STOCK WATCH

Seshasayee Paper (162.00) is engaged in manufacturing of printing/writing papers, packing/wrapping papers and speciality papers. For the June qtr its sales grew marginally to 108 cr but net profit shot up 80% to 11.50 cr registering an EPS of 10 Rs for the qtr. Importantly, it recorded a healthy OPM of 18% for the second consecutive quarter. To enhance its environmental performance, company is replacing its 30 yr old wood pulp mill of 230 TPD capacity with a comparatively newer but second hand pulp mill from USA which has advanced technological features, like RDH Pulping, Oxygen De-lignification, ECF Bleaching etc apart from having higher capacity of 350 TPD. The equipment has already reached the company’s site and is expected to become operational from Dec’07. Besides, company is taking various initiatives to better its operational efficiency and ensure cheaper and regular raw material supply. For FY08 it is expected to clock a turnover of 500 cr and NP of 40 cr which works out to an EPS of 36 Rs on equity of 11.25 cr. Although company debt has increased substantially to 244 cr still it’s a good long term bet.

Thirumalai Chemicals (162.00) is the leading manufacturer of phthalic anhydride (PAN), maleic anhydride (MAN), fumaric acid, pthalate esters, food acids etc. Till now company was working at very less capacity utilization but because of increasing demand from the pigment as well as resin sector its capacity utilization improved to 75% for FY07 and is further estimated to improve substantially in FY08. For the June qtr its topline increased by 25% to 180 cr but due to higher interest cost and tax provisioning, NP grew by 15% to 11.40 cr posting an EPS of 11 Rs for the quarter. In future company has some capital expenditure plans to increase it PAN manufacturing capacity by 40% to around 150,000 tonnes. Importantly, the PAN prices are trading higher and are expected to remain high due to strong demand. Hence company may end FY08 with sales of 675 cr and PAT of 33 cr. This leads to an EPS of 32 Rs on equity of 10.25 cr. Share price has the potential to cross 200 mark in medium term.

XL Telecom & Energy Ltd (131.00) is among the very few companies, manufacturing CDMA handsets, fixed wireless phone, SPMS, solar photovoltaic system and ethanol in India. Incidentally, all these are high growth sectors and have immense potential. As company’s financial year ending is in month of June, it is yet to come with its last qtr nos. Hence it is estimated to clock a turnover of 525 cr and profit of 20 cr i.e. EPS of nearly 14 Rs on equity of 14.50 cr. Ironically, company has a huge 300 cr capex plan for its solar photovoltaic business under which it intends to expand the capacity of solar photovoltaic module making plant from the existing capacity 25 MW to 65 MW and setup a new solar photovoltaic cell manufacturing plant with a capacity of 120 MW per annum. Hence it is planning to raise 160 cr thru FCCB route and make pref allotment of around 52 lac warrants to promoters and others. Company is bound to get re-rated in future and the share price may shoot up like Bartronics. Buy and hold patiently.

Ramsarup Industries (133.00) has been continuously enhancing its production capacity for steel wire as well as TMT bars and has completed the expansion project at its existing plants viz Kalyani and Shyamnagar. It recorded 15% growth in sales to 355 cr and 25% rise in PAT to 12.50 cr for the latest June’07 quarter. To cash on the ongoing boom, company 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 near completion and expected to commence operation by Sept 2007. Moreover its Infrastructure division is engaged in laying of power transmission lines and has also got a contract of Indo-Bangladesh border fencing. Company has plans to raise around 200 cr via FCCB/GDR route in future. For FY08, it may report a total revenue of 1750 cr and PAT of around 48-50 cr. This works out to an EPS of 28 Rs on current equity of 17.50 cr. At a modest discounting by 7x times, share price can touch 200 Rs in 9-12 months. However it may not get very rich valuation being a commodity company and earning lower profit margin.

Orient Paper & Industries - 430.00 Rs

Incorporated in 1936, Orient Paper & Industries Ltd (OPIL), flagship company of the renowned CK Birla Group is a diversified company having interest in papers, cement and electric fans.

CEMENT DIVISION:-
OPIL’s main cement plant is located at Devapur, Andhra Pradesh, and a split grinding unit in Jalgaon, Maharashtra, leveraging the proximity to limestone, coal and fly ash sources on the one hand and fast-growing markets of Maharashtra, Andhra Pradesh and Gujarat on the other. With total installed capacity of 2.40 million tonne, it manufactures and markets portland pozzolana cement under the brand 'BIRLA A1 and ordinary portland cement under the brand name of 'ORIENT GOLD'. Ironically, cement contributes 55% to total revenue but 90% of the company’s profit comes from this division only. Hence to take advantage of the market growth and success of its brands and distribution network, it is implementing aggressive expansion plan to double the cement capacity from 2.4 million to 5 million TPA. It is also setting up a 50 MW captive power plant at Devapur to achieve further economy in the cost of energy consumed. These projects are scheduled to be completed before end of the financial year 2008-09 with 1 million TPA additional capacity becoming operational before March 2008. Moreover the cement division has already received 96310 units of CERs for activities undertaken up to 31st March, 2006 and will be entitled to further CERs each year until 2012 based upon its performance under the CDM project.

