STOCK WATCH

Around 80% of BSEL Tech Park, the first project of BSEL Infrastructure Realty Ltd. (Code:532123) (Rs.50) has been sold out and the balance 47,000 sq. ft. is almost finalized which will fetch nearly Rs.50 cr. revenue to the company. Also, out of the 80,000 sq. ft. area acquired by it from CIDCO in the International Infotech Park at Vashi, 60,000 sq. ft. has already been leased. It is constructing a 3,50,000 sq. ft. shopping mall in Nagpur and has recently acquired 30 acre land in Panvel to develop a mega city township. It has also participated in the tender for the allotment of a 5-storied BMC building at Tardeo. In Gujarat, the company is setting up service apartments, a prime budget hotel, a food court with recreational facilities having a saleable area of 6,00,000 sq. ft. In short, the future looks promising for BSEL as it may register total revenue of around Rs.85 cr. and PAT of Rs.35 cr. for FY07. This means an EPS of Rs.6 on its equity of Rs.59.30 cr. Investors should enter only keeping a long term view of 2-3 years as it will start generating huge revenues from 2007-08 onwards.

Besides manufacturing important drugs like Tramadol, Amytriptyline and Paroxetine, Salsalate etc, Wanbury Ltd. (Code:524212) (Rs.109) is the world’s largest producer of Metformin-a diabetes management product with over 20% the global market. To increase its market share, it is in the process of expanding capacities from the existing 3,600 to 4,500 TPA. As a part of its growth strategy, it has launched a super specialty research division ‘Osteolife' catering to orthopaedic specialty. Its merger with Doctors Organic Chemical Ltd & Pharmaceutical Products India Ltd. will take it to a different league as both these companies have world class manufacturing facilities. The company is planning to use the Doctors Organic USFDA approved facility mostly for CRAMS and has embarked upon Rs.25 cr. expansion plan whereby it intends to manufacture high-value products such as sertraline, paroxetine and carvedilol. For FY07, on a standalone basis it is estimated to report a turnover of Rs.175 cr. and net profit of Rs.16 cr. i.e. an EPS of Rs.13 on its equity of Rs.12.75 cr.

After hitting a high of Rs.520, the share price of Eldeco Housing & Inds. Ltd. (Code:523329) (Rs.179) has been beaten down badly to the current level of around Rs.180. It specializes in township development, group housing, commercial/ office buildings, contract work (Civil, Electrical, Infrastructure projects) and belongs to one of the reputed and well-known Eldeco group based in North India. Interestingly, this company is concentrating only in UP with various projects going on in Lucknow, Kanpur, Ghaziabad etc. It has ample work in hand to keep itself busy for the next 3 years. For FY07, it is expected to report total revenue of Rs.75 cr. and net profit of Rs.5 cr. leading to an EPS of Rs.25 on its very tiny equity of Rs.1.97 cr. But the biggest trigger for this scrip will be its other group company, Eldeco Infrastructure and Properties Ltd., coming out with an IPO or merging it with this listed company. With a current market cap of merely Rs.35 cr., it is a good bet for the long-term in the construction and real estate sector.

In order to highlight its brandname and reflect its ready-to-eat (RTE) food business, Satnam Overseas has renamed itself as Kohinoor Foods Ltd. (Code:512559) (Rs.79). It is the undisputed leader in the domestic branded basmati rice segment with more than 35% market share with reputed brands like Kohinoor, Trophy, Charminar, Rose, Darbar, Shehanshah and Falcon. It is aggressively expanding its presence in the lucrative (RTE) segment and is constantly augmenting its product portfolio. Recently, it has set up a frozen food processing facility in Haryana and has already received orders from Singapore, Mauritius, UK and South Africa. It has also tied up with Reliance Industries retail chain to sell its branded basmati rice and other convenience food products. For FY07, it is estimated to clock a turnover of around Rs.700 cr. and a net profit of Rs.30 cr. This translates into an EPS of Rs.10 on its fully diluted equity of Rs.29.60 cr. As food processing is the buzzing sector and has great potential, this company is trading reasonably cheap at a market cap of Rs.225 cr. The scrip has the potential to touch Rs.110 in 6-9 months.

Nile Ltd. (Code:530129) Rs.73

Nile Ltd. was originally incorporated as a private limited company as Navabharat Industrial Linings and Equipment Pvt. Ltd. in 1984 and was later converted into a public limited company as Nile Ltd. (NIL) in 1994. NL has three main businesses viz. Glass Lining, Lead and Wind Energy. It is one of the leading manufacturers of Glass Lined Equipment, primarily used in pharmaceutical, specialty chemicals, agro chemicals and other similar industries. It has a technical collaboration with Hakko Sangyo Company Ltd., Japan and Comber of Italy. It also makes stainless steel glass-lined reactors, which meet some critical very-low-temperature applications. The lead and lead alloys are supplied to manufacturers of lead acid batteries, plastic stabilizers and metal oxides. The Wind energy generated is sold to Andhra Pradesh power Coordination committee.

