Control Print - Rs.84.00

Established in 1991, Control Print (India) Ltd (CPIL) is the undisputed market leader in the coding and marking machinery with a market share of around 40%. It has a product range of contact coders, superior touch coders, specialized metal marking systems, sophisticated ink jet coders and also advanced laser coders which can be used to print on any type of material like plastic, glass bottle, paper, wood, steel etc. It specializes in providing solutions for printing variable information like batch number, date of manufacture, expiry date, maximum retail price (MRP), Serial number, special markings, logos, company/brand name, barcode etc. Besides, one-third revenue comes from its lucrative consumable sales of ink refills, ink rollers, spare parts and income from annual maintenance contract (AMC). Importantly, CPIL has a sole marketing agreement with the world leader ‘Videojet’ for its coding and marking machinery in India.

Having been in the industry for a long time and given its experience in servicing machines, CPIL is setting up a facility in Himachal Pradesh to manufacture ‘Conprint HRC’ a coder based on ‘Hot Melt Ink’ technology and its consumables like Hot Ink Rolls etc. It also plans to manufacture low cost Contact Coders- 'Conprint CC' and its consumables and other accessories. The plant will also have several backward area benefits including sales tax, excise, and income tax benefits. The plant is expected to go on stream shortly. Besides, it is introducing new high-end products like Thermal Transfer Printers, Thermal Coders and Digital Printers. Additionally, the company is in talks with pharma companies to sell them digital printing systems of CSAT Digital Industrial Printing GmBH (Germany) for on-line printing of foil for blister packs valued at around Rs.80 lakh. The machine has the capability to print invisible marks, which can be seen only using ultraviolet light. The company plans to assemble these printers later in India.

The Indian retail segment is moving rapidly from the unorganized to the organized segment and is accompanied by an increase in branding. This has led to a tremendous rise in the demand for coding and marking printers. And with the rise in installed printers base, its revenue from consumables is also mounting and operates at 30~40% profit margin For FY06, CPIL is estimated to register sales of Rs.40 cr. and NP of Rs.6.50 cr. which can shoot up to Rs.55 cr. and Rs.9 cr. respectively for FY07. This translates into EPS of Rs.9 and Rs.13 for FY06 and FY07 respectively. Being the only listed company in this growing sector, the company is bound to witness huge buying and demand hefty premium in the near future. Investors are strongly recommended to buy at CMP with a price target of Rs.180 in 12~15 months.

STOCK WATCH

Due to the panic selling, some good companies have also hit new lows. REI Agro (Code No: 532106) (Rs.110) is one such company. The company which raised capital through FCCB and GDR issue at 160/180 per share is today trading at around Rs.100 only. It has already declared Rs.2 dividend till now and is further expected to declare 10% for FY06. It may end FY06 with net sales of around Rs.1000 cr. and net profit of Rs.70 cr. despite making huge deferred tax provision of more than Rs.20 cr. The EPS would work out to Rs.16 on its current equity of Rs.42.70 cr. Moreover, the company has announced a split the face value of its share to Rs.2 each which will trigger a share price rise in the near future. With its 52-week high as Rs.220 and FII holding at 24%, it’s a great buy at current levels with a negligible downside risk.

Currently, the metal sector is under tremendous selling pressure providing a good opportunity to accumulate scrips like Modern Steels (Code No: 513303) (Rs.73) at rock bottom prices. Due to the sharp fall in steel prices in FY06, the company has reported lower sales and net profit than compared to FY05. Sales were down 10% to Rs.242 cr. and net profit declined by 30% to Rs.11.50 cr. Still, this works out to an EPS of Rs.24 on its very small equity of 4.79 cr. In spite of lower profits and aggressive expansion, the company maintained the dividend at 20% for FY06. It has huge reserves of around Rs.30 cr., which translates into book value of around Rs.70. On a conservative basis, the company is expected to clock a turnover of Rs.300 cr. with a net profit of Rs.14 cr. i.e. EPS of Rs.29 for FY07 and may declare Rs.3 as dividend. This scrip is available at a P/E multiple of less than 3 times and a dividend yield of more than 4%. A value buy.

