STOCK WATCH

After an amazing run upto Rs.240 level, GM Breweries (Code No: 507488) (Rs.179) has now corrected sharply, giving a good opportunity to buy. With every passing quarter, its sales/ net profit is rising, whereas its OPM has improved substantially at 28% for the March 2006 quarter compared to 9% in June 2005 quarter. It reported stunning results for the March quarter as revenue increased by 50% to Rs.44 cr. and net profit jumped 250% to Rs.7.40 cr. reporting a quarterly EPS of Rs.8. For the full year, it recorded a turnover of Rs.155 cr. and net profit of Rs.13 cr. assuming the same track record; we expect it to end FY07 with total revenue of Rs.185 cr. and net profit of Rs.22 cr. This translates into an EPS of Rs.24 on its current equity of Rs.9.36 cr. At a reasonable P/E discounting of 14-18 times, the scrip should trade in the range of Rs.330-430. It’s a pure value buy, which can give handsome returns if held for the long term.

Kwality Dairy (India) Ltd. (Code No:531882) (Rs.23) is a professionally managed company, manufacturing a wide range of dairy products in bulk as well as in consumer packs, which include skimmed milk powder, dairy whitener, whole milk powder, ice cream mix powder, butter and ghee. It has reputed brands like ‘Indiana’ and ‘Kream Kountry’. FMCG biggies like HLL, Nestle, Birtannia, Cadburys, Parle, Mothers Dairy etc. are a few of its clients. In the near future, it is planning to launch Rasgula, Gulab Jamun, fresh paneer, malted foods etc. It has reported encouraging results for the March 2006 quarter with 35% rise in sales as well as net profit. For the full year, its topline grew by 37% to Rs.99 cr. and PBT increased by 55% to Rs.5.15 cr. After providing for deferred tax, its EPS comes to around Rs.2.20. For FY07, it may report an EPS of above Rs.3. Being in the growing food processing sector, this scrip is trading reasonably cheap with forward discounting by 7 times. Its 52-week high is Rs.42 and current market cap is only Rs.42 cr. The share price can appreciate 50% in 12-15 months.

All the negative news like labour unrest, management quality etc is already factored in the share price of Triveni Glass (Code No: 502281) (Rs.60). That’s why the scrip is available at 50% discount to its recent high of Rs.128 even in an all time high market. Post restructuring, the company has made a strong turnaround and for the nine months ending 31st December 2005, it recorded sales and net profit of Rs.140 cr. and Rs.8 cr. respectively. For FY07, it may report sales of Rs.225 cr. and net profit of more than Rs.15 cr., which means an EPS of Rs.12 on its diluted equity of Rs.12.60 cr. Compares to its peers, it is trading quite cheap at its current market cap of Rs.50 cr. Although promoter quality and holding is a concern, we still think it’s a value buy, which can give decent returns in such a bullish market.

International Conveyors (Code No: 509709) (Rs.135) is manufactures PVC conveyor belts, which find application in mining and material handling. Due to limited demand from the domestic market, the company is making special thrust on exports and has ambitious plans to increase its share in the lucrative international market. On the back of better operating efficiency, it reported excellent results for last the two quarters. If it continues on the same track for the March quarter as well, then the scrip will shoot up like anything. However, considering the company’s growth plan, we estimate it to report a topline of Rs.45 cr. and PAT of Rs.4.25 cr. for FY07, which works out to an EPS of Rs.18 on its tiny equity of Rs.2.40 cr. At a reasonable P/E discounting of 12 times, the scrip has the potential to cross Rs.220 in the medium term. Buy before it declares the FY06 results.

Textile scrips are back in action especially the spinning sector. Kallam Spinning (Code No: 530201) (Rs.27) appears to be one of the cheapest buys at the current levels. For the nine months ending 31st December 2005, its sales was marginally up at Rs.24 cr. but its net profit spurted 70% to Rs.2.80 cr. due to better operating efficiency. For the full year, it can report sales and net profit of Rs.33 cr. and Rs.3.50 cr. respectively, which is an EPS of Rs.5 on equity of Rs.6.85 cr. The company is undertaking a Rs.22 cr. capex to increase its production capacity by 30% to 44700 spindles from 33650 spindles. Hence, the company is estimated to end FY07 with a turnover of Rs.40 cr. and net profit of Rs.4.50 cr. i.e. an EPS of Rs.7. With the company enjoying net profit in double digits, the share price has the potential to appreciate 50% in 6-9 months. A good bet in the spinning sector.

