Upper Ganges Sugar - Rs.172.00

Incorporated in 1932, Upper Ganges Sugar & Industries Ltd. (UGSIL) is the flagship sugar venture of the K.K. Birla Group, which has diversified interests in key industries like fertilizers, chemicals, sugar, heavy engineering, textiles, shipping, newspaper publishing, etc. Having a rich experience of more than seven decades and facing all ups and downing the sugar industry, UGSIL is one of the oldest and best sugar mills in India. Apart from sugar, the company also generates revenue from byproducts like molasses, bagasse, industrial alcohol, ethanol etc. It has also installed a Bio Compost Plant to produce organic fertilizer which is marketed under the brand name ‘Uttam Jaivik Khad’ and a tea estate by the name of ‘Cinnatolliah Tea Garden’ spread over 746 hectares in North Lakhimpur, Assam.

After acquisition of a sugar mill from group company, New India Sugar Mills Ltd. in 2004, UGSIL currently has three sugar plants, one in UP and two in Bihar, with a total capacity of 14,500 TCD. Its main plant i.e. Seohara Sugar Mills is located in UP and has a crushing capacity of 10,000 tonnes of sugarcane per day. This plant also has distillery unit with a capacity of producing 16.50 million litres per annum of Industrial Alcohol/Ethanol. Its other two plants in Bihar are Bharat Sugar Mills with a capacity of 2500 TCD and Hasanpur Sugar Mills with 2000 TCD capacity. Due to various fiscal benefits offered by the Bihar government and the strong uptrend in the sector, company is expanding its Bharat Sugar mill capacity to 5000 TCD with a sulphur free sugar refinery and is also setting up 18 MW co-generation plant thru a capex of Rs.125 cr. In view of the increasing demand for electricity and to provide for more remunerative utilization of bagasse, UGSIL is putting up a 24 MW co-generation plant at its UP mill for export and captive use at an estimated capital outlay of about Rs.100 cr. Moreover, to meet the increasing demand for ethanol, the company has undertaken expansion of the distillery unit from the existing capacity of 55 klpd to 100 klpd at an estimated cost of Rs.36 cr. For future growth, UGSIL is also contemplating a greenfield integrated sugar complex in UP having a capacity of 7000 TCD with a co-generation power plant and refinery. Post all its expansion, the company’s total capacity will stand enhanced to about 23000 TCD.

To part-finance its expansion plan, the company recently came out with a rights issue in the ratio of 13 shares for 20 shares held at Rs.150 per share. Currently, the scrip is trading ex-right and is available at around Rs.170 per share. For FY06 ending 30th June’06, company is expected to clock a turnover of more than Rs.400 cr. and PAT of around Rs.30 cr. This will work out to an EPS of Rs.26 on its fully expanded equity of Rs.11.55 cr. and may declare 50% dividend for FY06. For FY07, it may record Sales and net profit of Rs.525 cr. and Rs.40 cr. respectively which would mean an EPS of Rs.35. Hence at a reasonable discounting of 8 times, its share price has the potential to hit Rs.280 (60% appreciation) in 12-15 months.

STOCK WATCH

Nectar Life Science (Code No.: 532649) (Rs.104.55) is among the largest manufacturers and exporters of Cephalosporins-antibiotic used to treat bacterial infections and Semi Synthetic Penicillins. In fact, it is among the few life saving API manufacturing companies with facilities to produce sterile APIs through both Lyophilization and Crystallization processes. Recently, it filed Drug Master File (DMF) for one of its Oral Cephalosporin Active Ingredient both with USFDA and EDQM which is the first step towards moving into regulated and lucrative markets like USA & EU. It is expected to file around 7-8 DMFs in the current fiscal. Couple of months back, it raised around Rs.160 cr. through the FCCB route at Rs.332 per share but currently the scrip is available below Rs.100. For FY06, it may clock turnover of Rs.290 cr. with net profit of Rs.22 cr. i.e. EPS of Rs.11 on the fully diluted equity of around Rs.20 cr. For FY07, it can post an EPS of Rs.14. Hence the scrip has the potential to double in a year’s time. Best time for long-term investors to buy this scrip.

