Agro Dutch Industries - Rs.33.00

Established in 1992, Agro Dutch Industries Ltd. (ADIL) is engaged in the cultivation, processing and canning of fresh white button mushrooms. The company that initially started with an installed capacity of 3000 TPA is today the largest integrated producer of canned mushrooms in Asia and probably the second largest in the world. It accounts for more than 90% of the mushrooms exported from India and more than 85% of the mushrooms being produced in the country. Being a fully integrated producer, it has its own can manufacturing and packing facility with an installed capacity of 10 cr. cans per annum. Notably, the fully automated can unit is the only unit in India to produce resistance-welded cans with high quality coated surfaces. The company has a strong customer base comprising blue chip customers like Uniliver’s Lipton, Rema Foods Inc, ABBY Foods, Goergia Foods etc. The company has also tied up with Leatherhead Food Research Association of the UK to ensure quality compliance for all products prior to shipment.

ADIL’s 100% EOU plant is located in Punjab, which produces over 80% of India’s wheat and wheat straw, which is the most vital substrate needed for growing mushrooms. The mushrooms are grown in climate-controlled farms and processed under sterilized conditions complying with strict quality control norms laid down by the US FDA like HACCP. ADIL has set up 133 climate controlled growing rooms to ensure that mushrooms are available all through the year. In order to become the world’s largest mushroom producer, the company is undertaking aggressive expansion by enhancing its mushroom growing capacity from 36,000 to 50,000 TPA, setting up a Individual Quick Freezing (IQF) plant, new compost making facilities and additional mushroom processing facilities. It is also doubling its can making capacity to 12000 tonnes by way of setting up a new can-making unit with an installed capacity of 6000 TPA near Chennai. The company also plans to set up a 10,000 TPA international scale facility for production of food cans with Easy Open Ends to sell in the domestic and international markets.

To fund this expansion, the company has raised around Rs.36 cr. through a rights issue at Rs.25 per share. The German DEG group gave a term loan of Rs.26 cr. and the company availed of loans from various local banks. Besides, the company has also allotted 1 cr. warrants to promoters and others to be converted into equity shares at Rs.27.50 After reporting not so encouraging numbers over the last two quarters, ADIL recently declared very good numbers for the Dec’06 quarter. Sales increased by 35% to Rs.48 cr. and net profit shot up 70% to Rs.10.85 cr. registering an EPS of Rs.3.70 for the quarter. Notably, its OPM stood at 37% after reporting merely 19% in the preceding two quarters. Accordingly, for the full year it is estimated to report sales of Rs.205 cr. and with net profit of Rs.19 cr. i.e. an EPS of Rs.6 on its current equity of Rs.29.60 cr. For FY08, it may register sales and net profit of Rs.240 cr. and Rs.30 cr. respectively. Investors are strongly recommended to buy at the current level with a price target of Rs.50 (50% appreciation) in 9~12 months.

STOCK WATCH

Sagar Cement (Code:502090) (Rs.158) has come out with stunning numbers while sales shot up by 40% to Rs.26 cr. in Q3FY07, the NP zoomed to Rs.6.40 cr. from Rs.0.21 cr. in the previous corresponding quarter. Due to higher price realization, it registered an all time high OPM of 42% in this quarter. For the nine months ending 31st Dec. 2006, it has recorded sales of Rs.82 cr. with NP of Rs.21.75 cr. Importantly, it has made a tax payment of Rs.7.25 cr. for this fiscal till December’06 and announced 10% interim dividend for FY07. For the full year FY07, it may clock a turnover of Rs.110 cr. with profit of Rs.28 cr. This translates into EPS of Rs.25 on its current equity of Rs.11.15 cr. A victim of the government’s initiative to bring down cement prices, its share price has fallen sharply from its recent high of Rs.177 but is bound to rebound and touch Rs.200 in the next couple of months.

Marketmen are apprehensive about Jupiter Bioscience (Code:524826) (Rs.142) as the scrip has been a laggard, its outlook continues to be bright and patient investors will stand rewarded. Recently, it announced very encouraging results for the Dec’06 qtr. On a standalone basis, it reported an all time high sales and NP of Rs.28 cr. and Rs.7.20 cr. respectively registering an EPS of more than Rs.8 for the quarter. Few months back it acquired a manufacturing facility for 15 cr. from Aurobindo Pharma and is presently in the midst of further expansion. Last year, the company issued 27.50 lakh warrants to the promoters @ Rs.146 per share and is now raising further capital of about Rs.100 cr. through QIP route. Post this placement; the company’s share will be listed on the NSE also, which will improve its liquidity and market sentiment. It may end FY07 with a topline of Rs.95 cr. and bottomline of Rs.23 cr. i.e. EPS of Rs.26 on its current equity of Rs.8.86 cr. For FY08, its sales & NP can shoot up to Rs.150 cr. and Rs.30 respectively. It’s time the scrip to got re-rated.

