STOCK WATCH

Although most fertilizer scrips are buzzing on the bourses; Liberty Phosphate (Code: 530273) (Rs.20) is trading at a steep discount from its 52 week high of Rs.55. It is the largest manufacture of Single Super Phosphate (SSP) commanding more than 14% market share. Presently, the group has manufacturing capacity of 7,25,000 MTPA of SSP fertilizer and 1,65,000 MTPA of NPK. It is planning to put-up new projects in other states like UP, Haryana and Central MP and establish a SSP plant at Visakappatnum with capacity of 1,32,000 MTPA. It may also announce the merger of its other two group companies with itself in the near future. Although its last two quarters were not that great, still it may end FY07 with sales of Rs.175 cr. and net profit of Rs.2.50 cr. on a standalone basis which would amount to an EPS of Rs.4 on its equity of Rs.4.13 cr. As the company has allotted around 20 lakh shares at Rs.25 to the promoters and others, the scrip is bound to rise 50% in a few months. A strong buy.

Although Suryalata Spinning Mills (Code: 514138) (Rs.55) didn’t post a great result for the December 2006 quarter, the scrip is buzzing on the bourses. Sales increased by 10% to Rs.50 cr. but net profit fell 30% to Rs.1.50 cr. due to higher tax provisions and interest cost. The company is in the midst of aggressive expansion of Rs.126 cr., which includes adding 45,000 new spindles and setting up of weaving and processing unit with a capacity of 50,000 meters a day. It has already commenced trial production at its new spinning plant of 20,000 spindles for polyester viscose yarn in Mahabubnagar, AP. Now that its total production capacity stands enhanced from 64368 to 84368 spindles. It may clock a turnover of Rs.200 cr. and net profit of Rs.6.75 cr. for FY07 i.e. EPS of Rs.12 on its current equity of Rs.5.45 cr. With a book value of Rs.54 and EV of merely Rs.85, it’s trading fairly cheap compared to its peers.

International Conveyors (Code: 509709) (Rs.171.85) is engaged in manufacturing PVC conveyor belts used in mining and material handling activities. It reported stunning results for the December 2006 quarter. Sales jumped by 60% to Rs.13.50 cr. whereas PBT spurted by 50% to Rs.2.30 cr. As company did not made any tax provision for this quarter net profit shot up 120% compared to Rs.1.06 cr. last year. Due to limited demand in domestic market, the company is putting special thrust on exports and has ambitious plan to increase its share in the lucrative global market. For the full year FY07, it may register a top-line of Rs.45 cr. and bottom-line of Rs.5 cr., which works out to an EPS of Rs.21 on its tiny equity of Rs.2.40 cr. Notably, a FII has accumulated 9% stake in the last two quarters from the open market. Scrip has the potential to touch Rs.250 in a year’s time. Buy only at sharp declines.

VST Tillers Tractors (Code: 531266) (Rs.145.75) is engaged in manufacturing of farm equipments like power tillers, low HP (sub 20 HP) tractors, diesel engines and precision components. For December 2006, its sales grew by 25% to Rs.40.50 cr. but net profit almost doubled to Rs.3.60 cr. registering an EPS of more than Rs.6 for the quarter. For the first nine months it has already clocked a sales of Rs.116 cr. and PAT of Rs.8.55 cr. Interestingly to remain the top player, VST is importing tillers in the CKD form from China, assembling them at its Hosur facility and marketing them under a new brand ‘Dragon Power Tiller’. With the GDP growth rate above 9%, the company is expected to end FY07 with turnover of Rs.160 cr. and net profit of Rs.11 cr., which works out to an EPS of Rs.19 on its equity of Rs.5.76 cr. As per unconfirmed reports, it has some surplus property in Bangalore, which may fetch a handsome value to the company.

Raunaq Automotive - Rs.28.75

Raunaq Automotive components (RACL) was established in 1989 as a joint sector project between the Pradeshiya Industrial & Investment Corporation of UP Ltd. (PICUP) and Bharat Gears Ltd to manufacture high quality transmission gears & shafts for automotive & industrial applications and belongs to the well-known Raunaq Group, which consists of companies like Apollo Tyres, Bharat Gears, Premier Tyres, Raunaq Intl, Raunaq Finance, Apollo Finance, Apollo Intl’ and Bharat Steel. Today, RACL is the largest transmission component manufacturer in North India catering to import substitution of critical transmission components. Apart from manufacturing all types of transmission gears for a variety of vehicles including two-wheelers, tractors, cars and jeeps, LCVs and heavy vehicles, it also makes axle shafts mainly for heavy vehicles. Besides engine timing gears, sprockets/ratchets, industrial gears, synchronizing cones and rings etc are also produced by the company.

