STOCK WATCH

Micro Technologies (250.00) has once again come out with flying colors. Sales increased by 55% to 35 cr whereas NP shot up 60% to 10.50 cr. Company manufactures and markets unique security products and technology which have become quite popular and are getting mass attention. After setting its foothold in domestic market, company is now eyeing international market as it has huge potential. Last month it entered into a strategic agreement with TWI International PTY Ltd to market its products in South Africa, which is one of the largest markets for security solutions. It has also finalized plans to expand its operations in the US market for which it recently raised approx 60 cr thru FCCB route to be converted into equity shares @ 313 Rs per share. For FY08, it is estimated to register sales of 150 cr and NP of 43 cr. This works out an EPS of 41 Rs on current equity whereas on fully diluted equity of around 13.50 cr the EPS works out 32 Rs. It’s really startling that a technology company with a consistent OPM of 40% and NPM of 30% is available at cheap discounting of merely 6x times. Notably, Goldman Sach is currently holding 8.55% stake apart from HDFC Mutual Fund and BSMA Ltd being other stake holders.

Although International Combustion (430.00) is trading near its 52W high, still it has huge potential to move up further based on its fundamentals. For the June quarter it recorded 30% growth in sales to 20 cr but its net profit more than doubled to 2.80 cr on the back of better operating efficiency. Accordingly for the full year ending March 2008 it can report sales of 100 cr and net profit of 11.50 cr. This translates into EPS of whopping 48 Rs on a tiny equity of 2.40 cr. Moreover it has huge reserves of around 35 cr leading to a book value of more than 150 Rs thereby making it a strong bonus candidate. Despite having such strong fundamentals and boasting of seven decade experience, this debt free company is poorly discounted by market due to lack of interest from institutional investors. However as per unconfirmed news company is contemplating to declare liberal bonus to improve the liquidity and may also go for NSE listing in future. This will surely trigger the share price once it happens. Still at a reasonable discounting by 12x times share price can move up to 575 Rs in a good market sentiment.

Recently, Anjani Portland Cement (31.50) declared fantastic result for the June quarter. Sales grew by 50% to 31 cr whereas profit increased by 80% to 5.90 cr despite making higher tax provisioning to the tune of 1.10 cr. It recorded an all time high OPM of 30% and registered an impressive EPS of 3.20 Rs for the quarter. Notably, company has a captive limestone mine, captive power generation unit and state-of-the-art technology from Nihon of Japan. On the back of robust performance, company declared the maiden dividend of 10% for FY07 and is still quoting cum dividend. With cement price expected to remain firm for 2008 it may end current year with sales of 125 cr and PAT of 18 cr which means EPS of 10 Rs on equity of 18.40 cr. Moreover, company is making some acquisition of assets i.e. Land, Building and plant & Machinery of a grinding unit in an auction conducted by APIDC and is also taking 100% shareholding in Hitech Print Systems Ltd. A good bet for 3~6 months.

Despite all the odds against the cotton yarn manufacturers, like lower yarn price, higher cotton price, sharp rupee appreciation etc Winsome Textiles (31.00) has reported decent set of nos for the June quarter. Sales grew marginally to 35 cr but NP declined by 20% to 2.30 cr registering an EPS of 3.90 Rs for the quarter. Importantly, it reported healthy OPM of 15% against 10% in the preceding March qtr. For future growth company is implementing modernization cum expansion projects to add 13000 spindles, 10 Ton/day dyeing, 2.50 MW Hydro power plant along with complete replacement of old ring frames at a capex of Rs 117 cr. This project will be fully implemented by 2008-2009. Meanwhile the share price has crashed like anything after hitting a high of 70 Rs in Feb 2007. Considering all the factors, it may end FY08 with sales of 160 cr and PAT of 4.50 cr on conservative basis. This works out to an EPS of 8 Rs on equity of 5.90 cr. With a capacity of 50000 spindles & book value of 65 Rs, scrip is trading cum dividend of 0.70 Rs at a market cap of merely 18 cr.

Veejay Lakshmi Engineering (91.00) is engaged in manufacturing of textile machinery specially for spinning sector in twisting and winding solution. It is the largest manufacturer of Two-for-one Twister in India with more than 4500 installations worldwide and is also the only manufacturer of Automatic Cone Winders in India It markets the product under its own brand name EXCELLO. For the June qtr, its sales as well as net profit, both jumped up 55% to 25 cr and 2.10 cr respectively. Interestingly, company also has a high pressure die casting division equipped with ultra-modern machines from 40 Tons to 400 Tons capacity. Besides it has a 100% subsidiary engaged in cotton yarn manufacturing with a capacity of around 15000 spindles. With almost all the yarn manufacturers undergoing rapid expansion, company is estimated to report sales of 100 cr and PAT of 9 cr for FY08 on a standalone basis. This means an EPS of 18 Rs on small equity of 5 cr. Considering its 52 week H/L as 152/76 Rs, with book value of around 123 Rs, scrip is trading reasonably cheap at a P/E ratio of 5x times.

