STOCK WATCH

Gayatri Projects (Code:532767) (Rs.315) is one of the fastest growing construction companies in India executing major civil works including construction of concrete/masonry dams, earthern dams, national highways, bridges, canals, aqueducts, airports, ports, etc. Currently, it has massive orders in hand of nearly Rs.2000 cr. which is 5 times its FY06 total revenue and is spread across road works, irrigation works and other projects. For the six months ending 30th Sept.’06, its total revenue grew by 20% to Rs.183 cr. but net profit zoomed by 60% to Rs.11.70 cr. A few months back, the company had come out with an IPO and is now further planning to raise capital though FCCB route to fund its various projects. As its IPO was placed at Rs.295, the FCCB issue may be more than Rs.350 per share. For FY07, it expected to clock a turnover of Rs.450 cr. with net profit of Rs.30 cr. posting an EPS of Rs.25 on its current equity of Rs.11.90 cr. At a reasonable P/E multiple of 16-18, the scrip should trade in the range of Rs.400-450. At its current market cap of Rs.350 cr., it is one of the cheapest infrastructure scrips trading at 12 times P/E ratio.

FCS Software Solutions (Code:532666) (Rs.83) is a leading provider of IT services and has carved out a niche for itself in areas like e-learning, digital content services, IT consultancy, product engineering services and 24/7 Application support. It caters to the US market only. With the global demand for IT Applications increasing rapidly, the company is aggressively expanding its overall capacity. For H1FY07, its topline as well as bottomline grew by 35% to Rs.72 cr. and Rs.9.85 cr. respectively. Last year, it started a new unit in Punchkula (Haryana) and this year it has acquired 1.66 acre land at Chandigarh Technology park under the SEZ Scheme. It has been further allotted a plot of 4000 sq. mtrs. at Noida. Besides, it is also planning to expand its operations to Gurgaon. For the full year FY07, it may report total revenue of Rs.150 cr. with PAT of Rs.18.50 cr. This will lead to an EPS of Rs.13 on its equity of Rs.14 cr. At the current P/E multiple of 6 it is one of the most undervalued companies in the mid-cap IT sector and has the potential to give handsome returns if held for more than a year.

Indian Toners and Developers (Code:523586) (Rs.27) is a leading manufacturer of compatible black toners for photocopiers, laser printers, digital machines and multi-function machines like scanners, printers and fax copiers. It is the single largest exporter and undisputed market leader in the domestic market through its brand ‘Supremo’. For the first half FY07, its sales improved by 30% to Rs.21 cr. but net profit jumped up 45% to Rs.2.10 cr. To maintain its market share, the company has decided to set-up a new project in Sitarganj in Uttranchal for the manufacture of toners and developers and plans to enhance its presence in the international market by opening a representative office in China. For the full year FY07, it may clock a turnover of Rs.45 cr. with net profit of Rs.4.50 cr. i.e. an EPS of Rs.6 on its equity of Rs.8 cr. With a book value of Rs.31 and 52-week high at Rs.41, the scrip has the potential to give 50% return in 12-15 months.

The Hotel Industry is currently enjoying the best of times with high occupancy rates and increased tariff charges and Savera Hotels Ltd. (Code:512634) (Rs.74) is no exception. This company owns the huge 260 rooms, centrally air-conditioned ‘The Savera’ hotel located in the heart of Chennai and is expected to report very encouraging numbers for the second half. For the six months ending 30th Sept.’06, its revenue grew by only 17% to Rs.16 cr. but the net profit doubled to Rs.1.60 cr. on the back of robust average room rate (ARR). To cash in on the ongoing boom, 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. For FY07 it is expected to report a topline of Rs.35 cr. with profit of Rs.4.50 cr. i.e. EPS of Rs.8 on its equity of Rs.6 cr. This means that the scrip is discounted merely by 9 times its FY07 earnings. With a current market cap of only Rs.40 cr., the scrip can easily double in 12-15 months.

Few weeks back, RPG Life Sciences (Code:500384) (Rs.94) confirmed that its lease agreements with Hindustan Antibiotics Ltd. for the Pune property and other lease related agreements stand terminated in entirety effective from 15th Feb.’06. This is quite positive, as the company had taken that property on lease till 2015 but had closed down the plant due to uneconomic conditions. Still it was paying the rent and other expenditures as per the lease agreement and will now save that amount, which comes to around Rs.4-5 cr. Meanwhile, the company has filed the DMF for two new oncology products: Dono and Doxo. It is also setting up a new FDA compliant API plant at Thane, which will be operational by Mar.’07. Although its first half numbers were disappointing, for the full year it may report profit of Rs.15 cr. on sales of Rs.135 cr. i.e. EPS of Rs.10 on its diluted equity of about Rs.15 cr. Buy at sharp declines.