RACL's has a huge hi-tech manufacturing facility at Gajraula about 100 km. from Delhi. It has the most advanced gear cutting system as well as state-of-the-art programmable fully automated CNC machines that enhance accuracy and reliability of every transmission gearing component and axle shaft. Due to its superior quality and timely delivery, it has a reputed clientele comprising Tata Motors, M&M, Ashok Leyland, Greaves, Yamaha, Honda, Escorts, Force, Hero, VST Tillers etc. Apart from the domestic market, RACL has developed products for export for prestigious international customers like Kubota, Alois Pottinger, Bombardier Rotax, Areva T&D, Herotec etc. It also supplies to leading OEMs in Japan, Austria, Germany and other European companies. Although the margins of this industry have come down in the recent past due to stiff competition and pressure from OEM, still RACL has a strong potential for growth due to the heavy demand in the domestic market as well as the global sourcing requirement of overseas automotive manufacturers.

Earlier, RACL was a loss making company but it made a strong turnaround in FY06 due to a BIFR rehabilitation scheme. It still it has accumulated losses of Rs.4 cr., which will be wiped off in this fiscal. It has undertaken various restructuring steps like broadening its distribution network, closing down some uneconomical branches, cutting down the cost of manufacturing, increasing efficiency, reducing waste etc. With these measures, the company has made a successful turnaround and for the nine months ending 31st December 2006, its sales scaled up by 50% to Rs.39 cr. and net profit shot up 70% to Rs.3.25 cr. Applying this for full year, it may clock a turnover of Rs.55 cr. with PAT of Rs.4.50 cr., which translates into an EPS of Rs.6 on its current equity of Rs.7.93 cr. For FY08, it can report an EPS of Rs.8. Therefore, investors are recommended to buy it at current levels as it can easily give 50% return in 12-15 months.

Ricoh India - Rs.33.50

Ricoh India Ltd (RIL) was originally established as a joint venture with the RPG group as RPG Ricoh Ltd. in 1993. It was later re-incorporated as RIL with 76% ownership by Ricoh Company Ltd. (RCL), Japan, in 1998. RCL is a leading global player in the area of Imaging solutions like Digital Plain Paper Copiers, Colour Plain Paper Copiers, Fax machines, Thermal paper etc. Networking Input/Output systems like Multifunction Printers, Services and Software, Scanners, Networking System Solutions like PCs, Servers, Networking equipment, Networking software etc. In fact, the Ricoh Group currently enjoys the largest market share for plain paper copiers in Europe and Japan and is No.2 share in USA. Thus with its parent company’s strong products pricing and operational support, RIL is poised to grow exponentially in coming years.

RIL’s product range includes Colour Multifunction Printers, Black & White Multifunction Printers, Colour Laser Printers and Copy Printers. The Aficio range of products provides affordable adaptability to have printing, copying, scanning and fax capabilities in one machine. Its compact colour Laser printer takes care of fast colour printing requirements with a high-geared engine, almost instantaneous warm-up time and automatic duplex eliminating the need for two separate
devices. RIL has a nationwide presence with 15 branch offices, over 250 dealers, and employs over 900 people. With a market share of 25%, the company is well on its way to become the number 1 solutions provider in Document Management Systems. Interestingly, the company believes that there is a huge scope for office automation products in Tier II & III cities that still remains to be fully exploited. Hence it is also targeting cities like Ahmedabad, Lucknow, Vishakapatnam, Jaipur, Chandigarh, Pune, Hyderabad, Coimbatore etc.

