STOCK WATCH

The share price of Balaji Amines Ltd. (Code: 530999) (Rs.214.50) has crashed severely over the last few days on the back of sanctions imposed by USA on the company. This gives a golden opportunity for long-term investors to buy as the company hardly exports to USA and this sanction will not have any monetary effect on the company. It is a leading producer of specialty chemicals viz. Aliphatic Amines and its derivatives at its plant in Osmanabad District in Maharashtra. For the first quarter ending 30th June’06, its sales increased by 55% to Rs.46 cr. whereas net profit jumped 60% to Rs.4.85 cr. For the full year FY07, it may report sales of Rs.175 cr. with a net profit of Rs.13 cr. i.e. an EPS of Rs.40 on its tiny equity of Rs.3.25 cr. with a 52-week high of Rs.510, it’s a good bet at current levels.

The last fiscal was not good for KIC Metaliks Ltd. (Code: 513693) (Rs.39.50) due to high raw material costs for iron ore and mettalurgical coke and lower price realization for pig iron. But things have improved this fiscal as raw material prices have cooled off from their highs. It already has a 1,44,000 TPA captive coke oven plant and is now setting up a Hot Blast Stove, which will be operational by 31st October’06. For the June’06 quarter its sales improved by 125% to Rs.38 cr. whereas net profit increased by 50% to Rs.2 cr. A few months back, it allotted about 6 lakh shares at Rs.80 on preferential basis. To fund the expansion, promoters are planning to bring in more money by making preferential allotment to themselves. For FY07, it is estimated to clock a turnover of Rs.150 cr. and net profit of Rs.7, which means an EPS of Rs.14 on its current equity of Rs.4.30 cr.

Gujarat Apollo Equipments Ltd. (Code: 522217) (Rs.135.20) is India's No.1 manufacturer of Asphalt based road construction & maintenance equipment and produces the entire range of equipments for building roads like Asphalt plants, soil stabilization plants, indirect heating equipment, paver finisher, bitumen sprayer, rollers, kerb paver and road maintenance equipments like milling machines and recycling machines. For the current first quarter, its sales doubled to Rs.34 cr. and PAT spurted by 130% to Rs.3.20 cr. In spite of being in such a high growth trajectory, the company is available at single digit P/E ratio. Recently, it concluded its 1:2 right issue offer at Rs.100 per share and the share is trading at just 15% premium to that. For FY07, it can register total revenue of Rs.135 cr. and net profit of Rs.13.50 cr. i.e. an EPS of Rs.13 on its expanded equity of Rs.10.50 cr. A risk-free buy which can give 50% return in 12-15 months.

To cater to the increasing demand, Mangalam Cement Ltd. (Code: 502157) (Rs.161.75) is investing around Rs.75 cr. to enhance its cement capacity to 1.6 MT from 1.1 MT and clinker capacity to 8,25,000 lakh tonnes from 6,00,000 lakh tonnes. It is also setting up a captive thermal power plant of 17.5MW capacity, which is expected to be commissioned by June’07. For the June’06 quarter, sales increased by 35% to Rs.113cr. but its net profit zoomed 380% to Rs.19 cr. Interestingly, the company’s OPM has improved substantially to 27% compared to 11% last year due to better operating efficiency and reduction in other expenses. For the full year ending September’06, it may report sales of Rs.400 cr. and profit of Rs.60 cr. i.e. EPS of Rs.21 on its current equity of Rs.28.20 cr. Although most cement scrips are richly discounted, this scrip is trading a market cap to sales ratio of almost 1 and is available at 35% discount from its recent high of Rs.230.

In the paper and newsprint sector, Rama Paper Mills Ltd. (Code: 500357) (Rs.27.50) is trading extremely cheap and at mouth watering levels. It is a reputed producer of newprint/ writing and printing paper with an installed capacity of around 40,000 TPA. For the June’06 quarter, its top-line grew by 20% to Rs.21 cr. whereas its bottom-line registered a gain of 10% to Rs.1.90 cr. The company is implementing a massive expansion for which the promoters have infused their own money to the tune of Rs.9 cr. by making preferential allotment of 25 lakh shares at Rs.35 to themselves. The promoter holding as on June’06 stands at 52%, which imparts confidence to shareholders over the management’s commitment. Its book value has also grown to Rs.26. For FY07, it may report sales of Rs.100 cr. with net profit of Rs.7 cr., which translates into an EPS of Rs.9 on its diluted equity of Rs.7.60 cr. A screaming buy.

