STOCK WATCH

On the face of it, results of IFB Agro Industries (60.00) doesn’t look encouraging for the March quarter. But actually it has posted terrific result. The OPM shot up to 19% compare to 4% last year on back of lower raw material and operating cost. Hence its PBIDT increased by 170% to 8.40 cr, but due to extraordinary expense its NP declined by 25% to 1.50 cr. For the entire FY07, if we exclude the extraordinary expense of 11.70 cr (i.e. depreciation charge for earlier years) the NP works out to 14.50 cr on net sales of 176 cr. This translates into EPS of 19 Rs on equity of 7.70 cr. Against this scrip is trading extremely cheap at CMP of 63 Rs with a market cap of less than 50 cr. Assuming a conservative OPM of 8~9% and after making highest tax provisioning for FY08, it may report sales of 200 cr and PAT of 10 cr. i.e. EPS of 13 Rs on current equity. Scrip may hit a century with non stop upper circuits. Catch it if you can.

For FY07 Pitti Laminations (85.00) has reported an all time high sales of 15,447 MT of stamping and laminations. Sales jumped up 75% to 148 cr whereas NP shot up by 50% to 10 cr registering an EPS of 11 Rs on equity of 9.21 cr. Company has recently expanded its capacity to 25,000 MT, so for FY08 it will make sales of more than 20,000 MT i.e. at least 30% growth in volume terms. Besides it is implementing a forward integration project for fabrication of steel stator bodies, machining of stator bodies and dropping of assembled stator core into the stator body which will enhance its margin post completion. Accordingly for FY08 it is expected to clock a turnover of 200 cr and PAT of 13.50 cr. This translates into EPS of 15 Rs on current equity. At a reasonable discounting by 12x times scrip may touch 120/- Rs in medium term. A good bet for short to medium term.

The result of Winsome Textiles (40.00) is not as bad as it appears to be. Yes, for the March quarter, margins have come down due to various factors like lower yarn prices, rupee appreciation, increase in raw material cost etc. Still it reported a decent OPM of 10% against 15~16% in the preceding quarters. But importantly, because of huge deferred tax provisioning, it reported a net loss of 2.95 cr. For the full year sales grew marginally by 5% 140 cr, but on the back of improved margins its PBT zoomed up 125% to 11.25 cr. However company made a huge deferred tax provisioning of 4.40 cr (i.e. 40% of PBT) for which PAT increased by only 50% to 6.80 cr. This led to an EPS of around 12 Rs on equity of 5.90 cr. As high cotton prices and lower yarn prices being temporary phenomena, we expect the situation to improve in future. Moreover company is implementing modernization and expansion project and hence may report sales of 175 cr and NP of 6 cr on a conservative basis. i.e. EPS of 10 Rs on current equity.

Most of the retail investors are selling National Steel (23.50) as it has posted a 50% decline in its net profit for the March quarter. But one shouldnt evaluate the company by just one quarter nos. On the full year basis its topline as well as PBT were flat at 1920 cr and 32.50 cr respectively. However, due to higher tax provisioning NP declined by 10% to 20 cr thereby registering an EPS of more than 6 Rs on equity of 32.60 cr. In near future, company intends to diversify further to manufacture galvalume and other products like aluminium, zinc, alloy coating etc. For this it has an capex plan of 75 cr for FY08 under which it will add new capacity to produce 1,50,000 tonne of galvalume and also increase the pre-painted galvanized steel capacity by 20000 tonne. Ironically, a RUCHI group company having a capacity of 2,10,000 tonnes of galvanized steel, 2,40,000 tonne of cold roll steel and 80,000 tonne of colour coated line is available at an enterprise value of less than 300 cr. Besides, it has reserves of more than 150 cr ie book value of 55 Rs. Despite company having low profit margin and gives no dividend, it’s a value buy.