In commodities, the sugar sector is as well as written off leading to a tumble down by many sugar scrips to mouth-watering levels! DCM Shriram Industries (Code No: 523369 ) (Rs.117) is one such stock. It has one of the most modern sugar factories at Daurala in U.P apart from a huge alcohol plant of 45,000 kilo litres capacity. The company has recently increased its cane crushing capacity to 10,000 TCD from 8000 TCD and is further set to increase it to 12000 TCD along with the modernisation of the sugar plant and power house. For FY06, it may register sales of Rs.725 cr. and net profit of Rs.34 cr., which leads to an EPS of Rs.22 on its equity of Rs.15.30 cr. This may shoot upto Rs.900 cr. of sales and Rs.45 cr. of net profit i.e. EPS of Rs.29 for FY07. Hence the scrip is currently discounted at less than 4 times its forward earning. Belonging to the well known DCM group, the company is trading fairly cheap at a market cap of Rs.165 cr. only!

Couple of days back South India Paper Mills (Code No: 516108) (Rs.58) came out with a decent set of numbers. Sales and net profit registered 15% growth to Rs.25.50 cr. and Rs.1.30 cr. respectively for the March’06 quarter On a full year basis, sales grew by 5% to Rs.95 cr. but net profit jumped 62% to Rs.7 cr. leading to an EPS of Rs.9 on its equity of Rs.7.50 cr. It declared 25% dividend which gives a yield of 5% on CMP. For FY07, it is estimated to clock an EPS of Rs.11-12 and may declare Rs.3 dividend. As paper prices expected to remain firm and raw material costs under control, the future prospects of this industry are quite stable. Being an investor friendly management, the scrip has the potential to rise 50% in 6~9 months.

While most engineering scrips are trading at exhorbitant valuations, ITL Industries (Code No: 522183) (Rs.35) is available at a throwaway price. Although it is a very small company, it is still the pioneer 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 ended FY06 with sales of Rs.21 cr. and net profit Rs.1.35 cr. posting an EPS of Rs.4 on its small equity of Rs.3.25 cr. Considering its strong order book position, the company is estimated to clock a turnover of Rs.28 cr. and net profit of Rs.1.80 cr. i.e. an EPS of Rs.6 for FY07. With a dividend expectation of around 15% for FY06, this is another company with a good dividend yield of around 5%. A good bet for the medium to long- term.

Gemini Communication - Rs.435.00

Incorporated in 1995, Gemini Communication Ltd (GCL) took over a partnership company called Gemini Hi-tech with an objective to provide IT solutions in the then emerging market. Today, this Chennai based company is a major player in networking, systems integration and radio frequency identification (RFid) solutions. In fact, GCL is the first and only company in India engaged in the design and manufacture of RFid products. It makes RFid-based readers and antennas under the brand Traze with technology assistance from Texas Instruments. It has developed a range of off-the-shelf RFid solutions for various applications. Ironically, it is India’s largest Wireless Solution Provider (WSP) on the ‘Last Mile’ to corporates for Intra-City communication and to ISP’s for Internet connectivity. Moreover, it is the only company that can stimulate networks through its software OPNET (Optimum Network Performance) before deployment to evaluate scientifically the bottlenecks that could arise or the future proofing it against growth in traffic in future. In short, its also a Network Evaluation company.

Presently, it operates through its 14 offices across the country catering to more than 1000 customers including reputed corporates like MTNL, VSNL, TVS, Elgi, L&T, Alstom, Ashok Leyland, BPCL, Western Railway, Indian Airlines, SBI, UTI Bank, PNB, BOB, HCL etc. GCL primarily has 5 functional divisions: LAN / WAN Division, Computer Telephony Integration (CTI), NetworkCARE Services, NetworkCARE Products, Wireless & Telecom. This biggest growth driver for the company will be its RFid system as it has a huge potential. GCL has formed a 30-member team to develop and design Traze products, including metal-resistant laptop tags, package tags to withstand over 1,200 degree Celsius, smart table antennas for retail application and library management solutions. It is setting up a RFid manufacturing unit at Baddi in Himachal Pradesh at an investment of around Rs.20-22 cr. and may start the manufacture of RFid tags later in this calendar year. It is also expected to launch in international marketing exercise for its recently launched WiMax products to tap the high growth WiMax sector.