Bhagiradha Chemicals - Rs.139.00

Incorporated in 1994, Bhagiradha Chemicals Ltd. (BCL) is one of India’s largest manufacturers of Chlorpyriphos, the best-selling insecticide that is used on a wide variety of crops such as cotton, chilli, rice, sorghun, soyabean, sugarcane, groundnut, vegetables, ornamentals, flowers and plantation crops like citrus, mango, grapevines etc. apart from use in the preservation of wood & timber. Thus BCL manufactures agrochemical actives for the domestic market and exports two insecticides viz. Chlorpyriphos and Imidacloprid and two herbicides viz, Triclopyr and Fluroxypyr. It also has a facility to make bulk formulations for which it has already generated authentic chemical and toxicological data for Chlorpyrifios Ethyl Technical, Chlorpyrifos Methyl Technical, Triclopyr Butoxy Ethyl Ester Technical and formulations for registration of these products in importing countries.

Its plant with an installed capacity of 2000 TPA is located near the eastern coastal town of Ongole, 300 kms north of Chennai. It exports to Australia, South Africa, China, Germany, Singapore, Spain, U.K. Belgium, Greece, Italy, Malaysia, Taiwan, Indonesia, Peru, Brazil, etc. The company is now entering contract manufacture of high-value agrochemicals and has entered into an exclusive contract manufacturing agreement with Dow Agro Sciences, Europe, for supply of 200 to 250 tonnes of Fluroxypyr or Methyl Ester Intermediate for 4 years from 2006. This deal is an important milestone for BCL since Dow AgroSciences is the original inventor of Fluroxypyr and was its sole producer till now and chose BCL as its partner despite the fact that the two are competitors in the Triclopyr and Chlorpyriphos market. More such deals are expected as large MNCs want to outsource some of their global requirements from India.

For future growth, BCL is arranging marketing tie-ups and is planning to expand its manufacturing facilities as opportunities for export of pesticides are increasing cost competitive manufacture and as products coming out of patent. Besides, the usage of weedicides and fungicides is growing in India although the consumption of insecticides is declining with increased cultivation of genetically modified (GM) crops. Due to better product mix, BCL has reported encouraging results for H1FY07. Sales improved by 35% to Rs.48 cr. whereas net profit jumped 80% to Rs.6.20 cr. For full year FY07, it can clock sales of Rs.100 cr. with NP of Rs.12.75 cr. leading to an EPS of Rs.25 on its equity of Rs.5.05 cr. That means at CMP of Rs.135, the scrip is trading at a P/E ratio of less than 6 times. Investors can buy with a price target of Rs.200 (50% return) in 15-18 months.

Sagar Cement Ltd - Rs.119.00

Established in the early Eighties as a mini-cement plant Sagar Cement Ltd. (SCL) has emerged as a leading player in producing SRC, IRS-40 special grade slag cement and OPC marketed as ‘Sagar Priya’ and has one of the highest margins in the industry mainly on account of low power and freight costs. It sources almost 2/3rd of its power requirement from its subsidiary company Sagar Power Ltd, which has two mini hydel power units with total capacity of 8.5 MW. Its power consumption at 80 units/tonne of clinker is one of the lowest compared to the industry norm of 90-95 units/tonne.

SCL has a clinker capacity of 5,50,000 TPA and grinding capacity of 3,00,000 TPA at Mattampally in Nalgonda District of Andhra Pradesh (AP). It has adopted the time tested dry process rotary kiln technology for manufacture of clinker and with constant upgradation with latest technologies like O-Sepa separator for its cement mill, Rotary packing systems, I KN Kids Cooler for cooling section and a six stage pre-heating system, it has the most modern plant among mini cement plants in AP. In FY05, it sold off its loss-making Bayyavaram unit with a grinding capacity of over 1,00,000 TPA. However, Amreshwari Cements Ltd, an associate company with 4,00,000 TPA grinding capacity does grinding for it. SCL also has a low transportation cost per tonne of cement sold because it sells majority of its cement within a radius of 200 kms from its plant compared to the industry standard of 400-500 kms. On the input side, it has captive limestone reserves within 30 kms and sources coal from the Singareni collieries which are 150 kms away.