NL manufacturing plant is located at Nacharam Industrial Estate, Hyderabad where it has totally integrated fabrication, machining and glass lining facilities. Recently, NL invested in augmenting its infrastructure and increased the installed capacity of the glass lining division from 12 lakh litres to 16 lakh litres. It has also been able to establish itself as a quality supplier of lead/ lead alloys, and has entered into long-term supply arrangements with Amara Raja Batteries apart from other customers in the plastic stabilizer business. Moreover, the company has now started focusing on export markets to boost its sales. Its wind farm is at Ramagiri and is generating power at a reasonable efficiency. The entire energy generated is sold to AP Power Coordination Committee at over Rs.3 per unit under a power purchase agreement.

Fundamentally, the company is quite strong and has a healthy growth track record. For FY06, its sales increased by 25% to Rs.57 cr. whereas PBT jumped 50% to Rs.3.55 cr. On a Net Profit basis, it recorded 35% gain to Rs.2.60 cr., which means an EPS of Rs.9. It declared Rs.3 as dividend, which works out to an yield of more than 4% at CMP. Although its margins are slightly under pressure due to the rising steel prices, still it is estimated to report a top-line of Rs.75 cr. and PAT of Rs.3.50 cr. for FY07. This will translate into an EPS of Rs.12 on its small equity of Rs.3 cr. This means that the scrip is available at a P/E ratio of around Rs.6. Notably, its competitor GMM Pfaudler is trading at much higher valuation. With its 52-week high/low at Rs.139/ Rs.63 and a good dividend yield, this scrip seems to have bottomed out at the current level and may start moving up anytime. Hereafter, investors are advised to buy, keeping a price target of around Rs.110 (50% return) in 15-18 months.

Hyderabad Industries - Rs.307

Established in 1946 and belonging to the CK Birla Group, Hyderabad Industries Ltd. (HIL) is the market leader with around 25% market share in domestic fibre and asbestos cement sheets which are used for roofing of industrial sheds, warehouses, poultry farms, houses of weaker sections and is the most cost effective roofing material available in the market. HIL is among the oldest players and enjoys strong goodwill for its well-known 'CHARMINAR’ brand. It also manufactures new generation building products like Aerocon Panels, an in-house developed/patented product and Autoclaved Aerated Concrete (AAC) blocks. Aerocon prefab panels are used as internal & external partitions, mezzanine flooring in construction of residential quarters, malls, shopping complexes and as a substitute for traditional brick walls. AAC block, a light-weight fly-ash based cement brick, is a substitute to traditional clay bricks and has numerous advantages particularly in multi-storied buildings due to their light-weight and thermal insulation properties. The company is also engaged in the business of Thermal Insulation Products (Refractories) and jointings.

HIL’s state-of-the-art manufacturing facilities are at located Faridabad & Daruhera (Haryana), Chennai (TN), Jasidih (Jharkhand), Wada (Maharashtra), Hyderabad & Vijayawada, Timmapur (A.P) and Jaunpur (UP). Notably, the company uses only the white asbestos (Chrysotile) in its product, which is far superior and safer than the other (blue and brown) types of asbestos. Due to the strong and rising demand, it has setup a greenfield sheet manufacturing plant at Sathariya Industrial Development Area in UP, which recently commenced commercial operation augmenting its total capacity to 6,52,000 TPA. This unit is HIL's first in UP and aims to cater to the UP, Bihar, Chhattisgarh, WB, MP and Nepal markets. Moreover, to cash on the ongoing boom, company is implementing a Rs.100-cr. expansion plan involving setting up of two fibre cement sheet plants each of 120,000 TPA capacity and one AAC block manufacturing facility. With this its capacity for sheeting will stand enhanced to about 9,00,000 TPA.

In the last fiscal, the company sold its loss-making heavy engineering division to Titagarh Wagons for a consideration of Rs.1 lakh as a going concern and also amalgamated the south-based group company Malabar Building Products to consolidate its operations. With construction activity expected to accelerate further in coming years, its AAC Blocks and Aerocon Panels have entered into a new era and has a huge potential. For FY06, its sales grew by 10% to Rs.450 cr. whereas net profit quadrupled to Rs.38 cr. registering an EPS of Rs.53. But due to not so good numbers for the June’06 quarter, its share price tumbled down sharply below Rs.300 from a high of Rs.620. However, due to increased capacity and better utilization, it is expected to close FY07 with turnover of Rs.525 cr. and PAT of Rs.45 cr., which translates into EPS of Rs.60 on its equity of Rs.7.50 cr. Hence investors are recommended to buy at current levels with a price target of Rs.450 (50% appreciation) in 12-15 months.

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.