Corrigendum – Bihar Tubes

In my report dated 5th Jan 2008 on Bihar Tubes, it has been erroneously mentioned diluted equity as Rs 9.60 cr instead of Rs 12.75 cr. This is because I didn’t calculate that 31.75 lac warrants are also eligible for 1:1 bonus issue. Accordingly I have downgraded my target to Rs 250 in next 12 months and would advise investors to buy only at sharp declines.

I am sorry for the miscalculation and request you all, to please download the revised report from below link.

Download Revised Report(PDF)

Smart Investment (Guj)

GM Breweries Ltd

• Download Gujarati version
• Download English version

ANG Auto Ltd

• Download Gujarati version
• Download English version

Small & Beautiful (Guj)

Click here to download gujarati version

Syncom Formulation (58.00) is a Mumbai based small pharmaceutical companies offering more than 250 products in various dosage forms including tablets, capsules, dry syrups, ointments/creams, dry powders, injections and ampoules. Being WHO-GMP certified, company's products are exported to more than 15 countries including China, Vietnam, Latin American Countries Kenya, Uganda, Sudan, Russia, Ukraine, Maldova and Domino Republic. It also offers comprehensive contract manufacturing services including pilot plants, technical services, quality control and regulatory services for both domestic as well as foreign companies. Its prestigious expansion cum modernisation project at Pithampur is near completion. Last fiscal, launched a new division "Cratus Life Care" to expand its operations in domestic market and expects this division to become the driver for growth in the coming years. For FY08 it is expected to clock a turnover of Rs 70 cr and net profit of around Rs 4.50 cr i.e. EPS of Rs 8 on equity of Rs 5.92 cr. Hence, this debt free and constant dividend paying company can be bought at current market cap of Rs 35 cr.

D&H Welding Electrodes (42.00) is one of an established manufacturer of welding consumables inclding submerged arc welding flux and wires, low heat input welding alloys, welding trans and rectifier, manual metal arc electrode etc. Thus it offers a wide range of welding electrodes for diverse applications and has developed various special and ultra-special electrodes to meet the ever increasing and multifarious needs of customers. Last fiscal it successfully commissioned the flux-cored wire project. To maintain its future growth company is planning to expand the existing manufacturing capacity by 2500 MT per annum thru a capex of Rs 3 cr and is putting special thrust on export. Although no extraordinary growth is expected in this company still for FY08 it may do a sale of about Rs 38 cr and net profit of Rs 2.60 cr. This leads to an EPS of Rs 5 on equity of Rs 5.60 cr. Can be bought only at sharp declines.

Led by two technocrats - Jitendra Sura and Tejas Sura, Conart Engineers (45.00) is a small infrastructure company involved in detailed engineering, procurement and construction of industrial, commercial & residential projects. It specializes mainly in civil construction projects for the textile, pharmaceutical, heavy engineering, chemical industries, commercial complexes, effluent treatment systems etc, which involve civil engineering and structural work, sanitation & plumbing, etc. However, company couldn’t capitalize the ongoing boom in infrastructure sector as well as strong industrial growth. For FY07, it reported a flat topline of Rs 19 cr and a decline of 30% in net profit to Rs 0.74 cr. But for H1FY08 things have improved a bit with 30% & 45% growth in topline and bottomline respectively. Still, being a more than three decade old company it has far more potential to perform. Accordingly its is estimated to may end FY08 with revenue of Rs 25 cr and PAT of Rs 1.25 cr i.e. EPS of Rs 4 on small equity of Rs 3 cr. Like Petron Engineering this is also a good takeover candidate and may change hands sooner or later.

Lokesh Machines (142.00) is engaged in the design, development and manufacture of custom built special purpose machines and general purpose CNC (computerized numerical controls) machines along with their components. Presently, it derives 70% revenue from machining division whereas rest 30% comes from auto component division. Company primarily caters to customers in the auto OEM, auto ancillaries and general engineering space with separate dedicated facilities for M&M and Ashok Leyland. Off late, it has also made a foray in the overseas markets and has also got 100 machine order from its technical partner Wenig Wemas-Germany. For the latest Sept qtr, sales grew by 25% to 28 cr and profit increased by 50% to 3.40 cr. To fund its growth plan company came out with an IPO at Rs.140 per share in April 2006 and raised Rs.42 cr. On listing day it hit a high of 300 Rs, whereas currently it’s available at 50% discount to that. For FY08 it is expected to clock a turnover of 110 cr and PAT of 14.50 cr which leads to an EPS of Rs 12 on equity of Rs 11.80 cr. Scrip has the potential to touch Rs 200 in few months.

Click here to download gujarati version

Price Performance Update Report

Dear Investors,

First of all let me wish you all a very happy, healthy and a prosperous new year. Despite all apprehensions, 2007 was again a historical year as far as Indian stock market is concerned. Because of the unprecedented rally in all mid caps & small caps during the last few weeks, we ended the year on quite a buoyant note. But will 2008 be as good as 2007 – only time will tell. Although lot of foreign inflow is expected to come in this year and market is touted to touch 30K, still it would be prudent to do profit booking at this juncture and play safe. I would advise you all to have a very stock specific approach and bet on only fundamentally strong & growing companies. So all the best to all you guys there. Have a rocking 2008.