SCL has planned massive expansion with a capex of Rs.300 cr. to be funded in the debt/equity ratio of 2:1 to set up a second line kiln of 4500 TPD capacity and thereby increase its clinker production by 4 times to 20,00,000 TPA. It would also increase its cement capacity by 6 times to 20,00,000 TPD by installing two new grinding units (line 3&4) of 140 TPH each. To part-finance its expansion the company has already allotted 18.50 lakh warrants to promoters to be converted at Rs.82 per share and may further raise capital through private placement as and when required raise around Rs.200 cr. through debt. With the new capacities set to be operational by late 2008, SCL also plans to export cement. With a spectacular performance in H1FY07, it can end FY07 with sales of Rs.125 cr. and net profit of Rs.28.50 cr. This will work out to an EPS of Rs.22 on its diluted equity of Rs.13 cr. Although further equity dilution is expected going forward, investors should accumulate this stock on declines with a price target of Rs.180 (50% return) in 12-15 months.

STOCK WATCH

Few market players have started taking interest in textile scrips since last week. Hence investors can buy Kallam Spinning (Code:530201) (Rs.20), a south-based cotton yarn manufacturer as it’s a pure value buy with negligible downward risk. For H1FY07, its sales increased by 40% to Rs.21.50 cr. but net profit declined by 15% to Rs.2.10 cr. mainly due to increase in other expenditure. A few months back, however, it completed its Phase–I of its expansion by adding 11040 spindles thereby taking its total spinning capacity to 33650 spindles. So, its second half will be far better. Besides, it’s undergoing Phase-II expansion adding another 11040 spindles to be completed by mid-2007. Due to its captive hydel power plant, company’s power & fuel cost is also quite low. So for FY07, it is expected to clock a turnover of Rs.48 cr. with net profit of Rs.3.60 cr., which can lead to an EPS of Rs.5 on its current equity of Rs.6.85 cr. Promoters are also planning to increase their stake by a preferential allotment of equity to themselves in the near future, which will trigger the share price to new highs. With a dividend yield of 5%, it’s a screaming buy in such an all-time high market.

Due to constant expansion Uttam Galva’s (Code:513216) (Rs.32) cold rolled capacity currently stands at 7,50,000 MTA, whereas its Galvanised Steel capacity is 4,50,000 MTA. For the six months ended 30th Sept.’06, its total revenue grew by 35% to Rs.1206 cr. and net profit zoomed up 60% to Rs.50 cr. Importantly, it maintained an OPM of above 10% even in such adverse conditions, which is indeed remarkable. Due to robust demand, the company is still undergoing rapid expansion to increase its capacity further to 10,00,000 MTA for cold rolled coils (CRC) and 7,00,000 MTA for Galvanized Steel. On a conservative basis, it is expected to end FY07 with a top-line of Rs.2500 cr. and bottom-line of Rs.88 cr. This works out to an EPS of Rs.11 on its current equity of Rs.83.40 cr. The company had raised about Rs.200 cr. through the FCCB route, to be converted into equity shares at Rs.64.50. Even if we assume that the conversion rate will be revised to Rs.48 its diluted equity will Rs.125 cr. Hence the fully diluted EPS works out to Rs.7 on a very conservative basis. The scrip is trading extremely cheap and can easily appreciate by 50% in 6-9 months.

Panama Petro (Code:524820) (Rs.123) manufactures speciality petroleum products under the brand name 'PANOL' for diverse user industries like printing, textiles, rubber, pharmaceuticals, cosmetics, power and various industrial oils. The company's tie-up with Petronas of Malaysia and Lubcon of Germany is likely to result in manifold increase in its sales and profitability in coming years. Besides, its also looking forward for further tie-ups with Petronas for the manufacture of its Automotive Lubricants in India. For H1FY07, its revenue shot up 65% to Rs.81 cr. and net profit jumped up 50% to Rs.5 cr. For future growth, it has plans to set up a plant in the excise-free zone in Baddi, Himachal Pradesh in FY08. The fall in crude oil prices is also beneficial to the company to some extent as it constitutes the raw material. For FY07, it is expected to clock a turnover of Rs.165 cr. and net profit of Rs.9.50 cr., i.e. EPS of Rs.20 on its diluted equity of Rs.4.76 cr. Buy with a price target of Rs.160 in 6¬9 months.

