Aarvee Denim - Rs.51.00

Aarvee Denims & Exports Ltd. (Aarvee) was incorporated in March 1988 as Amtex India, a private limited company and was subsequently converted into a Public Limited company in April 1992. Today, Aarvee is the second largest manufacturer of denim fabric in India after Arvind Mills. It manufactures over 70-80 varieties of denim fabric with different textures and style and markets them under the brand name ‘Amtex’. Although operating predominantly in the domestic market, it also exports to Africa, USA, Panama, Honduras, Chile, Turkey, Venezuela, Mexico, Morocco, France, US and Bangladesh. Besides spinning and weaving Aarvee is also into garmenting and manufactures cotton and denim garments like jeans, trousers, jackets, shirts, skirts etc for men, women and kids.

Presently, Aarvee can produce 47 million metres (MM) of denim fabric including outsourced weaving job work at its Narol plant. Simultaneously, its’ spinning and stitching capacities stand at 18500 metric tonnes per annum (MTPA) and 6 lakh pieces of readymade garments per annum. The company has a captive power plant and has installed two windmills and coal based thermal power plant of 2.5 MW capacity, which reduces its power cost substantially. To achieve a larger global market share the company is implementing a massive Rs.100 cr. expansion plan whereby it will expand its weaving capacity by 25 MM to touch 72 MM and the spinning capacity by 13000 to take the total to 30000 MTPA. It also intends to augment its garment production capacity to 15 lakh pieces. As a strategic move, the company is diversifying in a big way into the lucrative market of Home Textiles & Made-ups. It is now planning a processing facility of 20 MM and a weaving capacity 3 MM totally dedicated for manufacturing of bed linens, pillow covers, cushions and tablecloth among others. Recently, Aarvee has launched its ‘Aden’ garment brand in the domestic market in Ahmedabad, Delhi and Mumbai and will expand to the rest of India gradually.

To fund its expansion, the company raised nearly Rs.40 cr. through preferential allotment of 45 lakh shares at Rs.86 per share to M/s DEG - Deutsche Inventions - a German Development Financial Institution and to promoters. For FY06, its turnover increased by 20% to Rs.277 cr. whereas its net profit grew by 30% to Rs.34 cr. This works out to an EPS of Rs.15 on its current equity of Rs.22.50 cr. Although denim prices have come down in recently putting some pressure on margins we expect it to end FY07 with top-line of Rs.325 cr. and bottom-line of Rs.38 cr. i.e. EPS of Rs.16 on diluted equity of Rs.23.50 cr. considering company expansion plan and foray into home textile. At a reasonable P/E of 6, the scrip should trade near about Rs.100. Investors are strongly recommended to buy Aarvee at current levels as the scrip can easily double in 15-18 months.

STOCK WATCH

After hitting a recent high of Rs.1060, Easun Reyrolle (NSE listed) (Rs.476.65) has corrected sharply by more than 50% in the recent carnage as the company’s board opposed Siemens open offer bid for acquiring 20% stake. Siemens already has a 23% stake in the company and it is its direct competitor. Whether or not it takes over Easun Reyrolle, the fundamentals of Easun are improving making it a value buy at the current level. The company is a leader in the field of electrical power management and provides products and services for the protection, control, metering and automation of power. For FY06, its sales doubled to Rs.106 cr. whereas it net profit jumped 270% to Rs.13 cr. thereby exposing an EPS of Rs.39 on a very tiny equity of Rs.3.33 cr. For FY07, it may post an EPS of Rs.50. Moreover, the scrip is ripe for stock-split or bonus. Buy at declines as the scrip is in a downward trend.

Few days back, GNFC (Code: 500670) (Rs.84) came out with quite encouraging numbers while its total revenue grew by 40% to Rs.431 cr., its net profit increased nearly 80% to Rs.47 cr. compare to Rs.26 cr. (excluding extraordinary item of Rs.35 cr.) in the last quarter although there was some pressure on operating margin. But in absolute terms it was compensated by the rise in sales volumes. It has declared Rs.4.25 as dividend for FY06 and the scrip is still trading cum dividend giving a handsome yield of more than 5% at the current price level. Besides, the merger with Narmada chematur has been finalized, which will further consolidate and integrate its operations leading to better efficiency. For FY07, it is estimated to clock a consolidated turnover of Rs.2750 cr. and net profit of 350 cr. i.e. an EPS of Rs.22 on its expanded equity of around Rs.156 cr. It’s a strong buy.

