Shree Ganesh Forgings Ltd - 28.00 Rs

Established in 1982, Shree Ganesh Forging Ltd (SGFL) is one of the well known manufacturer and exporter of flanges, fittings and automotive components. It specializes in producing complete line of stainless steel, carbon steel and alloy steel forgings for industries like oil, gas, petrochemical, food, dairy industries, breweries, nuclear application, automobile industry, two wheeler industry, earth moving industry, tractor industry, defense, railway etc. SGFL boasts of making more than 2500 varieties of specialized items on piecemeal production and manufactures different variety of flanges and fittings such a weld neck, slip on blind, lap joint, threaded, socket weld, forged vales etc weighing from 0.5 kg to 1000 kg. Moreover it also manufactures hot forged components such as gears, shafts, crankshafts, crown wheels and pinions, propeller shaft components like sleeve yokes, flange yokes, universal joint crosses, connecting roads, steering knuckle arms etc. for four wheelers, two wheelers etc. Interestingly, it also has capabilities to supply vast range of steel forged finished products like eye, shank, single, double, and swivel hooks for the lifting industry.

SGFL’s manufacturing plant, located in the industrial belt of Pawane in Navi Mumbai is well equipped with facilities right from raw material & cutting section, die making, upset forging, ring rolling, heat treatment, shot blasting up to machining and testing. Ironically, company products has been qualified, approved and certified by numerous foreign agencies across the globe. Infact SGFL is the only one company in India who is approved by Syncrude Canada and has obtained CRN No from all 13 provinces of Canada. Its product are well accepted in international market and being exported regularly to USA, Canada, U.K., Ireland, Europe (Germany, Netherlands, Belgium, Denmark, Spain, France, Greece, Austria, etc ) and Middle East markets. Importantly, SGFL has various alliances with internationally reputed organizations to market its product and nearly 70% of its revenues come from export. In domestic market SGFL is preferred supplied to biggies like Alfa Laval, BEML, Greaves, L&T, Voltas, BARC, Kirloskar, KSB, Godrej, M&M etc.

To cater the rising demand, SGFL has implemented an expansion plan in late 2005 to double its forging capacities from 11000 MT to 22800 MT at the existing location by installing 2500- MT press and 4000- MT press with robotic application, with additions of 48 nos of C.N.C Machines. The project is almost completed and is expected to start commercial production soon which will give a great fillip to its financials. Besides to increase its global presence, SGFL recently acquired 100% stake in two European companies - Hertecant N V, a manufacturing concern located in Belgium and ELFE, a distribution company located in France from Outo Kumpu for a consideration of 23 cr. Moreover it has also acquired free zone land at Jebil Ali SEZ in Dubai to start a state of the art manufacturing unit consisting of 36 CNC machines with a capacity of 1,80,000 pcs per month. For FY07 it may clock a turnover of 105 cr and PAT of 6.75 cr i.e. EPS of 5 Rs on current equity of 12.50 cr which can shoot up to 7~8 Rs EPS for FY08. However the appreciating rupee is cause of concern for the company. With 52 week H/L as 24/71 Rs and good institutional interest, scrip is trading fairly cheap at current market cap of merely 35 cr. Hence investors are advised to accumulate this scrip for 50% return in a year’s time.

Stock Watch

Hind Rectifiers (911.00), one of the leading manufacturers of locomotive transformers, rectifiers, inverters, and power electronics like diodes and thyristors (types of semiconductor devices) etc announced satisfactory result for the March qtr. It clocked an all time high sales of 27 cr (up 27%) whereas NP declined by 15% to 3.10 cr primarily due to increase in other expenditure, depreciation and tax provisioning. However for full year its sales improved by 25% to 87 cr and NP increased up 30% to 11 cr. Hence it reported an EPS of 74 Rs on a very tiny equity of 1.50 cr and declared 10/- Rs as dividend. Recently, company modernized its Mumbai facility and has set up new plant in Uttranchal which commenced operation only in April 2007. Due to excise duty and income tax benefit from new plant, company’s profit margin is expected to improve going forward. Accordingly, it may clock a turnover of 120 cr and PAT of 18 cr for FY08 which translates into EPS of 120 Rs. Besides, to increase the liquidity company has announced stock split of equity shares to 2/- Rs face value. Secondly, being in the 50th year of its operation a liberal bonus can’t be ruled out in near future. Scrip is tipped to touch 300 Rs post split.