The office automation industry in India has witnessed a transformation powered by technological advancement. Digital technology is advancing at an ever-increasing pace. More and more companies are now realising that the use of Multi Function products not only helps them to reduce cost but also helps in enhancing productivity. With the growing demand for digitalization, the office automation industry is expected to grow substantially in coming years and all this augurs well for the company. To consolidate its Indian operation, Gestetner India Ltd, a sister concern was merged with RIL a couple of years back which has resulted in a favourable impact on the overall performance of the company. For FY07, RIL is estimated to clock total revenue of Rs.185 cr. with net profit of Rs.12.50 cr., which works out to an EPS of more than Rs.3 on its equity of Rs.39.77 cr. For FY08, it may register around an EPS of Rs.4. Hence at a P/E multiple of less than 8 times against FY08 earnings. With a current market cap of merely Rs.125 cr. this MNC is available extremely cheap. Strong buying is recommended with a conservative price target of Rs.50 in a year’s time.

Most investors believe that Kallam Spinning Mills Ltd. (Code: 530201) (Rs.22.40) has posted bad numbers for the Dec.’06 quarter as its NP has plunged by 20% to Rs.0.23 cr. Actually, it has declared mind-blowing results with the highest sales and profit figures in its history. Sales increased by 70% to Rs.15 cr. and PBT jumped by 80% to Rs.2.70 cr. However following its conservative accounting procedure, it provided a whopping Rs.2.30 cr. as deferred tax provisioning in this single quarter. If not, its NP would have been huge Rs.2.50 cr. i.e. quarterly EPS of Rs.3.60 since the company has completed Phase – I of its expansion by adding 11040 spindles in last quarter only, the same kind of topline will be maintained in future also. Besides it’s undergoing Phase-II expansion by adding another 11040 spindles to be completed by mid-2007 which will take its total spindle capacity to nearly 45000 spindles. For FY07, it is expected to clock a turnover of Rs.52 cr. with NP of Rs.4 cr., which leads to an EPS of Rs.6 on its current equity of Rs.6.85 cr. Although, it has a huge debt of Rs.40 cr., the scrip still has the potential to rise by 50% in 6¬9 months.

In the Cement sector, Deccan Cements Ltd. (Code: 502137) (Rs.169.50) is doing extremely well. It’s a south based cement manufacturer having a mini cement plant of nearly 3,00,000 tonnes capacity and slag cement production capacity of 5,00,000 tonnes. For the Dec.’2006 quarter, its sales shot up by 60% to Rs.43 cr. whereas NP quadrupled to Rs.7.80 cr. due to higher price realisation. Importantly, the company has a captive power generation facility through the hydel as well as windmill route, which makes it one of the lowest cost producers of cement. In future, the company plans to set up a massive 10 lakh tonnes cement plant along with captive power facility to emerge as a bigger player in the South Indian market. Importantly, from the last six quarters the company is constantly increasing its OPM with every passing quarter. For Dec.’06 quarter, its OPM stood at 30% compared to 12% last fiscal. Considering its first nine months figures, it may end FY07 with turnover of Rs.170 cr. and after making tax provisions of Rs.14.50 cr. it may report net profit of Rs.28 cr. This translates into a whopping EPS of Rs.40 on its small equity of Rs.7 cr. At a reasonable discounting of 6, the share price can touch Rs.240 in short to medium term. The management may even declare Rs.5 as dividend for FY07. A good bet.

Another company from the Textile sector, which reported good numbers, is Winsome Textile Inds. Ltd. (Code: 514470) (Rs.60.05). Although sales fell by 10% to Rs.32 cr. its PAT quadrupled to Rs.3.75 cr. due to better profit margin and other income of Rs.1.50 cr. Notably, its closing stocks shot up substantially for the Dec.’06 quarter, which means its will report good sales for the running quarter. For future growth, the company has undertaken modernisation cum expansion projects to add 13000 spindles, 10 TPD dyeing, 2.50 MW Hydro power plant along with complete replacement of old ring frames at a capex of Rs.117 cr. For the first nine months, it has already clocked a revenue of Rs.102.50 cr. and NP of Rs.9.76 cr. without tax provisioning. Hence on a conservative basis, it may end FY07 with sales of around Rs.140 cr. and NP of Rs.9.50 cr. i.e. EPS of Rs.16 on its small equity of Rs.5.87 cr. With 58% promoter holding and Enterprise value of merely Rs.100 cr., this is a screaming buy even at current levels.

