Revathi Equipments - Rs.635.00

Revathi Equipments Ltd. (REL) was established in 1977 and promoted by Drill Pvt. Ltd. in collaboration with Chicago Pneumatic Tool Company of USA (CP Tools) for the manufacture of water well rigs, blast hole rigs, drilling accessories and allied products. In 1987, CP Tools was taken over by Atlas Copco worldwide on account of which the REL became a part of Atlas Copco. In 2002, Utkal Investments led by Mr. Abhishek Dalmia bought out Atlas Copco’s stake (40%) and gained full management control over REL with a 60% holding in the company as on date. This Renaissance group company has three business segments viz. construction & mining equipments, power generation and treasury. It’s an ISO 9001:2000 certified company and its products are exported to USA, Jordan, Tunisia, Nigeria, South Africa, Australia etc.

Presently, REL holds about 45% market share in the domestic mining equipment market with the likes of Tata Steel, Coal India, Nalco, Hindalco and Gujarat Ambuja as its clients. It produces drills ranging from 4” to 12 ¼” which more or less covers the entire gamut of mined ores including coal, lignite, iron ore, bauxite, limestone, zinc, etc. But REL’s main growth driver in future will be its construction equipment division which comprises batching plants, transit mixers and concrete pumps. In combination, they mix various aggregates with cement to produce concrete, transport such ready-mix concrete (RMC) from a central batching location to the construction site and pump the RMC to the exact location where it is to be poured. For the power generation equipment, it has made a huge investment of around Rs.52 cr. in wind energy and has installed wind turbines having capacity of 2.4 MW in Rajasthan and 8.75 MW in Tamil Nadu. It has also invested around Rs.5 cr. in a 25 MW gas-based power project in Tamil Nadu. Given the managements background of being large equity investors over many years, REL also has a treasury division that invests surplus funds into the secondary market to generate better returns. Over a period of time, it’s possible that promoters may convert REL into a holding company and route strategic and non-strategic investments through it.

Financially as well as fundamentally, REL is quite strong with Sales of Rs.91 cr. and net profit of Rs.16.75 cr. posting an EPS of Rs.52 on its very tiny equity of Rs.3.21 cr. for FY06. Recently, after hitting a high of Rs.1214, its share price crashed below Rs.600, which prompted the management to announce a buy-back at Rs.700 from the open market and it created a corpus of Rs.10 cr. for the same. For FY07, it may clock a turnover of little more than Rs.100 cr. with net profit of around Rs.18 cr. leading to an EPS of Rs.56. For FY08, it has the potential to report EPS of more than Rs.70. Investors are, therefore strongly recommended to buy it at current levels with a price target of Rs.800 (30% appreciation) in 9-12 months. In the long-term of 24-36 months, it can break its earlier high of Rs.1200, which would mean 100% return from the current level.

STOCK WATCH

Paper scrips are once again buzzing and Rama Paper Mills (Code: 500357) (Rs.25.75) is the best bet in this sector. Working at 100% capacity utilization, the company recently added some balancing equipment to increase capacity by 10% to 44500 TPA. Besides, it is installing a 6 MW power plant for captive consumption, which will reduce power cost by Rs.800 per tonne of paper produced. It is setting up an additional line of paper manufacturing to produce tissue paper and post paper of 18380 TPA capacity and is also undertaking expansion and modernization to enhance the capacities of its existing three units. On completion of all the projects, its total production capacity will stand augmented to 79500 TPA. To fund this, the company is planning to raise money through debt and equity and may come out with right issue or preferential allotment in the near future. This will lead to a re-rating of the scrip. At its current market cap of Rs.20 cr., it’s available for a song!

As the Sensex heads for the 12,000 mark, buying has begun in the metal sector. In the last few days good buying was seen in Sujana Universal Industries Ltd. (Code: 517224) (Rs.20.20) counter, which indicates that smart accumulation is taking place. From a 52-week high of Rs.45, the scrip was mercilessly battered down to a 52-week low of Rs.13.50 in June’06. It has now recovered partially to around Rs.20 but is still at 55% from its high. Sujana Universal is mainly in domestic appliances, bearings and castings. It also envisages the introduction of value-added products like pump assemblies, clutch release bearings and automobile spindles. For the full year ending 30th June’06, its sales increased by 12% to Rs.891 cr. whereas the net profit jumped 90% to Rs.58 cr. on the back of strong other income of Rs.40 cr. Because of better cash flows and the growing Indian economy, it may end FY07 with sales of Rs.1000 cr. and net profit of Rs.25 cr. posting an EPS of Rs.5 on its equity of Rs.48.20 cr. Scrip can easily appreciate by 50% in a 12-15 months.

