Shivalik Global Ltd - Rs.27.00

Established in 1997, Shivalik Global Ltd. (SGL) a vertically integrated multi-product company covering the entire textile value chain starting from the processing of yarn to the manufacture of readymade garments, has grown at an enviable pace and is today placed in the select club of textile export oriented units in the country. Besides its own manufacturing for direct exports, SGL is also acknowledged as a leading processor. Its apparel & export division exports 100% of its production to USA, EU, Canada, and non-quota countries. PVH, Arrow, Woolrich, Motherhood, BHS, John Forsyth, Basic Red are few of its international customers.

SGL’s manufacturing plant in Faridabad has complete in-house divisions for knitting, dyeing and processing, yarn dyeing, woven process, sewing thread and garments manufacturing and equipped with modern technologies. To increase its production capacity and fund its expansion plan, SGL raised Rs.60 cr. in March’06 through an IPO. But instead of undergoing an expansion, it took over an existing 6-year old integrated textile unit, Shyam Tex International, at book value for a consideration of Rs.25.70 cr. and paid through a mix of cash and stock. With this acquisition, its annual production capacity gets enhanced to 3.9 million pieces of garments, 58 million metres of dyeing, printing and processing of woven fabric, 5400 MT of knitting & 8200 MT of dyeing and processing of knitted fabrics. Moreover, SGL is re-locating its plant for which it is acquiring 15 acres of land from the Government of Haryana and has already made 10% initial payment amounting to Rs.1.51 cr. Thereafter, its Faridabad land of 5 acres, which is situated in a prime location, will be developed for commercial use.

With such large integrated facilities, creative designs, product development, strong marketing network and a large pool of technical and managerial talent, SGL is well poised to capitalise on the unfolding opportunities in textiles and knitted garments both in the domestic and global markets. Incidentally, after hitting a high of around Rs.90, the share price has tumbled down sharply due to the poor market sentiments. However, the company is quite good fundamentally and is estimated to report sales of Rs.300 cr. and profit of Rs.13 cr. for FY07 on consolidated basis. This works out to an EPS of Rs.5 on its expanded equity of Rs.26 cr. Considering SGL’s plan of developing its Faridabad property, which may fetch around Rs.350 cr. in FY08 or FY09, the scrip is grossly undervalued at the current market cap Rs.75 cr. Investors are strongly recommended to buy at current levels because even if we exclude the real estate story, the scrip has the potential to touch Rs.40 (40% appreciation) in a year’s time.

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Belonging to the L.N. Agrawal group, Suryavanshi Spinning Mills Ltd. (Code: 514140) (Rs.50.45) is one of the most modern hi-tech spinning mills of South India with an installed capacity of more than 1,00,000 spindles. It is also engaged in knitting, yarn dyeing, fabric dyeing, processing and manufacturing of fashionable garments. A few months back, it raised Rs.13 cr. by a preferential allotment of 15 lakh shares at Rs.87, which will be utilized to add 35,000 spindles at a separate unit and for repayment of high cost debt. Besides, the management is also planning to merge its other group company Suryavanshi Textiles engaged in garment manufacturing with itself. For FY07, it may clock a turnover of more than Rs.300 cr. with net profit of around Rs.10 cr. i.e. EPS of Rs.14 on its equity of Rs.7.15 cr. At the current market cap of Rs.37 cr., it’s one of the cheapest textile scrips.

Due to the strong demand, steel companies continue to raise the price of galvanized steel whereas zinc prices have cooled off from their recent highs. This will have positive effect on National Steel & Agro (Code: 513179) (Rs.21.50), which has a capacity of 2,10,000 TPA of galvanized steel apart from 2,40,000 TPA of cold roll steel capacity. For the June’06 quarter, sales increased by 30% to Rs.440 cr. and net profit grew by 7% to Rs.4.50 cr. At the current market cap of Rs.70 cr., this Ruchi group company is available for a song. Once the company returns to the dividend list, the scrip will attract better valuation and may easily double from hereon. For FY07, it may clock a turnover of Rs.2200 cr. and net profit of Rs.20 cr. which will lead to an EPS of Rs.6 on its equity of Rs.32.60 cr. With cash EPS of more than Rs.13 and book value of Rs.52, the scrip can give handsome returns if held for 15-18 months.

