"S A A R T H I" - The Guiding Star

Thursday, February 14, 2008

Small & Beautiful (Guj)

Shringar Cinemas (61.00) is an integrated film exhibition and distribution company operating chain of multiplexes under the brand name -'FAME'. It is also in food and beverage business thru one of its wholly owned subsidiary. It has major presence in Mumbai apart from Bangalore, Ahmedabad, Surat, Nasik, Pune Kolkatta & Aurangabad. It currently operates 14 properties with 48 screens. For the nine months ending Dec’07 its revenue increased by 60% to Rs 60 cr whereas NP shot up 70% to Rs 12.80 cr. Because of rising disposable income, increasing mall culture and various tax benefits from govt, the future growth potential for the company is quite huge. It has plans to scale up its multiplexes to 150 screens with pan India presence. For partial funding, last year it raised around Rs 90 cr thru FCCB route to be converted @ Rs 90 & 107 per share. Ironically scrip is still available near its IPO price of Rs 53 per share in April 2005. On a standalone basis for FY08 it may register a topline of Rs 85 cr and bottomline of Rs 17 cr i.e. EPS of Rs 5 on diluted equity of Rs 33.85 cr. Meanwhile company is contemplating to get in to film production as well. Share price can easily appreciate 50% within a year.

Gujarat Alkalies (160.00) is the single largest producer of caustic soda in India, with a production capacity of 358,760 TPA. Besides it also produces various other chemicals like sodium chloride, liquid chlorine, hydrochloric acid, chloroform, methyl chloride, hydrogen peroxide, sodium cyanide, aluminium chloride, phosphoric acid etc. Ironically, company’s plants are working at more than 100% capacity utilization against industry average of 70%. In order to reduce the power cost, company has undertaken a windmill project of 24 MW expected to go on stream in coming few weeks. It is further setting up additional windmills for a capacity of 40 MW. On the other hand, company has already finalized monetization of CERs generated from three of its CDM projects and has infact become the first PSU in the country, to get the approval of the host country from MOEF for its CDM Project. To maintain its future growth it is exploring the possibilities of putting up additional projects like expansion of caustic soda by 500 TPD, expansion of hydrogen peroxide by 75 TPD (100% basis) and another captive power plant with a capacity of 90 MW at a capex of Rs 1,100 crore. For FY08 it may clock a turnover of Rs 1150 cr and PAT of Rs 250 cr on a conservative basis. This translates into EPS of Rs 34 on equity of 73.40 cr. Keep accumulating at declines.

Patels Airtemp (70.00) is involved in the design and manufacture of industrial process plant equipments like pressure vessels, heat exchangers, air cooling & air heating equipment, dehumidification plants, air conditioning and refrigeration equipment and coils etc. Hence company’s products that find use in key sectors like oil and gas, refineries, power, fertilisers, chemicals, cement and textiles. It is also into HVAC business, which currently contributes about 15% to the total revenues. Its clientele include Ingersoll Rand, BHEL, Reliance group, NTPC, Indo Gulf, ONGC, Nirma, Nuclear Power Corporation etc. On the back of strong industrial and economic growth, company is sitting on a healthy order book position of Rs 45 crore. On the export front, company is expecting to get more orders from Germany and Singapore. It is negotiating for a waste management project in Singapore and is hopeful to get the same soon. For FY08 it is estimated to report sales of Rs 50 cr and PAT of Rs 5 cr i.e. EPS of Rs 10 on equity of Rs 5 cr. Share price can easily double in 12~15 months. Buy at every declines.

Rajendra Mechanical Industries (135.00), part of the Mumbai based REMI group, is a pioneer in manufacturing of stainless steel welded and seamless pipes & tubes. These pipes and tubes are used extensively in critical process industries such as refineries, petrochemicals, paper and pulp, fertilizers, pharmaceuticals, nuclear plants, etc. IOCL, IPCL, GNFC, IFFCO, Madras refineries, Mangalore refineries, Ranbaxy Laboratories are few among its reputed clientele. It has also developed specialized stainless steel tubing especially for critical power industry. To cash on increasing demand, company has been constantly expanding its production capacity which now stands at 7500 MTPA from 4500 MTPA in 2005. Notably, company has also ventured into power generation thru wind mill and has total installed capacity of 2.25 MW. For the Dec qtr, sales jumped up 55% to Rs 43 cr whereas NP zoomed up 290% to Rs 2.60 cr. Accordingly it can report a NP of Rs 10.00 cr (incl. extra ordinary income of Rs 1.50 cr on sale of property) on sales of Rs 185 cr for FY08 which leads to an EPS of Rs 21 on equity of Rs 4.80 cr. Besides it has the potential to earn an EPS of 25 Rs for FY09 from business operations only.