ITL Industries (Code: 522183) (Rs.25.60) is the pioneer in high speed sawing technology offering 60 different models of bandsaw machines ranging from 100 mm to 1500 mm cutting capacity with manual, semi-automatic, automatic and fourth generation CNC machines. It is also engaged in the trading of hydraulic power packs and hydraulic presses. Apart from making Industrial Blades, Power Hackshaw Machines, Special Purpose Machines, Hydro Testers, lubricants and other supporting equipments, it also manufactures Tube and Pipe Mills, Section Mills, Straightening Machines, Draw Benches, Automatic Cut-offs, Accumulators etc. Although sales were marginally up Rs.3.11 cr. for the June’06 quarter, the net profit increased by 16% to Rs.0.22 cr. For the full year FY07, it may post a turnover of Rs.25 cr. and net profit of Rs.1.60 cr. i.e. EPS of Rs.5 on its small equity of Rs.3.23 cr. Interestingly, the company has announced the book closure dates for dividend but is yet to declare dividend. It may announce Rs.1.25 or Rs.1.50 per share as dividend, which means an yield of more than 4% at CMP. It’s a screaming buy as the share price can touch Rs.40 in a year’s time.

Uttam Galva Steels (Code: 513216) (Rs.32.30) is one steel company whose profit margin is almost consistent irrespective of the huge volatility in steel prices. For the June’06 quarter, its sales as well as net profit registered marginal increase of 4% to Rs.550 cr. and Rs.22.50 cr. respectively. For future growth, the company is undergoing a Rs.350 cr. expansion, by which it will add a new galvanising line of 3,50,000 TPA capacity taking its total capacity to 7,00,000 TPA. It is also doubling the production of cold rolled steel from existing 5,00,000 TPA to 10,00,000 TPA. It is also investing about Rs.100 cr. to expand capacities in its service centre for steel processing and distribution from 5000 tonnes a month. Hence for FY07, on a conservative basis, the company is estimated to register a top-line of Rs.2500 cr. and PAT of more than Rs.85 cr., which translates into an EPS of Rs.8 on its fully diluted equity of Rs.110 cr. At a reasonable P/E of Rs.6, the scrip is bound to touch Rs.48 in a year’s time. A good bet.

Belonging to the well-known Ador group, Ador Fontech’s (Code: 530431) (Rs.87.05) 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. Its core business is 'Life enhancement of vital machinery components' which is done through implementation of value-added reclamation, fusion, surfacing and coating solutions. Its customer base spans across all industries including steel, mining, power, railways, construction, sugar, cement, fertilizers, shipping, oil drilling and various other engineering industries. For the first June’06 quarter sales and profit increased marginally to Rs.13.50 cr. and Rs.0.30 cr. respectively. Hence for the full year FY07, it may report total revenue of Rs.80 cr. and net profit of Rs.5 cr. i.e. EPS of Rs.14 on its tiny equity of Rs.3.50 cr. Being a liberal dividend distributor, the company commands a better valuation and the share price can cross Rs.120 in 6-9 months.

Hind Industries - Rs.36.00

Established in 1973, Hind Industries Ltd. (HIL) was promoted by Gulab Rai Kohli and Sardul Singh Uberoi and was taken over by Sirajuddin Qureshi in 1988. Since then, HIL has grown by leaps and bound to emerge as a leading manufacture and exporter of fresh, chilled and frozen sheep, buffalo and goat meat and meat products. Under the brand names ‘Eatcco’ and ‘Sibaco’. Ironically, HIL has a subsidiary Hind Agro Industries, which is 4 times its size and has a turnover of more than Rs.350 cr. HIL exports its products to more than 45 countries including Bahrain, Egypt, Indonesia, Iran, Jordan, Kuwait, Lebanon, Malaysia, Mauritus, Oman, Phillipines, Qatar, Saudi Arabia, Thailand, UAE, Yemen, East and West African countries and CIS countries.

