G M Breweries Ltd. - Rs.120.00

G M Breweries Ltd. (GMBL) was originally incorporated as a private limited company in Dec.'81 but was subsequently converted into a public limited company in Aug.'90. The company was promoted by Mr. Jimmy Almeida, Managing Director & CEO of the company. Today, GMBL is the single largest manufacturer of country liquor in Maharashtra and enjoys virtual monopoly in the districts of Mumbai and Thane. Earlier, it used to make and market Indian made foreign liquor (IMFL) like brandy, rum, whisky etc as Pioneer Special Doctor Brandy, Hot Shot Rum and Reporter’s Choice Whisky but due to competitive market conditions, it has been concentrating on country liquor for the past five years. Its country liquor brands are GM Doctor, Tango and Punch, which are all fast-selling.

GMBL’s plant is located in Thane and it has the facility to blend and bottle both IMFL and country liquor. Interestingly, al products are manufactured using in-house know-how and no outside technology is being used in manufacturing. With the recent installation of additional bottling lines, the capacity of its IMFL & country liquor stands at 1.43 cr. bulk litres & 5.47 cr. bulk litres respectively. Since the plant worked at 75% capacity utilization in FY06, there is tremendous potential to utilize the balance capacity by penetrating into the interiors of Maharashtra.

Interestingly, the company funded the entire expansion plan through debt and internal accrual and hasn’t diluted its capital since its IPO in 1994. Still, its debt equity ratio is quite decent at 1:1. What’s more, it has an uninterrupted record of dividend payment from the day of listing. GMBL made sharp progress in FY06 as sales more than doubled to Rs.155 cr. and net profit stood at Rs.13 cr. compared to Rs.0.75 cr. in FY05. It has reported very encouraging numbers the first half of FY07 as well. Sales improved by 17% to Rs.81.50 cr. but profit doubled to Rs.6 cr. Notably, its OPM stood enhanced to 14% compared to 10% in the corresponding previous half year. Assuming the same trend, it could end FY07 with sales of Rs.185 cr. and PAT of Rs.13.50 cr. leading to an EPS of Rs.15 on its equity of Rs.9.40 cr. At a reasonable discounting of 12 times, its share price can easily touch Rs.180 (40% appreciation) in 9-12 months. On an optimistic note, the scrip has the potential to break its earlier high and cross Rs.275 mark in 18-24 months. It’s a strong buy for medium as well as long-term.

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Most probably by next week, the ban on sugar export will be lifted which will trigger some action in sugar scrips. Dharani Sugar, a small south based sugar company is a good turnaround story. Due to better management and higher price realization, company’s OPM has improved substantially in the last three quarters. Besides from this crushing season, company has expanded its crushing capacity to 4000 TCD from 2500 TCD. It is also augmenting its distillery production to 90 kl a day from the present capacity of 60 kl and is setting up a 15-MW cogeneration unit. For Sept qtr its sales dropped by 15% to 75 cr on account of ban on exports but its NP zoomed to 11 cr compare to 1 cr last year. On a half yly basis its sales and NP stood at 170 cr and 19 cr respectively. Hence for full year we expect it to report total revenue of 380 cr and PAT of 30 cr which works out to an EPS of 12 Rs on current equity of 25.40 cr.

D&H Welding Electrodes is one of an established manufacturer of welding consumables inclding submerged arc welding flux and wires, low heat input welding alloys, welding trans and rectifier, manual metal arc electrode etc. For Sept qtr it reported stunning nos with sales shooting up by 70% to 8.50 cr and NP jumped up 90% to 0.70 cr. Company has chalked out an ambitious plan to grow in the export market and has already executed its first ever export order. Consdiering its half yly nos it may report total revenue of 32 cr and PAT of 2.50 cr. This leads to an EPS of 4 Rs on equity of 5.61 cr. As the scirp has seen a smart rally recently from 19 Rs, investors are recommended to buy at sharp dips and hold it for a year or two to get handsome returns.