Surya Pharmaceutical Ltd. (Code:532516) Rs.79

Incorporated in 1992, Surya Pharmaceutical Ltd. (SPL) manufactures and markets a range of active pharmaceutical ingredients, drug formulation and bulk intermediates that address various therapeutic segments. Starting as a manufacturer of penicillin derivatives, today SPL is among the top five Indian players in betalactum and cephalosporin range of anti-infectives. In fact, it is moving up the product value chain from being a manufacturer of betalactum antibiotics-a low margin product, to a maker of third and fourth generation sterile range of cephalosporins - a high margin product such as cephaclor, cephixime, cefprozil, cefdinir etc. It has also diversified into high-margin lifestyle segments like anti-histamines and cardio vascular drugs and is increasing its focus on exports for the long-term. In the near future, the company may set up or acquire a pharmaceutical manufacturing unit in Europe.

SPL has five manufacturing facilities spread across three states in northern India. It has two plants at Baddi - HP, two plants at Banur – Punjab and one at Panchkula – Haryana. Nearly half the production is exported to more than 60 countries across Europe, South East Asia, the Far East, Middle East, Latin America and Africa. Lately, SPL made an impressive foray into contract research and manufacturing (CRAMS) space with an order worth Rs.350 cr. to be executed over the next few years. For that, it is implementing an ambitious Rs.90 cr. expansion plan of setting up a new US-FDA compliant facility in Jammu. This new facility will manufacture high-margin products such as statins, sterile & oral cephalosporins and advanced intermediates and formulations. This would also help the company in servicing MNCs through the contract-manufacturing route. Further, it is also carrying out massive capacity expansions at its existing facilities in Baddi and Banur and upgrading them to US FDA Standards. Its bulk drug facility at Panchkula has been completely revamped to produce anti-histamine bulk products like loratidine and fexofenadine.

To finance its growth plans, SPL raised around Rs.54 cr. via FCCBs to be converted into equity shares at Rs.160 per share. Besides, it has already allotted Rs.40 lakh warrants to promoters and others, which will be converted into shares at Rs.70 per share. It may raise another Rs.225 cr. in future through the ADR/ GDR route. Thus, financially the company has made all arrangements for its working capital and expansion requirements. For FY06, its top-line registered a gain of 40% to Rs.238 cr. whereas its net profit recorded 180% growth to Rs.24 cr. posting an EPS of Rs.22 on its equity of Rs.11.08 cr. For FY07, it may earn a net profit of Rs.28 cr. on sales of Rs.300 cr. And since its equity will get bloated to Rs.18 cr. due to the FCCB and convertible warrants, the EPS works out to Rs.15. Hence the scrip is trading fairly cheap at a forward P/E of less than 5 times. Although there is the risk of further equity dilution due to the likely ADR/ GDR issue, but still it’s a good bet and can give 50% return if held for 15-18 months.

Bartronics India - Rs.61.00

Bartronics India Ltd. (BIL) was originally incorporated in 1990 as Super Bartronics Private Ltd. and was converted into public limited company in 1995. It got its current name i.e. BIL on 1st January’96. Starting its business from the field of bar coding and smart card technology, today BIL is India’s undisputed leading Automatic Identification and Data Collection (AIDC) solution provider offering consulting services, design software, hardware, personalization and full implementation services. Presently, it provides solutions pertaining to diverse range of AIDC technologies such as barcode technology, RFID (Radio Frequency Identification), RFDC (Radio Frequency Data Communication), EAS (Electronic Article Surveillance), Smart Card technology and Biometric technology.

BIL’ product range includes Barcode scanners, Barcode printers, Barcode Decoders, Smart Card Readers, Data Collection Terminals (DCTs) and Portable Transaction Computers, Radio Frequency (RF) and InfraRed (IR) based equipment and Access Control Systems. It also provides PVC Cards, Magnetic Cards, Smart Cards and contactless/ Proximity Cards to its clients across the world. In fact, the company is a topnotch provider and high-end supplier for Barcoding Printers and Scanners, HHTs, DCTs, Media Supplies like Direct Thermal Labels, Thermal Transfer Labels and Tags in addition to Universal Access Points and Vehicle Mounted computers. BIL’s clientele include government establishments, MNCs, large private sector corporates and the Retail Industry at large. A few of its prestigious clients are HLL, ABB, Hero Honda, ITC, Ranbaxy, TCS, L&T, Ranbaxy, Cummins, GM, IBM, Panasonic etc.