Sukhjit Starch & Chemicals Ltd - 146.00 Rs

Established in 1944, Sukhjit Starch and Chemicals Ltd (SSCL) is a well known player in maize starch and its derivatives. Hence its engaged in manufacturing edible maize starch used in the preparation of ice-cream, custard powder, confectionery etc, maize starch used in the textile and paper industries, dextrine used in foundries as a binder, liquid glucose used in the manufacture of jams, jellies, chewing gums, etc and dextrose monohydrate (glucose) used in pharmaceuticals. Besides it also produces sorbitol, maize oil, maize gluten, maize husk, liquid glucose, high maltose syrup, oxidized/pregelatinized starch etc. It has an impressive clientele including corporates like Britannia, Dabur, Colgate, HLL, Heinz, Ballarpur, Berger paints, JCT, Mahavir Spinning. Wockhard etc.

SSCL has three manufacturing plants spread across Phagwara-Punjab, Nizamabad-Andhra Pradesh, and Malda-West Bengal. Incidentally, SSCL is the only multi-locational group in India as of now with a combined installed capacity of 1,50,000 tons corn grind per annum. With a view to take advantage of emerging opportunities in starch industry, company has embarked on new expansion project in Himachal Pradesh entailing a capital cost of Rs.30 crore. Trial runs have been carried out and commercial production is expected to start in June 2007. This new unit will enhance the capacity by nearly 25% and is likely to be dedicated for high margin starch and derivative products especially for pharmaceutical industry taking shape in Baddi, Himachal Pradesh. In future company is also planning to start producing maltitol, spray starch, cationic starches, acetylated starches etc. Although negligible currently, but going forward company may start exploring the international market for export.

However, SSCL’s performance largely depends on availability and cost of raw material i.e. maize which is subject to natural vagaries. Of late the maize prices are ruling very high, still the industry is in position to pass on increased raw material costs due to strong demand. Moreover the per capita production of starch is still much lower as compared to world average and there is reasonably a good scope for increased demand. It ended FY07 on quite a buoyant note, with sales grew by 32% to 162 cr but NP tripled to 21 cr registering an EPS of 28 Rs on equity of 7.38 cr. Assuming the company to register 18% operating margin for FY08, it can report sales of 200 cr and PAT of 23.75 cr i.e. EPS of 32 Rs on current equity. Being a commodity company, at a reasonable discounting by 6x times the scrip has the potential to touch 200 levels in 9~12 months.

Jenburkt Pharmaceuticals Ltd - 36.00 Rs

Jenburkt Pharmaceuticals Ltd (JPL) was originally incorporated as a private limited company in 1985 in the state of Maharastra, Bombay and was subsequently converted into a public limited company in 1994. It is promoted by ‘BHUTA’ family who has diversified interest in trading of chemicals, textiles, steel, finance, export etc. JPL is primarily into manufacturing and marketing of pharmaceuticals formulations. Today it is among the fast growing pharmaceutical company in the Indian market having products under different therapeutic group namely analgesics, anti-inflammatory, anti-bacterial, antibiotics, anti-diabetics, nutritional supplement, anti-allergic, skin preparations, anti-stress, ayurvedic, cough & cold remedies etc. Powergesic, Glucotrol, Zydol, Numox, Piril, Allerzine, Triben, etc are few of its popular brands.

JPL’s manufacturing facility is located at Sihor, Gujarat (24 km from Bhavnagar). Apart from having WHO cGMP certification, the plant has been audited by regulatory authorities of various countries and has been given accredition for export of the products. The plant also has been approved as per revised Schedule-M norms. From a modest beginning, JPL now has field strength of 325 people, and a distribution network of 19 super stockists, 4 consignee agents, 1100 stockists, over 1,00,000 chemists and 65,000 doctors on its promotion list. However off late company has been focusing more on lucrative export market, and is a busy registering product and appointing agent/stockists in several countries. It has filed nearly 25 products dossiers for registration, of which some of them have already been registered, and others are under process. Infact it has received the certification from Kenya, Zambia, Ghana etc and is looking forward to other African countries. Hence in future its international business division is expected to contribute substantially to the total revenue.