Pacific Costspin - Rs.10.50

Established in 1994, Pacific Cotspin Ltd (PCL) was promoted by the Mehras of Kolkata who have proven track record of more than 30 years in the field. It is a 100% Export Oriented Unit (EOU) manufacturing 100% cotton combed and carded waxed yarn. The group’s other activities include manufacturing of quality mercerized tubular knit fabrics, narrow woven elastic trimmings etc. This govt. recognized star export house enjoys leadership position in exports of coarse and medium yarn i.e. ranging from 20’s to 60’s count. It also produces contamination free yarns, organic cotton yarn, compact yarn, fancy yarns etc which are well accepted in international market. Its products are mainly exported to South Korea, Bangladesh, Srilanka, Tunisia etc.

PCL’s strength lies in its ultra modern state-of-the-art manufacturing facility in West Bengal. It is centrally air-conditioned and equipped with a fully automatic and computerized spinning system. The latest generation hi-tech machineries have been imported from global manufacturers from Switzerland, Germany and Japan. It has also installed Uster Lab Equipments to monitor quality at each stage of production. Presently, the installed capacity of the plant is 30,000 spindles with a daily production capacity of 13 tonnes of yarn. But to encash on the growing opportunities due to the dismantling of quotas for Indian textile exports to USA and EU, the company is implementing a huge capex plan of Rs.80 cr. to increase its capacity by 25,200 spindles. This will almost double its production capacity.

To fund its aggressive expansion, the promoters are bringing in Rs.10 cr. by a preferential allotment of Rs.58 lakh shares @ Rs.17 per share to themselves. Another Rs.15 cr. is to be raised via 1:2 right issue later. Notably, the company is continuously improving its operational efficiency, productivity and cost control, which alone can improve its bottom- line in a highly competitive environment. For FY06, it is estimated to clock a turnover of Rs.150 cr. and NP of Rs.6 cr. which translates into EPS of Rs.2.60 on its current equity of Rs.23.15 cr. assuming a 20% growth for FY07, the company can register sales of Rs.180 cr. and NP of Rs.7.50. This works out to an EPS of Rs.2 on its fully-diluted equity of Rs.39.40 cr. Hence investors are strongly recommended to buy it at current levels with a price target of Rs.16~18 (i.e. 60% appreciation) in 15~18 months.

Hester Pharmaceuticals - Rs.102.00

Hester Pharmaceuticals Ltd (HPL) was incorporated in 1987 as a private ltd. company but converted into public ltd. company in 1993. It produces and markets veterinary and pharmaceutical products viz., Animal Health products, Poultry Vaccines, Poultry Diagnostic, Laboratory Kits and Reagents. Today it is one of the largest poultry vaccine manufacturers in India and the only company from India to export poultry vaccine. It has the licence to produce 12 types of live poultry vaccines and 28 types of Inactivated poultry vaccines. It produces vaccines for Fowl Pox, Fowl Cholera, Bronchitis, Gumboro, AE, LT, REO, EDS and Newcastle diseases besides combination vaccines. The company has good presence in the South mainly in Andhra Pradesh, Karnataka and Tamil Nadu. As it is a biotech company producing biologicals, HPL will soon be rechristened as Hester Bioscience Ltd. to reflect its activities more accurately.

HPL’s state-of-the-art manufacturing facility is located at Mehasana, near Ahmedabad in Gujarat. It holds ISO-9001:2000 & GMP certification from the drug authorities. Production procedures for poultry vaccines based on in-house advanced capabilities are being followed in the areas of virus propagation in specific pathogen-free embryos, tissue culture, batch fermentation of bacteria, lyophilization, emulsion preparation etc. Importantly, the company is the exclusive distributor for Merial Inc, the worlds largest Animal health company for marketing its complete range of poultry vaccines in India. Besides, HPL also represents Synbiotics of USA exclusively for poultry disease diagnostic kits. It also offers seromonitoring services under which it helps producers evaluate the immune response to administered vaccines and/or to obtain evidence of flock exposure to field strains.