AIDC is now being seen as a radical and revolutionary data carrier and identifier discipline with principles and practices that can be applied virtually to every sector of industry, commerce and services where data is handled and needs to track and trace individuals, materials and equipment. Moreover, RFID is a technology that holds tremendous potential and BIL is certainly in a position to leverage its expertise. In short, the company is poised to grow exponentially in coming years. To fund its growth plans and meet working capital requirements, the company raised around Rs.50 cr. through IPO route at Rs.75 per share in December’05. For FY06, it reported total revenue of Rs.29 cr. and net profit of Rs.5.34 cr., which is expected to shoot up to Rs.50 cr. and Rs.8 cr. respectively for FY07. This translates into an EPS of Rs.4 and Rs.5 respectively. Being in such a fast growing sector and holding immense potential, the company deserves far better discounting. At a reasonable P/E ratio of 18 the scrip should trade in the region of Rs.90-100 (40-50% appreciation). Investors are recommended to accumulate BIL at declines and hold it for at least a year. For real long-term investors i.e. holding period for 3-5 years it can even turn out to be a multi bagger.

STOCK WATCH

Bilpower Ltd. (Code:531590) (Rs.73) has once again come out with terrific numbers reporting all time high turnover and profit figures. For the June’06 qtr. its sales and net profit stood at Rs.44.50 cr. and Rs.4.40 cr. compared to Rs.24.10 cr. and Rs.2.50 cr. last year. Earlier in March this year, it made a preferential allotment of 10 lakh shares at Rs.97 per share to fund its expansion and modernization. Company is one of the reputed manufacturers of Transformers, Electrical Laminations, Stampings and Cores and has the largest range of ready to assemble cores for distribution transformers in India. Considering the strong demand for its product it is expected to end FY07 with a top-line of Rs.175 cr. and PAT of Rs.14 cr., which leads to an EPS of Rs.21 on its diluted equity of Rs.6.80 cr. A screaming buy at current levels as the scrip can easily appreciate 50% in a month or two.

Although most of the textile scrips are in a downtrend due to restrictions on TUF, Winsome Textiles (Code:514470) (Rs.33) is been hitting upper circuits and has appreciated by more than 50% last week. This is because the company has announced fantastic results for the June’06 quarter. Its sales grew by 10% to Rs.34 cr. but its net profit increased substantially to Rs.2.85 cr. compared to Rs.1.08 cr. last year, which was mainly due to increase in stock in trade to the extent of Rs.3.20 cr. Moreover, the company has undertaken modernisation cum expansion projects to add 13000 spindles, 10 tonnes per day dyeing, 2.50 MW Hydro Power Plant along with complete replacement of old ring frames at an estimated cost of Rs.117 cr. For FY07, it is expected to clock a turnover of Rs.150 cr. with net profit of Rs.4.50 cr. i.e. EPS of Rs.8 on its equity of Rs.5.90 cr. With cash EPS (CEPS) of Rs.18 and a book value of Rs.55, this scrip is available extremely cheap at a market cap of less than Rs.20 cr.

On back of strong industrial growth, the bearings industry is doing exceptionally well and Austin Engineering (Code:522005) (Rs.71), too, has come out with flying colours for the June’06 qtr. Its sales rose by 25% to Rs.13.70 cr. whereas it net profit spurted by 80% to Rs.0.80 cr. The company is a leading manufacturer in all types of ball and roller bearings like Ball Bearings, Cylindrical Roller Bearings, Needle Roller Bearings, Tapered Roller Bearings, Spherical Roller Bearings and Flexible Roller Bearings. It has returned to the dividend list and has declared 12% dividend for FY06. For FY07, it is estimated to report a sales of Rs.65 cr. and net profit of Rs.4.25 cr. i.e. EPS of Rs.12 on its diluted but small equity of Rs.3.50 cr. At a reasonable discounting by 8 times, the scrip has the potential to cross Rs.100 level once the market sentiment turns positive.