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Friday, February 8, 2008

Amar Remedies Ltd - 31.00 Rs

Established in 1984, Amar Remedies Ltd (ARL) was originally promoted by Mr. P. Shah as "Swami Aushadhalaya Private Limited” to develop ayurvedic medicines. In the year 1988, it made its first breakthrough in oral care products with the development of an ayurvedic toothpowder. Two years later it developed and launched an effective ayurvedic vegetarian toothpaste (i.e. gelatine-free formula), which is the only toothpaste of its kind. Subsequently, it research and developed several different ayurvedic medicines and even got it approved from FDA. In 2001, ARL developed and commercially launched two healthcare products namely AMAR Get-Up - a pain relieving ointment and AMAR Balm for cold, headache & body ache. Since then ARL has established itself as one of the well known manufacturer of ayurvedic, herbal and cosmetic dental care, personal care, skin care, beauty care & health care products like tooth paste, toothpowder, shampoo, creams, lotions, shaving gel, balm & pain relieving ointment. Infact, it boasts of making twenty different variants of toothpaste under 12 brands for sale to intermediate traders for export and nine variants of toothpaste under 3 brands for the domestic market. But importantly till now, ARL has successfully developed 24 different ayurvedic and herbal medicines and have also obtained the FDA approval for the manufacture and sale of these medicines, which include medicines for hypertension, diabetes, and heart ailments.

ARL has two manufacturing facilities located at Surat & Daman. The Surat plant basically manufactures ayurvedic and herbal medicines whereas the sophisticated Daman plant manufactures tooth paste and other FMCG products. Last fiscal, company expanded the installed capacity of oral care and health care from 12400 MT and 595 MT to 13400 MT and 645 MT respectively at its Daman plant. As a part of its expansion plan, company has recently set up a new state of the art manufacturing plant spread over 1 Lac sq. feet of constructed area at Dehradun in Ultaranchal. It has installed ultra modern machinery, to manufacture FMCG & ayurvedic products. It has also set up a complete integrated R&D and quality control department to ensure enhancement of quality of existing products & development of new products. But it is unable to commence commercial production due to delay in obtaining permission from pollution control authorities. However it will get the clearance certificate sooner than later and the plant is expected to start in next couple of months. Once fully operational it will give a good fillip to company’s topline as well as bottomline. Notably, ARL has appointed 13 super-stockists for domestic sales who in turn have more than 700 sub-stockists spread in western, northern, and eastern regions of India. Besides, it has recently selected 2 super-stockists who in turn have 130 sub-stockists in the southern region and are yet to contribute to turnover. Meanwhile, after capturing a major share of the Indian domestic market, ARL has started tapping the international potential of FMCG markets. It is currently exporting to over various countries across the globe from Europe through Middle East & from Asia to Far East countries. Accordingly it is contemplating to form a wholly owned subsidiary at Ras-AL-Khaimah-Free Trade Zone, UAE.

To protect the intellectual property, ARL has offlate applied for trade mark registration for 9 toothpaste brands. And it intends to apply for process patent of all 24 ayurvedic medicines after commencement of their commercial production. For future growth, ARL’s focus is to change the perception of consumers towards ayurveda from an age-old science to a remedy for various new age ailments and diseases by changing the delivery system of the medicine. It also propose to start a unique concept of consultation over toll free phone lines for ayurvedic treatment thru sales and service offices in select cities of India. Financially, for FY08 ending June 2008company is expected to register sales of Rs 300 cr and PAT of Rs 20 cr i.e. EPS of Rs 8 on equity of Rs 26.20 cr. And for FY09, it has the potential to post an EPs of 10~11 Rs. Considering its all time H/L of Rs 102/26 and commencement on Dehradun plant in near future, this is one of the cheapest scrip trading at a P/E multiple of hardly 3x times against FY09 earnings. Investors are strongly recommended to buy at current levels as it can easily appreciate 50% in 9~12 months