In the engineering sector, Gujarat Apollo Equipment (Code:522217) (Rs.222) reported excellent set of numbers. Sales grew by 15% to Rs.34 cr. but profit jumped up 50% to Rs.4.80 cr. resulting in an EPS of Rs.7 for the Dec.’06 quarter. Importantly, the company recorded an OPM of 24% for the quarter against 18% last fiscal due to better operating efficiency. The company has also cleared shareholders by declaring 1:2 bonus as it had already given 1:1 bonus in 2005. It recently changed its name to ‘Gujarat Apollo Industries’ and has decided to set up a wholly owned subsidiary to consolidate its manufacturing of mobile construction equipment at a new location. The new entity will add several new products to further enhance its productline. For FY07, it is estimated to clock a turnover of Rs.130 cr. with NP of Rs.15 cr. i.e. EPS of Rs.21 on its equity of Rs.7 cr. Of late, reputed mutual funds have entered the counter and the scrip is bound to attract higher discounting. Post bonus, it will list on NSE, which will give a fresh trigger to its share price.

Satnam Overseas Ltd. (Code:512559) (Rs.79) is the undisputed leader in the domestic branded basmati rice market 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 ready-to-eat foods (RTE) segment and has also set up a frozen food processing facility at Haryana. Its sales jumped by 30% to Rs.182 cr. and NP spurted by 50% to Rs.8 cr. for the Dec.’06 quarter. It has an exclusive tie-up with Reliance Retail and has also chalked out an aggressive expansion plan for which it raised around 90 cr. through the FCCB route to be converted @ Rs.85 per share. It may end FY07 with a topline of Rs.600 cr. and bottomline of Rs.27 cr. i.e. EPS of Rs.14 on its current equity of Rs.19.60 cr. It is one of the cheapest scrips in the food-processing sector and may shoot up to Rs.110 in the short to medium term.

Ambika Cotton Mills (Code:531978) (Rs.187) manufactures premium quality cotton yarn, both carded and combed, for knitting and weaving. A few months back, it completed expansion of 10080 spindles taking its total production capacity to 66,000 spindles. For the Dec.’06 quarter, its sales increased by 30% to Rs.39 cr. and NP improved by 25% to Rs.7 cr. registering a quarterly EPS of a whopping Rs.12. It is planning to further expand its capacity by 43200 spindles to be operational by December 2007. For tax benefits, the company has also set up its own windmill of 13 MW. For the full year FY07, it may report net sales of Rs.150 cr. and profit of Rs.25 cr. i.e. EPS of Rs.43 on a small equity of Rs.5.88 cr. Although the company has not made provision for deferred tax and has a very high debt of Rs.140 cr., still it’s a good bet at the current level. It has huge reserves of Rs.91 cr. leading to a book value of Rs.160 plus making it a strong bonus candidate as well.

Rajoo Engineers Ltd - Rs.54.00

Rajoo Engineers Ltd. (REL) was incorporated in Dec.'86 as a small set up mainly to manufacture bag-making machines.In 1988, it diversified into manufacturing plastic processing machinery for extrusion processing of various thermoplastic raw materials into compounds such as profiles, pipes, blown films, cables and wire insulation sheathings, flat cast films, sheet extrusion, raffia tapes, monofilaments, co-extruded films, calendering, thermoforming and strapping. Today it has impressive range of monolayer blown film lines for processing diverse variety of plastics from commodity polymers like LDPE, LLDPE, HDPE, PP to EVA, Nylon, PVC and PS. It has simultaneously taken strides in multilayer blown film extrusion systems, mono and multilayer sheet extrusion systems, pipe and profile lines and also thermoformers. It is also into sale and service of various assemblies related to extrusion systems like screen changers, air rings, die -heads, bare
extruders, bubblecages, winders etc.