Along with its subsidiary, HIL has one of the most modern abattoir-cum-meat processing plant of Asia at Aligarh in UP which is approved by the Agricultural and Processed Food Products Export Development Authority (APEDA). It is the only group with unique facilities to slaughter animals, which have been bred and reared as per the strict guidelines set by O.I.E., Paris. Besides the ‘halal’ process is strictly carried out by Islamic Shariat procedures and is supervised by a representative of the Jamiat-Ulema-I-Hind, who issues a certificate to that effect. Although HIL has an installed capacity of 25,000 TPA, it is operating at around 50% capacity utilization. This means it has the potential to double its turnover without any further investment. As only a few major players exist in the meat export industry, the company faces very little competition and India with its rich livestock wealth offers major scope for development for the meat export industry.

For future growth, the company is setting up an integrated animal husbandry, rearing and meat processing project in West Bengal at an investment of around Rs.106 cr. for which the government has already allotted 500 acres of land. In the first year of operations HIL estimates to breed and rear 5,000 Murrah buffaloes and 10,000 female black Bengal goats and the meat produced will be sold in domestic and export markets. For FY06, it posted an EPS of Rs.4.50 and is expected to declare dividend in the coming week. For the June’06 quarter, its sales shot up by 85% to Rs.36 cr. whereas profit zoomed 450% to Rs.1 cr., recording an EPS of Rs.1.20 for the quarter. For FY07, it may clock a turnover of Rs.100 cr. with a net profit of Rs.5.50 cr. i.e. EPS of Rs.6 on its equity of Rs.8.64 cr. As the share price has run up sharply in the recent past, investors are advised to buy it at sharp declines with a price target of Rs.60 in 12-15 months. However, equity dilution is a cause of concern in the near future.

Fulford (India) Ltd. - Rs.586.00

Fulford India Ltd (FIL) was originally incorporated as C.E. Fulford India Pvt. Ltd. in 1948 and began with the manufacturing and marketing of pharmaceutical consumer products like ‘PEPS’ cough tablets and ‘Zambuk’ herbal ointment. In 1968, Schering-Corporation, USA, took over the company by acquiring 100% stake from C. E. Fulford Limited, UK and subsequently set up a plant in Andheri, Mumbai, for manufacture of pharmaceutical products. Notably, Schering-Plough Corporation, USA, is a leading research-based company, engaged primarily in the discovery, development, manufacturing and marketing of pharmaceutical and health care products worldwide.

Today, FIL markets innovative and science based products in therapeutic areas like Oncology, Virology, Cardiovascular, Dermatology, Suncare, Anti Infective and Anti Histamines. Most of these products are original research products of its parent company. Few of its well-known brands are Netromycin, Garamycin, Elocon, Dipsalic, Dipgenta, Diplene, Lotriderm, Dipform, Emolene, Tinaderm-M, Clingard, Shade, Polaramine, Celestone, Top Nitro, Integrilin, Temodal, Remicade, Zadine etc. Presently, FIL derives close to 50% of its revenues from dermatology products, 30% from Oncology products, 8% from cardiovascular products and the balance from Anti-Infectives. Being a marketing company, majority of its work force of 480 people constitutes the marketing field force that generates prescription sales. Importantly, FIL has successfully reduced the number of drugs under price control to less than 40% and is launching new products for Gastroenterology, Collitis, Hair care and Hepatatis-B.

To maintain its growth, the company is taking various initiatives that include restructuring, introducing new products, enhancing the field force and effectiveness and productivity. For the six months ending 30th June’06, its top-line grew marginally to Rs.71 cr. but its net profit declined by around 15% to Rs.6.20 cr. Still, for the full year CY06, it is expected to report sales of Rs.150 cr. and net profit of Rs.16 cr., which means an EPS of Rs.50 on its tiny equity of Rs.3.20 cr. Thus a company backed by Schering-Plough Corporation of USA, which holds 40% stake in FIL, is available at P/E ratio of 12 makes it a fairly cheap investment compared to its peers. With huge reserve of over Rs.35 cr. makes it a strong bonus candidate too. Investors are advised to buy only on sharp declines with a price target of Rs.900 (50% appreciation) in 18-24 months.