Accel Frontline (58.00) is a joint venture company formed between Accel ICIM Systems & Services and Frontline Technologies, Singapore. It is a SEI - CMMi Level 5 company, which is one of the highest in quality standards for IT service providers. For the March quarter its topline declined marginally to 48 cr but PAT improved 35% to 2.40 cr on back of higher operating margin. For entire FY07, total revenue grew by 15% to 186 cr whereas profit jumped up 70% to 12 cr leading to an EPS of 5 Rs on equity of 22.50 cr. It declared 15% dividend leading to an impressive payout ratio of 30%. To fund its growth plan, company had raised around 39 cr thru IPO route @ 75 Rs per share in Oct 2006 of which 50% is yet to be utilized. Earlier this year it acquired the banking solutions division of a Chennai company specializing in software products for banking applications and implementation and migration services for core banking software in India, middle east and African regions. Recently it also got the order for installing and maintaining smart card based Automatic Ticket Vending machines across western and central railway stations including suburban stations of Mumbai. Considering all the factors, company is expected to register a topline of 225 cr and bottomline of 15 cr ie EPS of 7 Rs for FY08.

Last week Ramsarup Industries (150.00) announced decent set of nos for the March quarter. Sales shot up to 420 cr against 320 cr last year whereas NP increased by 70% to 11 cr. For the full year it recorded 30% growth in sales to 1306 cr and 60% rise in net profit to 43.50 cr. This works to EPS of 25 Rs on equity of 17.50 cr for FY07. Company is continuously enhacing its production capacity for steel wire as well as TMT bars and has recently completed the expansion project at its exisiting plants viz Kalyani and Shyamnagar. For future growth it has a massive expansion plans whereby it is putting up a greenfield plant in Durgapur for manufacture of Low Relaxation Prestressed Concrete (LRPC) strand wire along with special grade steel wires. Phase-I of this new plant is expected to commence operation by Sept 2007. To fund this project, company intends to raise around 200 cr Rs via FCCB/GDR route which may dilute the equity to nearly 30 cr. Meanwhile, company has forayed into infrastructure activities also like laying of power transmission line etc which is growing rapidly. For FY08 it can register net sales of 1750 cr and profit of 55 cr ie EPS of 31 Rs on current equity.

Although cement manufacturers can’t hike the cement prices until early next year, still they will be making decent profit, for FY08 atleast on back of favourable demand-supply situation. Deccan Cement (140.00) is no exception and it came out with excellent nos for the March quarter. It reported 20% jump in sales to 47 cr but NP zoomed up 60% to 8 cr registering an EPS of more than 11 Rs for the quarter. For the entire year ending March 2007, its sales grew by 40% to 172 cr but NP tripled to 28 cr leading to an EPS of whopping 40 Rs. Due to higher price realization, the OPM shot up drastically to 28% against 12% last year. However it declared only 30% dividend as it has aggressive capex plan. In future, company intends to shed off its mini cement manufacturer tag as it is planning to ramp up its capacity by setting up a new 10 lakh tonne cement facility along with a captive power plant. Currently it produces only 3 lakh tonne of cement and enjoys the benefit of lower excise duty due to its small size. For FY08, company is expected to maintain its current profit margin and report sales of 180 cr and PAT of 31.50 cr ie EPS of 45 Rs on equity of 7 cr.

Tanfac Industries Ltd - Rs 38.00

Incorporated in 1972, Tanfac Industries Ltd (TIL) is a joint sector company promoted by Tamilnadu Industrial Development Corporation (TIDCO) and Aditya Birla group. TIDCO is still holding 26% stake whereas 25% is held by Aditya Birla group of companies. Today, TIL is one of the largest suppliers of fluorine chemicals in India. It is mainly engaged in the manufacture of inorganic chemicals and fluorine based chemicals such as aluminium fluoride (ALF3), anhydrous hydro fluoric acid (AHF), sodium silico fluoride, ammonium bifluoride, sulphuric acid, potassium fluoride, cryolite and various chemicals. These products have vital applications in industries as varied as aluminium smelting, petroleum refining, refrigerant gases, steel re-rolling, glass, ceramics, sugar, fertilizers, heavy water, etc. Besides it also produces organic fluorides & speciality fine chemicals which are used as intermediates in the manufacture of pharmaceuticals and agrochemicals.