Over the years, company has been growing gradually but consistently. For FY07 its sales improved by 22% to 35 cr and NP increased by 15% to 1.20 cr thereby registering an EPS of 2.60 Rs on equity of 4.65 cr. Importantly, company has been very liberal in dividend payment and has a amazing track record of payout ratio as high of 60%. Even for FY07 it paid 1.25 Rs as dividend. Considering JPL’s focus on export market and high value specialty product, its operating margin is expected to improve to around 12% for FY08. Accordingly, it may register a topline of 45 cr and bottomline of 2.75 cr i.e. EPS of 6 Rs on current equity. So investors can accumulate this scrip at sharp declines as it has potential to give 30% returns in 12~15 months.

STOCK WATCH

Real estate scrips are tipped to see a sharp rally on DLF listing. And Hazoor Multiproject (11.50) is one of the cheapest bet having a market cap of merely 25 cr. Recently, it announced another good set of nos for the third quarter ending May 2007. Total revenue grew by 25% to 6 cr whereas NP shot up 70% to 2.40 cr registering quarterly EPS of 1.15 Rs. Company is focusing mainly on real estate development which has now become the core activity. It has flagged off an 80 cr highly luxurious residential project at its own property in Lonavala near Amby Valley. Secondly it’s “HIGH LIFE” residential project at Pune under the joint venture with Bansal builders have been started in full swing and will start generating revenues in coming quarters. For FY07 ending August 2007, it may clock turnover of 25 cr and NP of 7.25 cr which works out to an EPS of more than 3 Rs on fully expanded equity of 8.60 cr having face value of 4/- Rs per share. FY09 will be the bumper year with sales more than 60 cr as its real estate division will contribute in a big way. A pure multibagger, if things pan out as planned.

Andhra Petrochemicals (21.00), the only producer of Oxo-Alcohols in India reported excellent nos for the March quarter. Sales increased by 45% to 82 cr and net profit stood at 16 cr against net loss of 0.85 cr last year. For the full year it recorded sales and NP of 266 cr and 36 cr respectively i.e. EPS of more than 4 Rs. On the back strong turn around and good cash earnings, it declared maiden dividend of 10%. Importantly due to robust demand and higher price realization, its OPM improved drastically to 26% for FY07 compare to 10% last fiscal. Sensing the bright future ahead, Andhra Sugars – the promoters are gradually increasing their stake thru creeping acquisition and has already bought more than 3% stake from open market in last fiscal. Accordingly for FY08, it can report sales of 300 cr and profit of 42 cr i.e. EPS of 5 Rs on equity of 85 cr. Although the dividend yield is quite good but being a commodity scrip investors are advised to remain bit cautious.

Shivalik Bimetals (14.00) specializes in the joining of materials through various methods such as diffusion bonding / cladding, electron beam welding, solder reflow and resistance welding. Its product range includes thermostatic bimetal, CRT components, shunts, snap action disc, precision stainless steel etc which have applications across industries including automotive, aviation, electronics, medical, domestic appliances etc. Financially, over the years company has been a consistent performer with a good dividend track record. For the March quarter its sales grew by 25% to 17.50 cr whereas NP zoomed up 50% to 2.20 cr due to lower tax provisioning. For the entire FY07, its topline remained flat at 62.50 cr but NP increased by 16% to 6.50 on the back of MAT credit This works out to an EPS of 3.40 Rs on small equity of 3.84 cr having face value of 2/- Rs per share. It gave 37.50 % i.e. 0.75 Rs as dividend which gives a yield of more than 5% at CMP of 14 Rs. Although no substantial growth is expected in FY08, still it’s a value buy at current market cap of less than 30 cr.