Another scrip which has crashed mercilessly is Kalindee Rail Nirman Ltd. (Code: 522259) (Rs.77.05). From a high of Rs.223. the scrip is constantly hitting new lows and is currently trading around Rs.77. The company is a niche player and forerunner in the execution of major Railway Signalling & Telecommunications projects in India. After the successful execution of the high value and prestigious Delhi Metro contract, its order book is constantly bulging. It has bagged several high value contracts from Rail Vikas Nigam Ltd. for Gauge Conversion, for installation of signalling, for supply and installation of track and Yard lighting works etc to be completed in the next two years. Besides, Kalindee has further diversified into Ballasted and Ballast-less Railway Track, Access Control Systems for Metro Rail, Roads, Buildings and Bridges. To consolidate its position further, it is merging its group company Kalindee India Projects and Engineering Services Ltd with itself. The future of the company seems quite promising though huge equity dilution in the near future is a cause of concern.

Godawari Power (Code: 532734) (Rs.65.50) is part of the Rs.550 cr. Hira Group and declared its March result post listing for the first time. Sales have more than doubled to Rs.86 cr. whereas net profit increased by 70% to Rs.10 cr. It even declared 10% dividend. The company is basically engaged in the production of sponge iron, steel billets, steel wires, steel rods/ pipes and captive power generation. Incidentally, in January’06 it completed its first phase of expansion thereby increasing its capacity of Sponge Iron from 105000 MT to 235000 MT, Captive Power Generation from 18MW to 28MW, Steel billets from 150000 MT to 250000 MT and new capacities for the manufacturing of ferro alloys (16500 MT) and steel wires (60000 MT) per annum. Besides, the company’s first 7MW CDM power project from waste heat recovery has been registered with the CDM Executive Board and hence will get carbon credits for the same. For FY07, it may clock a turnover of Rs.325 cr. with net profit of Rs.35 cr. i.e. EPS of Rs.14 on its expanded equity of Rs.24.80 cr.

RTS Power (Code: 531215) (Rs.67.05) is one of the leading manufacturers of power and distribution transformers and supplies to most of the State electricity boards, government and semi government organization and to a few private players. Due to the government’s aggressive plans of ‘power for all’ by 2012 and modernization of existing equipment, the company’s products are in huge demand leading to a healthy order book for the company. For FY06, while sales increased by 65% to Rs.89 cr., net profit zoomed 350% to Rs.3.71 cr. For FY07, this may shoot up to Rs.120 cr. and Rs.5 cr. respectively. This will lead to an EPS of Rs.10 on its equity of Rs.5.20 cr. Earlier, there were also rumours of Siemens taking some interest in this company. As the scrip is in a downtrend, it can correct further to Rs.55 level where it can be accumulated for handsome gains over a long period of time.