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Simplex Castings Ltd - 76.00 Rs

Incorporated in 1980, Simplex Castings Ltd (SCL) belongs to well diversified Simplex group of Industries which has interests in Simplex Forging (in forging business), Simplex Engineering (Blast Furnace, Coke Oven projects etc), Signum Fire Pvt ltd (in preparing fire proof doors made of steel and timbers) etc. However, SCL is engaged in manufacturing of heavy engineering castings in various grades for industries like steel, rail, mining, cement, power and other engineering sectors. It produces various castings such as grey cast iron castings, S.G iron castings, stainless steel castings, steel castings, ingots, valve castings etc. It can make castings from 350 kg to 32000 kgs weight in single piece. It specializes in developing different casting for steel plants and also valve / cone castings for supplying the same to valve and pump manufacturers. Incidentally, company has been supplying casnub bogies, coco bogies & bolsters assemblies (used in railway wagons) to Indian railways for a long time. Apart from Indian Railways, all major steel companies including Tata Steel, Jindals, Sail, Essar, Bhushan etc are its clients. Besides, company also derives 15~20% of revenue by exporting its products to countries like Spain, France, Belgium, Egypt, Korea etc

SCL has two manufacturing plants, one in Bhillai and other in Raipur, both are present in iron ore rich state of Chattisgarh. The main raw material for company is steel, scrap, iron ore & sponge iron which are all available near to its location. Notably, it manufactures all types of castings at its plants, which have installed capacity of 15000 tons each. However the actual production depends upon the product mix and the size of the orders. Ironically, SCL can operate its plant at even 125 times of its installed capacity. To derisk its business model company is moving up the value chain and is venturing in to the machined castings. For that, it has imported machineries from Spain worth Rs 8 crore. This will improve the margins going forward and will also lead to addition of new clients which seek the machined components. Interestingly, due to volatility in input cost and to safe guard its profit margin, management has worked out a backward strategy of raw material pricing while coating a tender. This has of course restricted volume growth, but has given the company the margin of safety on execution of the orders. Meanwhile, it has bagged a prestigious order worth Rs 12 cr from Indian railways for supply of coco bogies and expects to get more such order in future. Currently it has a very healthy order book position of Rs 120 cr which includes export orders worth Rs 30 cr from its valued clients like Indu steel-France, Arcellor-Spain, Ingersoll Rand-Italy, Sandwik Asia-Pune, Al-Nasar-Egypt, Hyundai Corporation-Korea.

On the other hand, as it already manufactures valve casting, in near future it intends to forward integrate into valve manufacturing business, which is a very high margin business. Especially for this it has planned a capex of Rs 60~70 cr to be funded from debt and internal accruals. It also plans to venture into project execution and turnkey business of steel plants. So far it’s into manufacturing of huge castings, which are used to build and lay blast furnaces, coke oven plants, slag plots etc. But now it has started laying down and construction of such plants. It has already entered into collaboration with BHEL and one Chinese company and has even executed one such contract of Rs 2.5 crore of Bhillai Engineering Company and is undergoing another such contract with it. Simultaneously, it has bid for Indian Iron and Steel Company’s four such contracts, which is of Rs 80 crore each in size.

Fundamentally as well as financially company is doing quite well. For the nine months ending Dec’07, it recorded 10% growth in sales to Rs 106 cr but NP increased by 55% to Rs 5.40 cr due to better profit margin. Considering the massive expansions planned by all steel companies and increased spending by Indian Railways on infrastructure development coupled with strong economic growth and company’s diversification/integration plan, the future prospect of SCL looks very encouraging. For FY08 it is estimated to clock a turnover of Rs 145~150 cr and PAT of Rs 8 cr i.e. EPS of Rs 13 Rs on equity of Rs 6 cr. For FY09 SCL can post an EPS of Rs 16~17. Hence, investors are recommended to buy at current levels as at a reasonable discounting by 8x times against FY09 earnings scrip has the potential to touch Rs 130 (70% appreciation) in 12~15 months time.