XL Telecom & Energy Ltd - 130.00 Rs

XL Telecom & Energy Limited (XLTEL) was originally incorporated as a private limited company in 1985 to manufacture and deal in cable splices, manufacturers of protection equipment and allied accessories for electronic telephone exchanges and other establishments. Subsequently in 1990 it got converted into public limited company and today it is one of the fastest growing telecom equipment manufacturing companies having interest in energy sector as well. It has broadly divided its business into following three strategic business units:

Telecom Division
CDMA Handsets & Fixed Wireless Phone: XLTEL is the first Indian company to setup a manufacturing facility for CDMA mobile handsets in India, as an independent company. It has currently established only “ASSEMBLY” facility for manufacture of mobile phones in partnership with KYOCERA Inc of USA and has a capacity of about 35 Lakh handsets per annum. It is supplying multiple models to all CDMA Operators like BSNL, MTNL, TATA and Reliance. Similarly it has established partnership with AXESSTEL of US for Fixed Wireless Phones with BSNL as its main customer.

Switch Mode Power System : Under technology transfer from SMPS de Austria XLTEL manufactures and offers a full range of SPMS needed by telecom operator in their exchanges as well as BTS stations in the mobile segment
Outside Plant Accessories: Company has been a supplier of joining kits, optic fibres accessories, fusion splicers etc for over two decades and enjoys nearly 40% market share in joining kit business. Its plant at Hyderabad with a capacity of 20,00,000 Heat shrink sleeve & 5,00,000 cable jointing kits is setup in technical collaboration with Corning Inc.

Outside Plant Accessories: Company has been a supplier of joining kits, optic fibres accessories, fusion splicers etc for over two decades and enjoys nearly 40% market share in joining kit business. Its plant at Hyderabad with a capacity of 20,00,000 Heat shrink sleeve & 5,00,000 cable jointing kits is setup in technical collaboration with Corning Inc.

Solar Photo Voltaic Systems Division
Importantly, company has over 15 year's experience of manufacturing Solar Photovoltaic systems and makes modules of various capacities ranging from 5Wp to 280Wp catering to domestic and international customer requirements. To cater the rising demand, company has recently ramped up its manufacturing capacity to enable production of 24MW of crystalline modules and is further enhancing to 60MW per annum in near future.

Ethanol Division
XLTEL also has an ethanol fuel facility at Nanded in Maharashtra with a production capacity of impressive 1.5 lakh litres per day. The plant has been inspected and cleared technically by oil companies both in terms of capacity evaluation and the quality of the product being produced.

In Dec 2006, XLTEL, erstwhile XL Telecom raised nearly 59 cr thru IPO route @ 150 per shares for expanding the module making capacity of SPV cells, setting up facilities for surface mounting technology (SMT) lines to produce motherboards used in mobile phones, repayment of term loans to IDBI and to fund long-term working capital requirement for fixed wireless phone business. For FY07 ending June 2007 company is estimated to report a topline of 525 cr and bottomline of 20 cr i.e. EPS of 14 Rs on equity of 14.50 cr. Being in a high growth sector of manufacturing mobile handsets and solar photo voltaic system along with capacity expansion, it can end FY08 with sales of 600 cr and profit of 26 cr. This translates into FY08 EPS of 18 Rs. At a reasonable discounting by 12x times, share price can once again test 220 levels in 9~12 months.

Jindal Polyfilms Ltd - 155.00 Rs

Incorporated in 1974, Jindal Polyfilms Ltd (JPL), flagship company of the respected BC Jindal group is India’s largest manufacturer of flexible packaging films. It makes polyester films (BOPET), polypropylene films (BOPP), metallised films and coated films with in house ability to produce polyester chips for captive consumption. BOPET & BOPP films are primarily used in packaging apart from having wide range of applications such as photography/x-ray, LCD and flat screen televisions, printing, electrical insulation, audio/video tapes, cartridges, adhesive tapes, print laminations and other industrial applications. Due to growing preference for premium and sophisticated packaging, TQPP (Tubular Quenched Polypropylene Film) is being fast replaced by BOPP and is preferred choice for packaging of clothing and food products like confectionery, biscuits, snack foods, pasta, bakery, dried foods and meat. JPL is among the few manufacturers to offer specialty BOPET and BOPP films such as specialized hot stamping foils, isotropic films, pinhole free yarn grade films, low oligomer milky white films, flame treated five-layer films and high speed tobacco overwrapping films. Company also has the facility to produce polyester yarn, but due to adverse market condition it has been temporarily closed down.