Agro Dutch Industries Ltd. (Code: 519281) (Rs.32.55) reported fantastic results for the Dec.’06 quarter. While sales grew by 35% to Rs.48 cr. its net profit zoomed by 70% to Rs.10.85 cr. registering a quarterly EPS of Rs.3.70. Notably, its OPM shot up to 37% from a mere 19% in the preceding two quarters. In order to become the world’s largest mushroom producer, it is expanding its mushroom growing capacity from 36,000 to 50,000 TPA apart from doubling its can making capacity to 12000 tonnes. It has already clocked sales and profit of Rs.154 cr. and Rs.19.50 respectively for the first nine months. Hence on a conservative basis, it is expected to end FY07 with a topline of more than Rs.200 cr. and net profit of Rs.19 cr. after making total tax provisioning of nearly Rs.9 cr. for the full year. This works out to an EPS of Rs.6.50 on its current equity of Rs.29.56 cr. As the promoters themselves are planning to invest Rs.28 cr. through preferential allotment of 1 cr. warrants to be converted at Rs.28 per share, it’s a risk-free buy at current levels. Although the company is not paying any dividend, its share price is bound to hit Rs.50 in a year’s time.

Ind Swift Ltd - Rs.37.00

Incorporated in 1986, Ind-Swift Ltd. (ISL) is the flagship company of the Chandigarh based Ind-Swift Group. Today, it has emerged as a leading formulations company manufacturing various dosage forms including oral solutions and suspensions, dry syrups and hard gelatin capsules (General and Beta-lactam), tablets (general, coated, sustained release and effervescent forms), dermatologicals comprising of creams, ointments and gels, eye and eardrops and injectables (Ampoules and vials). It focuses on the needs of various therapeutic segments, which include Cardiology, Diabetology, Pediatrics, Gynaecology, Surgery, Orthopaedics, Ophthalmology, Neuropsychiatry, Anesthesiology etc. All its products are marketed in an organized manner through its different divisions namely Ethical Division, Ayurveda Divsion, Super Speciality Division, Mukur Division, Resurgence Division, Health Care Division, Max Care Division and Biosciences Division.

Presently, ISL has six manufacturing facilities located in four different states; Two facilities in Parwanoo (H.P.), one facility each in Baddi (HP), Panchkula in Haryana, Derabassi in Punjab and Jammu in J&K. Of these three units commissioned only last year doubling its production capacity and making it one of the largest manufacturing facilities in India. Importantly, these new facilities are US FDA, TGA-Australia, MHRA-UK, MCC South Africa, ANVISA-Brazil, WHO-Geneva compliant primarily to cater the international regulated markets. In fact, its’ Jawaharpur, Derabassi – Punjab facility is 100% EOU. To further seize market opportunities, ISL has recently purchased another 7 acres of land in the tax-free zone of Baddi for setting up a new formulation facility dedicated for manufacturing Oncology, Cephalosporin's, Beta Lactum, Herbal & Neutraceutical products. Last year, the company introduced several new product ranges in the domestic markets including the launch of a unique combination of the Quinoline derivative, antidiarrheal and antibacterial drug which was launched for the first time in India after successful clinical trials. It also launched a new marketing division namely Institutions & Hospitals Division to look after the institutional sales. It added over 250 new marketing professionals to the strong 1000 Marketing team. And 27 new C&Fs were also appointed by the company to further strengthen the distribution network.

ISL has stepped its efforts to tap global markets by filing over 100 product dossiers in countries in Africa, South East Asia, South America & CIS. It is also in an advanced stage of negotiation for signing contract manufacturing agreements with various partners in Europe from its new manufacturing facility. Other additional activities taken up for international alliances include contract research including product development and technology transfer arrangements. ISL’s new R&D set up houses more than 50 scientists, state of the art equipment, separate product development units, IPR cell for patent search and filing, regulatory cell for technical dossiers, is in the process of developing more than 30 new products which includes 4 products to be launched for the first time in India and 5/6 products being developed from the non-infringing processes to be launched in Europe over the next 18 months. Recently, ISL announced decent results for Dec.’06 quarter out and is expected to clock a turnover of Rs.400 cr. with net profit of Rs.23 cr. for FY07. This works out to an EPS of Rs.6 on its current equity of Rs.7.44 cr. with a face value of Rs.2 per share. The scrip is poorly discounted due to promoter concerns but investors can expect a price target of Rs.50 (i.e. 35% returns) in a year’s time.