For FY06, GCL sales increased by 80% to Rs.126 cr. but its NP was up by 150% to Rs.11.75 cr. posting an EPS of Rs.27 on its tiny equity of Rs.4.38 cr. Being in such a fast growing sector, it is estimated to end FY07 with topline of Rs.225 cr. and bottomline of Rs.25 cr. This works out to an EPS of Rs.57. And with reasonable discounting of 18 times, the scrip has the potential to cross Rs.1000 mark in the medium-to-long-term. Moreover, its management has decided to split the face value of the share to Rs.5 from Rs.10 currently. This will trigger the share price to hit new highs. Investors are strongly recommended to buy it at current levels and hold for at least 2 years to get handsome returns.

Allahabad Bank - Rs.82.00

Incorporated in 1865, Allahabad Bank (AB) is the oldest public sector bank in India with 1999 branches of which 964 are in rural, 350 in semi-urban, 407 in urban and 278 in metropolitan areas apart from 149 extension counters spread all over India. AB has full managerial autonomy as it fulfills all the criteria of a strong public sector bank as defined by the Ministry of Finance. Interestingly, with its headquarter in Kolkata, AB was the first nationalized bank in Eastern India to launch depository participant (DP) services with its own server attached to NSDL. Presently, 95% of its business is computerised and within the next two months all its branches will be computerised. It has 192 ATMs installed through VISA and National Financial Switch (NFS) connectivity with accessibility from more than 6000 points. It has already introduced 8am to 8pm banking in selected branches and has issued more than 1 lakh VISA international debit-cum-ATM cards. It also boasts of implementing Online Tax Accounting System (OLTAS) in all 168 designated branches.

Apart from various banking and treasury operations, AB offers various types of housing loans, car finance, gold deposits, educational loans and personal loans. It is a member of real time gross settlement (RTGS) with 97 branches offering this facility of instant remittance to both corporate and individual customers. It has tied-up with Wall Street Finance, the primary agent of Western Union Money Transfer, for inward remittances from various foreign countries. To improve its fee-based income, the bank has tied up with NIC and LIC to sell their insurance products and UTI / Principal-PNB mutual funds to sell their mutual fund products through its branches. AB is aggressively turning techno- savy and 900 branches will come under core banking solution. along with 250 more ATMs, 50 Cash Dispensers and 50 touch screen kiosks in the near future. Soon it will also be floating a Joint Venture Insurance Company with M/s Sampo of Japan as it has obtained the approval from RBI. It is also planning to open round-the-clock call centres for customer care. AB is slated to go international in early 2006-07 with a branch at Hong Kong, and a representative office at Shenzhen, China. Meanwhile, the bank will shortly open a branch in co-ordination with Punjab National Bank (PNB) in Kazakhstan. AB is rejuvenating & revamping the operations of its subsidiary AllBank Finance, which is engaged in investment banking, insurance broking, stock broking, wealth management, portfolio advisory, underwriting etc.

AB has no plans of becoming a target for takeovers. In fact, it is looking to acquire smaller banks in South India. It is an efficient and well-managed bank having gross NPA of 3.94% and net NPA of 0.84%, which very few banks can boast of. Due to its FPO last year at Rs.82, the banks capital adequacy ratio is quite healthy at 13.37%. For FY06, its total income grew by 15% to Rs.4374 cr. but its Net Profit jumped 30% to Rs.706 cr. registering an EPS of Rs.16 on equity of Rs.446.70 cr. It declared Rs.4 dividend, which means 25% payout ratio. Currently, its trading-cum-dividend with a yield of nearly 5%, which is good by any standard. For FY07, its estimated revenue may be Rs.5250 cr. and PAT of Rs.800 cr. i.e. EPS of Rs.18. Investors are recommended to buy it at current levels with a price target of Rs.120 in 6~9 months.