And yeah… thanks to the ongoing euphoria in our bourses and India’s strong economic growth, my recommendations too have done extremely well. I have updated my price performance report for the recommendations made from Sept’04 till Dec’07. You can have a look under “My Track Record”. Just to give a brief idea, till now I have recommended 327 scrips and the summary of their performance is as follows

Appreciation	No of Scrips
More than 10x times	4 scrips
5x to 10x times	26 scrips
2x to 5x times	128 scrips
50% to 100%	86 scrips
25% to 50%	47 scrips
Upto 25%	36 scrips
TOTAL	327 scrips

To conclude, I still strongly believe “MARKET IS A SLAVE OF FUNDAMENTALS”.

3i Infotech Ltd - 145.00 Rs

Established in 1993 by ICICI Bank, 3i Infotech (3i) has progressed over the years from a back office processing unit of the ICICI group to a technology company providing IT services and solutions to over 500 clients in more than 50 countries through 10 offices worldwide and 10 development centres in India. Infact it has emerged as the fourth largest Indian software products company offering a comprehensive range of software products & solutions primarily for banking, insurance, capital markets, mutual funds, telecom, manufacturing, retail & distribution industries. In addition, it offers a broad range of software services such as custom software development, IT consulting, enterprise application integration (EAI), business process outsourcing (BPO), managed IT Services, and specialized services such as product re-engineering, compliance consultancy, data warehousing, business intelligence etc. Besides, 3i is recognized as one of the major national players in the e- Governance consultancy space in India. Importantly, 3i derives revenues from products and services in a 1:1 ratio which differentiates it from other IT companies. Premia, Kastle, Amlock, iBoss, Data Scan, Awacs, Mfund, Veda, Xroadz etc are few of its popular software products for core banking, insurance, stock exchange surveillance, treasury, risk & wealth management, mutual funds etc. It also has an ERP product suite, providing solutions for the retail, manufacturing, distribution, trading, fashion, and automotive, pharmaceutical and chemical industries. Interestingly, 3i provides complete end-to-end outsourcing solutions to various industries mainly in the domestic market and specializes in non-voice based BPO services. This division is doing extremely well with nearly 15% of the total revenue coming from it. 3i’s quality certifications include SEI CMMI Level 5 for software business and ISO 9001:2000 for infrastructure services and BPO operations.

Geographically, 3i derives around 30% revenue from India, 25% from USA, 20% from Western Europe, 15% from Middle East & Africa and the balance 10% from Asia Pacific region. Apart from ICICI group being its largest customer, 3i boast of serving international biggies like Prudential Assurance, Finansa, AIG, Emirates Bank, RAK Bank, Hong Leong Bank, SBI Factors, Oriental Insurance, HP, GSK, Al Ansari, Solidarity Islamic Insurance, Commercial America Insurance, Standard Chartered, Deutsche Bank, Pidilite Industries etc. In order to beat the competition and grow at a rapid pace, company is betting high on inorganic route and has adopted an acquisition-led strategy to acquire new capabilities and foray into new geographies in the BFSI space. Ironically, it has made over 20 acquisitions globally in last few years and is further looking for acquisition opportunities in China, North America (Brazil and Spain) market. At the same time it is also growing organically and has launched its first International Data Centre in Chennai which will offer managed hosting services for application and disaster recovery solutions. Additionally, it has introduced its remote IT infrastructure management services through its global network and security operations center. Meanwhile, it also setting up mini centres of excellence for operating systems (Microsoft, Red Hat Linux, AIX, Solaris), databases (Oracle, MS SQL, MySQL, DB2), messaging solutions and IT security labs for ethical hacking and vulnerability assessments and niche application infrastructure solutions.

And most importantly, with net dollar inflow of less than 10%, 3i is hardly affected by the rupee appreciation compare to its peers. In short, company has a well diversified and a de-risked business model in terms of offerings (products/services nearly 1:1 with coverage of entire BFSI spectrum), geography (no region >30% of revenues) and customers (ICICI Bank and other Top 10 clients’ concentration has been on a decline). To fund its various acquisitions, company raised nearly Rs 175 cr and Rs 400 cr in April’07 & July’07 respectively thru FCCB route. These are convertible into equity shares @ Rs 154 & Rs 166 respectively leading to an equity dilution of approx 30% going forward. On the back of excellent H1FY08 nos and considering the strong order book position, company is expected to report total revenue of Rs 1200 cr and net profit of Rs 175 cr. This translates into an EPS of Rs 13.50 on current equity of Rs 130 cr. But on a fully diluted equity of around Rs 175 cr, EPS works out to Rs 10. Due to strong economic growth in India & acquisition led strategy; 3i has the potential to post an EPS of about 13 Rs for FY09. Hence at a reasonable discounting by 18x against FY09 earnings, scrip can move up to Rs 230 (i.e. 60% appreciation) in 12~15 months.

Download Report(PDF)