Aftek Ltd - Rs.53.00

Established in 1986, Aftek Ltd. (erstwhile known as Aftek Infosys Ltd.) is a technology-driven company offering Intellectual Property (IP) based products, solutions and services. It specializes in enterprise business management with core competency in communication arena. It has developed and acquired a huge wealth in terms of IP and is reaping rich dividends now. Its flagship software product called ‘Powersafe’ has been well-accepted in the international market. Powersafe is a gold-certified CA smart solution basically used in energy management as it integrates UPS networks with e-business management frameworks like CA Unicenter, HP Openview etc. Its electronic ticketing machines coupled with its ‘Depot Manager’ software fetched excellent response from public and private road transport organization especially in Europe. Its Digital Home Gateway revolutionised the housing industry by catering to security, safety, automation, entertainment, information and communication. It also has user friendly solutions for industry automation like material handling and access management and markets hi-tech products like Wireless gateway black box, VOIP-PSTN gateway device and small applications like prescription writer, panel simulator etc.

Aftek among the few Indian companies to specialise in Automotive Telematics Embedded Technologies, which is a next generation technology and impacts all aspects of the automotive user experience from human-machine interface, navigation, mapping, traffic information, safety and security aids, mobile internet to remote vehicle diagnostics and control. The company already provides these services to BMW – one of the world’s biggest and most prestigious automobile manufacturers. Presently, it is working on development of Consumer Portal for residential, commercial and industrial consumers, which will act as an intelligent meter and besides measuring the electricity consumption, it will proactively manage the load on the grid in terms of lighting, heating, ventilation, air-Conditioning based on the pre-determined policies and real-time conditions like load on power grid, ambient temperature, power price, etc. Also since last one year, it is developing software called SEPA (Search Engine Performance Advertising) which is state-of-the-art, cutting edge search technology for sponsored links. Incidentally, Aftek is the only Indian company being selected as one of the 200 companies world-wide for innovation, technology, financing and entrepreneurial activity by Red Herring - a renowned US-based media company.

Apart from its organic growth, Aftek is betting big inorganic growth too. It has a wholly-owned subsidiary in the USA called Opdex, which focuses on Energy Management space. Arexera Technologies GmbH is also a wholly-owned subsidiary in Switzerland which specializes in ECM (Enterprise Content Management) and offers a suite of products for Unstructured Data Management. Importantly, via Arexera, Aftek holds 33% stake in Seekport which is the third largest search engine after Google and Yahoo in German language apart from being very popular in French, Italian, Spanish and English. It will also be available in Arabic and some Indian languages in the near future. Aftek has a 25% stake in Digihome, which specializes in the Intelligent Home Management market. It also holds nearly 17% in V-Soft, which handles marketing and sales of the company’s professional services in North America. It also has a strategic 15% stake in Elven, a specialized player in ASIC (Application Specific Integrated Circuit) and FPGA (Field Programmable Gate Array) technologies in the VLSI (Very Large Scale Integration) space. These companies use Aftek’s intellectual properties and/or professional services and thus bring significant value to the company.

Financially, Aftek is debt-free and cash rich company. As on 31st Mar.’06, its cash holding was a whopping Rs.330 cr. (including Rs.75 cr. of unutilized FCCB money) whereas its current market cap is around Rs.475 cr. only. Its strategic investment in other companies including Arexera stands at Rs.118 cr. It has massive reserves of Rs.460 cr. against its small equity of Rs.17 cr. leading to a book value of Rs.56. Last fiscal, the company raised around Rs.160 cr. by allotting 3450 FCCB of US $10000 each to fund an acquisition. Of these, 2270 FCCBs have been converted into equity shares at Rs.94 per share whereas the balance 1180 will be converted at the revised conversion price of Rs.75 per share. Interestingly, possibly to increase their stake, the promoters have allotted 37 lakh share warrants to themselves to be converted at Rs.120 per share and they have already paid 10% of the amount. For FY06 ending 31st Mar.’06 (9 months only) it reported sales of Rs.193 cr. with net profit of Rs.67.50 cr. For H1FY07, its topline grew by nearly 30% to Rs.155 cr. and profit increased by 55% to Rs.59.50 cr. Hence for the full year FY07, it may clock a turnover of Rs.325 cr. with net profit of Rs.108 cr., which works out to an EPS of Rs.11 on its fully diluted equity of Rs.19.50 cr. Thus this company is trading extremely cheap and can easily shoot up by 50% in 6-9 months. Buying is strongly recommended at CMP.