Indag Rubber (33.00) is one of the reputed players in tyre retreading business. It operates thru franchisee business by offering the technology, specialized equipment, retreading material, technical back up etc to the franchisee. It has a state of the art manufacturing unit to produce precured tread rubber along with allied items like cushion gum, repair gum, envelopes, other accessories and specialized equipment for retreading. Recently, it has set up a new plant in Himachal Pradesh which will give a fillip to its topline in coming quarters. Retreading is basically a process of bonding a new flap of pre-vulcanized rubber in place of the worn-out flap which increases the tyre life. Last year, the joint venture between Indian promoters-Khemka’s and foreign promoters-Bandag Inc, USA was mutually terminated and accordingly Khemka’s acquired the latter’s stake thereby taking their total holding to 81%. Financially, company has made a smart turnaround for FY07 with sales shooting up by 60% to 61 cr and registering a profit of 4.20 cr (incl. EO income) against net loss of 0.40 cr. However, for FY08 it is expected to clock a turnover of 70 cr and PAT of 3.50 cr i.e. EPS of 7 Rs on equity of 5.25 cr. Scrip has the potential to test 50 levels in 9~12 months.

Artson Engineering - 40.00

Established in 1978, Artson Engineering Ltd (AEL) is basically engaged in business of manufacturing tanks and terminals for refineries and petroleum companies. It is one of the foremost companies in the country, specializing in petroleum storage and handling systems. AEL has the capabilities in multi disciplinary construction for the hydrocarbon process industry and primarily caters to oil & gas, power & energy, food processing industry etc. Apart from taking EPC (engineering, procurement and construction) contracts, it also offers construction services in mechanical, civil, electrical and instrumentation field. AEL can boast of successfully commissioning hundreds of projects on the turnkey basis in India as well overseas. Few of AEL`s esteemed clients are IOC, HPCL, IPCL, GAIL, Lubrizol, L&T, Reliance Ind, Alfa Laval, BARC, Cadbury etc. It has also supplied equipments related to power projects to reputed clients like BHEL, NTPC, MSEB, Uri Civil, Enercon, Siemens, ABB, Alstom etc. Interestingly, company also has a manufacturing unit, located at Nasik, Maharashtra which has the capability to manufacture heat exchangers, finfan coolers, pressure vessels, LPG bottling plant equipments, bullets and other chemicals process equipments.

However, currently AEL is a BIFR company. Few years back due to failure of Essar Refinery-Jamnagar, company lost nearly 17 cr and was declared sick. Since then it is operating at reduced capacity due to non-availability of bank guarantees and other funding facilities. A number of tenders received by the company could not be taken advantage in view of financial constraints. The company, which use to execute more than 150 cr orders, reported only 14 cr revenue for FY06. But now its debt restructuring scheme has been approved by BIFR under which the 22 crore debt (out of 40 cr) has been waived off by the lenders. The remaining debt of Rs 18 crore has to be paid off in some 5 years without any interest on the same. More importantly, Tata Projects - a part of Tata group will soon be acquiring a controlling stake in the company by infusing fresh capital. Apart from having a healthy order book position or more than 40 cr, AEL along with Tata Project has bid for around 300 cr contract in India and UAE combined. To conclude, company is poised for a strong turnaround once Tata Project takes the command.

For the year ending Sept 2006, AEL reported total revenue of 14 cr and net loss of 1.40 cr. It made an operating loss to the tune of 1 cr. However for six months ending March 2007, it has already made a smart turnaround by reporting operating profit of 3.50 cr on total revenue of 18.40 cr. Hence it clocked a healthy OPM of 19%. As no interest is to be paid, its NP stood at 3.10 cr. Accordingly, it is expected to end FY07 (Sept ending) with a topline of 40 cr and profit of 5.50 cr i.e. EPS of 6 Rs on equity of 9.20 cr. Due With the brand advantage of Tata group, good funds flow and its own technological capability it can earn a profit of 11.50 cr on revenue of 75 cr which means EPS of 12 Rs for FY08. Long term investors are strongly recommended to buy at current levels as this scrip can double in a year’s time.