STOCK WATCH

Belonging to reputed BC Jindal group Jindal Polyfilms (193.00) is India’s largest manufacturer of flexible packaging films like polyester films (BOPET), polypropylene films (BOPP), metallised films and coated films. It expanded its capacity by setting up a greenfeild plant in Silvassa which has recently become fully operational. For the June’07 qtr, its sales jumped up 32% to 289 cr whereas NP shot up by 360% to 38.75 cr registering an EPS of whopping 14/- Rs for the quarter. Importantly it recorded an OPM of more than 23% for the quarter which is very impressive. Hence for current fiscal it can report a topline of 1350 cr and PAT of 110 cr which means EPS of almost 40 Rs on small equity of 28 cr. Incidentally, it is among the very few companies, available at an enterprise value which is lower than its gross block. Its share price is also trading at a deep discount against its FPO price of 360/- Rs. Scrip can easily give 30~40% return in a years time even from current levels.

Goodyear India (177.00), a 74% subsidiary of Goodyear Tire & Rubber Co-USA is engaged in manufacturing of automotive bias tyres mainly for medium commercial truck and farm tyres. It also trades in `Goodyear' branded tyres including radial passenger and off-the-road bias tyres manufactured by Goodyear South Asia Tyres-Aurangabad. For the June’07 qtr, sales improved by 11% to 241 cr but PBT zoomed up 125% to 19 cr on account of better operating margins due to fall in rubber prices. Accordingly for the six months ending June 2007, sales grew by 16% to 440 cr and PBT increased by 60% to 35.50 cr. However on account of higher tax provisioning net profit increased by only 15% to 22 cr. Notably, company has repaid substantial part of its debt and is planning to re-pay the balance soon, thereby making it a debt free company by the end of this fiscal. For FY07 ending Dec’07 it may report a topline of 950 cr and after making highest tax provisioning, PAT may be around 50 cr. This translates into EPS of 22 Rs on equity of 23 cr. With further fall in rubber prices company can report much better margins. Accumulate at declines.

Recently, Rama Papers (31.00) has come out with encouraging result for the June qtr. Sales was almost flat at 21 cr whereas NP increased by 10% to 2.10 cr registering an EPS of 2.20 Rs for the qtr. But the encouraging part is sharp improvement in operating margin. It recorded impressive 23% OPM against 17% last year. This improvement is partly due to commencing of 6 MW co-generation power plant in March’07. Company’s production capacity stands at 44500 TPA and is expected to get enhanced to nearly 60000 TPA by March 2008. Moreover company is putting up an additional line of paper manufacturing machine to produce tissue and post paper with annual capacity of 18380 TPA, for which it has recently taken a term loan from banks. Last fiscal it raised around 16 cr thru equity route by making pref allotment to promoters and others @ 35 Rs. As on today promoters are holding 41% stake. Despite higher interest cost and depreciation it may end FY08 with sales of 100 cr and PAT of 7.50 cr i.e. EPS of 8 Rs on diluted equity of 9.70 cr. Scrip is trading cum dividend of 5%.

Mazda Ltd (71.00) manufactures very specialized & high technology products like vacuum system, critical valves, air pollution control equipment, crystallizers and evaporators. It also has a biotechnology division dealing in carbohydrates, rare sugars & miscellaneous bio-chemicals. Besides it has recently diversified into business of manufacturing food and drink concentrates in a small scale under brandname “BCooL”. Importantly, company has a technical collaboration with world renowned Croll-Reynolds Inc. USA, who holds 12% stake in the company. To cater the increasing demand, it is setting up a third unit with an investment of approximately 5 to 6 crores. As company has reported flat nos for the June qtr its share price has come down 70 levels giving a good buy opportunity for long term investors. Presently, under FII category HSBC Financial is holding approx 8% stake which it acquired at 155 Rs in Dec 2006. For FY08 it may clock a turnover of 60 cr and NP of 5.50 cr which means EPS of 13 Rs on small equity of 4.26 cr. With a 52 week H/L as 236 & 58 Rs, scrip is trading fairly cheap at current market cap of 30 cr. A screaming buy.

Tera Software Ltd - 82.00 Rs

Founded in 1994, Tera Software Ltd (TSL) is one of the leading e-governance solution providers. It undertakes data entry/scanning works for digitization of information maintained under Right to Information Act. It focuses mainly on long term projects under BOOT/BOOR/BOMT for providing the end-to-end solutions to the different public interface departments for effective e-governance and good governance. It also undertakes short-term projects like issue of photo ID cards, ration cards and election commission cards. Currently, TSL caters to transport, land registration, revenue management for distribution and supply companies of electricity and water, sales tax, education and public distribution systems. Company also helps in creating IT infrastructure, facility management (maintaining database) and logistics operations. Its customers include the most prominent state governments active in the e-governance space like government of Karnataka, Andhra Pradesh, Kerala, Goa, Maharashtra, West Bengal and Bihar. Besides it also serves to various public sector enterprises, govt. of India undertakings and many large organizations spread across the India including Indian Railways, BHEL, BESCOM, NRSA, NIC, SARC, Zee Telefilms, Shantha Bio to name a few.

