a big opportunity for the company. Besides, India is going to become a major outsourcing hub for auto components manufacturing. Given its strength in innovation, engineering and product development. UIL is well- placed to benefit from this opportunity. Moreover, the company has aggressive expansion plans for which it is raising around Rs.18 cr. via 1:1 right issue @ Rs.40 per share. Considering all these factors, it may report sales of Rs.120 cr. and NP of Rs.3.50 cr. for FY07, which leads to an EPS of Rs.8 on its current equity of Rs.4.50 cr. With a gross block of Rs.65 cr., cash EPS of Rs.18 and book value of Rs.60, the scrip is trading fairly cheap at Rs.55 having a market cap of only Rs.25 cr. Although the forthcoming right issue will dilute its equity, but the impact of its expansion will be visible in FY08. So only long-term investors with patience are advised to take exposure in this scrip. Share price can easily double in 2 years.

Satnam Overseas - Rs.85.00

Incorporated in 1989, Satnam Overseas Ltd (SOL) was promoted by Sri Satnam Arora, Sri Jugal Kishore Arora, and Sri Gurnam Arora as a private limited company but was subsequently converted to a public ltd company in 1992. Today, SOL has emerged as a leading food company from India offering a diverse range of authentic Indian food products with offices and customers in over 57 countries. Apart from being a dominant Indian player in the global Basmati rice market, it is the undisputed leader in the domestic branded Basmati rice segment with more than 35% market share. The company’s flagship brand ‘Kohinoor’, enjoys excellent brand equity both in Indian and global markets and is known for its quality, aroma and flavour. Besides, it has other notable brands like ‘Trophy’, ‘Charminar’, ‘Rose’, ‘Darbar’, ‘Shehanshah’ and ‘Falcon’ in its portfolio.

SOL has world-class, state-of-the-art plants with one of the largest milling capacities in India at 50 metric tonnes per hour. These plants are fully automated through the entire chain of processing of rice from paddy to the packaging of the final product and are fully computer-aided with state-of-the-art cameras to detect impurities and maintain quality, colour and size. The company has a very strong distribution network with more than 170 distributors, 475 stockists and over 2,40,000 retailers across the globe. SOL has also established two wholly owned subsidiaries in the USA and UK and a Joint Venture in Dubai (U.A.E.) to augment its marketing strength in these regions. Last year, it commissioned a new rice milling facility in the UK to process unmilled basmati rice exported from India for sale in England and the continent. For future growth and better profit margin, the company is focusing more on its branded business and is aggressively expanding its presence in ready-to-eat foods (RTE) segment. SOL has an exhaustive product portfolio under its RTE segment including Veg. Pulav, desserts like moong/suzi ka halwa, wide range of heat & eat curries like dal makhani, chana masala, kashmiri rajma, aloo palak, kadhi pakoda, chhole etc, cooking pastes, cook-in sauces, chutneys, spices and a variety of combination (combi) meals. Recently, the company set up a frozen food processing facility at Bahalgarh, Sonepat (Haryana) having a capacity of 20,000 kg per day which has already started commercial production and received orders from Singapore, Mauritius, UK and South Africa. With this unit, its product basket is now diversified to include gourmet products, Indian Breads like parantha, naan, kulcha etc. and a range of snacks like samosas, spring rolls, vegetable kababs, dosa, vada, idli etc. In the near future, it has plans to enter into the business of fresh fruits and fruit based snacks and desserts.

SOL has been awarded export excellence award for fifteen consecutive years since 1991 by the Agricultural & Processed Foods Export Development Authority (APEDA). With the govt. putting special emphasis on food processing, the future prospects of the company are very promising. To funds its expansion and working capital requirements, the company has raised around Rs.90 cr. through FCCB route. For FY07, it is estimated to report sales of more than Rs.600 cr. and NP of 28 cr. This translates into EPS of Rs.14 on its current equity of Rs.19.60 cr., whereas the diluted EPS works out around Rs.10. The 52-week H/L of the scrip is Rs.113/73. Investors are strongly recommended to buy at current levels with a price target of Rs.150 in 15~18 months.

STOCK WATCH

At a time when the Sensex has crossed the 12000 mark and all engineering companies are richly discounted, International Combustion (Code No: 505737) (Rs.380) is trading fairly cheap. Under licence from Danfoss Bauer-Germany, the company offers a comprehensive range of Geared Motors, Gear Boxes and Electric Motors manufactured on specially designed inter-linked CNC production lines. It also manufactures and markets a wide range of mechanical and electro-magnetic vibrating screens, feeders & conveyors to handle all types of bulk materials. Besides, it also markets ‘Raymond’-an American brand roller mill, pulverisers, grinding mills, mechanical air separators and flash drying systems, which are in strong, demand. For FY07, it is expected to report a turnover of Rs.85 cr. and NP of Rs.7.25 cr. i.e. an EPS of Rs.30 on a very tiny equity of Rs.2.40 cr. Having huge reserves of Rs.25 cr., it’s a strong bonus candidate as well. A solid buy for medium to long term.

Ramsarup Industries (Code No: 532690) (Rs.84) is a leading manufacturer and exporter of steel wires, galvanized wires, TMT bars and rods, which are primarily used in the power, housing and infrastructure sector. Presently, it has an installed capacity to produce 1,37,000 MT of steel wire and 72,000 MT of galvanized wire with 87,000 MT capacity of TMT bars. Besides, it is expanding its product portfolio by setting up a structural mill with an installed capacity of 1,35,000 tonnes to produce medium structurals like angles, channels and beams at a cost of around Rs.70 cr. For FY07, the company is estimated to register a topline of R1250 and bottomline of Rs.38 cr. which means an EPS of Rs.22 on its equity of Rs.17.50 cr. It’s a well managed dividend paying company with 67% promoters’ stake. A screaming buy.