REL has huge state of the art manufacturing facilities at Rajkot and Manavadar spread across 17000 sq. mts. and built-up area of 8000 sq. mts. Its central operation is controlled from Ahmedabad whereas it has other professional sales and service set-up in Delhi, Kolkata, Bangalore, Chennai and Hyderabad. It has a modern design office including Research & Development (R&D) centre, where most advanced engineering softwares are used to facilitate new developments and also to upgrade the existing technology of the company's products. REL is regularly exporting its products worldwide and has an installation base in Tanzania, Kenya, Nigeria, South Africa, Russia, Sri Lanka, Bangladesh, Malaysia, Abu Dhabi, Kuwait, Pakistan, Nepal, Vietnam, Lusaka, Namibia, Zambia and more significantly in the sophisticated markets of U.K. and U.S.A. Incidentally in the last couple of years, it has made a successful entry into European markets and has supplied the highest outputs sheet line to Germany, which is considered to be the Mecca of the plastic industry. It also articipated
in the world's second largest plastic exhibition ‘Plastindia 2006’ which was held in Delhi.

The ever growing high-end packaging material requirement from all sectors creates a huge potential for the company's products. Besides, due to increased globalisation and with many European processors looking at India for hi-tech, low cost machineries, exports will remain a lucrative area in coming years. For the six months ending 30th Sept.’06 sales improved by 7% to Rs.12.50 cr. but net profit more than doubled to Rs.1.10 cr. due to higher operating profit. Traditionally, its second half is much better. Hence it is expected to end FY07 with sales of Rs.35 cr. and net profit of Rs.1.85 cr. This works out to an EPS of Rs.6 on its small equity of Rs.3 cr. The management is quite investor-friendly and has been paying handsome dividends since the last five years. For FY07, it may declare 18% dividend, which gives an yield of more than 3%. At a current market cap of just Rs.17 cr., this scrip is trading fairly cheap compared to Kabra Extrusion whose market cap is around Rs.90 cr. With its 52-week high at Rs.64, investors are advised to buy only at declines with a price target of Rs.75 (40% return) in 12-15 months.

LIC Housing Finance - Rs.169.00

Promoted by LIC of India, LIC Housing Finance (LICHF) was incorporated on 19th Jun.’89 and has emerged as the second largest housing finance company after HDFC. It provides long-term finance to individuals for purchase/ construction/ repair and renovation of new/ existing flats/ houses. It also provides finance on existing property for business/ personal needs and gives loans to professionals for purchase/ construction of clinics/ nursing homes/ diagnostic centres/ office space etc. The company also lends to corporate bodies and companies under different schemes for purchase/ construction of office premises for their own use, construction of staff quarters and also for onward lending to meet the requirements of their employees and also to builders and developers for residential and commercial projects.

Today, LICHF has over 8,00,000 house owners who have enjoyed the company's financial assistance. It possesses one of the industry's most extensive marketing network with 6 regional offices and 115 area offices backed by chain of camp offices nationwide. It has a team of 875 employees apart from over 5500 Direct Sales Agents (DSAs) and Home Loan Agents (HLAs) to extend its marketing reach. It has also set up a representative office in Dubai to cater to the Non- Resident Indians (NRIs) in the Gulf countries covering Bahrain, Dubai, Kuwait, Qatar and Saudi Arabia. It has floated a 100% subsidiary ‘LICHFL Care Homes Ltd.’ to provide 'Assisted Living Community Centres' for Senior citizens. The first such centre at Bangalore comprising 98 units spread across 10 acres has already commenced operation. The company has also made investments in certain real estate funds of Kotak (Rs.50 cr.) and CIG Realty fund (Rs.100 cr.). To further ride the real estate upcycle, it is toying with the idea of launching its own real estate fund and increasing its investments in these ventures.

The housing finance industry continues to show a high growth rate mainly on account of improved standards of living, urbanisation, a desire for home ownership and easy availability of credit at affordable rates of interest and opportunity for tax saving in respect of interest payment and principal repayment of housing loan. Financially, LICHF has been making serious efforts to reduce the cost of borrowings and increase its spread. It has successfully brought down the average cost of funds to less 10% by changing its funding pattern and restructuring its debt. It has also brought down its NPA level below 2% and intends to bring it below 1% going forward. For FY07, it is expected to register a total revenue of Rs.1550 cr. and PAT of Rs.280 cr. This translates into EPS of Rs.33 on its current equity of Rs.85 cr. It has massive reserves of around Rs.1250 cr. leading to a book value of Rs.158, which will swell to Rs.180 by Mar.’07. Investors are recommended to buy at current levels, as the risk reward ratio is quite favourable with a price target of Rs.230 (40% return) in 12-15 months

STOCK WATCH

After two disappointing quarters Torrent Cables (Code: 504096) (Rs.173) have made a smart come back in the thirdquarter. Sales jumped up 55% to Rs.51 cr. whereas net profit increased by 65% to Rs.7 cr. registering a whopping EPS ofRs.9 for the quarter. The company could control raw material costs whence its OPM shot back to 23% against 11% &13% in the preceding two quarters respectively. However due to not-so-good H1, it may end FY07 with sales of Rs.175cr. and PAT of Rs.18 cr. i.e. EPS of Rs.24 on its equity of Rs.7.50 cr. With government’s special thrust on power sector reforms, the demand for cables is estimated to remain robust in coming years. It is estimated to report sales of Rs.225 cr. with net profit of Rs.24 cr. for FY08, which means EPS of Rs.32. So at a realistic discounting by 8 times against its FY08 earning, its share price can once again test the Rs.250 level in a year’s time. Accumulate at declines.

