Visesh Infotechnics Ltd. - Rs.36.00

Established in 1989 as an ERP software product company, Visesh Infotecnics Ltd. (VIL) is today a mature and fast growing company committed to providing reliable and cost-effective IT solutions to organizations globally. It has a state-of-the-art software development facility in Bangalore and another one at Gurgaon. Besides, it also has a base in Bangkok with a large strength of software and networking professionals. Importantly it has strategic partnerships & alliances with global IT leaders like Novell, Microsoft, Oracle, Compaq, IBM, Sun, Cisco, 3Com, HP, Toshiba etc. Its software and technology solutions are being used successfully in almost all industry verticals such as telecommunications, chemicals, automobiles, pharmaceuticals, services (including finance & ITeS), government, education, sugar, sales & distribution etc. Hence, VIL has a formidable client list of more than 1000 large and medium size corporates including several reputed multinationals and overseas clients and has been declared a winner in the world-renowned Deloitte Technology Fast 500 Asia-Pacific 2005 programme. It is also winner in the inaugural Deloitte Technology Fast 50 India programme.

VIL’s operations can be broadly divided into three segments: IT Solutions & Product Support, Enterprise Software & IT enabled Services. It has a proud history of product development and that of an IP (Intellectual Property) creator. In the ERP space, the company has three products namely BusinesSoft™, BusinessPro™ and powERPro, which are doing extremely well. Another software product VRetail™ is specially designed for retail space and has been deployed successfully by several departmental stores, supermarkets and retail chains in India and overseas. The company has lately diversified into high technology and fast emerging areas of mobile telematics with launch of TransXS™ pioneering remote vehicle tracking service that facilitates corporates and fleet operators to get 24x7 real-time information of their fleet location and enhance logistics management through vehicle utilization analysis, route planning, asset tracking etc. VIL also has a division called InfraServe, which designs, builds and manages IT infrastructure for its clients globally through effective deployment of hardware, software and networking products. Last fiscal, the company ventured into business of Knowledge Process Outsourcing (KPO) & BPO through its newly-formed division VConnect™ which has good orders and is expecting new legal process outsourcing contracts from reputed US Based law firm. A few months back, it entered into 50:50 joint venture with Cyberworks Software, USA, to provide outsourced services to its clients from its contact centers (BPO units) in India. Its Lapps.Biz™ is an e-commerce portal that provides mobility devices (laptops, hand-helds etc.) and applications to the upwardly mobile retail buyer at the click of a mouse. The company also offers internet and web based services thru SignDomains™, StepOne™ & InfraSurf™.

Notably, VIL has some aggressive expansion plans for which it is planning to raise around Rs.44 cr. through FCCB / GDR/ preferential allotment route and has already taken the approval at the recent EGM. For FY06, its top-line increased by 120% to Rs.78.50 cr. and net profit shot up by nearly 6 times to Rs.11.05 cr. i.e. EPS of Rs.4. It declared Re.1 as dividend, which means a healthy payout ratio of 25%. For this fiscal, it is expected to register total revenue of Rs.125 cr. and with profit of Rs.19 cr. i.e. EPS of Rs.7 on its current equity of Rs.26.97 cr. Promoters’ holding is around 56% and its book value stands at Rs.27. Although it needs funds for expansion, still it may declare 12.50% as dividend for FY07. Its forthcoming FCCB/GDR is expected to be placed above Rs.50 per share. Hence investors are strongly recommended to buy at current levels with a price target of Rs.55 (50% returns) in 9-12 months.

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IG Petrochemicals Ltd. (Code: 500199) (Rs.57.10) is the world’s third largest producer of Pthalic Anhydride (PAN), which is used in the manufacture of plasticizers, alkyd resins and as an intermediate in the production of dyes and pigments. Due to major financial restructuring and capital infusion by Spinnaker-a global fund, the company has made a strong turnaround this fiscal. For the December 2006 quarter, while its sales increased by 50% only to Rs.150 cr., its net profit zoomed to Rs.10.90 cr. against a net loss of Rs.15.60 cr. last year. Notably, it recorded the highest OPM of around 14% due to high realization, low raw material costs and higher capacity utilization. For the full year FY07, it is expected to clock a turnover of Rs.600 cr. with PAT of Rs.33.50 cr., which translates into an EPS of Rs.13 on its current equity of Rs.26.30 cr. and EPS of Rs.11 on its diluted equity of Rs.30.80 cr. A good turnaround scrip.

