STOCK WATCH

The government has put special thrust on infrastructure development and construction work is in full swing throughout India. Hence demand for cement will continue to be strong and with no fresh capacities coming up in the near future, cement prices are also to remain robust. Hence, Mangalam Cement (CodeNo.:502157) (Rs.147.60) has made a strong turnaround and reported mind-boggling numbers for March’06 quarter. Its sales increased by 35% to Rs.110 cr. whereas its profit almost tripled to Rs.22.75 cr. on the back of a smart rise in OPM. In the last four quarters, its OPM has improved from 11% to 21%. For the full year ending September’06, it may report sales of Rs.375 cr. with net profit of Rs.40 cr. on a conservative basis. This means an EPS of Rs.14 on its equity of Rs.28.25 cr. For FY07, it can report an EPS of Rs.18. So at a reasonable discounting of 14-18 times, its share can trade in the range of Rs.250-320 in the coming 12 months.

Due to the depreciating rupee, the Indian IT sector will be the major beneficiary as it is a major exporter. Surprisingly, Rolta India (CodeNo.:500366) (Rs.149.20), which recently raised around Rs.470 cr. through a GDR issue at Rs.250 per share is currently trading at Rs.120. It declared very encouraging numbers for March’06 quarter and for the full year FY’06 is expected to report a top-line of Rs.450 cr. and bottom-line of Rs.135 cr. This will still lead to an EPS of Rs.16 on its fully diluted equity post GDR issue. And for FY07, it can register a net profit of Rs.165 cr. i.e. EPS of Rs.20. Fundamentally speaking, the share price can shoot back to Rs.240 in 9-12 months. A good bet in the IT sector.

In the recent carnage, good FERA companies were also beaten down mercilessly. Fulford India (CodeNo.:506803) (Rs.507.50), an associate company of Schering-Plough Corp. (USA), has come down to Rs.500 from Rs.700 level in a matter of few days. It is primarily engaged in the discovery, development, manufacturing and marketing of pharmaceutical and health care products worldwide. It markets innovative and science based products in different segments like - Sys-Anti invectives, Dermatologicals, Suncare, Antihistamines, Oral Steroids, Cardiovascular and Oncology and biotech. For FY05 ending 31st December, it registered sales of Rs.148 cr. and net profit of Rs.15 cr. i.e. EPS of Rs.47 on a small equity of Rs.3.20 cr. For FY06, it can post an EPS of Rs.56, which means this FERA company is trading at single digit PE against its forward earning. A great opportunity to buy.

After hitting a recent high of Rs.377, Lakshmi Electricals Controls (Code No.:504258) (Rs.191) is constantly hitting lower circuits since the last few days and has almost shed 50% in few days. It manufactures contactors, thermal overload relays, electrical control panels and industrial plastic components. For FY06, it recorded sales of Rs.50 cr. with net profit of Rs.5.30 cr., registering a growth of 25%. It reported an EPS of Rs.22 and declared Rs.5 as dividend. For FY07, it can declare an EPS of Rs.25, but the hidden value is its 100% profit making subsidiary ‘Harshini Textile’. On a consolidated basis, its EPS can work out to as high as Rs.35 due to its very tiny equity of Rs.2.50 cr. Hence it’s trading cheap and can shoot back to Rs.280 very fast.

Vishal Exports (Code No.:532618) (Rs.5.10), a four star export house is in the business of Import-Export of agro products, precious metals, garments and textile products, vitamins, marine and engineering items since the last two decades. For future growth, it has forayed into the renewable energy sector and has set up 30.45 MW wind farms in Tamil Nadu and Rajasthan. It is further setting up 100 MW wind farm in two phases to emerge among the largest wind farm operators in India. Meanwhile, it has chalked out plans to enter real estate development and has already participated in the tender for development of 65,000 sq. mtr of prime property in Surat. For FY06, its turnover was up 45% to Rs.3876 cr. and its net grew by 43% to Rs.37 cr. despite providing Rs.12 cr. as deferred tax. This translates into EPS of Re.1 on its equity of Rs.36 cr. and face value of Re.1 per share. It may declare 15% dividend. Scrip may rise 50% in 6-9 months.

Suryavanshi Spinning Mills - Rs.62.00

Established in 1978, Suryavanshi Spinning Mills Ltd (SSML) was promoted by Sri B.N. Agarwal & Sri L.N. Agrawal and is the flagship company of the Suryavanshi group. From a modest beginning with 1728 spindles capacity, the group has emerged as a large textile player with expertise in spinning, yarn dyeing, weaving, fabric dyeing, fabric processing, knitting & garment manufacturing. The company is fully integrated right from manufacturing of yarn to making fashionable readymade garments. Its also a leading exporter to USA, Europe, Japan, China, Korea, Vietnam, Hongkong, Bangladesh, Italy, Egypt, etc.