Ambika Cotton Mills - Rs.162.50

Ambika Cotton Mills Ltd. (ACML) was established in 1988 to produce high quality cotton yarn, both carded and combed, for knitting and weaving. Since then it has become a leading yarn manufacture of South India with a capacity of 56,000 spindles. Today, apart from manufacturing high quality, contamination free cotton yarn, ACML has diversified into manufacturing Compact Spinning Yarn, a premium yarn made out of specialty cottons like PIMA (Cotton sourced from USA), GIZA (Cotton sourced from Egypt) and Australian Cotton, which go into the making of premium branded shirts and T-shirts. As one of its unit is an 100% EOU, exports account for nearly 50% of its turnover with exports to Taiwan, China, Hong Kong, Turkey, Korea, Singapore, Israel directly and to USA and European markets through merchant exports. Its main overseas clients are Quannitex Enterprise Corporation, Taiwan, Pacific Textiles, Hong Kong and Winnitex Investment Co., Hong Kong.
ACML has two manufacturing facilities located in Dindigul, Tamil Nadu, of which one is 100% EOU. Both its plants are equipped with state-of-the-art machines like combers from Rieter, draw frames from Cherry Hara, autoconers from Murata and other machines from LMW. Recently, the company completed its expansion scheme of 14,112 spindles for manufacture of compact yarn and is further expanding its capacity by another 10080 spindles which is expected to be completed by September’06. On completion of this expansion, its total installed capacity will be 66,000 spindles of which the compact spinning capacity will constitute 41,000 spindles. Besides, the company has also expanded its windmill capacity by 6.4 MW (8 Wind Machines of 800 KW) and the total wind energy capacity as on date is 13 MW generating 3.66 cr. units. Hence, its total power requirement will be met by the wind mills and thereby considerably reduce its cost of electricity. For future growth, ACML has planned to augment its spinning capacity by 43200 spindles, of which 33,600 spindles will be for the manufacture of compact yarn and 9600 spindles will be for manufacture of doubled yarn. This facility is expected to come into operation by September’07. To fund its expansion, ACML has allotted 8,75,000 equity shares at Rs.185 per share aggregating Rs.16.2 cr. on a preferential basis to Ascent India Fund, whose trustee is Unit Trust of India Investment Advisory Services.
For FY06, its sales grew by 25% to Rs.105 cr. but net profit jumped by 50% to Rs.19 cr. registering an EPS of Rs.32 on its small equity of Rs.5.90 cr. For FY07, it may clock a turnover of Rs.120 cr. and PAT of Rs.18 cr. (due to higher tax provisioning) i.e. EPS of Rs.30. Considering its 52W H/L of Rs.373/RS.145 and book value of Rs.160, the scrip seems to have bottomed out and has the potential to rise 40% i.e. Rs.240 in a year’s time.

Saksoft Ltd - Rs.75.50

Saksoft Ltd. was originally incorporated as Saksoft InfoTech Ltd. in November 1999 but later changed Saksoft Ltd. in September’02. It is a specialized provider of business intelligence, business performance management, software solutions and Quality Assurance/ Testing to the Banking, Financial Services and Insurance (BFSI) industry. It has expertise in developing custom applications in retail banking, credit card applications, lending, trading, clearing and settlement systems. In short, it is a full service provider offering products, custom application development, testing, operations support etc besides offering resource augmentation services both onsite and offshore to its clients. Being a mid-size IT company, Saksoft provides high-end services at the strategic level and is able to fill the gap for banks and FIs for their niche requirements, which usually big IT companies do not find appealing given their size. Saksofts’ various application and systems like SakC2C Program, SakAssure Program, SakXtend Program, SakSupport Program are well-accepted by the BFSI industry.

Currently, Saksoft has two offshore development centers in India viz. in Chennai and Noida with a total capacity of 750 seats. It also has offices in New York, London, Frankfurt and Singapore. Within a short span of time, it has built-up an enviable clientele of 42 customers comprising leading global banks and financial institutions such as Citibank, Morgan Stanley, Standard Chartered Bank, Development Bank of Singapore, ABN AMRO Bank, Deutsche Bank, Compcredit, TransUnion, Franklin Templeton etc. As of now 70%, of its total revenue comes from America, 8% from Europe, 15% from India and the balance 7% comes from the rest of Asia. Recently, Saksoft signed a partnership agreement with Atos Origin, a global IT services company with strong presence in Asia to market Veri-sens - a business intelligence solution of Saksoft, to retail banks in Malaysia, Thailand and Philippines. The company is undergoing an interim assessment for the coveted CMMI Level 5 by KPMG and the certification is expected soon, which will give it a definite edge over its competitors.

In coming years, BFSI is expected to be the number one industry in terms of IT spending. Similarly, application development, application maintenance, testing, outsourcing, business intelligence and 3rd party testing services, in which Saksoft operates is growing significantly. Hence, the company is poised for substantial growth in future. Last year only, the company came out with its IPO of 25 lakh shares at Rs.30 per share and was oversubscribed by about 39 times. And within a year its share price touched a high of Rs.158 and a low of Rs.64. For FY06, its top-line increased by 40% to Rs.26 cr. whereas its’ bottom-line jumped 60% to Rs.9.20 cr. representing a Net Profit Margin (NPM) of healthy 35%. On a consolidated basis, its turnover and net profit stood at Rs.49 cr. and Rs.9.30 respectively. For FY07, on a consolidated basis it may report total revenue of Rs.60 cr. and net profit of Rs.14 cr. i.e. EPS of Rs.14 on its equity of Rs.10 cr. Investors are recommended to buy it at current levels as the scrip can easily appreciate 50% to about Rs.120 in 6-9 months.