In order to cater to the growing demand for poultry vaccines, HPL has embarked on a Rs.25 cr. expansion plan to increase its capacity by 300% i.e. 4 times from 120 cr. doses to 500 cr. doses of poultry vaccines by Oct 2006. This expansion will enable the company to manufacture not only the current poultry vaccines which are in high demand, but will also enable it to add a few specialty poultry vaccines. In future it also intends to diversify into the production of cattle and sheep vaccines in the new expanded facility. To fund its expansion, it has already raised around Rs.3 cr. through preferential allotment of around 2 lakh shares at Rs.150 per share and is now coming out with 2:5 right issue at Rs.70 per share. This shows the investor-friendly attitude of the management. For FY06, its total revenue increased by 25% to Rs.20 cr. but its net profit grew 12% to Rs.4.43 cr. posting an EPS of Rs.12 on its current equity of Rs.3.71 cr. Considering the company’s aggressive plan and special thrust on exports we estimate it to post a topline of Rs.28 cr. and PAT of Rs.7 cr. for FY07. This will work out to an EPS of Rs.13 on its fully diluted equity of Rs.5.20 cr. And at a reasonable discounting of 12x the scrip can cross the Rs.150 mark in the medium term. Moreover, once the record date for the right issue is announced, the scrip will shoot up by 25-30% in the short term. A solid buy.

STOCK WATCH

Last week, Rama Papers (Code No.: 500357) (Rs.38.05) came out with very encouraging numbers for the March 2006 quarter. Its sales grew by 15% to Rs.20 cr. whereas net profit jumped 170% to Rs.1.90 cr. posting a quarterly EPS of Rs.2.50. For full FY06, it recorded sales of Rs.77 cr. and net profit of Rs.5.50 cr. despite making huge tax provision of Rs.3 cr. Due to buoyancy in the paper industry, the company is going in for capacity expansion and also setting up a 6 MW captive power plant. It has already got a loan from Bank of Baroda and its balancing equipment project is expected to be completed by this month end which will increase its production capacity to 44000 TPA from 39500 TPA. Besides, its power project is estimated to be commissioned by November 2006, which will result in considerable savings in power cost. For FY07, it may clock a turnover of Rs.100 cr. with net profit of Rs.8 cr. i.e. EPS of Rs.11 on its equity of Rs.7.60 cr. The major reason for the scrip trading so cheap and commanding a market cap of only Rs.30 cr. is because it is in Z category. But soon it will be transferred to its original group as the company has completed all the formalities. Just go and buy this scrip.

Maintaining its consistent double digit growth rate, Jupiter Bio Science (Code No.: 524826) (Rs.148.65) has once again come out with satisfactory numbers for March 2006 quarter. Its top-line increased by 14% to Rs.23 cr. and net profit grew by 15% to Rs.6 cr. whereas for the full FY06, it reported sales of Rs.78 cr. and net profit of Rs.20.50 cr. against Rs.71 cr. and Rs.14 cr. in the previous year. The EPS for FY06 works out to Rs.23 on its equity of Rs.8.90 cr. The company is a niche player enjoying a NPM of 26% and is perhaps the only peptide company in Asia with technology to manufacture peptides from the basic stage. To fund its expansion, the promoters are infusing fresh money, which establishes their confidence & commitment to its growth story. The EGM has already approved the to make preferential allotment of 27.50 lakh shares to the promoters at the rate to be calculated as per SEBI guidelines. Besides, it is also planning to raise Rs.90 cr. through FCCB/ADR/GDR route which will lead to its re-rating and substantially increase its market capitalization. Though it has not performed for quite long on the bourses its still one of the most undervalued scrip in this sector.

In line with our expectation, International Combustion (Code No.: 505737) (Rs.406.50) has come out with terrific set of numbers for March 2006 quarter. Sales were up 50% to Rs.21 cr. and net profit increased by 120% to Rs.1.85 cr. thereby registering an EPS of Rs.8 for the quarter. Full FY06 figures are even better as its top-line grew by 46% to Rs.67 cr. but its PAT spurted by 160% to Rs.5.70 cr. Notably, the current tax provision (excluding deferred tax) for FY06 is whopping Rs.3.34 cr. This means that the company has paid nearly 40% tax on PBT of Rs.9 cr. It is expected to declare 50-60% dividend compared to 25% last year. All its divisions are doing exceptionally well and have a healthy order book position. For FY07, it is estimated to report sales of Rs.90 cr. and net profit of Rs.8 cr., which translates into EPS of Rs.35 on its tiny equity of Rs.2.27 cr. At a reasonable discounting of 18x for the Engineering/ Capital Goods sector, the scrip has the potential to cross Rs.600 in the medium term. Company may even declare bonus/ stock split later in this calendar year.