STOCK WATCH

After the removal of quota in 2005, Kallam Spinning Mills Ltd. (Code:530201) (Rs.21.75) is aggressively expanding capacity to cash in on the increased demand. In FY06, it augmented its spinning capacity by 50% to 33648 from 22608 spindles. It is again increasing 30% capacity by adding another 11040 spindles at investment of Rs.22.50 cr., taking the total to 44688 spindles. For the June’06 quarter, its turnover as well as PBT grew by 30% to Rs.9.90 cr. and Rs.1.40 respectively. For FY06, it declared 10% dividend and the scrip is trading cum dividend offering an yield of 5% at CMP. The company has its own hydel power plants, which generate power for captive consumption reducing its power cost considerably. For FY07, it is estimated to clock a turnover of Rs.45 cr. and net profit of Rs.4.25 cr. i.e. EPS of Rs.6 on its current equity of Rs.6.85 cr. At the current market cap of Rs.14 cr., it’s a steal!

Although Indian Toners & Developers Ltd. (Code:523586) (Rs.26) is facing stiff competition from local importers and its margin is under pressure in absolute terms it is performing better on the back of higher volumes and development of new products including toners for the new generation digital machines and laser printers. For June’06 quarter, sales recorded a handsome gain of 40% at Rs.9.20 cr. whereas net profit increased by 25% to Rs.0.82 cr. For future growth the company is betting high on exports, and has set up a wholly-owned subsidiary in USA and a representative office in Singapore. Further, it is planning to put up offices in China & Europe to capture new markets. It has also started selling printer components through its existing network to increase its top-line. For FY07, it may register a top-line of Rs.40 cr. and PAT of Rs.4 cr., which leads to an EPS of Rs.5 on its current equity of Rs.8 cr. Having a book value of Rs.31 and 52-week as Rs.41, the scrip has the potential to give 25-30% return in a year’s time.

As Gujarat Reclaim & Rubber Products Ltd. (Code:509152) (Rs.242.40) is traded only in physical form, only genuine long-term investors are recommended to buy this scrip. Due to the sharp increase in the price of natural and synthetic rubbers, the demand for reclaim rubber has increased considerably. And to cater to the rising demand, the company is putting up a third plant at Panoli in Gujarat with a capacity of 10,000 MTA. Post expansion, its production capacity will stand enhanced to 40,000 MTA making it among the top three producers of reclaim rubber in the world. For FY06, its sales increased by 30% to Rs.59 cr. and net profit jumped 40% to Rs.5.80 cr. reporting an EPS of Rs.44 on its very tiny equity of Rs.1.33 cr. It declared Rs.10 as dividend leading to a yield of around 5%. It also announced very encouraging numbers for the June’06 quarter as well. For FY07, it may post an EPS of Rs.50. Share price will shoot up sharply once it goes for demat trading or declares liberal bonus as it has huge reserves of around Rs.15 cr.

Ahlcon Parenterals (I) Ltd. (Code:524448) (Rs.50) manufactures life-saving Intravenous Fluids and medical disposals employing highly sophisticated production process imported from Switzerland. Its product range includes Dextrose, Saline, Electrolytes, Amino Acids, Fat Emulsion, Blood Substitutes, Small Volume Injectables, Eye Drops etc. It as also setting up a state-of-the-art testing facility and formulation development lab equipped with the best infrastructure. It ended FY06 on a buoyant note with 25% higher sales at Rs.45 cr. while the net profit tripled to Rs.6.70 cr. recording an EPS of Rs.9 on its equity of Rs.7.20 cr. For June’06 quarter, its sales and PAT grew by nearly 15% to Rs.12 cr. and Rs.1.72 respectively. With an expected EPS of Rs.10 for FY07, this niche company is trading fairly cheap at a P/E ratio of less than 5 times.

Power sector is the flavour of the season and is expected to remain so for the next 5 years as massive investments are lined up in coming years. GIPCL (Code:517300) (Rs.62.60) is also in the process of doubling its capacity at Surat Lignite Power Plant (SLPP) to 500 MW from 250 MW and is working on setting up two 1000 MW projects in South Gujarat, besides diversifying into power distribution in the state as part of its expansion plans. For June’06 quarter, its sales increased marginally to Rs.192 cr. but the net profit jumped 65% to Rs.70 cr. due to lower tax provisioning and higher extra ordinary income. For the Full year FY07, it is estimated to clock a turnover of Rs.825 cr. with net profit of Rs.150 cr. leading to an EPS of Rs.10 on its equity of Rs.151 cr. The scrip can easily hit a new high above Rs.100 in 9-12 months.