STOCK WATCH

Canfin Homes (Code No: 511196) (Rs.55) has come out with excellent results. For March’06 quarter, wherein its revenue increased by 25% to Rs.44 cr. but its PAT jumped 55% to Rs.11 cr. thereby reporting a quarterly EPS of more than Rs.5. On a yearly basis, its total revenue was up 15% to Rs.148 cr. and its net profit grew by 30% to Rs.27 cr. This translates into a full year EPS of Rs.13 on its equity of Rs.20.50 cr. It declared 25% dividend for which ex-dividend date is 31st May and dividend yield works out to around 4.50%. Since HDFC & UTI have already exited from this company and no further selling is expected from Canara Bank. It is a safe bet in such a dicy market. With a book value of around Rs.80, this scrip is bound to rise 50% from its current levels.

Almost all jewellery scrips sector like Godiam, Classic Diamonds, Vaibhav Gems, Rajesh Exports etc. are trading at rich valuations except Su-raj Diamonds (Code No: 507892) (Rs.58). Its a financially sound and professionally managed company having uninterrupted dividend payment track record. For March’06 quarter, both its sales as well as net profit recorded 45% rise to Rs.385 cr. and Rs.12 cr. respectively, which means an EPS of Rs.3 for the quarter. For full FY06, its turnover grew by 19% to Rs.1220 cr. and profit rose 22% to Rs.37 cr. i.e. an EPS of Rs.9 on its equity of Rs.40 cr. It declared 15% dividend and is available cum dividend. The company has huge reserve of Rs.475 cr., which leads to a book value of around Rs.130. Although the sundry debtors figure is quite high still it’s a value buy and can give handsome returns in the medium term.

Suryavanshi Spinning Mills (Code No: 514140) (Rs.78) is one of the most modern hi-tech spinning mills of South India with an installed capacity of more than 1,00,000 spindles. It is also engaged in knitting, yarn dyeing, fabric dyeing, processing as well as manufacturing of fashionable garments. The company has made a smart turnaround in the last two quarters and has posted stunning results for March’06 quarter while sales spurted by 70% to Rs.96 cr. PAT more than tripled to Rs.3.80 cr. On a full year basis, it recorded a revenue of Rs.231 cr. and profit of Rs.7.84 cr. With sales estimated to touch Rs.350 cr. in FY07, it may report a net profit of Rs.11 cr. which would lead to an EPS of Rs.15 on its diluted equity of Rs.7.15 cr. Couple of months back, it raised money to repay its high-cost debt by making preferential allotment of around Rs.15 lakh shares at Rs.87. Besides, the management is also planning to merge Suryavanshi Textiles its other group company engaged in garment manufacturing with itself.

Nile Ltd (Code No: 530129) (Rs.91) a relatively small company engaged in the business of glass line equipment, lead and wind mill has declared excellent results for the March’06 quarter. Due to higher sales and better operating efficiency, its topline rose by 45% to Rs.19 cr., its bottomline increased substantially to Rs.1.20 cr. compared to Rs.9 lakh last year. For the full FY06, it recorded sales of Rs.57 cr. and net profit of Rs.2.60 and an EPS of Rs.9 on very small equity of Rs.3 cr. and declared 30% dividend also. Considering its March’06 results, the company is estimated to register a topline of Rs.75 cr. and bottomline of Rs.3.50 cr. i.e. an EPS of Rs.12 for FY07. With 52-week high at Rs.140, the share price has the potential to appreciate 50% in 6 months or so. A great buy!

Of-late, the share price of Micro Technologies (Code No:532494 ) (Rs.300) is rising on the back of huge buying by reputed FIIs and mutual funds like HSBC, HDFC, BSMA etc. Fundamentally also, the scrip is quite undervalued as the company is at an inflexion point and will report bumper results for FY07. For March’06 quarter it reported excellent results, whereas for the full year its total revenue more than doubled to Rs.59 cr. and net profit increased by 150% to Rs.17 cr. Due to better product mix, the company’s OPM has improved substantially and stood at 51% for the March’06 quarter Assuming the same track record for FY07, it can report a turnover of Rs.100 cr. and net profit of Rs.29 cr., which means an EPS of Rs.30 on current equity of Rs.9.70 cr. Hence, the share price has the potential to cross Rs.500 Rs.9-12 months. A solid bet for investors who like to play defensive.