JPL operate the world’s largest single location facility for flexible packaging films at Nasik, Maharashtra and employs modern technology to produce high quality products at lower cost. With its new unit at Silvassa becoming operational recently, the current production capacity of the company stands enhanced to BOPET (111000 tpa), BOPP (90000 tpa), metalized film (40000 tpa), coating (18000 tpa), polyester chips (70000 tpa) and polyester yarn (54000 tpa). Importantly, JPL’s export of high value BOPET film to European union doesn’t attract anti dumping duty although it’s imposed on other manufacturers in India. Hence, this gives the company an advantage over domestic competitors in exporting to European countries, where the realizations on such film are among the highest in the world. Besides it has a well-established international marketing network in over 40 countries with several Fortune 500 companies as its end users. Moreover it also has a foreign subsidiary company viz. Rexor SAS, a leading metallised and coated film producer in France, which JPL acquired in 2003.

To fund its expansion plan and set up a new unit in Silvassa, JPL had come with an FPO of approx 83 lac shares @ 360 Rs per share to raise nearly 300 crore in June 2005. It also made a preferential allotment of 13 lac shares @ 360 to DEG in Feb 2005. Against this the share is currently available at a price of only 155 Rs i.e. 60% discount to its FPO price. For the latest June qtr, its sales jumped up 60% to 316 cr whereas NP shot up by 175% to 22.50 cr registering an EPS of 8/- Rs for the quarter. Since the full impact of expansion has started to kick in, company is estimated to clock a turnover of 1350 cr and PAT of 85 cr. This works out to an EPS of 30 Rs on current equity of 28.10 cr. Secondly company has a huge reserve leading to a book value of approx 280 Rs. To conclude, at the current enterprise value of merely 700 cr, it’s a good value buy. Although the rising crude oil prices is a cause of concern still investors can buy this scrip at current levels as it can easily give 35~50% return within a year.

STOCK WATCH

Sukhjit Starch (145.00) is mainly engaged in manufacturing edible and non edible maize starch, dextrine, liquid glucose and dextrose monohydrate. Besides, it also produces sorbitol, maize oil, maize gluten, maize husk, high maltose syrup, oxidized/pregelatinized starch etc. For the June qtr it recorded 25% growth in topline to 44 cr but net profit shot up 125% to 6 cr. Importantly, company has started commercial production at its new unit in HP from this week only. This new unit will enhance the capacity by nearly 25% and is dedicated for high margin starch and derivative products especially for pharmaceutical industry taking shape in Baddi, Himachal Pradesh. Although maize prices are ruling high still company is making decent profit. Hence for FY08 it may clock a turnover of 210 cr and PAT of 25 cr i.e. EPS of 34 Rs on current equity of 7.40 cr. Scrip is trading 4/- Rs cum-dividend and can give 30% return within a year.

Belonging to LMW group, Lakshmi Electricals (280.00) is basically engaged in manufacturing of electrical components like switch gear, control panel, contactors, thermal overload relays, control relays and textile machinery components using engineering plastic. It is also into wind power generation. For the June qtr its turnover increased by 30% to Rs 20 cr whereas NP rose by 15% to 1.90 cr. For the entire FY07 it had earned a profit of 7.90 cr on sales of 68 cr posting an EPS of 32 Rs on tiny equity of 2.46 cr. Due to lack of interest from institutional investors and conservative management, company is getting poor discounting. But with reserves of more than 30 cr (i.e. book value of 130 Rs) on such a tiny, company is ripe for bonus. Moreover it has a 100% subsidiary engaged in manufacturing of yarn with a spinning capacity of 25200 spindles. Considering all the factors it can report sales of 90 cr and PAT of 8.75 cr for FY08 on standalone basis. This translates into EPS of 36 Rs on current equity. With market hitting all time high, this scrip is a value buy at current market cap of around 70 cr.