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STOCK WATCH

India Glycols (335.00) is the first and only company in the world to produce ethylene oxide (EO)/mono ethyl glycol (MEG) from renewable agro route, based on molasses against the conventional route of making thru crude. For the Dec qtr it reported stunning nos as sales shot up by 70% to Rs 388 cr and profit jumped up 560% to Rs 67.50 cr posting an EPS of whopping Rs 24 for single quarter. Importantly it recorded an OPM of 27% against 10% last fiscal. To make itself backward integrated company has set up a new distillery with an annual production capacity of 66000 KBL, at Gorakhpur in Eastern U.P and has also recently taken over a sugar company called M/s. Shakumbari Sugar. Its newly set up RAB (concentrated sugarcane juice) unit to supplement ethanol requirement is completely operational now. Further company is diversifying into the field of herbal extraction through 100% EOU at Dehradun, Uttarakhand for high value Nutraceutical herbal extracts having utility in the pharmaceuticals, food and food supplements. Moreover, it is adding Extra Natural Alcohol (ENA) facility at Gorakhpur to meet the requirement of domestic and International market. For FY08 it is estimated to clock a turnover of Rs 1350 cr and PAT (excl extra ordinary income of forex gain) of Rs 165 cr i.e. EPS of Rs 59 on current equity of Rs 27.88 cr. On including forex gain EPS works out to Rs 68. A soild bet.

Indag Rubber (88.00) came out with excellent set of nos for Dec qtr. Sales improved by 25% to 20.50 cr but net profit jumped up 125% to 2.60 cr on back of increased capacity, higher realization and better operating efficiency. Most importantly, for the nine months ending Dec 2007 company has registered an OPM of 15% against 10% last year. 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 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. Notably, the operations at its new plant at Nalagarh, Himachal Pradesh have stabilised at a high level of efficiency. To maintain its growth, company is looking to increase its market share in Tamil Nadu, Karnataka and Kerela, which constitute 30 percent of-the Indian retreading market. Besides, due to termination of joint venture agreement with Bandag Inc. USA earlier, company is now exploring the export markets like Middle East, Africa etc. Accordingly it is expected to clock a turnover of Rs 75 cr and PAT of Rs 8 cr i.e. EPS of 15 Rs on equity of 5.25 cr for FY08. Buy at declines.

Cosmo Films (110.00) is the pioneer and one of the largest manufacturers of Bi-axially Oriented Polypropylene Films (BOPP) in India with an installed capacity of 77,000 MTPA. It also manufactures thermal lamination film, an export focused product, which has higher margins. For the Dec qtr its sales improved marginally to Rs 147 cr but PAT shot up by 170% to Rs 11.60 cr on back of back of better operating efficiency. To maintain its future growth company is expanding its capacity by adding two BOPP lines of 40000 MT each. The first line is expected to be commissioned before March, 2009 for which orders have been placed for all major equipments. In addition, it is also adding two new lines in thermal lamination and increasing its capacity from 13500 to 19500 MT per annum. To fund all these it recently placed 31 lakh warrants to be converted @ Rs 107 per share. It has also taken the approval for issue of 10 lakh equity shares under ESOP. For FY08 it is estimated to clock a turnover of Rs 600 cr and PAT of Rs 40 cr i.e. EPS of Rs 20.50 on current equity of 19.40 cr. At a modest discounting by 7x times scrip can touch Rs 150 in 6~9 months.

Roto Pumps (64.00) is a reputed manufacturer of progressive cavity pumps and twin screw pumps which have very wide application in agriculture, domestic and industrial sector. For the latest Dec quarter its sales improved by 15% to Rs 10.40 cr but net profit shot up 40% to 0.80 cr due to operating efficiency. Besides India, it has warehouse cum marketing office in Australia and U.K. and also good network of distributors spread across the globe. On the back of strong industrial growth and robust demand for its product, company has undertaken an expansion cum modernization plan at its manufacturing facilities. Accordingly it may register a topline of Rs 40 cr and bottom-line of Rs 3 cr for fiscal year 2008. This translates into EPS of Rs 10 on a small equity of 3.09 cr. Hence with promoters holding 70% stake, the floating stock is very low. This means scrip can see a vertical rise if it catches market fancy. Moreover for FY09, company has the potential to post an EPS of more than Rs 12~13. At the current enterprise value of Rs around Rs 25 cr, scrip is trading fairly cheap. Long term investors should keep accumulating at decline for a price target of 120 Rs in 12~15 months.