STOCK WATCH

To improve liquidity, Gemini Communication (Code:532318) (Rs.204.50) went for a stock- split by dividing its Rs.10 share into 2 shares of Rs.5 each. It is the first and only company in India engaged in the design and manufacture of RFid products with technology assistance from Texas Instruments. It has developed a range of off-the-shelf RFid solutions for various applications. For future growth, it is setting up a RFid manufacturing unit at Baddi in Himachal Pradesh at an investment of around Rs.20-22 cr. and may start the manufacture of RFid tags later in this calendar year. For the June’06 quarter, its total revenue increased by 35% to Rs.33 cr. whereas net profit zoomed 170% to Rs.2.81 cr. For FY07, it is expected to report a top-line of Rs.185 cr. and bottom-line of Rs.18 cr., which translates into EPS of Rs.18 on its diluted equity of Rs.4.88 cr. on the face value of Rs.5 per share. Applying a reasonable discounting of 14-18 times, this scrip could trade between Rs.260-320.

After hitting a high of Rs.200, PBA Infrastruture (Code:532676) (Rs.97.75) has corrected sharply and is currently trading around Rs.100. It is engaged in execution of civil engineering projects and specialises in construction of highways, dams, runways and heavy RCC structures, bridges and other infrastructure projects. Its clients include various government agencies viz. NHAI, CIDCO, MSSRDC Ltd, Airport Authority of India and PWDs of numerous State governments. It has a healthy order book of more than Rs.500 cr. For the June’06 quarter, it reported revenue of Rs.62 cr. with net profit of Rs.2.82 and declared Rs.1.50 as dividend for FY06. For FY07, it may clock a turnover of Rs.250 cr. and net profit of Rs.14 cr. leading to an EPS of Rs.10 on its current equity of 13.50 cr. If the market sentiment remains positive, this scrip can easily give Rs.25-30% return in 6-9 months.

When distilleries and liquor scrips are trading at rich valuations, GM Breweries (Code:507488) (Rs.112.40) is available for a song at a market cap of Rs.100 cr. It is the single largest manufacturer of country liquor in Maharashtra and enjoys virtual monopoly in the districts of Mumbai and Thane. With an installed capacity of more than 55 million litres of country liquor per annum, it is currently working at 75% capacity utilization. It has made a strong turnaround in FY06 and has moved ahead with excellent performance for June’06 quarter as well. Interestingly, it hasn’t diluted equity since its IPO in 1994 and has an uninterrupted record of dividend payment from the day of its listing. For FY07, it may report sales of Rs.185 cr. and net profit of Rs.14 cr. i.e. EPS of Rs.15 on its equity of Rs.9.36 cr. At a reasonable valuation, it should trade in the range of Rs.180-210. Investors are advised to buy as technically scrip has bottomed out and the risk of further downfall is negligible.

Once again small caps have started to move. Hence Hazoor Media (Code:532467) (Rs.14.12) is being recommended for risk-taking investors as the company is betting high on real estate projects. It has planned a real estate development project at an outlay of Rs.110 cr. near Amby Valley Citi. It is also in the process of identifying large track of land for developing Integrated Township project at Pune. As a business strategy, it is planning to enter into joint ventures with land owners and other established builders & developers who own the real estate properties at strategic locations. For FY06, its top-line grew by 15% to Rs.14 cr. and net profit grew marginally by 7% to Rs.4.50 cr. registering an EPS of Rs.5 on its equity of Rs.3.50, with face value of Rs.4 per share. If things pan out as planned, the company it will enter into a different league altogether. Scrip has the potential to test its high of Rs.23 in this calendar year itself.