APW President (Code No.: 590033) (Rs.107.35) manufactures and markets a wide range of enclosures and cabinets under the brand name ‘President’ for telecommunications, general electronics, networking, industrial purpose etc. Due to the robust demand the company is expanding its Bangalore facility and is also setting up a greenfield project in SEZ to cater to Telecom, Electronics and Data Com/ Kiosk business. To fund its expansion, the company is planning to raise capital through equity route, which will trigger the share price in the near future. It may end FY06 with sales of Rs.75 cr. and net profit of Rs.6.50 cr. i.e. an EPS of Rs.11 on its current equity of Rs.6.05 cr. With its 52W high at Rs.214, the scrip has the potential to give handsome returns in the medium to long-term.

Gemini Communication (Code No.: 532318) (Rs.371.05) is the first and only company in India designing and manufacturing RFid products. It makes RFid-based readers and antennas under the brand ‘Traze’ with technology assistance from Texas Instruments. Moreover, it is India’s largest Wireless Solution Provider (WSP) on the ‘Last Mile’ to corporates for intra-city communications and to ISP’s for internet connectivity. For FY06, its top-line grew by 78% to Rs.126 cr. but its net profit jumped 150% to Rs.11.75 cr. registering a EPS of Rs.27. Importantly, it is expected to grow extraordinarily in coming years and may report a top-line and bottom-line of Rs.225 cr. and Rs.25 cr. respectively for FY07. This means an EPS of Rs.52 on its diluted equity of Rs.4.88 cr. Hence scrip can easily double in a 12-15 months. Moreover, the company is going in for a stock split, which will further trigger the share price.

Belonging to the TVS group, Harita Seating Systems Ltd. (Code No.: 590043) (Rs.145) provides seating solutions in commercial vehicles, buses/coaches, agriculture tractors, construction machinery, two wheelers, three wheelers, cars, multi-utility vehicles etc. It has also developed public seating for auditoriums and theatres. To cater to the rising demand, the company is setting up a unit in Himachal Pradesh for the manufacture of seats for two wheelers, bus passenger vehicles and tractors at an estimated cost of Rs.7.5 cr. For FY06, its turnover increased by 16% to Rs.137 cr. but its net profit spurted 35% to Rs.6.20 cr. thereby reporting an EPS of Rs.16 on its small equity of Rs.3.90 cr. For FY07, it can post an EPS of Rs.21, which means the scrip is available at a forward PE of just 7 times. A solid buy.

GM Breweries (Code No.: 507488) (Rs.88.15) enjoys a virtual monopoly in country liquor in the districts of Mumbai and Thane as it is the single largest manufacturer in Maharashtra. It is working at 75% capacity utilization and has tremendous opportunity to penetrate into interior districts taking advantage of its brand image. For FY06, its sales increased by 115% to Rs.155 cr. whereas its net profit shot to Rs.13.40 cr. compared to Rs.0.73 cr. last year due to better operating efficiency. This translates into an EPS of Rs.14 on its equity of Rs.9.36 cr. But the more interesting aspect is its rising operating profit margin with every passing quarter. Assuming the same trend, it can report sales of Rs.185 cr. and net profit of Rs.20 cr. i.e. EPS of Rs.21 for FY07. Reasonable discounting it by 14 times, its share price can touch Rs.300 mark. At the current market cap of Rs.80 cr. it’s a screaming buy.

Micro Technologies - Rs.211.00

Established in 1992, Micro Technologies (India) Ltd. (MTIL) is a global provider of security, safety and life-support solutions and offers a host of software products for the security, messaging and wireless industries. In fact, it has a monopoly in the niche segment that it operates in and uses patented technology, which is difficult to replicate. It has been working on innovative hi tech software solutions for security in banking, Internet, door security, automobiles etc which have tremendous market potential both locally and internationally. For few of its products, the company has received WIPO Switzerland acceptance for its international patent application in 123 countries including the USA.