A major beneficiary of the Railway Budget will be Kalindee Rail Nirman (Engineers) Ltd. (Code: 522259) (Rs.164.75). It is a forerunner in execution of the railway signalling, gauge conversion from metre gauge to broad gauge, new railway line construction, modernisation of railway yards. up-gradation of railway sidings in ports, power plants, petroleum sidings, access control systems for metro rail, fibre optic networks, etc. Recently, it merged group company, Kalindee India Projects, through a swap ratio of 17:20, which will help it to bid for larger projects. Besides, it just now raised around Rs.27 cr. through a preferential allotment of 17.25 lakh shares at Rs.156.50 per share. Further, it is planning to raise approx. Rs.30 cr. through the GDR or FCCB route. It may end FY07 with a turnover of Rs.175 cr. with net profit of Rs.10.50 cr. i.e. EPS of Rs.10 on its diluted equity of Rs.10.34 cr. Since the company has more than Rs.750 cr. of orders in hand, its top-line is expected to shoot upto Rs.300 cr. with PAT of around Rs.22 cr. i.e. EPS of Rs.21 on its current equity for FY08. A solid buy as its share price can shoot upto Rs.240 in 12 months.

By this year’s budget, the government has expressed its special thoughts on health and family welfare by increasing its allocation by 20% to more than Rs.15,000 cr. This is positive for Sanjivani Parenterals (Code: 531569) (Rs.32.85) to some extent as it a supplier of pharmaceutical products to government bodies. Few months back, it bagged a prestigious order from the Mumbai Municipal Corporation and also won the bid of CMS Tender for bulk supply to all hospitals of the West Bengal government. Recently, it also entered into some contract with the defence ministry for three years, which is a good breakthrough for the company. For FY07, it may report a total revenue of Rs.75 cr. with net profit of Rs.4.50 cr. i.e. an EPS of Rs.8 on its equity of Rs.5.90 cr. Technically also, the scrip has bottomed out and the risk:reward clearly favours the bulls in this scrip.

After hitting a high of Rs.122, Paradyne Infotech Ltd. (Code: 532672) (Rs.87.30) has corrected sharply to Rs.80 levels on fears of MAT implementation and the FBT on ESOP. However, it is a rapidly growing mid-cap IT company set to capitalise on strong growth opportunities in HR and Banking software products, offshore & domestic software services, e-governance projects and IT infrastructure management services through both organic and inorganic initiatives in domestic as well as global markets. For the December 2006 quarter, its top-line grew by 60% to Rs.34.50 cr. and net profit more than doubled to Rs.3.95 cr. registering an EPS of Rs.3.65 for the quarter. For full year FY07, it may register total revenue of Rs.125 cr. and after providing Rs.2.50 cr. as current tax, net profit may stand at Rs.14 cr. This translates into an EPS of Rs.13 on its current equity of Rs.10.88 cr. For FY08, its EPS can rise to Rs.16. Buy on declines.

PBA Infrastructure Ltd. (Code: 532676) (Rs.95.30) executes civil engineering projects and specializes in construction of highways, dams, runways, heavy RCC structures, bridges and other infrastructure projects for various government bodies. Although the shares of construction and infrastructure companies have tumbled sharply on withdrawal of some tax exemptions in the budget, the future prospects of PBA Infrastructure are very encouraging as it regularly bags good orders. Its first three quarters revenue is up by 75% to Rs.187 cr. but net profit grew by 20% only to Rs.10 cr. only due to higher interest cost and tax provisions. Since it has pending contracts worth more than Rs.500 cr., it may report sales of Rs.265 cr. with net profit of Rs.12 cr. for FY07, which may shoot up to Rs.325 cr. and Rs.16.50 cr. respectively for FY08. This works out to an EPS of Rs.9 & Rs.12 for FY07 and FY08 respectively. The company is also planning to raise capital through FCCB/GDR/ preferential allotments, which will lead to its re-rating going forward.

LT Overseas - Rs.44.00

Incorporated in 1990, LT Overseas Ltd. (LT) is primarily in the business of milling, processing and marketing of branded & non-branded basmati rice and manufacturing of rice food products in the domestic and overseas markets. Its operations include contract farming, procurement, storage, processing, packaging and distribution. Presently with around 22% market share, it is the third largest player in domestic basmati rice segment after Satnam Overseas and KRBL. Incidentally, the company owns 19 brands with ‘Daawat’ and ‘Heritage’ as its leading brands. Apart from all types of basmati rice, the company’s product portfolio comprises brown rice, white rice, steamed rice, parboiled rice, organic rice, quick cooking rice, value added rice and flavoured rice in the ready to cook segment. Globally, its products are being sold in more than 35 countries including quality conscious markets like USA, Canada, UK and the European Union. In fact, it is among the first few players in the rice industry to achieve ISO:9001 and Hazard Analysis and Critical Control Point (HACCP) certification from British Standards Institute.

