STOCK WATCH

FCS Software Solutions Ltd. (Code:532666) (Rs.76.85) 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 application support 24x7. For the December 2006 quarter its total revenue grew by 35% to Rs.40 cr. but net profit shot up by 50% to Rs.6.35 cr. due to better operating margins. Last year, it started a new unit in Punchkula (Haryana) and this year it has acquired 1.66 acres of land at Chandigarh Technology Park, under the SEZ scheme. Besides, it is planning to expand its operations to Gurgaon and has been allotted a plot of 4000 sq. mts. at Noida. It may end FY07 with a top-line of Rs.150 cr. with PAT of Rs.21 cr. i.e. an EPS of Rs.15 on its equity of Rs.14 cr. With 69% promoter stake, expected dividend of 30% and 52-week high of Rs.166, this scrip is available extremely cheap at the current market cap of just above Rs.100 cr.

Shree Hari Chemicals Export Ltd. (Code:524336) (Rs.25.50) is a reputed manufacture and exporter of dyes and intermediaries. It produces reactive acid as well as direct dyes and a wide range of dye intermediaries like H-acid, Gama acid, Peri acid, vinyl suplhone etc. For the December 2006 quarter, it made a very strong turnaround as sales more than doubled to Rs.20.50 cr. and the net profit shot up to Rs.1.40 cr. compared to Rs.10 lakh in Q3FY06 thereby registering quarterly EPS of Rs.3. Impotantly, it reported a very healthy OPM of 19% against 7% last year on the back of higher realization for some of its products. Last fiscal, the company set-up a solvent plant system, which is the latest technology available to increase the yield and improve quality. For the first nine months, it has already clocked an EPS of Rs.5 and may end the full year with an EPS of about Rs.7. It’s a strong turnaround candidate.

To curb inflation, the government is adopting various measures and has reduced the custom duty on import of cement. It is further considering to ban export to increase the domestic supply. Although any further price hike is ruled out, cement companies are expected to do well fundamentally as cement prices are trading fairly high. NCL Industries Ltd. (Code:502168) (Rs.46.80) has once again reported stunning numbers for the December’06 quarter. Sales increased by 70% to Rs.56 cr. and net profit zoomed to Rs.9.30 cr. against Rs.0.83 cr. in Q3FY06. It has also decided to merge NCL Energy with itself through a share swap ratio of 1:6. A few months back, it was planning to raise around Rs.55 cr. for expansion through preferential allotment of equity shares to FIIs at Rs.68 per share, but somehow dropped it. However, for FY07, it may report net sales of Rs.200 cr. with NP of 22 cr. i.e. an EPS of Rs.8 on its current equity of Rs.29.22 cr. on a standalone basis. Buy at declines.

RS Software (India) Ltd. (Code:517447) (Rs.67.60), a SEI CMM Level 4 company, is a leader in providing quality software services and consulting to international players in the electronic payment space. Its bandwidth of offerings covers all segments from card associations to processors, acquirers & issuers, ISOs, all the way down to the merchants who manage POS terminals at retail outlets. For the December 2006 quarter, its revenue grew by 10% to Rs.25 cr. but net profit jumped up 70% to Rs.2.40 cr. due to improved margin and lower depreciation cost. For future growth, it is expanding aggressively to set up a new infrastructure of 60,000 sq. ft. in Kolkata, which would be completed by FY08. Apart from UK and USA, the company is also working towards expanding its operations to Asia Pacific and Far East countries. For FY07, it may register a top-line of Rs.100 cr. and bottom-line of Rs.8 cr. i.e. an EPS of Rs.11 on its current equity of Rs.7.40 cr.

Tonira Pharma Ltd. (Code:530155) (Rs.19.55) is a well-known manufacturer and exporter of bulk drugs, drug intermediates and active pharmaceuticals ingredients (APIs) with 95% of its products exported to more than 80 countries worldwide. It also has an USFDA compliant manufacturing facility at Vadodara, Gujarat. For the December 2006 quarter, its sales rose by 40% to Rs.9.30 cr. and net profit also increased by 40% to Rs.1 cr. registering an EPS of Rs.1.20 for the quarter. Last year, it tied-up with US-based Apotex Corporation and Teva Pharmaceutical to supply four API drugs for a period of five years. For the full year FY07, it is estimated to register net sales of around Rs.38 cr. and PAT of nearly Rs.3 cr., which works out to an EPS of Rs.4 on its equity of Rs.7.90 cr. However, low promoter holding of around 27% maybe one of the reasons for its low discounting by the market.