STOCK WATCH

Associated Profiles & Aluminium Ltd. (Code: 531979) (Rs.33.15) basically manufactures wire rods, aluminium grills, sections, railing etc. Last fiscal also began mining activity in the Mahadevia district of Gujarat. In future, it intends to explore the possibility of Wind Power Generation in Dhulia area in Maharashtra under its existing unit viz. Hind Aluminium. For FY06, its sales increased by 25% to Rs.164 cr. but its net profit doubled to Rs.4.40 cr., which works out to an EPS of Rs.9 on its equity of Rs.5 cr. and it announced 12% dividend for FY06. With a dividend yield of around 4% at CMP and a book value of approx Rs.40, this scrip is trading fairly cheap at a P/E of just 3 times. Its share price can appreciate 50% in 6-9 months if the market sentiment turns bullish.

Laffans Petro Ltd. (Code: 524522) (Rs.22.80) manufactures ethylene oxide (EO) derivatives such as Ethoxylates, Glycol Ethers, Acetates, Triethonal-amine and Brake fluids. In fact, it is the only Butyl Glycol and Methyl Glycol manufacturer in India along with their respective acetates. Besides it also produces 'THEIC', an unique surfactant for the wire enameling industry with micron size of less than 100, which is produced by only 3- 4 manufacturers worldwide. It maintains its own fleet of specially fabricated EO tankers and is currently the largest merchant consumer of pure ethylene oxide in the country. Moreover, the company has nearly completed its expansion of Glycol Ethers capacity from 15,000 to 30,000 TPA. For FY06, it reported an EPS of Rs.6 and may report an EPS of Rs.7 for FY07. However, lack of dividend is one of the reasons for its low discounting by marketmen.

Ecoboard Industries Ltd. (Code: 523732) (Rs.11) is in the forefront of treating industrial effluent with technical assistance from Sulzer Chemtech Ltd., Switzerland. It is the largest turnkey supplier of Anaerobic Wastewater treatment plants in the country for primary treatment of distillery effluent and is actively considering setting up effluent treatment facilities for pulp & paper, dairies, food products, sugar, pharmaceuticals etc. The company’s other product ‘Ecoboard' is a 100% wood free tough alternative to conventional particle boards, plywood and other panel products. It made a strong turnaround in FY06 by reporting sales and net profit of Rs.48 cr. and Rs.3.35 cr. respectively. It may end FY07 with a turnover of Rs.55 cr. and PAT of Rs.5 cr. i.e. EPS of Rs.3 on equity of Rs.16.30 cr. Only aggressive investors are advised to buy for handsome gain.

With Infosys reporting better than expected numbers, tech sector is once again in action. In such a scenario Aftek Infosys Ltd. (Code: 530707) (Rs.55.55) can see a sharp run before it declares its results. Purely on a fundamental basis, it is among the cheapest IT scrips available on the bourses. For the full year ending 30th June’06, it can report total revenue of Rs.260 cr. and PAT of Rs.80 cr., which works out to an EPS of Rs.9 on its current equity of Rs.17 cr. In future for better efficiency and integrity, the company is planning to merge its group company Elven and V-Soft with itself, exit from its European search engine Seekport and list its home automation unit Digihome on Indian bourses. Although the management doesn’t have a clean track record, still this scrip seems to be a value buy and can be bought for decent gains in the next 6-9 months.

Ramsarup Industries Ltd. (Code: 532690) (Rs.84.75) is the second largest producer of steel wire after Tata Steel. It has an installed capacity of 1,37,000 MT of steel wire and 72,000 MT of galvanized wire with 87,000 MT capacity of TMT bars. To de-risk the company from sectoral changes and to broaden the core business, it has decided to diversify into the business of laying power transmission lines and towers and has already bagged Rs.50 cr. order with another Rs.35 cr. order in the pipeline. Moreover, it has finalised plans to set up a bio-root power generation plant in Gujarat spread across 300 acres of land. For FY06, its turnover grew by nearly 20% to Rs.1018 cr. but its net profit more than doubled to Rs.28 cr. leading to an EPS of Rs.16 on its equity of Rs.17.50 cr. With an expected EPS of Rs.20 for FY07, it’s a strong buy at the current price level.