SSML has three units at Bhongir & Aliabad in AP and Rajna in MP that have an aggregate capacity of more than 1,00,000 spindles and a production capacity of 45 tonnes per day. Owing to continuous modernization and upgradation of its plants, the company can boast of technical superiority. It has latest installations from Blow Room to Autoconers from leading machinery suppliers like Trutzschler of Germany, Rieter of Switzerland and Lakshmi Machine Works from India. Apart from these, other installations such as Yarn Cleaners, Yarn Conditioning equipments have been procured from leading suppliers in the world and a state-of-art machinery set-up is provided in its units. Although the major portion of the revenue is from yarns, the company is gradually expanding its garment manufacturing capacity. It has set up garment factories at Shamirpet and at Bhongir with a total production capacity of 15,000 garments per day. Besides this, there are plans to merge one of its garment company, Suryavanshi Textiles, with itself which will further integrate operations and lead to economies of scale. Moreover due to increased demand, the company has a capex plan of Rs.47 cr. to put up an additional spinning unit in AP with a capacity of 35,000 spindles.

SSML is a strong turnaround case reporting a net profit of Rs.8 cr. in FY06 compared to a net loss of Rs.2 cr. in FY04. Due to better operating efficiency and debt restructuring, the company has already made a smart turnaround and is expected to perform much better in coming years. It has recently raised around Rs.13 cr. by a preferential allotment of 15 lakh shares at Rs.87 per share. For FY06, its top-line grew by 25% to Rs.231 cr. whereas its net profit zoomed 300% to Rs.7.80 cr. thereby reporting an EPS of Rs.11 on its diluted equity of Rs.7.15 cr. For FY07, SSML may clock sales of Rs.325 cr. and net profit of Rs.11 cr. i.e. an EPS of Rs.15. Investors are advised to accumulate at declines with a price target of Rs.120 (100% return) in 15-18 months.

Ador Fontech - Rs.110.00

Ador Fontech Ltd. (AFL), an associate company of Ador Welding and belonging to the well- known Ador Group (formerly Advani-Oerlikon Ltd.) was incorporated in August 1974 as Cosmics Fontech and subsequently changed its name to Ador Fontech. In 1992, it acquired Fist India (P) Ltd. and Kostech India Pvt. Ltd., which were later merged with the company as a division. Today, AFL is a leading organisation dedicated to reclamation, welding and thermal coating solutions. It focuses on maintenance welding, which is a niche segment requiring specialised skills and offers products and solutions for reclamation welding and recycling of vital machinery components. The company’s product portfolio consists of low heat input welding alloys, solid and flux-cored wires, welding and cutting equipment, fume extraction products, in-situ machining systems, thermal spray products, wear plates, cladded pipes and hands-on rebuilding and reclamation services. In addition to the in-house manufacturing programme, AFL exclusively represents internationally well-known brand names like Gasflux of USA, Alloy Steel International of Australia, Deloro Stellite of Canada, Cepro of Holland, Sulzer Metco of USA, Euromate of Holland, CEA of Italy etc for their products in India.

AFL supplies products and services to almost all core sectors and several engineering industries. The focus of its activities is to provide metal joining, reclamation welding and surfacing solutions. Its customer base spans across all industries which include mining, steel, power plants, railways, road transport, workshops, shipping, sugar mills, cement plants, fertilizer and chemical plants, oil drilling, refining, defence and other engineering industries. Almost all its customers have optimistic growth plans today. Higher productivity in welding processes such as semi-automatic and automatic welding systems are increasingly in demand, which augurs well for the company. The other opportunities are in the field of high productivity welding and cutting systems, welding fume extraction systems, specialised surfacing and hard-facing alloys and deposition equipment.

Recently, it came out with splendid March’06 Quarter results with sales rising 30% to Rs.22 cr. whereas its net profit doubled to Rs.2.07 cr. posting an EPS of nearly Rs.6 for the quarter. Its full year figures are also quite encouraging with total revenue registering a gain of 26% to Rs.69 cr. and net profit grew 135% to Rs.4.45 cr. i.e. EPS of Rs.13 on its tiny equity of Rs.3.50 cr. AFL has a very good track record of liberal dividends and this year was no exception. Management has announced 40% dividend for FY06, which means a payout ratio of around 30%. The scrip is trading cum dividend giving a current yield of nearly 4%. For FY07, it may clock a turnover of Rs.90 cr. and net profit of Rs.6 cr., which translates into an EPS of Rs.17. At a reasonable discounting of 12 times, the scrip has the potential to cross Rs.200 mark in 9-12 months. A strong buy.

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.