Control Print (Code:522295) (Rs.63.90) is the undisputed market leader in the coding and marking machinery with a market share of around 40%. It has a product range of contact coders, superior touch coders, specialized metal marking systems, sophisticated ink jet coders and also advanced laser coders which can be used to print on any type of surface like plastic, glass bottle, paper, wood, steel etc. The scrip has corrected by more than 50% due to its not-so-encouraging numbers for the last two quarters. For the June’06 quarter, its sales improved by 5% to Rs.9.40 cr. whereas net profit declined marginally to Rs.1.96 cr. Despite this, for full year FY07, it may report sales of Rs.50 cr. and net profit of Rs.7 cr. which means an EPS of Rs.9 on its equity of Rs.7.40 cr. Being in such a fast growing sector, this scrip deserves much higher valuation and can give handsome returns if held for 18-24 months.

Electrotherm India - Rs.223.00

Electrotherm India Ltd. (EIL) was promoted by technocrat Mukesh Bhandari in 1986 to manufacture induction furnaces for the Steel Industry. Since then, it has become a trusted name in the foundry and steel industry with over 1500 installations and its product being exported to Greece, Kenya, Mauritius, South Africa, Ethiopia, Tanzania, Zimbabwe, the Middle East and many other East African countries. Its operations are spread over 30 locations with 6 regional offices and representations in Bangladesh, China, Egypt, Malaysia, Pakistan, Russia, South Africa and Turkey. EIL currently has three divisions offering different products and services as follows:

Engineering and Capital Equipment Division which caters to ferrous & non-ferrous foundries and metal melting industry by manufacturing medium frequency Induction Melting Furnaces, Metal Refining Konverter, Ladle Refining Furnace, Induction Heating/Hardening Equipments, Submerged and Electric Arc Furnace and a host of allied products. Identifying China as a huge growth opportunity, EIL has decided to set up a manufacturing base in district Tianjin of China to manufacture induction furnaces and other metallurgical equipment for the Chinese market and for which the company has already been allotted land at Beichen Industrial Park, Tianjin.

Steel Division manufactures pig iron, cast iron, sponge iron, TMT bars, billets and ductile iron pipes which contribute nearly 50% of the total revenue. The company is in the process of implementing a massive project at Kutch to be completed by the year 2007. Once fully commissioned, EIL will have the capacity to produce 1,50,000 TPA of construction steel, 1,50,000 TPA special steels including stainless steel and alloy steel and 1,00,000 TPA of Ductile iron pipes. The company has also embarked on establishing a Waste Heat Power plant of 30 MW. Hence with backward integration of sponge/pig iron and with the installation of captive power plant, EIL will become one of the lowest cost construction steel producers.

Electric and Hybrid Electiric Vehicle Division: EIL’s Automotive Division, Indus Elec-trans, manufactures eco-friendly electric two wheelers which sells under the brand name of ‘Yo-Bykes’. These non-polluting and economical bikes run a rechargeable battery and do not need petrol or licence or registration. Within 6 months of its launch, Yo-bykes are huge success in Gujarat as it cost only 15-18 paisa per km and the demand is pouring in from all over the country. Its plant at Samakhyali, Kutch, has a capacity to manufacture 1,20,000 bikes per year but the plan is to increase its capacity to over 5,00,000 bikes. Notably, most of the components are produced at its own plant except the batteries and motors, which are imported from Taiwan, Germany and Japan. To expand further, EIL is working on development of Electric three-wheelers, four wheelers and hybrid electric low floor buses.

To fund its huge expansion, the company is planning to raise around Rs.100 cr. by issue of equity shares through preferential placement or FCCB route, which may dilute the equity to the extent of 100%. For FY06, its sales grew by 90% to Rs.345 cr. whereas PBT increased by 50% to Rs.22.40 cr. However, on the back of huge deferred tax provisioning of around Rs.7.50 cr., net profit declined by 10% to Rs.12 cr. recording an EPS of Rs.25 on its small equity of Rs.4.77 cr. Considering the company’s expansion plan and foray into electric vehicles. FY07 may end with a turnover of around Rs.475 cr. and profit of Rs.28 cr. resulting in an EPS of Rs.32 on its estimated diluted equity of Rs.8.75 cr. Investors are advised to buy this scrip at sharp declines as it can give 25%-30% return in a year’s time.

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.