PAPER DIVISION:-
OPIL manufactures a wide range of writing and printing paper specially photocopying and office paper category apart from having dominant market shares in tissue paper segment. Its paper mill is located at Amlai in M.P having an installed capacity of 95,000 TPA. To provide sustainability in raw material availability, the company has been undertaking farm-forestry programmes across 18 proximate districts of Madhya Pradesh and Chhattisgarh. It is also expected to cover over 160 hectares during the planting season of 2007 under captive plantation. For this division also company is enhancing its pulping capacity along with setting up of additional tissue paper capacity of 20000 tonnes to be operational during 2008-2009. The paper division contributes around 25% of total sales. Incidentally, its second plant in Orissa at Brajrajnagar is non operational since 1999 and company is looking to dispose it off. As per unconfirmed news, the plant size is 880 acres and is expected to fetch more than 150 cr.

ELECTRICAL APPLIANCES:-
OPIL is India’s largest manufacturer of electric fans in terms of in-house manufacturing capacity with its two plants at Kolkata and Faridabad having an installed capacity of 30 lakhs fans per year. It offers entire product chain including fans, portable fans and exhaust fans - across price points, colours and designs with its ‘ORIENT PSPO’ brand as one of the most visible and respected names. Last fiscal, it launched 7 new products including a new children's segment fan under the name ‘Fantoosh’. Having global presence across 20 nations such as USA, Egypt, South Africa, Saudi Arabia etc, company enjoys the status of being the largest fans exporter with a brand share of 44.5% of total exports from India. Although 20% revenue comes from this division, but it hardly contributes to bottomline due to cut throat competition and low margin. Still, company is adding balancing facilities to increase the fan manufacturing capacities to 35 lakhs fans per year.

To fund its expansion plan company is raising around 160 cr via right issue in the ratio of 3:10 @ 360 per share. Scrip has already become ex-right with equity getting diluted by 30% to 19.30 cr. For FY07 it recorded 30% growth in topline to 1102 cr but its net profit multiplied 6x times to 131 cr on back of higher cement price realization and better operating efficiency. Hence it reported an EPS of 88 Rs and gave 10 Rs dividend. Importantly, company has brought down its total debt to 325 cr against 435 cr last year. For the latest June’07 qtr its sales grew by 13% to 293 cr but PAT shot up by 75% to 44.50 cr registering an EPS of 30 Rs on equity of 14.84 cr. With cement price expected to remain robust for couple of years and considering company’s expansion plan it may end FY08 with sales of 1250 cr and PAT of 165 cr i.e. EPS of 86 Rs on expanded equity of 19.29 cr. Investors are recommended to accumulate at dips with a price target of 575 Rs (35% appreciation) in 9~12 months.

Indag Rubber Ltd - 38.00 Rs

Established in 1978, Indag Rubber Ltd (IRL) was formed as a joint venture company between Khemka group and Bandag Inc-USA for the manufacture and marketing of pre-cured retreads. Today, it is one of the reputed players in tyre retreading business and operates thru franchisee business by offering the technology, specialized equipment, retreading material, technical back up etc to the franchisee. It also sets up captive retreading plants for various state road transport corporations. 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. Retreading can be done either thru conventional hot process or the new advanced precured cold process. Cold process has various advantages, mainly improving the fuel efficiency and increased tyre life & performance in comparison to hot process. Notably, IRL is among the very few, offering the 'genuine' cold process precured retread in India.

IRL has a state of the art manufacturing unit at Bhiwadi, Rajasthan to produce precured tread rubber along with allied items like rubber cement, cushion gum, extrusion gum, envelopes, other accessories and specialized equipment for retreading. To increase the market share, it has set up a new plant in Nalagarh, Himachal Pradesh last year. IRL supplies the precured tread regularly to its more than 100 franchisee outlets, who eventually carry out the retreading operation at their place. The company is concentrating on utilizing the full potential of the existing franchisees and is setting up new franchisees in unrepresented areas so as to have a larger and more efficient network of franchisees. It also has a training center to impart high quality on-the-job training to its license customers. As there are very few organized players in this business, IRL enjoys a good branding and a dominant position especially in northern India. 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%.

Retreading as a business is getting greater acceptance since apart from being a cost saving concept it is also environment friendly as it prevents millions of tyres from getting into land fills and tyre piles. However in India there is a possibility of retreading getting bad name as there is mushrooming growth of parties not conforming to any standards both in the manufacture of tread rubber as well as in retreading. But still the growth of retreading industry is directly linked to the growth of the road transport and hence IRL has a huge potential to grow. 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 in FY06. For the latest June’07 qtr, sales increased by 25% to 17 cr but NP shot up 185% to 1.75 cr registering an EPS of 3.30 Rs for the quarter. Importantly it recorded a very healthy OPM of 15% for the qtr. Accordingly for FY08 it is expected to clock a turnover of 70 cr and PAT of 5 cr i.e. EPS of 10 Rs on equity of 5.25 cr. Investors are recommended to buy at current levels as share price can appreciate 50% in a year’s time.

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.