Vallabh Steel (Code No.: 513397) (Rs.37) is a leading manufacturer and exporter of MS ERW Galvanized Pipes, CR Sheets/ Coils, Precision Tubes/ Hollow Sections etc. It is exporting to various countries including South Africa, UAE, Europe, China, Male, Mozambique, Singapore and USA under the brand name of ‘Oswal’. As a step towards backward integration, the company has set up a sponge iron plant of 350 TPD capacity and recently started the commercial production. For the full year FY06, the company is expected to clock a turnover of around Rs.325 cr. with net profit of Rs.5 cr., which will lead to an EPS of Rs.10 on its small equity of Rs.4.95 cr. For FY07, it can report an EPS of Rs.12. The company has huge reserves of Rs.25 cr., which translates into a book value of around Rs.60. Having 52 Week H/L of Rs.66/30 it seems a good bet although the investor unfriendly attitude of the management is a cause of concern.

Due to panic selling, the share price of Aarti Drugs (Code No.: 524348) (Rs.81) touched a new low of Rs.68 a few days back. The fundamentals as well as future prospects of the company are quite promising as its Tarapur facility may get USFDA approval this fiscal. Besides, it commands a leadership position with over 70% market share for more than 15 principal products including Secnidazole, Ornidazole, Metronidazole etc. It has a strong presence in the anti-diarrhoea, anti-inflammatory therapeutic segments with products such as Tinidazole, Metronidazole, Nimesulide, Rofecoxib and is the largest producer of Benzene based basic and intermediate chemicals in India. For FY06, it registered a top-line and bottom-line of Rs.253 cr. and Rs.12.70 cr. respectively. This works out to an EPS of Rs.11 on its current equity of Rs.11.70 cr. Although the management has declared a lower dividend of 15%, the scrip has the potential to double in a year’s time.

Hind Industries Ltd. (Code No.:526307) (Rs.27) along with its group company is the largest producer and exporter of fresh and frozen meat of buffalo, goat, sheep etc. Importantly, it is the only group in the country to have unique facilities of slaughtering animals which have been bred and reared on the strict guidelines set by the O.I.E. Paris. It exports mostly to Middle East countires, Egypt, Indonesia, Malaysia, Mauritus, Phillipines Thailand, East & West Africa countries and CIS countries. Although its sales were down 14% for FY06 to Rs.84 cr., its net profit jumped 130% to Rs.4.10 cr. on the back of higher price realization and better profit margins. This works out to an EPS of Rs.5 on its equity of Rs.8.60 cr. The hidden value for this company is in its subsidiary ‘Hind Agro Industries Ltd.’, which has a top-line of around Rs.350 cr. and which may be merged later with the company and will unlock shareholder value. This scrip is still available at a market cap of only Rs.22 cr. A pure value buy!

Diamines & Chemicals Ltd. (Code No.: 500120) (Rs.70) is a leading producer of ethylenediamine and polamines such as diethylenetriamine, triethlenetetramine and other polyethylene polyamines It also manufactures Piperazine anhydrous and piperazine 65% and is the only domestic supplier of piperazine to the pharma and other industries. It has also set up Wind Mill of 1.25 MW capacity for captive power consumption which started power generation in March’06 and will reduce its power cost substantially. For FY06, while sales increased by 15% to Rs.21 cr. net profit spurted 35% to Rs.6.11 cr. registering an EPS of Rs.9 on its equity of Rs.6.50 cr. Notably, the investor- friendly management declared 50% dividend (15% + 35%) i.e. a payout ratio of around whopping 55% which is excellent by any standard. The dividend yield works out to more than 7% at CMP. Keep accumulating at every decline.

The government is putting special thrust on food & agro processing industry as this sector is the main contributor to high GDP growth. This augurs well for Agro Dutch Industries (Code No.: 519281) (Rs.26), which is the world’s largest producer and exporter of mushrooms. More than 22% of the import of mushrooms in USA is sourced from Agro Dutch Industries. It is setting up a new facility to produce 14,000 tonnes of frozen mushrooms for which the realization is better than that of canned ones. This will take its total production capacity to 50,000 tonnes. Being an integrated player, it is also putting up an additional can-manufacturing facility in Chennai at Rs.50 cr. For FY06, it can report sales of Rs.150 cr. and PAT of Rs.14 cr. i.e. EPS of Rs.5 on its expanded equity of Rs.29.50 cr. For FY07, it can even post EPS of Rs.7. A screaming buy at current levels.

Simmonds Marshall - Rs.47.00

Simmonds Marshall Ltd (SML) was incorporated on April 16,1960 as a private limited company to manufacture Nylon insert self-locking Nut (Nyloc Nuts) and other special fasteners. It was promoted by the J. N. Marshall group in technical & financial collaboration with Firth Cleveland Fastenings Ltd (now known as Forest Fastners Ltd.) of U.K who were also the original investors of Nyloc. In 1986, the company went public and is now a listed company on the Bombay Stock Exchange. Today, SML is the market leader in Nyloc nuts and manufactures a wide range world class nuts like flange, cage, weld, cap, castle, couplings, u-nuts, wheel nuts etc. It caters to the automotive and industrial sectors and supplies to almost all major automobile manufacturers in India as OE suppliers. Furthermore, General Motors, Fiat, Honda, Caterpillar, Suzuki, Leyland, Dana, New Holland are some of the globally renowned companies that source their requirements from SML.

The company has been regularly augmenting its cold forming capacity and can produce over 500 million nuts per annum in a wide range from M4 to M48 diameter and equivalent imperial sizes. These nuts are manufactured either to American, British, Japanese, ISO or Indian Standards in a variety of thread forms and protective finishes. Moreover, it is fully equipped to supply a wide range of bolts ranging from M5 to M70 from its associate companies. It also has a cold forged automotive components division which is capable of cold forging small and shallow components for automobile manufacturers and their ancillaries. Its 320 tonnes Maypress can coin, extrude, upset, size, fine stamp, bend, draw, form and manufacture components for bearings, chains, bicycles and electrical equipment industries besides the automobile industry. The company also has a battery of multi-spindle automatic bar turning centres capable of producing related automotive components.
Since India is becoming an outsourcing hub for quality auto ancillary products and all major foreign automobile manufacturers are setting up operations in India, this represents a large potential to market the company's products.

This augurs well for the company as it is estimated to register a topline of Rs.21 cr. and bottomline of Rs.1.80 cr. for FY07, posting an EPS of Rs.9 on its tiny equity of Rs.2.10 cr. Incidentally, due to the sharp correction on the bourses, the scrip is hitting new lows giving a good opportunity to buy. Investors are recommended to buy it with a price target of Rs.75 (i.e. 50% appreciation) in a year’s time.

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.