Anjani Portland Cement - Rs.33.50

Established in 1983, Anjani Portland Cement Ltd. (APCL) is a small cement manufacturing company in Hyderabad led by Mr. Vishnu Raju of the Rassi Group. It produces 53 grade & 43 grade cement from high grade limestone and sells its under the brand name ‘Anjani’. It also manufactures blended cements like Portland Slag Cement and Portland Pozzolona Cement depending upon the customers' requirement and distributes its product through an extensive dealer network mostly in Andhra Pradesh & Tamil Nadu. With its consistent quality and timely delivery, APCL has created a niche for itself in the fragmented cement industry.

Its manufacturing plant is located at Nalgonda district in Andhra Pradesh having an installed capacity of 3,00,000 TPA. Equipped with state of the art technology from Nihon of Japan, this plant has the distinction of being one of the most modern plants in the mini-cement sector. The dry process technology adopted by the unit has many advantages, such as efficiency, better quality control and reduced power consumption which results in low cost of production with consistent and sustained output. Besides, APCL has a mining lease spread over 300 acres merely 6 kms from the factory for mining of limestone. Moreover, it has a captive power plant of 2.7 MW through its wholly-owned subsidiary namely Vennar Ceramics.

Cement industry is witnessing the best of times due to large infrastructure developments, irrigation projects and the ongoing boom in the housing sector which has led to an unprecedented demand for cement. This demand coupled with the sharp rise in cement prices made APCL turnaround smartly. For the nine months ending 31st December 2006, its sales increased by 70% to Rs.54 cr. whereas net profit stood at Rs.8.60 cr. compared to net loss of Rs.2.50 cr. in the corresponding previous period. Its OPM has improved substantially to 23% against 14% for FY06. Accordingly, for FY07 it is estimated to report net sales of Rs.80 cr. with net profit of Rs.10.50 cr. This would translate into an EPS of Rs.6 on its equity of Rs.18.40 cr. With its 52 week high at Rs.44 and the current market cap of Rs.60 cr., the scrip has the potential to appreciate 50% in 12-15 months. Investors are advised to accumulate at sharp declines only.

Murudeshwar Ceramics - Rs.111.00

Promoted by Mr. R.N. Shetty in 1983, Murudeshwar Ceramics Ltd. (MCL) is a part of the reputed RNS Group with diversified interests in construction, hotel, power, engineering, auto, IT and education. In 1994, it was the first company to start manufacturing vitrified tiles with an initial capacity of 2,000 sq. mt./day and is one of the major players in this segment with more than 30% market share. Notably, 60% of sales come from institutional supplies to big builders like Hiranandani, Rahejas, Shobha, Mahindra Gesco, L&T, Mantri, Metro Rail, AAI, ICICI, HDFC, Wipro etc. Balance 40% comes from the retail market which it has 75 showrooms and 250 wholesale distributors across India. Although the company had exited the ceramic tiles business earlier due to strong demand it re-entered this business from FY06. It also has small 100% EOU granite division in Bangalore.

Located in Hubli (Karnataka) and Karaikal (Pondicherry), MCL’s manufacturing facilities are equipped with state-of-the-art technology in technical collaboration with Sacmi Imola & Breton, Italy. After its recent expansion, the total production capacity on stands at 21000 sq. mt./day of vitrified tiles and 20000 sq. mt./day of ceramic tiles. But its biggest strength is its captive mine for china clay and feldspar, which cater to 80% of its raw material requirements. It also enjoys substantial cost advantage at its Karaikal facility since it has an agreement with GAIL for supply of natural gas. Besides, it has access to grid power at a very competitive rate of Rs.3/kwh. The current capacity utilisation of Vitrified tiles unit is 85% and that of Ceramics tiles unit is 75%. To fulfill the increasing demand, MCL is further expanding its vitrified tile capacity by 4000 sq. mt./day. Incidentally, the company has a 20 acres land near the Electronic City where it intends to develop an IT park in future.

Fundamentally as well as financially, the company is on a strong footing. It has huge reserves of more than Rs.200 cr. on its equity of Rs.17.50 cr. leading to a book value of around Rs.115. Despite stiff competition, it enjoys healthy EBITA margins of 15% in ceramic tiles and 30% in vitrified tiles. Recently, the promoters and Reliance Capital AMC got their 25 lakh preference shares converted into equity shares at Rs.124 per share. For FY07, the company is expected to clock a turnover of Rs.240 cr. with net profit of Rs.28 cr., which works out to an EPS of Rs.16 on its diluted equity of Rs.17.50 cr. For FY08, its revenue & PAT may shoot up to Rs.300 cr. and Rs.35 cr. respectively. Its share price has the potential to touch Rs.175 level in a year’s time and if the real estate story also pans out, then the scrip can go up to Rs.250 level.

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.