In the metal sector, Ramsarup Industries (Code:532690) (Rs.86) appears to be one the best bets as it primarily caters to power, housing and infrastructure sectors. Incidentally, it is the second largest steel wire producer and among the very few manufacturers in India to provide the whole range of TMT products using the Thermax technology. It is also expanding its product portfolio by setting up a structural mill with an installed capacity of 1,35,000 tonnes to produce medium weight structurals like angles, channels and beams at a cost of around Rs.70 cr. It has recently forayed into laying of Power Transmission Lines business through its fourth unit 'Ramsarup Infrastructure' and is executing projects of more than Rs.80 cr. For the full year FY07, it may report a turnover of Rs.1350 cr. and net profit of Rs.45 cr., which translates into an EPS of Rs.26 on its current equity of Rs.17.50 cr. Hence the scrip can double in a year’s time.

Another textile scrip which announced good set of numbers is Suryajyothi Spinning (Code:514138) (Rs.56). For the quarter of June’06, its turnover grew by nearly 10% to Rs.35 cr. but the PAT increased by 50% to Rs.3 cr. registering a quarterly EPS of Rs.2.25 on its equity of Rs.13.50 cr. Couple of months back, it completed the first phase of its modernization & expansion by adding 7,056 spindles at its Makthal unit to manufacture value added yarns like multifold and combed yarns. Besides, the civil work of the new unit being set up at Rajapur with an installed capacity of 25,200 spindles is in advanced stage of completion and the project is likely to be completed by March’07. Hence for FY07, it is expected to clock a turnover of Rs.175 cr. and net profit of Rs.9 cr. i.e. an EPS of Rs.7. Scrip is bound to rise 50% in a year’s time.

Paramount Communication - Rs.142.00

Established in 1978, Paramount Communication Ltd. (PCL) is among the top manufacturers of cables in the country having developed a huge variety of specialised cables and wires required in virtually all the sectors of the economy viz. telecommunication, space research, thermal & nuclear power plants, railways, petrochemicals, fertilizers, steel, electronics and various other industries. It produces the entire range of telecommunication cables including optical fibre cables, foam skin/ solid PE insulated multi-pair/ multi-quad jelly filled cables, aerial cables, telecom installation cables, coaxial cables, drop wires etc. It also manufactures cables for the power and industrial sector including control cables, signal (instrumentation) cables, thermocouple compensating cables, LT (low tension) power cables, railway signalling cables, railway axle counter cables, fire resistant low smoke cables, fire survival cables etc. It also offers a wide range of optical fibre cables (single mode and multi mode) including armoured aerial, unarmoured, all dielectric self-supporting (ADSS) cable and has recently started manufacturing optical fibre direct to home (DTH) cables. PCL is the single largest supplier of cables to Indian Railways.

PCL currently has three cable manufacturing facilities, two in Rajasthan and one in Haryana. Its Haryana unit has a capacity of 3.85 million conductor km of polythene insulated jelly filled telephone cables per annum, which is among the largest manufacturing capacities at a single location in India. Its optical fibre cable plant at Khushkhera in Rajasthan has the capacity to produce more than 16000 cable km per annum of OFC in assorted sizes/types. Its third plant, which also produces power and railways cables is its main plant and has been the foundation for its success. Currently, it has the capacity to produce 25000 km of low tension and 1500 km of high-tension power cables. All its manufacturing facilities conform to the most demanding national and international specifications like: ITD, TEC, IRS, JSS, DGMS, BS, IEC, ASTM, DIN etc. In view of the massive investments in infrastructure, power, railways and the industrial sector, the company is undergoing aggressive expansion. It has recently completed the first phase of expansion by setting up additional capacity of 5,000 km of LT power/railway cables and 1,500 km HT power cables with at an investment of Rs.15 cr. It is further expanding its LT power cable facility to 55,000 kms and HT power cable capacity to 3,500 kms in the second phase to be completed by end of this year.

The cable industry in India is witnessing good growth in demand from infrastructure investments in the power sector, modernization and upgradation of the railway network, revived requirement of telecom cables and large investments in new projects/ capacity expansion by the industrial sector all of which augurs well for PCL. For FY06, its sales increased by 100% to Rs.196 cr. whereas net profit stood at Rs.22 cr. compare to Rs.1.30 cr. last year. To fund its expansion, PCL recently raised around US $15 million through a GDR issue priced at Rs.198 per share. Considering its healthy order book position, PCL may end FY07 with a top-line of Rs.325 cr. and net profit of Rs.35 cr. This works out to an EPS of Rs.32 on its current equity of Rs.10.87 cr. or diluted EPS of Rs.21 on its fully diluted equity of 16.87 cr. With a 52 week high above Rs.300, the scrip has the potential to easily rise by 50% in next 9-12 months. Buy on declines.