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Tyche Industries (Code:532384) (Rs.32.65) is a custom contract/toll manufacturer of specialty chemicals & intermediates. It is planning to move up the scale as a generic pharmaceutical company and has obtained a drug licence for Sertraline HCI, Venlafaxine HCI, Tamsulosin HCI Sumatriptan Succinate, Propofol, Losartan Potassium, Phenyl Ephrine HCI and Propafenone. It made a sharp turnaround in FY06 as its OPM shot to 24% from 9% in FY05. Maintaining the trend, it reported robust numbers for H1FY07 as sales doubled to Rs.12.60 cr. and net profit jumped up 80% to Rs.2.40 cr. It is planning to enter the regulated markets by filing DMFs with the regulatory authorities in USA and Europe and is also in the process of applying for WHO GMP licence. For FY07, it may register a top-line of Rs.28 cr. and PAT of Rs.4.75 cr., which will lead to an EPS of Rs.5 on its equity of Rs.9.84 cr. Buy on declines

In spite of threats from cheap Chinese import, Murudeshwar Ceramics (Code:515037) (Rs.115.60) continues to report an encouraging topline and bottomline. For Sept.’06 quarter, its sales grew by 35% to Rs.62 cr. whereas net profit increased by 50% to Rs.8.50 cr. Importantly, company is maintaining a healthy profit margin of more than 30%. Last fiscal, it completed the capacity expansion for manufacturing Vitrified Tiles at both Hubli and Karaikal taking the installed capacity to 30,00,000 sq. mt. and 33,00,000 sq. mt. per day respectively. In December’06, the ceramic tile unit at Hubli has become operational with a capacity to produce 12,000 sq. mt. per day. Hence for FY07, it is estimated to clock a turnover of Rs.240 cr. with net profit of Rs.32 cr., which leads to an EPS of Rs.18 on its fully-diluted equity of Rs.17.50 cr. Recently, the company has allotted around 25 lakh preference shares to be converted into equity shares at Rs.124 per share to fund its expansion plans.

Indo Borax & Chemicals Ltd. (Code:524342) (Rs.37) is synonymous with Boric Acid and is referred to as a benchmark for any comparisons made in the industry. It operates a modern boric acid and borax plant at Pithampur near Indore in M.P. In the last two quarters, it reported fantastic numbers and closed the half year ending 30th Sept.’06, marginally improved sales of Rs.10.30 cr. (up by 5%) but net profit increased by 25% to around Rs.2 cr. This is in spite of a sharp reduction in ‘other income’ to Rs.0.27 cr. from Rs.0.93 cr. last year. Hence its OPM has improved dramatically to 28% from 18% in FY05. Even on a conservative basis, the company is expected to clock a turnover of Rs.22 cr. with net profit of Rs.2.50 cr., which leads to an EPS of Rs.7 on small equity of Rs.3.50 cr. The scrip has the potential to once again test its 52W high of Rs.49. However, since boron minerals are not found in India and the basic raw material has to be imported, only risk bearing investors can buy on sharp dips.

Promoted by Andhra Sugars and APIDC, Andhra Petrochemicals (Code:500012) (Rs.12.80) main business is the manufacture and sale of Oxo-Alcohols and it has an installed capacity of around 42,000 MTA. Its products are witnessing strong demand and the company is planning to increase capacity in the near future. Incidentally, as the entire feedstocks and fuels used are petroleum products, the sharp fall in crude oil price will have a very positive impact on its bottom-line going forward. For the Sept.’06 quarter, it has reported stunning numbers. Sales spurted by 60% to Rs.71 cr. whereas net profit shot up by 560% to Rs.8.70 cr. compared to Rs.1.30 cr. last year. Notably, its OPM doubled to 25%. The company has also initiated steps to install Uninterrupted Power Supply (UPS) system to feed all essential equipment drives which will lead to substantial savings in power cost. Assuming an OPM of around 20% for the full year, it can register total revenue of Rs.250 cr. with net profit of Rs.23 cr. This means an EPS of Rs.3 on its equity of Rs.85 cr. Accumulate at declines.
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Amarjothi Spinning Mills Ltd - Rs.38.00

Incorporated in 1987, Amarjothi Spinning Mills Ltd (ASML) was promoted by the well-known Amarjothi Group of Tirupur, which has diverse interest in finance, power, education, real estate and textiles. It has emerged as a major yarn producer with special emphasis on mélange yarn. Melange means mixture in French and the company has perfected the art of manufacturing yarn, which gives mixed effect of colour in the yarn. It is a 100 % cotton two tone yarn and could be blended with most fibres like polyester, viscose, modal, wool, silk, polynosic, tencel, lycra etc. Although the company derives major revenue by catering to the local Tirupur market it also exports to Europe, Mauritius, Sri Lanka, Israel, Egypt, Turkey, Hong Kong, Malaysia, Philippines, Korea, China, Japan, USA, European and South African Countries.