TIL’s manufacturing plant and facilities are spread over 60 acres in the chemical complex of SIPCOT at Cuddalore near Pondicherry. It has technical collaborations with Davy Process (formerly BUSS AG), Switzerland for ALF3 and Chenco, Germany for hydrofluoric acid. Currently, company has an installed capacity of 15600 tpa each for ALF3 & AHF, 75000 tonne for sulphuric acid and 3400 tonne for specialty fluorides. It also has an ISO 9001, 14001, & TPM certification. Being an Aditya Birla group company, Hindalco is its major customer apart from NALCO. Besides, nearly 30% of the production is being exported to countries across the globe. Notably, aluminium industry worldwide has been growing at a fast pace and this has led to a significant improvement in demand for aluminium fluoride. Since 60% of company’s revenue comes from ALF3, this augurs well for TIL.

Financially, company has made a strong turnaround in FY07 with sharp jump in operating margin on back of higher price realization. Its sales grew by 11% to 123 cr but the NP zoomed up 550% to 6.70 cr compared to 1 cr last year. Ironically its OPM improved to 11% against 5% in FY06. Hence it reported an EPS of 7 Rs on equity of 10 cr and declared 15% dividend. Accordingly it can register sales of 130 cr and PAT of 7.75 cr ie EPS of 8 Rs for FY08. Therefore investors can accumulate this scrip at declines as scrip has the potential to give 25 - 30% return in 12 months. Moreover in case Tamilnadu government opts for divesting its stake, the share price can shoot up sharply.

Jupiter Bioscience - Rs 165.00

Established in 1985, Jupiter Bioscience Ltd (JBL) is a reputed pharmaceutical company specializing in niche areas of peptides, advanced organic chemistry, chiral chemistry, and biotechnology. Infact it ranks among global top 10 players in the peptide chemistry and the only one in India with a distinction of integrated model of peptide pharmaceuticals. Along with its subsidiaries, company is an end to end peptide solution provider covering the entire spectrum from key peptide raw materials to finished formulation. It manufactures 14 categories of peptide reagents, 6 variety of coupling reagents and more than 100 varieties of protected amino acids. Broadly, company has segmented its product profile in three groups namely ‘Peptide raw material’, ‘Drug Intermediaries’ and ‘Special & fine chemicals’ with around 50% revenue coming from the first and other 50% from the rest two divisions. In future, 65% of revenue is expected to come from peptides alone.

Presently JBL is having three manufacturing facilities – one in Karnataka (Bidar) and two in Andhra Pradesh (Cheriyal & Medak) with a combined installed capacity of 372 TPA. Against this its actual production is around 175~200 tonnes representing nearly 50% capacity utilization. This means it can easily double its topline without any capital expenditure. Besides, JBL has set up two wholly owned subsidiaries to cater the higher segment of peptide value chain. Notably, till March’06 JBL has already invested whopping 55 cr in these subsidiaries. For specially catering to the regulated market like USA, Europe, Japan etc, its US subsidiary is setting up FDA approved facility in Maryland for the manufacture of custom peptides, clinical peptides and peptide-based generic active pharmaceutical ingredients (APIs). It will start commercial operation from this fiscal. On the other hand its Indian subsidiary namely Sven Genetech is mainly into the business of development of process capabilities for several products that are pre-cursors to new generation drugs in the fields of AIDS treatment, Cardiology, Oncology, Immunology, Endocrinology, vaccines and others.

After a co-opearation agreement with Clariant group last year, JBL has recently entered a 10 year product purchase agreement with Ranbaxy to leverage the latter's vast global market reach and put the company's upcoming peptide products on a fast-track. Accordingly Ranbaxy is taking 15% stake and will be investing nearly 50 cr in the company thru preferential allotment of 31.77 lac warrants to be converted @ 147 Rs per share. Moreover, last month JBL also raised 100 cr thru QIP route by placement of approx 65 lac shares @ 153, basically to fund the growth plan of both its subsidiaries. Importantly, till now JBL has been investing and creating facilities for its subsidiaries although they have still not started contributing to topline or bottomline significantly. So once the subsidiaries start working at optimum level, they will give a huge fillip to company’s financials. Even on a standalone basis its fundamentals are quite strong with operating margin in the range of 45-50%. For FY07 its sales improved by 30% to 104 cr and PAT increased by 50% to 25 cr. Considering its Q4 performance and recent tie up with Ranbaxy, it can clock a turnover of 180 cr and PAT of 45 cr for FY08. This translates into standalone EPS of 21 Rs on fully diluted equity of 21.32 cr. Despite company having a debt of more than 100 cr and miscellaneous expenditure to the tune of 60 cr on a consolidated basis, investors can buy at current levels as scrip can appreciate 50% in 9~12 months.