Sanjivani Paranteral Ltd. (Code: 531569) (Rs.33) has steadily progressed by manufacturing high quality medicines mainly injectibles since 1998 for many reputed companies and has emerged as one the biggest manufacturers of injectibles in the country. Its manufacturing facility which is WHO GMP certified is located at Taloja in Maharashtra and can manufacture high grade antibiotics and life saving injectibles used in various pre and post operative infections. For the June’06 quarter, its sales grew by 35% to Rs.17 cr. whereas net profit increased by 50% to Rs.1.30 cr. It is now planning to launch anti-cancer products in India through a tie-up with an European multinational. For FY07, it is expected to report a turnover of Rs.70 cr. and PAT of Rs.5 cr. which will lead to an EPS of Rs.8 on its current equity of Rs.5.90 cr. This fundamentally strong scrip is thus trading cheap and has the potential to touch Rs.60 levels in the medium term. The main trigger for the share price will be the merger with its other group company, Sanjivani Pharmaceuticals.

Due to the buoyancy in Sugar, Oudh Sugar Ltd. (Code: 507260) (Rs.112), a K.K. Birla group company, is implementing an aggressive expansion plan involving capital expenditure of Rs.480 cr. From the coming crushing season, its capacity will be expanded to 22000 TCD from 18000 TCD currently. Besides, it is in the process of setting up a green-field plant in Gorakhpur (U.P.) with a capacity of 7000 TCD. Hence post expansion, it will have a consolidated crushing capacity of 29000 TCD, captive power generation of 30 MW and two distilleries of 75 kilo litres per day. For the year ending 30th June’06, its top-line grew by 40% to Rs.501 cr. whereas its net profit zoomed up 300% to Rs.45 cr. registering an EPS of Rs.25 and it declared Rs.4.50 per share as dividend giving yield of 4% at CMP and is currently trading cum dividend. To fund its expansion, it may raise money through the equity route, which may dilute its share capital to Rs.20.20 cr. For FY07, it may clock a turnover of Rs.550 cr. and net profit of Rs.45 cr. A best bet in the sugar sector.

To meet the growing demand for its products in the domestic and export markets, Plastiblend India (Code: 523648) (Rs.136) has embarked on a major expansion. It is expanding the capacity at its existing facilities in Daman from 24,000 to 35,000 TPA in phases by March’07 and is also setting up a new unit at Uttaranchal with an initial capacity of 5,000 TPA, which will be again operational by March’07. The whole capex of Rs.20 cr. will be funded by internal accruals only as it is a cash rich and debt-free company. It reported fantastic numbers for the June’06 quarter with sales improving by 45% to Rs.29 cr. and profit grew by 40% to Rs.3.70 cr. It is estimated to end the current year with a top-line of Rs.100 cr. and net profit of Rs.13 cr. i.e. EPS of Rs.20 on its equity of Rs.6.50 cr. Notably, the company has a strong track record of handsome dividend payout of above 30% and a current dividend yield of around 5%. Buy at sharp dips.

Aarti Industries - Rs.38.00

Established in 1984, Aarti Industries Ltd. (AIL), is a leading chemical company manufacturing benzene-based downstream and derivative products and has a diversified portfolio divided into four business segments viz. Basic Chemicals, Speciality Chemicals, Agro Chemicals and Pharmaceuticals. AIL is among the largest manufacturers of benzene based intermediates in India with more than 50% market share. Its Inorganic Acid division, manufactures sulphuric acid and its derivatives, in Speciality Chemicals it produces alkylated amines and toluidines, chloro phenols, fluoro compounds and other specialty chemicals. It also makes various bulk pharmaceuticals and agro chemicals comprising of Quinalphos & Carbendazim. Presently, AIL manufactures more than 100 products that are exported to around 65 countries including USA, UK, Germany, Spain, Italy, Switzerland, Belgium, Japan, Korea, China, Russia, etc. It also has representatives in USA and a subsidiary company in UK to provide better services to its overseas customers.

