Wanbury Ltd - Rs.72.00

Wanbury Ltd was formed with the merger of Pearl Organics and Wander Ltd. in October’03. Pearl Organics is an API manufacturer focused on the regulated US/ European markets whereas Wander is an ethical formulations company focused on branded formulations in the domestic market. The key bulk drugs manufactured by the company are Gabapentin, Metformin, Ibuprofen, Glucosamine, Salsalate, Mefenamic acid etc. Wanbury is the world’s largest producer of Metformin - a diabetes management product with exports to more than 50 countries. Most of the leading global generic players in regulated markets like Apotex, Mylan, Torr, Barr, Teva, Dexxon, Pliva etc source their product from Wanbury and around 65% of its exports are to regulated markets. In the formulations business, company’s product profile comprises of Gynaecology, Orthopaedic Pediatrics, Nurtrition etc. This division boasts of 450 professionals, 18 brands, 24 distributors and about 1200 stockists across the country.

Wanbury has three manufacturing facilities spread across Patalganga & Tarapur in Maharashtra and Tanuku in Andhra Pradesh. Of these, its Patalganga and Tanuku facilities are USFDA approved for multi-products. It has also set up two hi-tech R&D centres: one in Turbhe, Navi Mumbai, for API and another at Chembur, Mumbai, for formulations. Notably, the company already has 4 Drug Master Files (DMFs) in the US and 2 in Europe, whereas lately it has filed for 4 more DMFs with USFDA in the field of Cardiovasculars, Central Nervous System, Anti-Inflammatory Segment. In the coming few months, it is expected to file 10-15 DMFs further. On the formulation front, Wanbury launched 'Coriminic' range of cough and cold formulations for Pediatric use, which has been well-received in the market. Under the expansion plan, the company has just completed its first phase and commissioned a new unit at Tanuku to manufacture three high value products: Sertraline, Paroxetine and Carvedilol, which have a strong market. The second phase of expansion would be completed by August’06 in which 4-6 new products would be added to the existing product portfolio.

Wanbury continues to grow organically as well as inorganically and has acquired Pharmaceutical Products India Ltd., an API manufacturer. It has a facility at Tarapur and another large partly finished facility at Patalganga, which is meant for regulated markets and will be USFDA compliant. Besides, Wanbury has also taken 51% stake in Doctors Organic Chemical Ltd. (DOCL) - another API making company that will enable Wanbury to foray into contract manufacturing for the regulated markets. DOCL has a USFDA approved facility for the manufacture of non-sterile APIs where it manufactures ibuprofen, mefenamic acid, glucosamine and gabapentene and is a contract manufacturer for leading global pharma companies like Pfizer to which it supplies gabapentene intermediate and mefenamic acid. Further, Wanbury is close to acquiring a branded generics company in the UK, which will be its first overseas acquisition and will strengthen its international presence. With all these expansions and acquisitions, Wanbury is estimated to grow phenomenally in coming years and may report Sales of Rs.150 cr. and net profit of Rs.16 cr. for FY07. This translates into EPS of Rs.13 on its equity of Rs.12.75 cr. Hence investors are strongly recommended to buy at current levels to double their money in 12-15 months. With 52W high at Rs.200, it’s a safe bet.

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.