Stock Watch

Lakshmi Electricals, belonging to well known LMW group is engaged in the manufacturing of electrical components like switch gear, control panel, contactors, thermal overload relays, control relays and textile machinery components using engineering plastic. It reported decent set of nos for the March quarter as sales grew by 35% to 18.50 cr and NP shot up 40% to 1.95 cr. Even for the full year its sales increased by 40% to 68 cr and profit jumped up 50% to 7.90 cr. This translates into EPS of 32 Rs on a very tiny equity of 2.46 cr. For FY08, it is expected to clock a turnover of 80 cr and profit of 8.75 cr ie EPS of 36 Rs. At a reasonable discounting by 12x times scrip has the potential to touch 425 Rs. Moreover company has a hidden value in the form of its 100% profit making subsidiary called “Harshini Textile” having a spinning capacity of 25200 spindles. This can add further 50 Rs to the valuation of the company. In short a great buy at current levels.

Despite paper manufacturers raising the paper price regularly and doing well, market has ignored this sector completely. Recently, South India paper mills reported excellent result and declared 30% dividend which gives a yield of 5% at CMP of 60 Rs. For the March quarter, its sales grew marginally to 28 cr but NP zoomed up 120% to 2.85 cr registering a qtrly EPS of 3.80 Rs. For entire FY07 sales were up 13% to 113 cr and NP increased by 50% to 10.50 cr. This led to an EPS of 14 Rs on equity of 7.50 cr. Still the scrip gets poor discounting by merely 4x times and has a markep cap of 45 cr. Currently, company is in the midst of 55 cr expansion and forward integration project whereby it is enhacing its capacity from 55,000 TPA to 85000 TPA. The project is expected to complete by Dec 2007. Besides in future, it also intends to set up a green-field plant with an investment of 125 cr. Accordingly, for FY08 it is expected to report sales of more than 125 cr and NP of 11.50 cr ie EPS of 15 Rs. But the real growth will be in FY09 due to increase capacity, hence its good long term buy.

Dhunseri Tea is one of the oldest tea producers and a market leader in Rajasthan with brands like Kala Ghora, Lal Ghora, and Chotte lal. It has massive tea graden estate spread across 1800 hectare in Assam. For FY07 its sales improved by 15% to 67 cr but PAT doubled to 7 cr due to sharp jump in other income. This works to an EPS of 10 Rs on equity of 7 cr. It declared 17.50% as dividend against 12.50% last year. Interestingly, the promoters ie Dhanukas’s have long been associated with the capital market, and Mr C.K. Dhanuka is well known as an investor with a talent for identifying stocks that generate multiple returns. Hence as on date the company has an portfolio of around 30 cr with investment in scrips like Reliance, SBI, Financial Technology, Grasim, Jaiprakash Associate, Syngenta, Areva T&D, Divis, ICIC Bank to name a few. This is apart from its investment of 37 cr in group companies like South Asian Petrochem, Tezpore Tea etc. Ironically, Dhunseri is still sitting on unrealized gain of around 15~20 cr. Despite having a well set tea business, reputed brands, own tea estate and liquid cash worth 30 cr, this scrip is available at a market cap of merely 40 cr. A value buy

Roto Pumps is a reputed manufacturer of progressive cavity pumps and twin screw pumps which have very wide application in agriculture, domestic and industrial sector. Besides India, it has warehouse cum marketing office in Australia and U.K. and also good network of distributors spread across the globe. It recorded 25% growth in sales to 10.50 cr and 45% increase in profit to 0.55 cr for the March quarter. For FY07, sales stood at 34 cr against 24 cr last year whereas NP zoomed up 125% to 2 cr. This translates into EPS of 7 Rs on small equity of 3 cr on which it declared 15% dividend for FY07. Considering the strong demand, it may end FY08 with sales of 45 cr and profit of 3 cr ie EPS of 10 Rs. With its 52W high as 71 Rs, scrip is a safe bet at current levels and can appreciate by more than 50% in 12~15 months. However, the continuous rupee appreciation is a cause of concern for the company.