Virinchi Technology (Code:532372) (Rs.36) is an e-Business solutions provider for large enterprises and government establishments in the areas of e-procurement, private exchanges, supply chains and finance Few of its software products such as Enterprise Enabler 3.0, CaseTrail, Financial & Accounts Management for Enterprises (FAME), TrackPORT, MarketSmart, Secure, Hospitality Management System (HMS) have been huge successes and are witnessing good demand in the global markets. For H1FY07, its sales increased by 30% to Rs.15.50 cr. whereas the net profit spurted by 35% to Rs.5.45 cr. Accordingly, for the full year FY07 it may report a top-line of Rs.32 cr. with net profit of Rs.10.50 cr. This works out to an EPS of Rs.7.50 on its current equity of Rs.13.95 cr. However, to fund its growth plans, the company has already allotted 52 lakh convertible warrants to promoters and strategic investors, which will bloat its equity capital to Rs.19.15 cr. Hence the fully diluted EPS works out to Rs.5.50. The company is expected to perform exceedingly well in coming years and with a NPM of over 30%, this scrip deserves much better valuation.

Albert David - Rs.90.00

Incorporated in 1938, Albert David Ltd. (ADL) is a leading fast-growing and professionally managed pharma company in East India. Its core competency lies in the manufacture of bulk drugs, specialty formulations, herbal/ayurvedic products, disposable syringes & needles and intravenous (IV) solutions. In fact, it pioneered the use of FFS (form, filled & sealed) technology in IV Fluids & Human Placenta extract therapy in India. It has strong presence in various drug therapeutic segemnts like Immunomodulators, Vitamins & Nutritional Supplements, NSAIDs, Apetite Stimulants, Liver Protectives, Anti-Ulcerants, Laxatives, Anti-Arthiritic Preparations, Muscle Relaxants, and Adaptogenics to name a few. New formulations in gynaecology, gastroenterology, anti-diabetics, cardio-vascular, vitamins, anti-ulcer, anti-inflammatory and haematinics are also under consideration.

ADL has manufacturing facilities in Kolkata, Ghaziabad and in Madhya Pradesh, which are WHO GMP certified and accredited to ISO and/or USA FDA. It has technical collaboration with the world's largest manufacturer of amino acids, Ajinomoto Co. Inc. of Japan and with Roussel Morishita of Japan for manufacturing and marketing a wide range of crystalline amino acids, infusion solutions, oral solids and liquids in India. It has a well-organised and well-connected distribution network comprising over 1,25,000 retail outlets, 1600 stockists and 15 Sales Depots spread across the country backed by a 400+ highly trained and dedicated marketing team. Besides, its products are exported to Vietnam, Russia, Belarus, Egypt, Bangladesh, Kenya, Tanzania, Uganda, Sudan, Ethiopia, Nigeria, Zaire, Haiti, Brazil, Canada, USA, UK, Netherlands and Germany. Notably, some of its drugs are already approved by US FDA, UK MCA and European Council and it has DMF registration for bulk drugs like Tolbutamide and Chlorpropamide.

Last fiscal, ADL upgraded and expanded its Ghaziabad facility increasing the installed capacity for IV fluids to meet the robust domestic and overseas demand. Besides, it has already incurred around Rs.17 cr. to modernize and expand its other plants which are expected to be completed this year. In 2006-07, ADL has plans to launch some new products such as ‘Siocare’ (a gynaecological herbal product), ‘Placentrex Cream’ (human placenta extract for wound management), Drotaverine Tablets & Injectables (for management of smooth muscle spasm & colic pain) and a range of Cough Syrups for productive & non-productive cough for adults and children in its product portfolio.

For FY06, ADL’s sales were up by 25% at Rs.117 cr. and net profit increased by 75% to Rs.7.50 cr. For H1FY07, while sales grew by 10% to Rs.74 cr., net profit zoomed up 80% to Rs.10.70 cr. due to the write-back of depreciation. Interestingly, its profit margin improved by 300 basis points to 17% from 14% last year. Hence for FY07, it may report sales of Rs.150 cr. with net profit of Rs.11.25 cr. excluding extraordinary items. This would work out to an EPS of Rs.20 on its equity of Rs.5.70 cr. If we include the depreciation write-back, then the EPS bloats to around Rs.28. With its 52-week high/low at Rs.144/Rs.62, the ADL scrip has the potential to hit a new high. Investors can buy it with a price target of Rs.160 (75% return) in 15¬18 months.