Micro Technologies (Code: 532494) (Rs.277) has declared its Dec.’06 numbers, which are very encouraging. Total revenue increased by 125% to Rs.28 cr. and the PAT doubled to Rs.8.75 cr. Recently, it launched a unique Global e- Security product called Micro Internet Access Security System – BANK for the banking industry to secure online-based accounts. Its other products are also well-accepted. Few weeks back, its Micro Vehicle Navigator System won the approval of the Municipal Corporation, UAE. Considering its nine month figures, it may end FY07 with sales of Rs.105 cr. with PAT of Rs.30 cr. This translates into an EPS of Rs.29 on its equity of Rs.10.50 cr. For FY08, it may report a topline of more than Rs.150 cr. and bottom-line of Rs.42 cr. i.e. EPS of Rs.40. At a reasonable P/E ratio of 14 against its FY08 earning, the share price can touch Rs.550 in 12-15 months. A strong buy.

Andhra Petrochemicals (Code: 500012) (Rs.16) is engaged in the business of manufacture and sale of Oxo-Alcohols. Notably, it is the only producer in India and currently has the capacity to produce around 42,000 MTPA with the balance demand being met by imports. Recently it came out with terrific numbers for the Dec.’06 quarter. Sales increased by more than 30% to Rs.64 cr. but net profit spurted to Rs.10 cr. compared to merely Rs.14 lakh last year. Due to higher pricerealization and lower power cost, it reported a record high OPM of 33% against 9% last fiscal. Since its entire feed stocksand fuels are petroleum products, its raw material cost is expected to come down substantially as crude price has taken a sharp hit in the last couple of months. For FY07, it is expected to clock a turnover of Rs.250 cr. and with net profit of Rs.30 cr., which translates into an EPS of Rs.4 on its equity of Rs.85 cr. For FY08, it can report an EPS of more than Rs.5. Hence even at a reasonable P/E ratio of 6, the scrip can easily appreciate by 50% from current levels.

Bilpower Ltd (Code: 531590) (Rs.205) is a pioneer in manufacturing Transformers, Electrical Laminations, Stampings and Cores. Besides it’s a leading trader of CRGO & CRNGO and produces the largest range of transformer cores in India. Two days back, it reported terrific numbers for the Dec’06 quarter. Net Sales has more than doubled to Rs.66 cr. and net profit has shot up 130% to Rs.7 cr. reporting an EPS of Rs.9 for the quarter. After taking over Tarapur Transformers, it is planning to merge Sun Transtamp, a power ancillary equipment company with itself. For the full year FY07, it may report a turnover of Rs.235 cr. and profit of Rs.20 cr., which will lead to an EPS of Rs.22 on its fully diluted equity of Rs.9 cr. The company is interested in further acquisitions and is in talks with different companies, for which it may raise capital through FCCB/GDR route in the near future. This is another EMCO in the making. Buy at every decline.

Gayatri Projects (Code: 532767) (Rs.362) a leading construction and infrastructure company has recently announced excellent results for the Dec.’06 quarter. Total revenue has increased by more than 50% to Rs.153 cr. – the highest ever in the company’s history whereas net profit zoomed up by 120% to Rs.8.50 cr. registering an EPS of Rs.8.50 for the quarter. For the nine months ending Dec. 2006, it has already recorded sales of Rs.336 cr. with profit of Rs.20 cr., which is higher than earned in entire FY06. Currently, it has massive orders of nearly Rs.2500 cr. spread across road work, irrigation works and other projects. To fund its working capital requirement, the company is planning to raise US $30 million through the FCCB route, which will trigger its share price in the near future. For FY07, it is expected to clock a turnover of Rs.500 cr. with net profit of Rs.30 cr., which will lead to an EPS of Rs.30 on its current equity of Rs.10 cr. However,
its equity may get diluted by 30% due to the FCCB issue in future. The share is trading cheap compared to its peers due to promoter concerns. But it can still rise 25-30% in good market conditions.