From the last quater Ramsarup Industries - producers of steel wire and TMT bars, has started executing laying of transmission lines in Rajasthan. It is also expanding its product portfolio to manufacture medium structurals like angles, channels and beams etc. For the Sept qtr its revenue grew by 12% to 272 cr but NP jumped more than 50% to 8.20 cr. Notably, company has chalked out massive expansion plan of 774 cr to pump its capacity substantially by 2010. It is also eyeing some sick state PSUs in West Bengal and is looking for acquisition of wire manufacturing facility in the southern or the western parts of India. For FY07 it is estimated to clock a turnover of 1250 cr and NP of 40 cr. This works out to an EPS of 23 Rs on current equity of 17.50 cr. Although basically it’s into metal sector but it deserves a better valuation, being an ancillary to infrastructure/power industry.

RS Software, a SEI CMM Level 4 company is a leader in providing quality software services and consulting to international players in the electronic payments space. It clientele include high profile global players in the payment cards industry, insurance, manufacturing and in the retail/logistics sector. For the Sept qtr its revenue increased by 15% to 28 cr but NP spurted by 70% to 2.30 cr due to lower depreciation charges. The half yly nos are also quite encouraging with Sales and NP of 53 cr and 4.40 cr respectively. Recently, company made a right issue in the ratio of 1:2 @ 65 Rs to fund its expansion plan. With its domain focus in working with core applications of authorization, clearing and settlement of high speed electronic payment transactions, the company is poised to growth rapidly in coming years. For FY07 it is expected to report a topline of 115 cr and PAT of 10.50 cr. That works out to EPS of 12 Rs on fully expanded equity of 8.40 cr. Share price has the potential to hit a century in 9~12 months.

In the cement space, Anjani Portland Cement seems a good bet having captive limestone mine, captive power generation unit and state-of-the-art technology from Nihon of Japan. Its manufacturing plant having a capacity of 3 lakh tonne is located at Nalgonda district in AP and produces 53 grade, 43 grade and Portland Pozzolona cement from high grade limestone. For Sept qtr its sales increased by 60% to 18 cr whereas its NP stood at 2.25 cr compare to Net loss of 1.20 cr last year due to better price realization. As the cement prices are expected to remain firm even in south India, company can report a topline of 80 cr and bottomline of 10.50 cr ie EPS of 6 Rs on equity of 18.40 cr. Accumualte at declines only.

Gandhi Special Tubes - Rs.143.00

Gandhi Special Tubes Ltd. (GSTL) was established in 1985 under technical collaboration with Benteler of Germany who supplied most of the critical machines and was involved in the installation and commissioning of the plant. Today, it is among the very few companies that manufacture specialty welded and seamless steel tubes for automobiles and refrigeration. In fact, the company is the pioneer in introducing cold drawn seamless steel tubes normalised/annealed in bright annealing furnace in India. It also produces small diameter welded steel tubes in range of 3.1 to 12.7 mm with inside/outside copper or zinc plating. Incidentally, it has also started manufacturing cold formed tube nuts for fuel Injection tube assemblies as well as hydraulic tube assemblies.

GSTL’s main plant is located at Gujarat and smaller unit is in Pune. It has the latest facilities including CNC machines for bending, hydraulic head forming, welding/brazing, flushing, pressure testing etc. The company also manufactures tubular components like condensers, compressor parts, fuel injection tube assemblies, hydraulic tubes etc. The company has an enviable clientele and is a preferred supplier to reputed manufacturers such as Tata Motors, Godrej, Maruti Udyog, M&M, Bajaj Auto, Imperial Auto, L&T, BHEL, Kirloskar, Rexorth, Carrier, Voltas, Daewoo, Bluestar, LG, Samsung etc. Since all these biggies are on a massive growth path GSTL has a promising future. Apart from selling its products all over India, the company also exports to Germany, UK, South East Asian countries etc. In order to meet the increase in demand for its product, the company is undertaking an expansion project by installing a bright annealing furnance from Germany with a capacity of 2400 MT per annum. This project is expected to be commissioned within this fiscal. To enhance its global presence, the company is exploring the possibility of tapping the European and US markets where production costs are substantially higher. To avail of to various tax benefits, GSTL has installed two windmills with capacity of 1.25 MW each at Dhalgaon in Maharashtra at an investment of Rs.11.50 cr.