Although major revenue comes from e-governance, TSL also offers IT enabled services, software development and consultancy, system integration and networking which contributes nearly 20% of revenue. For this it has entered into strategic partnership with companies like CISCO, EPSON, HP, Wipro, IBM, D-Link, EMC etc. It even operates an in-bound as well as out-bound BPO service in a small scale at Hyderabad. However in consortium with Electronics Corporation of India Ltd (ECIL), TSL has bagged huge e-governance order, taking its total order book position to around 250 crore to be executed in next five year. Its current project includes:

• Complete automation of department - Road Transport Authority, Kerala and AP
• Capturing beneficiary information and printing of Biometric ration cards - Civil Supplies Dept, AP.
• Computerization in schools and high school - Directorate of Education, Goa
• Supply and installation of spot billing machines along with software – MSEB, Pune
• Computerization of sales tax department – Maharashtra
• Total revenue management solution for electric company – Karnataka, Maharashtra & WB

Importantly, TSL has bid for number of other projects like issue of ration card in the state of MP, Jharkhand & Orissa, computerization of transport dept – Karnataka, Punjab & Bihar, sales tax automation in Goa and West Bengal, land computerization in the state of Kerala, contract for Nagaland, revenue management for electricity boards in Orissa and Rajasthan. In short the future earning visibility is very strong and with government increasing the budget allocation every year for computerization and e-governance, TSL is bound to grow at a healthy CAGR of around 30% for next few years.

Notably, TSL derives 100% of its revenues from the domestic markets and is therefore unaffected by the recent rupee appreciation against US dollar. It recorded 70% growth in its topline to 60 cr and net profit was up 90% to 11.70 cr for FY07 thereby registering an EPS of 10 Rs. For the latest June quarter, its revenue increased by 50% to 15 cr whereas net profit shot up 70% to 3.25 cr. Accordingly, for FY08 it may report total revenue of 80 cr and PAT of 15 cr. This translates into EPS of 12 Rs on equity of 12.50 cr. Secondly, TSL has 20 acres of land with 1.60 lakh square feet constructed area, which it plans to either sell or enter into JV with infrastructure company. Once this long pending decision is taken, it will trigger the share price to new high. Meanwhile at a reasonable discounting by 12x times, share price can go up to 150 Rs in 9~12 months.

Shilp Gravures Ltd - 47.00 Rs

Led by a team of four technocrats, Shilp Gravures Ltd (SGL) was established in 1993 as the first and only electronic engraving house in India. Today it is undisputed leader in electro-mechanical engraving, with a substantial market share of around 40% for flexible packaging industry in India. Electronic engraving is fully computerized process involving high-end machinery, prepress software and computers and hence has an edge over chemically etched engraving process in terms of quality and mileage. In simple terms company manufactures electronically gravure/engraved cylinders which are eventually used for rotogravure printing. Rotogravure printing has various advantages than other printing process and is vastly used by flexible packaging sector as a wide range of substrates such as polyethylene, polypropylene, polyester, BOPP, aluminium foil etc can be printed in the gravure press. Besides this gravure technology also finds application in other industries like PVC flooring, decorative laminates, electrical fittings, automobile spares, gel pens, artificial leather, gift wrapper, for special coating etc.

SGL’s plant at Rakanpur near Ahmedabad features the best technologies and equipment in the field with engravers from Ohio-USA, copper plating plant from Cograph-Switzerland, polish master from Daetwyler-Switzerland, proof press from JM Heaford-UK, high-end pre-press shop from ArtPro & Esko Graphics-Belgium. From the modest beginning with just 15 cylinders per day in 1995, SGL has continually and preemptively enhanced its capacity to 150 cylinders. Importantly, company has a 300-strong client list which includes India's most reputed names like HLL, Britannia, Amul, Nestle, Cadburys, Tata Tea, Pepsi Foods, Haldiram, P&G, Reliance, ITC, Colgate, Mcdowells etc thereby having a pan India presence. It also exports to the Middle East, African and South East Asian countries. However for FY07 its capacity utilization was around 60% leaving ample scope for volume growth in immediate future. Packaging & printing industry are doing extremely well, as major FMCG companies have increased spending on packaging and advertisement. Secondly, there is swift change in consumption pattern of converters, resulting in an increased use of electronic cylinders. Hence to cater the rising demand company is planning to increase its installed capacity to 200 cylinders per day in near future. Apart from this, company also generates some income thru wind energy.

Financially as well as fundamentally, SGL is on a strong footing. For FY07 its sales grew marginally by 6% to 26 cr but PBT increased by 25% to 5.75 cr. However due to extra ordinary item and provisions to the tune of 1.25 cr, the net profit remained flat at 2.90 cr thereby registering an EPS of 5 Rs on equity of 6.15 cr. Incidentally, company has an un-interrupted track record of dividend payment for more than a decade. For FY07 it maintained the dividend payment at 18%. Recently, company came out with encouraging nos for the June qtr. Sales jumped up 40% to 8.55 cr whereas PBT almost doubled to 2.55 cr on back of higher operating margin. It recorded an impressive OPM of 44% for the quarter. Assuming it to register 38% OPM for entire FY08 it may clock a turnover of 35 cr and PAT of 5.25 cr. This works out to an EPS of 9 Rs on current equity. Hence investors are advised to buy at current levels as share price can appreciate 50% in a year’s time.

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.