Presently, LT has a capacity to process 30.5 TPH of paddy of which 27 TPH is processed at its own facility at Bahalgarh, Haryana, and the balance 3.5 TPH is processed in facility leased from group concerns at Sonepat and Amritsar. Notably, it is among the few rice manufacturers to use silos for storage of rice. Moreover, all its processes are fully mechanized and the output is untouched by hand. It is also using automatic colour sorting machines for quality purposes since 1992. It also has an R&D division that concentrates on developing processes for getting better aroma, better head grains yield and reducing the stickiness and developing value added rice. Recently, it has entered into an agreement with Satake Corporation, Japan, for exclusive right to use new milling technologies for value added rice which will give LT a technological edge over its other local competitors. It has formed a strategic alliance with Phoenix Agri Silica Corporation for developing a silica plant to convert husk ash, a waste generated during the milling process into silica - a raw material used in the cement industry. Meanwhile, it has also entered into contract farming agreement with Tata Chemical. LT has a very strong distribution network with more than 100 distributors covering almost every state. As 40% of its revenue comes from exports, it has exclusive arrangement with distributors in North America, South America and the European Union and has of late started supplying basmati rice directly to retail chains in US and Canada. It is also taking some initiatives to increase its presence in the Far East, Africa and the Middle East region.

A few months back, LT raised around Rs.40 cr. through an IPO at Rs.56 per share primarily for putting up a new parboiled rice processing and milling capacity of 6 TPH, a new milling line for producing value added rice with capacity of 5 TPH and to set up silos and flat storage facilities. It is also putting up a power plant of 2MW for captive consumption. In a pre-IPO placement, LT allotted 7.14 lakh equity shares to Bennett Coleman & Co and another 50,000 equity shares with Deramann Ltd at a price of Rs.70 per share. To increase its domestic market share, the company has applied for another 30 brands which are pending at various stages. Considering all these factors, it may report sales and net profit of Rs.450 cr. and Rs.20 cr. respectively for FY07. This may shoot up to Rs.550 cr. and Rs.32 cr. respectively for FY08. The EPS works out to Rs.9 for FY07 and Rs.14 for FY08. Investors are strongly recommended to buy at current levels as the share price can easily double in a year’s time.

Andhra Petrochemicals - Rs.14.20

Promoted by Andhra Pradesh Industrial Development Corporation and Andhra Sugars Ltd, Andhra Petrochemicals Ltd. (APL) was established as a joint sector company in 1984 with a licenced capacity to produce 30,000 MTPA of Oxoalcohols at Visakhapatnam. However, the company started commercial production from February 1994 only. Since then APL is almost the sole producer of Ox-Alcohol and its derivatives like N-Butanol, 2-Ethyl Hexanol and I-Butanol in India. Its products are used mainly for plasticizers, emulsion paints, adhesives, paper/textile processing, fuel additives, surfactants, mining, stabilizers, solvent extractions, agricultural chemicals, engine machinery lubrication etc. They are also used in rubber chemicals, printing inks, resins, pharmaceuticals, urethane catalysts, dyes, varnishes, nitro cellulose lacquers, acrylates, pesticides, etc.

APL’s manufacturing facility is located at Visakhapatnam (A.P) near the port and is equipped with imported technology supplied by M/s. Davy McKee Ltd., UK, now known as M/s. Davy Process Technology. It has an installed capacity of 39,000 MTPA but has been working above 100% capacity utilization since the last few years. In fact for FY06 it achieved an all time record production of 42,714 MTs, which will probably be beaten this fiscal. As APL is the only producer of oxo-alchohol in India, the rest of the demand is being met by imports. As per industry estimates, the demand for Oxo-Alcohols will continues to rise at 8% p.a. in coming years. This means that the company has a huge potential to expand. Although it has no such plans at present, it intends to do so in future to beat the competition form cheaper imports and increase its market share. Meanwhile, in order to bring down the power cost, the company has initiated steps to install an Uninterrupted Power Supply (UPS) system to feed all essential equipment drives, which will enable the captive D.G. sets to normally shut down and operate only as emergency generators during power failure.

Since crude oil prices were very high in FY06 and as Propylene/Naphtha are the main raw materials for APL, its financial performance was under severe pressure in FY06. This year, however, crude prices have fallen drastically below $60 per barrel and hence APL has made a strong turnaround. For the first nine months ending 31st December 2006, its sales improved by 35% to Rs.184 cr. but net profit increased by more than six times to Rs.20 cr. More importantly, its PBT stood at Rs.36 cr., which translates into an annualized EPS earning before tax of Rs.6. Accordingly, for the full year FY07, it may report a turnover of Rs.250 cr. with PAT of Rs.30 cr., which translates into an EPS of Rs.3.50 on its equity of Rs.85 cr. It may declare a maiden dividend of 7.5% for FY07, which amounts to a yield of more than 5% at CMP. Although APL is endeavouring for restoration of input tax credit on naphtha, the prospects of the industry are still dependent on the government policies concerning VAT and petroleum prices. Investors are advised to buy at current levels with a price target of Rs.24 i.e. 70% return in 15-18 months.

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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.