Financially, GSTL is a debt free company with a good dividend payment record for the last 10 years. For FY06, its sales improved by 20% to Rs.55.50 cr. while net profit shot up by 65% to Rs.16 cr. on lower tax provisions. For the September’06 quarter, its revenue increased by 20% to around Rs.15 cr. and profit grew by 25% to Rs.3.40 cr. With automobile, refrigeration and general engineering industries displaying healthy signs of growth, GSTL is expected to report a top-line of Rs.60-65 cr. and bottom-line of Rs.16 cr. This works out to an EPS of Rs.22 on its equity of Rs.7.35 cr. The 52-week high/low of the scrip is Rs.208/Rs.100 respectively. At a reasonable P/E ratio of 8, the share price has the potential to touch Rs.180 and on an optimistic P/E ratio of 12, it can cross Rs.260. Hence investors are advised to accumulate this scrip at sharp dips for a price target of Rs.180 (30% return) in 12 months.

APM Industries - Rs.36.00

Established in 1974, APM Industries Ltd. (APM) belongs to the Rajgarhia Group with diverse interests in textiles, refractories, papers, finance, alumina products etc. The company is led by Mr. R K Rajgarhia, chairman & managing director and the promoters have proved their mettle by making Orient Abrasives, a group company, as India’s largest manufacturer of Calcined and Fused Alumina products. APM, too, grown constantly since inception and is today a well-known name in the textile yarn industry. It is mainly engaged in manufacturing and marketing of synthetic and blended yarn like polyester/viscose, acrylic yarn etc. It sells its yarn under the brand ‘Orient Syntex’. APM’s manufacturing facility is located at Bhiwadi in Alwar district of Rajasthan with its head office in Kolkata and corporate office in Delhi. Thus it has presence in North, West and the East.

From a modest beginning with few spindles and limited capacity, APM today has an installed capacity of over 40,000 spindles. Due to its constant modernisation and increased productivity, its capacity was raised from 37952 to 41984 spindles in FY04, to 43136 spindles in FY05. Currently, APM is implementing a capex plan under the Technology Upgradation Fund Scheme (TUFS), wherein the spindlage will stand enhanced to 48320 spindles within this fiscal. The company also has a captive power plant of around 5 MW but due to the rise in fuel oil price it alternatively buys power from Rajasthan State Electricity Board. Recently, the company entered the export market in a small way but intends to increase its presence in coming years. For the domestic market, it has been regularly developing new products for exporters of fabrics, furnishings and fancy yarn.

Fundamentally, the company is quite strong and has not diluted equity since more than a decade. On a tiny equity of Rs.4.32 cr., it has huge reserves of Rs.28 cr. leading to a whopping book value of Rs.75. Its gross block stands at Rs.92 cr. against which it provides depreciation of Rs.5.50 cr. As on 31st March’06, its total debt was Rs.45 cr. whereas it had an inventory of Rs.20 cr. For so many years, the promoters have maintained their stake above 66%, which is a good indication. For the six months ending 30th September’06, sales grew marginally by 6% to Rs.76 cr. but net profit zoomed 90% to Rs.2.90 cr. on the back of lower interest cost. This means it already clocked an EPS of Rs.7 for the first half. However on a conservative note, APM may end FY07 with a turnover of Rs.155 cr. and net profit of Rs.4.25 cr. Hence with an expected EPS of Rs.10 and CEPS of Rs.23, the scrip is trading extremely cheap even in this all time high market. Although the dividend payout is low, the company has been paying uninterrupted dividend since the last 12 years. A pure bargain hunt, this scrip is bound to double in a 12-15 months.

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Zenith Fibres Ltd. (Code:514266) (Rs.27.05) is the only company in India manufacturing the entire range of polypropylene staple fibre which is extensively used in filter grade fabrics, flooring and automobile carpets, geotextiles, knitted materials, thermal- bonded fabrics, hygiene products, construction industry etc. It is also into spinning and marketing of 100% polypropylene yarn. Last week, it came out with decent set of numbers for Sept’06 quarter registering 25% increase in sales at Rs.9 cr. and net profit grew by 30% to Rs.0.75 cr. Interestingly, the company is doling out hefty dividend at a payout ratio of more than 35% since the last four years. For FY06, it gave 15% dividend, which works to a whopping yield 6% at CMP. For FY07, it is expected to clock a turnover of Rs.32 cr. and net profit of Rs.2.20 cr. i.e. EPS of Rs.4 on its equity of Rs.5.10 cr. With a current market cap of Rs.13 cr. and huge dividend yield, it’s a pure value buy.