ASML’s plant is located at Pudusuripalayam in Tamilnadu and has a capacity of around 40,000 spindles, which results in annual production of around 48,00,000 MT of yarn. It also has an in-house dyeing unit at Perundurai, Erode with capacity for fibre dyeing upto 3000 kgs per day. Moreover, its three windmills with a total capacity of 4.95 MW are in operation generating a substantial portion of power requirement of its spinning mill. ASML has been improving the share of its value added yarn in the market in the form of dyed fibre yarn, dyed cotton yarn, PC yarn, etc. It offers competitive price due to low power cost through windmills, low interest cost, low processing cost, etc. Importantly, the company has obtained ISO 9001:2000 certification, MGMT.SYS RVA C 216 Certification for quality management and systems and OEKO TEX STANDARD-100 certification for not using any harmful substances in the product.

Due to market uncertainties and not so aggressive management, the proposed expansion plan of raising the spinning capacity to 58,000 spindles was put on hold in spite of loans being sanctioned for the purpose. The modernization was also restricted to essential machinery and the balance kept in abeyance. Still, the company reported encouraging numbers for H1 FY07. Both Sales and PAT grew by around 30% to Rs.48 cr. and Rs.3.35 cr. respectively. For full year FY07, it is estimated to clock a turnover of Rs.100 cr. with net profit of Rs.7.50 cr. This will lead to an EPS of Rs.11 on its equity of Rs.6.75 cr. With reserves of more than Rs.25 cr., the book value of its share stands at Rs.48. It declared 14% dividend for FY06 and may announce 16% for FY07, which would give a yield of more than 4% at CMP. With a current market cap of only Rs.25 cr. and its 52W H/L as Rs.79/35 respectively, this scrip is available for a song. Investors are strongly recommended to buy for a price target of Rs.55 (45% return) in 9-12 months. Long-term investors can expect 100% return in 18-24 months.

Savera Hotels Ltd- Rs.60.00

Established in 1969, Savera Hotels Ltd. (SHL) is a leading classified four-star hotel company. It owns the huge 260 rooms, centrally air-conditioned ‘The Savera’ hotel located in the heart of Chennai, which is just 11 km from the international airport and merely 5 km from the main railway station. The company also owns a pub in Bangalore and a restaurant cum pub in Hyderabad - both of which are doing extremely well. Notably, the facilities provided by the hotel are nothing less than five star category and are of an international standard. It has a hi-tech business centre with secretarial service, private office space, boardrooms, all modern communication devices round the clock service apart from Interpreters/translators on call. It boasts of having 9 conference halls of varying capacities starting from 50 people upto 800 people for conducting seminars, meetings and functions. Banquet facilities are also offered to host wedding receptions, birthday parties, anniversaries and get-togethers. Interestingly, the hotel has various restaurants including a 24 hour multi-cuisine restaurant cum coffee shop, a roof top restaurant offering authentic Mughlai Cuisine, a South Indian speciality restaurant, a cosy Bar offering a range of imported and Indian liquors and a cake shop. Besides, the hotel has a health club, fitness centre, swimming pool, florist, beauty parlour, men’s saloon, shopping arcade, book shop, travel desk, money changer etc.

SHL is taking significant steps to enhance the guest experience by improving its products and service levels in line with international standards. Furthermore, the company continued with its ongoing programme of investing in renovation and upgradation of rooms, suites and other public related services thereby improving the average room rate. To cash in on the ongoing boom in the hotel industry, the company has started exploring new business avenues in the pilgrims/business destinations and soon new hotel outlets with innovative measures will be launched in Madurai, Coimbatore and Hyderabad. SHL is also focusing on diversification in the floriculture business at Ooty by acquiring control of an existing company.

With infrastructure developments taking place in Chennai and huge commercial space being added, business in the city is bound to increase. Besides the tourism industry is growing significantly throughout the world and more particularly in India. The average room rate (ARR) and occupancy levels are quite high and expected to remain robust in future. For FY06, while the company’s topline increased by 20% to Rs.30 cr., its net profit zoomed by 190% to Rs.3.60 cr. due to higher room rates. H1 FY07 is much more encouraging with sales improving by nearly 20% to Rs.16 cr. and net profit doubling to Rs.1.60 cr. The second half is traditionally better for hotels; SHL is expected to end FY07 with total revenue of Rs.35 cr. and profit of Rs.4.50 cr. This means an EPS of Rs.8 on its equity of Rs.6 cr.

In spite of such strong fundamentals, the SHL scrip is trading every cheap at market cap of only Rs.35 cr. With real estate prices hitting sky high, the replacement cost is several times higher than its market cap. Lastly, with a book value of Rs.30 and dividend yield of more than 3%, the scrip has the potential to double in 15-18 months.