AIL has five manufacturing units, which are of global scale and are situated in Gujarat & Maharashtra. They are highly integrated coupled with cost-efficient manufacturing process at low capital investment. In addition to the Single Super Phospate (SSP) fertilizer manufactured from a by-product, the company has set up a unit to produce Di-calcium Phosphate - a veterinary item from dilute sulphuric acid. Its API Division is managed by its subsidiary Aarti Healthcare which focuses on research and manufacturing, APIs/ advanced intermediates in niche segments viz: anti–hypertensive, anti–asthamatic, anti-cancer, anti-inflammatory, anti-allergic, anti-diabetic, anti-depressants and anti-thalassaemic. As a measure of forward integration, AIL has started contract research and custom synthesis activities at its new plant in Vapi. It is also developing customised products under Secrecy Agreements. Recently, it commenced operation at Block–I of its Tarapur USFDA compliant facility and has started exporting validation batches to the regulated markets. Meanwhile, it is in the process of completing the work at Block-II, III and IV during the year and may start commercial production in near future. Further, it is setting up a new project for downstream product called Para Amino Phenol (PAP) at Jaghadia, Dist. Bharuch in the state of Gujarat.

Importantly, raw materials account for nearly 70% of the company's manufacturing costs and Benzene accounts for one-third of that. Its margins were, therefore, under pressure due to the rising crude oil price. But now that the crude oil price has slipped below $62, it may report better margins in coming quarters. Although, its first quarter numbers were not that encouraging, still on the full year basis it could report sales of Rs.825 cr. with net profit of Rs.55 cr., which translates into an EPS of Rs.7 on its fully diluted equity of Rs.37.75 cr. Besides, it’s an investor friendly company with a good dividend payout ratio. Investors are recommended to buy with a price target of Rs.60 (70% appreciation) in 15-18 months.

Syncom Formulations - Rs.49.00

Established in 1988, Syncom Formulations India Ltd. (SFIL) is one of the fastest growing pharmaceutical companies offering more than 250 products in various dosage forms including tablets, capsules, dry syrups, ointments/creams, dry powders, injections and ampoules. In the branded allopathic and OTC segment, SFIL owns some well-known brands including Qudermis, Syncal, Aciril, Fastac, Nutone, Profeed, Ceftacom etc. Besides allopathic drugs, the company has also taken efforts to bring to mankind the goodness of ‘Ayurveda’, the traditional Indian Medicinal Science through its unique range of herbal products used for various therapeutic and prophylactic purposes. Saloni, Edicare, Ecziguard, Pylgel, Attom, Shilajit, Livoset, Candid, Fastac, Colo are some of its successful herbal brands.

SFIL’s ultra-modern state-of-the-art formulation unit is situated at Pithampur, District Dhar in Madhya Pradesh. Being a WHO - GMP certified facility, it is equipped with the latest machineries and all production activities follow high quality standards of Good Manufacturing Practice (GMP). Presently, SFIL is exports to more than 35 countries worldwide but mainly to Asia, Africa, CIS, Russia and Latin American countries. To explore huge potential, it has made an aggressive entry into branded herbal markets of South Africa and Europe. It has also entered into long-term sales contracts with its distributors in Vietnam, Cambodia, Philippines and Nigeria and is finalizing few distributors in Kenya, Uganda, Sudan, Russia, Ukraine, Moldova and the Domino Republic. SFIL also offers comprehensive contract manufacturing services including pilot plants, technical services, quality control and regulatory services for both domestic as well as foreign companies. It is also negotiating with a Latin American company for contract manufacturing of their brands.

To take advantage of the burgeoning contract manufacturing activities, SFIL is making substantial investment in a new export-oriented unit in the Special Economic Zone (SEZ) at Pithampur near Indore. Apart from contract manufacturing, the company has prepared a blueprint to tap the virgin markets of West Africa by concentrating on in-licensing arrangements with various international players. It is also in the process of expanding its manufacturing and godown capacity with a capex plan of around Rs.5 cr. Due to huge tax incentives, it is installing two Wind Mills of 0.60 MW each at Sangli, Maharashtra with a total capital investment about Rs.7 cr. and has entered into an agreement with the MSEB for power purchase by them. In the last fiscal, the company raised more than Rs.5 cr. through preferential issue of shares around Rs.100 per share. Further it is planning to raise Rs.1.60 cr. by making preferential allotment at Rs.54 per share. For FY07, it is expected to clock a turnover of Rs.55 cr. with NP of Rs.7 cr. which leads to an EPS of Rs.12 on its fully-diluted equity of Rs.5.92 cr. Investors are advised to buy at CMP as the scrip has the potential to touch Rs.65 in the short term and Rs.90 in 12-15 months.

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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.