In the current overheated market, Ador Fontech (Code:530431) (Rs.84.10) is among the safest and risk-free engineering scrip with a great dividend yield as well. Its 52-week high/low is Rs.151/Rs.75 and is currently trading around Rs.85. With Rs.4 as dividend, the yield works out to around 5% and the downside is almost negligible. Its user industry segments such as steel, metallurgical complexes, mining, cement, power etc. have ambitious expansion plans, which augur well for the company. For the Sept’06 quarter, both its turnover and net profit grew by 15% to Rs.19.50 cr. and Rs.1.20 cr. respectively reporting a quarterly EPS of Rs.3.40. To maintain growth, the company is constantly adding new customers and new products and services needed by them. Hence for FY07, it can clock a turnover of around Rs.80 cr. and profit of Rs.4 cr., which leads to an EPS of Rs.12 on its tiny equity of Rs.3.50 cr. The scrip can easily appreciate by 50% in a year’s time.

On the back of robust demand, paper prices are ruling high and another price hike is around the corner with BILT having already raised paper prices by Rs.300-1000 per tonne. Rama Paper (Code:500357) (Rs.30.15) has recently increased its capacity to 44500 TPA by adding some balancing equipment and has plans to augment it further to 79500 TPA. For the September’06 quarter, sales improved by 20% to Rs.22 cr. whereas PBT increased by 80% to Rs.2.90 cr. It is also in the process of installing a 6 MW power plant for captive consumption, which will reduce its power cost substantially. For the full year FY07, it may report sales of Rs.90 cr. with net profit of Rs.8 cr., which means an EPS of Rs.11 on its equity of Rs.7.60 cr. It is also expected to return to the dividend paying list from FY07. With 52-week high/low as Rs.44/Rs.20 and a market cap of merely Rs.21 cr., it is available extremely cheap and can double in 9-12 months. A screaming buy!

Gujarat Apollo Equipment (Code:522217) (Rs.167.65) is a leading manufacturer of Asphalt based road construction & maintenance equipment and produces the entire range 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. It has reported encouraging numbers for September’06 quarter. Sales jumped by 35% to Rs.29 cr. and net profit has spurted by 50% to Rs.3.60 cr. On half-yearly basis, the picture is much rosier with Sales improving by 60% to Rs.63 cr. and net profit zooming by 80% to Rs.6.80 cr. The company, in technical collaboration with Wheelaborator Clean Water Systems of USA, controls 60% of the market segment in which it operates. With a healthy order book position, it may end FY07 with top-line of Rs.140 cr. and bottom-line of Rs.14 cr. i.e. an EPS of Rs.20 on its equity of Rs.7 cr. Assuming a reasonable discounting by 14, its share price can shoot upto Rs.280. If finalized, its 1:2 right issue at Rs.100 will be icing on the cake.

Recently, Syncom Formulation (Code:524470) (Rs.48.95) came out with satisfactory set of numbers. Sales grew by 17% to Rs.17 cr. but net profit dipped by 9% to Rs.1.85 cr. due to lower margin. The expansion cum modernisation being carried out at its Pithampur plant is almost complete. Meanwhile, the company is now focusing more on the domestic market and has set up a new sales division in the name of ‘Cratus Life Care’. For the full year FY07, it can register sales of Rs.65 cr. with net profit of Rs.5.50 cr. This works to an EPS of Rs.9 on its fully-diluted equity of Rs.5.92 cr. It has an interrupted track record of dividend for the last 10 years and has paid 15% for FY06. Earlier, the company had raised capital through preferential allotment of shares at Rs.90 and Rs.102 and recently at Rs.54. The scrip has bottomed out at current levels and the risk of further downfall is negligible.