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Liberty Phosphate Ltd. (Code: 530273) (Rs.18.50) is the largest manufacture of Single Super Phosphate commanding more than 14% market share. Its ‘Double Horse’ brand is very popular among farmers and is said to have the having highest sale in India. Due to unimpressive numbers for the Sept.’06 quarter, its share price is stagnant and the scrip has not participated in the ongoing rally. However, for the 6 months ending Sept.’06, its sales have more than doubled to Rs.75 cr. whereas net profit rose marginally to Rs.1.70 cr. due to higher interest cost and depreciation. Recently, it raised around Rs.5 cr. through an issue of 20 lakh equity shares at Rs.15 per share to promoters and their relatives. For FY07, it is estimated to clock a turnover of Rs.150 cr. with net profit of Rs.3.50 cr., which works out to an EPS of Rs.6 on its diluted equity of Rs.6.13 cr. With a market cap of only Rs.12 cr. this is the cheapest profit making fertilizer company stock.

Last week, cement scrips saw some correction giving an opportunity to accumulate them. Vinay Cements Ltd. (Code: 518051) (Rs.27) is a leading manufacturers of cement in the North East and has a small cement plant with a capacity of around 2,50,000 MTA producing both Ordinary Portland Cement and Pozzolana Portland Cement under the brand name ‘Vinay’. On the back of higher realization, it reported stunning numbers for the Sept.’06 quarter as sales jumped up by 130% to Rs.13 cr. and net profit shot up by 500% to Rs.1.60 cr. With the demand for cement expected to remain strong, it can end FY07 with turnover of Rs.55 cr. and net profit of Rs.6.50 cr. This would lead to an EPS of Rs.6.50 on its equity of Rs.10 cr. Hence at a P/E multiple of 4, book value of Rs.33 and a market cap of only Rs.25 cr., this is one of the cheapest scrips in the cement sector.

Recently, Hazoor Media & Power Ltd. (Code: 532467) (Rs.31) came out with a decent set of numbers for the Aug.’06 quarter. Revenue increased by 35% to Rs.5.30 cr. whereas net profit rose by 10% to Rs.1.45 cr. For the full year ending Aug.’06, its topline grew by 40% to Rs.20 cr. and net profit increased by 25% to Rs.5.5 cr. This works out to an EPS of Rs.6 on its current equity of Rs.3.70 cr. having a face value of Rs.4 per share. It declared 10% dividend also apart from announcing 1:1 bonus earlier. Of late, the company has ventured into real estate development and is getting itself renamed as ‘Hazoor Multi Projects Ltd.’. Notably, it owns huge property near Amby Valley Lake City, Lonavala, and has already deployed Rs.17 cr. for development and intends to make further investment of Rs.65 cr. in Phase I. It is a debt-free company and its current market cap is just Rs.25 cr. To fund its construction activity the company is planning to raise capital through the equity route, which will lead to a re-rating of the scrip.

Gradually, the paper sector is coming into the limelight again with some foreign broking firms getting bullish on this sector. South India Paper Mills Ltd. (Code: 516108) (Rs.52) is trading relatively cheap at a market cap of less than Rs.40 cr. It reported satisfactory numbers for Sept.’06 quarter with sales registering 10% rise at Rs.28 cr. while PBT grew by 23% to Rs.3.75 cr. For H1FY07, its sales improved by 15% to Rs.55 cr. and net profit rose by 12% to Rs.5.30 cr. in spite of a higher tax outgo. The company is planning to raise its capacity to around 86,000 TPA by Dec.’07 from 55,000 TPA. For FY07, it may report a total revenue of Rs.110 cr. with net profit of Rs.9 cr. i.e. EPS of Rs.12 on its equity of Rs.7.50 cr. Moreover, it’s a handsome dividend paying company with the yield working out to around 5% at CMP. A safe bet in the current market situation.

Real Strips Ltd. (Code: 513558) (Rs.33) is a leading manufacturer and exporter of stainless steel strips, coils and cold rolled coils. Its products are used in various industries like automobiles, construction, oil & gas, petrochemicals, food & dairy, sugar, pipes & tubes, chemical process, electronics, surgicals etc for very specialized application. It declared fantastic numbers for Sept.’06 quarter. Sales jumped by 70% to Rs.23 cr. and net profit spurted by 55% to Rs.1.10 cr. thereby registering an EPS of Rs.3.30 for the quarter. H1FY07 numbers are also very encouraging. The company has even put up windmills with a capacity of 1.25 MW and 0.35 MW respectively, as alternative energies to save power cost. For the full year FY07, it is estimated to clock a turnover of Rs.85 cr. and net profit of Rs.3.25 cr. i.e. EPS of Rs.10 on its tiny equity of Rs.3.27 cr. At a current market cap of Rs.10 cr. only and with a book value of Rs.37, this scrip is trading extremely cheap.