Cubex Tubing (75.00) is engaged in manufacturing of copper and copper alloy tubes, rods, strips, profiles and wires which are used by the core sector and other critical industries such as thermal & nuclear power plants, refinery & petrochemicals, electrical & electronics, condenser & heat exchangers etc. For the June qtr its topline as well bottomline grew by 25% to 28 cr and 2.50 cr respectively. Off late company has developed large diameter cross-section copper-nickel tubes to meet the requirements of defence and shipyards. Further, it is entering into the manufacture of oxygen-free high conducting grade copper extrusions mainly used by the electronics industry. It also has plans to introduce large cross-section copper bus bars and specialty copper products. Accordingly it is expected to end FY08 with sales of 125 cr and profit of 10.50 which translates into EPS of 17 Rs on current equity of 6.18 cr. However company has allotted 15.75 lac warrants @ 48 Rs which may get converted into equity shares in near future. Hence diluted EPS works out to 14 Rs. Scrip has the potential to touch 100 Rs in 6-9 months.

By increasing the share of slag cement in the total cement sales coupled with higher price realization, operating margin of Deccan Cements (170.00) have improved substantially from last few quarters. For the June qtr its sales improved by nearly 20% to 48 cr but NP zoomed up 80% to 10 cr that too after making tax provisioning of 5.50 cr. For FY07 its net sales and NP stood at 172 cr and 28 cr respectively i.e. EPS of 40 Rs. 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. For FY08, it may report sales of 200 cr and PAT of 35 cr i.e. EPS of 50 Rs on small equity of 7 cr. Moreover having reserves of whopping Rs 87 cr (i.e. book value of 134 Rs) in its balance sheet, it’s a potential bonus candidate as well. A good bet for short to medium term.

Thirumalai Chemicals Ltd - 175.00 Rs

Incorporated in 1972, Thirumalai Chemicals Ltd (TCL) was established by NS Iyengar group for the manufacturer of phthalic anhydride (PAN) with an initial installed capacity of 7500 MTPA based on the technology supplied by Ch.F.Von Heyden and Davy Power Gas, Germany. Today, TCL has world scale plants for manufacturing diverse products including phthalic anhydride (PAN), maleic anhydride (MAN), fumaric acid, pthalate esters, food acids etc. Incidentally, PAN is the main product of company as more 75 % of revenue comes from it. Plasticizers, pigments and resins have been the major sectors consuming PAN with plasticizers segment being the biggest. In short it manufactures and markets organic acids, anhydrides and derivatives for the plastics, paints, resin industries and additives for the food and feed industry. TCL also operates a shore tank terminal at Chennai, for storage and distribution of chemicals/solvents which is the first privately managed petrochemical terminal in South India

TCL manufacturing plant is located at Ranipet, Tamilnadu having an installed capacity of PAN - 100,000 tonne; MAN – 17,750 tonne; Food Acids - 17,000 tonne and Pthalate Esters – 6000 tonne. Despite having such large facilities, company was operating at 50% capacity utilization for so many years due to demand-supply mismatch. But off late demand for PAN has increased sharply from the pigment as well as resin sector. With no major additional capacities coming up, the situation has improved a lot and hence PAN prices have also shot up considerably. Accordingly company’s capacity utilization also improved to 75% for FY07. It is now targeting 100% capacity utilization for FY08. Interestingly, company has changed its marketing strategy by which customers are now offered contracts for regular supply on pre determined formula basis which has helped company to operate at higher levels. Due to this, while significant part of production is tied up, the balance of output is available for offer on spot basis as also for exports. TCL is also focusing on international market and has tripled its export in FY07 thereby contributing 20% of total revenue. As per industry reports, the demand of PAN is going outstrip supply in future which may lead to shortage of PAN. To cash on this situation, TCL has chalked out plans to increase productive capacity with little de-bottlenecking of existing PAN plant. It is also planning some capital expenditure to increase the PAN capacity by 40% to around 150,000 tonnes.

Unfortunately rampant dumping of MAN into the country from China at very low prices forced TCL to shut down its MAN plant to cater only to few loyal customers and for captive consumption. Although company has initiated actions for levy of anti dumping duty and is confident of being levied soon still cheap import of MAN is a cause of concern for the company. On the other hand, its Malaysian join venture company has almost completed the feed stock conversion from benzene to butane incurring major capital expenditure the new plant for manufacture of MAN from butane is expected to be commence production in few weeks by Aug 2007.

For FY07, company’s net sales jumped 50% to 543 cr whereas NP zoomed up 75% to 25 cr registering an EPS of 25 Rs on equity of 10.25 cr. On the back of better capacity utilization, for the June qtr its sales increased to an all time high of 180 cr up 25% and PAT improved by 15% to 11.40 cr i.e. EPS of 11 Rs for the quarter. Assuming a conservative OPM of 11%, it may end FY08 with sales of 675 cr and NP 33 cr. This works out to an EPS of 32 Rs on current equity. Investors are advised to accumulate this scrip at declines with a price target of 230 Rs in 9~12 months.