Being underperformers for long, textile scrips are now gradually catching up and have started to rise. Eastern Silk (Code No: 590022) (Rs.225), a leading producer of silk fabric recently came out with impressive numbers for the March’06 qtr. Sales increased by 70% to Rs.80 cr. whereas NP rose 60% to Rs.5.40 cr. For the full year ending 31 March 2006, sales were up 15% to Rs.387 cr. but NP jumped 55% to Rs.38 cr. It reported an annual EPS of Rs.28 on its diluted equity of Rs.13.50 cr. For future growth, it is expanding its weaving capacity at its Bangalore unit by 4,50,000 metres per year, which will include double width jacquard and velvet fabrics. Besides, it is also setting up an in-house facility for made-ups with capacity of 1500 sets / day. To fund this expansion, the company has already raised Rs.57.50 cr. through private placement @ Rs.250 per share. For FY07, it may register total revenue of Rs.475 cr. and NP of Rs.46 cr. i.e. an EPS of Rs.29 on its fully diluted equity of Rs.15.80 cr. The scrip has the potential to cross Rs.300 in 9~12 months.

Indian Toners and Developers Ltd (Code No: 523586) (Rs.32) is a leading manufacturer of compatible black toners for photocopiers, laser printers, digital machines and multi-function machines like scanners, printers and fax copiers. It is the undisputed leader in the domestic market and the single largest exporter of toners and developers from India. To increase its global share, the company is regularly augmenting its capacity and has recently increased it to 1200 MT from 700 MT earlier. The full impact of this expansion will be visible in the current fiscal. It may earn a NP of Rs.5 cr. on sales of Rs.45 cr. for FY07. This will lead to an EPS of Rs.6 on its current equity of Rs.8 cr. In the bullish sentiment, the scrip can hit Rs.50. Buy and hold it for a year.

Although most of the large cap as well as small cap steel scrips have witnessed a sharp rally, National Steel (Code No: 513179) (Rs.26) hasn’t appreciated much. Zinc prices are scaling new highs and as the company manufactures galvanized steel also, marketmen are not so sure about its bottomline. But it should be noted that with the rise in zinc prices, the price of galvanized steel has also been raised. Due to strong demand, steel companies are able to pass on this rise in raw material cost to customers. Moreover, because of such wide fluctuation in raw material cost most of the contracts are signed with escalation clause. Surprisingly, in such a market, a company having a capacity of 2,10,000 tonnes of galvanized steel and 2,40,000 tonne of cold roll steel is available at market cap of merely Rs.85 cr. It’s a steal and pure multibagger if held for 2~3 years. Just go and grab it.

VST Tillers and Tractors - Rs.100.00

Established in 1965, VST Tillers and Tractors Ltd (VST) was promoted as a joint venture by VT Velu and VT Krishnamoorthy in technical collaboration with the Mitsubishi group of Japan, which currently holds more than 4% stake in the company. VST manufactures power tillers (10-15BHP), tractors (18.5 BHP), diesel engines & precision components like crankshafts & connecting rods. Its products are sold under the brand name - VST Shakti, Mitsubishi-Shakti and Euro Trac. The company is the undisputed market leader in the Indian tiller market enjoying more than 50% market share. It also exports its products to countries in South & East Asia, Middle East, Africa, Eurpose, USA etc. It is also into trading supplying imported machinery from other countries such as rice transplanters, combine harvesters, garden tillers, reapers, hedge trimmers, bush cutters, hole diggers etc

VST has three manufacturing facilities spread across Bangalore, Mysore and Hosur. The total installed capacity is around 13,000 units of tillers and tractors combined. Currently, it is working only at 70% capacity leaving ample scope for further growth with no capex requirement in the short term. Its power tillers already have a strong presence in Karnataka, Tamil Nadu, Maharashtra, Orissa, Gujarat and is gaining market share in West Bengal and Andhra Pradesh. Its tractors division is growing at an enormous pace with strong demand coming in especially from Maharashtra and Gujarat. Its precision components division besides contributing to revenue continues to supply critical engine components for captive consumption. Last year, this division won TS16949 certification, which will help in further developing the overseas market for its engine component business. In order to beat the competition and increase its market share in the lower end tillers market, VST has decided to import Chinese tillers in the CKD form, assemble them at its Hosur facility and market them under a new brand Dragon Power Tiller (14 HP horizontal four stroke single cylinder) through its marketing and distribution network. The company is also in negotiation with its technical partner, Mitsubishi, for setting up a 50:50 joint venture to manufacture diesel engines for power generators and tractors.

To maintain the GDP growth rate, both the Central and State Governments have accorded priority to agriculture and rural development by providing subsidies to small and marginal farmers. This augurs well for the company as its business model is very much dependent on such Govt. schemes. Considering all the factors, the company is expected to clock a turnover of Rs.150 cr. and NP of Rs.7.50 ~ 8 cr. for FY07. This means an EPS of Rs.14 on its equity of Rs.5.80 cr. With a market cap of only Rs.58 cr. and book value of nearly Rs.80, dividend yield of 3% and 52W H/L of Rs.161/68, this scrip is a value buy and has the potential to give 50% return in 12~15 months.