Due to huge saving in interest cost on account of debt restructuring, Sujana Universal (Code No.: 517224) (Rs.28.05) has turned around smartly. To fund its working capital requirement and other plans, the company had raised around Rs.70 cr. Through a GDR issue and is now raising another Rs.16 cr. by preferential allotment of 46 lakh shares at Rs. 35. Because of better cash flows and the growing economy, the company is working more efficiently and effectively. Its casting, bearings and light engineering component divisions are faring exceedingly well on the back of strong demand. For March 2006 quarter its sales were flat at Rs.222 cr. but net profit quadrupled to Rs.9.11 cr. For the full FY06, it may report top-line of Rs. 875 cr. and net profit of Rs.30 cr., which means EPS of Rs.6 on fully diluted equity of Rs.48 cr. With a recent high of Rs.46 and a market cap of only Rs.120 cr., the scrip can easily rise 50% in 9-12 months.

Satnam Overseas (Code No.: 512559) (Rs.94.60) is the undisputed leader in branded Basmati rice with more than 35% market share with reputed brands like Kohinoor, Trophy, Charminar, Rose, Darbar, Shehanshah and Falcon. It is aggressively expanding its presence in the lucrative ready-to-eat foods (RTE) segment and is constantly augmenting its product portfolio. Recently, it has set up a frozen food processing facility at Haryana and has already received orders from Singapore, Mauritius, UK and South Africa. It also has plans to enter into the business of fresh fruits and fruit based snacks and desserts. For FY06, its total revenue grew by 7% to Rs.541 cr. but its net profit increased by 40% to Rs.21.50 cr. due to higher operating margin. This works out to an EPS of Rs.11 on its current equity of Rs.19.60 cr. Considering its future plans and management quality, the scrip is trading relatively cheap than its peers and has the potential to appreciate 25-30% in a years time. A solid bet in the agro based food processing sector. The risk–reward ratio is in favour of bulls.

IMP Power - Rs.95.00

Establised in 1961, IMP Powers Ltd (IPL) was originally incorporated as Industrial Meters Ltd and is the flagship company of IMP-Mangalam Group. Incidentally, meters like three vectors Meter, Maximum Demand Indicator, Low Power Factor Meter etc. were introduced and developed for the first time in the country by IPL. Currently, the company manufactures the entire range of electrical measuring instruments, testing equipments, distribution & power transformers. It is well known for making quality AUTO EHV power distribution, special purpose, furnace, thyristor duty transformers and reactors. It’s a government recognized export house and an ISO 9001:2000 certified company by DNV. Its regularly exporting transformers to UK, New Zealand, Australia, Malaysia, Nigeria, Kenya, Ghana, Dubai, Sri Lanka, Jordan, Nepal, Bangladesh etc. and gets repeated orders from them. IPL transformers have won appreciation from all customers and are widely accepted by all the state electricity boards, railways, public & private sector undertakings.

It has two manufacturing facilities, one in Mumbai and another in Silvassa which can manufacture transformers from 10 KVA to 150 MVA. Its Silvassa unit is spread across 5 acres of land and has a total installed capacity of 3600 MVA per annum. Interestingly, it is the only transformer company in India to be in sales tax free zone. Computer Aided Design (CAD) programmes are used to determine various critical parameters in electrical designs and to arrive at optimized design solution much faster. IPL has a wide network of dealers comprising its agents & representatives all over the country to assist clients and render all kinds of commercial and engineering support while selecting transformers application-wise and render after sales service. In India, the company has supplied to Birlas, Tatas, KEC International, L&T, Nagarjuna Construction, BSES, DLF, Siemens, Thapar, ITC, Ispat, SAIL, NTPC, Defence, Railways etc and most of the SEBs across the country. Even transformer giants like ABB and Crompton Greaves Ltd. had placed orders for various distribution & power transformers.Post implementation of corporate debt restructuring (CDR) package, the company has turned around smartly and is now on a high growth trajectory. The transformers and electrical measuring instruments industry is likely to grow at a fast pace than the power sector as a whole.

With the implementation of the APDRP programme, the demand is likely to further move up. Besides, IPL is planning to enter into the most lucrative single phase transformer segment. Moreover, to consolidate is manufacturing capabilities, the company is planning to sell its 22,000 sq ft Kandivali land that may fetch around Rs.4 ~ 5 cr. to the company. For year ending June 2006, it may report sales of Rs.65 cr. and Net Profit of Rs.4 cr., which means an EPS of Rs.9 on its current equity of Rs.4.60 cr. But rising copper prices is a cause of concern for the company. For FY07, it may clock a turnover of Rs.90 cr. with NP of Rs.6 cr. i.e. an EPS of Rs.13. As the company is planning to raise capital, this will dilute its equity to some extent and the EPS will be little lower around Rs.10~11. Though it may not be a multibagger from the current level, investors can buy it at lower levels with a price target of Rs.150 in 15~18 months.