Being a product focused IT company, MTIL has developed more than 80 products and some of them enjoy a phenomenal demand. For technical assistance, the company has an agreement with global giant Siemens to collaborate on pioneering R&D efforts and identify new partners for development of wireless technologies. Some of its products like Lost Mobile Tracking System, Secure-Bank Black Box for the banking industry, Vehicle Black Box, disaster management system, home security system, access control solution, micro life line etc are doing exceptionally well and have brought a revolution in the industry. Its other inventions like ATM Black box, Intelligent Black Box, Portable Black Box etc have not been fully commercialized but hold immense potential. To fulfill the huge demand, the company is in an aggressive expansion mode to quadruple is production capacity and is on the verge of achieving critical mass. Currently, it has customers spread across South East Asia, Africa and the Middle East and distributes its products through its partners in Dubai, Kuwait, Yemen, Egypt, Japan and Indonesia. It plans to set up offices in UK and USA and increase its presence through JVs in these markets. For the domestic market, MTIL is setting up franchisee outlets under the name of ‘Micro Shoppe’ which will create product & brand awareness in the public at large. It already has 5 outlets and the company intends to take them up to 50 by December’06. It is also setting up Micro Service Centre to provide maintenance and support facilities.

MTIL has an order in hand of around Rs.400 cr. to be executed in the next 3 years and is expected to get another Rs.200 cr., which provides visibility of revenue for coming years. For FY06, its top-line increased by 120% to Rs.59 cr. whereas its PAT zoomed 140% to Rs.17 cr., thereby reporting an EPS of Rs.17 on its current equity of Rs.10 cr. For FY07, sales may cross Rs.100 cr. and net profit may be around Rs.29 cr., which means EPS of Rs.30. Although there is risk of equity dilution, still the share is available fairly cheap and has the potential to double in 12-15 months. Investors are strongly recommended to buy at current levels and hold for 3-4 years as it can turnout a multibagger.

LIC Housing Finance - Rs.156.00

Incorporated in 1989 and promoted by LIC of India, LIC Housing Finance Ltd. (LHFL), is one of the largest housing finance companies in India and only second to HDFC. The main objective of the company is providing long-term finance to individuals for purchase, construction, repair and renovation of their new or existing homes. It also provides finance on existing property for business/personal needs and gives loans to professionals for purchase or construction of clinics, nursing homes, diagnostic centres, office space etc. The company also lends to corporate bodies under different schemes for purchase/ construction of office premises for their own use, construction of staff quarters and also for onward lending to meet the requirements of employees. It also lends to builders and developers for residential and commercial projects.

LHFL possesses one of the most extensive marketing networks with 6 regional offices and 115 area offices backed by chain of camp offices nationwide, an offshore office in Dubai and registered and corporate office at Mumbai. It has a team of 875 dedicated employees apart from 5500 Direct Sales Agents and Home Loan Agents to extend its marketing reach. It has set up a representative office in Dubai to cater to NRI in Bahrain, Dubai, Kuwait, Qatar and Saudi Arabia. LHFL has so far disbursed more than Rs.25,000 cr. and has over 8,00,000 prudent house owners who have benefited by its financial assistance. Interestingly, LHFL has launched a fully-owned subsidiary by the name of ‘LICHFL Care Homes Ltd.’ for the purpose to set up and run Assisted Living Community Centres / Care Homes for senior citizens within the country. It has started its first care homes project at Bangalore in an eco-friendly self-contained retirement village situated in a suburb of Bangalore and which fetched good response from the market.

Notably, 85% of its loan portfolio comprises floating rate loans. Hence rising interest rate will have a positive impact on its spread and on its bottom-line. Although its net NPA is high at 2.80% but it is under control and will decline gradually going forward. With various fiscal benefits, aggressive infrastructure development and rising standards of living in urban as well as semi-urban areas, the future prospects of LHFL is very promising. For FY06, its total revenue grew by 21% to Rs.1,269 cr. but the bottom-line jumped by 45% to Rs.209 cr. due to better operating efficiency and lower tax provisioning. This works out to an EPS of Rs.25 on an equity base of Rs.85 cr. It declared 60% dividend compared to 50% last year which means a dividend yield of more than 4% on CMP. For FY07, it can post an EPS of Rs.28. Hence scrip is trading at a forward PE of just 5 times. This shows there is vast gap in valuation of HDFC and LHFL, which should narrow down going forward. Investors are strongly recommended to buy LHFL with a price target of Rs.230 (50% appreciation) in 6-9 months.

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.