3i Infotech Ltd - Rs 78.00

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 1500 clients in more than 50 countries through 50+ offices in 14 countries. It provides software products, IT services and Operations Outsourcing (BPO) solutions for a variety of industry verticals including Insurance, Banking, Capital Markets, Mutual Funds & Asset Management, Wealth Management, Government, Manufacturing and Retail. With substantial increase in revenue from transaction services, 3i now classifies its business operation into following three segments

· Technology Services (33%): Under this, 3i offers services including application development and maintenance, IT infrastructure services, e-governance services, retail e-commerce, business intelligence, electronic tax filing, digital signature etc.

· Software products (35%): 3i has emerged as the fourth largest Indian software products company offering a comprehensive range of software products & solutions primarily for Banking(12%), Capital Markets(11%), Insurance(9%) and ERP(3%). Premia, Kastle, Amlock, Awacs, Tradis, Quantis, Mfund, Xroadz etc are few of its popular software products. It also offers unique software for payment solutions and document management.

· Transaction services (32%): With the recent acquisition of USA based Regulus group, this segment has gained prominence and is expected to grow at a healthy pace in coming years. This includes a host of services like remittance service, cheque truncation & clearing, HR & payroll services, record management services, finance and accounting services, registrar & transfer agent, securitization services & contact centre.

Thus, 3i has significantly de-risked its business model with each segment contributing equally in the ratio of 1:1:1. Even geographically, company derives 50% revenues from North America, 28% from South Asia, 10% from MEARC, 7% from Western Eurpore & the rest 5% from Asia Pacific. Apart from ICICI group being its largest customer (contributing 8% revenue), 3i boast of serving international biggies like Prudential Assurance, Citibank, Finansa, First Express, AIG, Emirates Bank, RAK Bank, Chinatrust Commerical Bank, HP, GSK, Al Ansari, Solidarity Islamic Insurance, Commercial America Insurance, Standard Chartered, Deutsche Bank, Pidilite Industries, Oriental Insurance etc. However company’s growth is largely dependent on BFSI space as more than 70% of its revenues comes from this sector. In order to beat the competition and grow at a rapid pace, company has been betting high on inorganic route and has adopted an acquisition-led strategy to acquire new capabilities and foray into new geographies. In the last 2~3 years, 3i has made dozens of acquisitions globally as well as domestically. Ironically, it has more than 60~70 subsidiaries, step down subsidiaries and associates in total. While acquiring, the challenges are assimilation, integration and deriving benefits of synergies, in which 3i has been quite efficient.

Recently, 3i has ventured into Media & Broadcasting Industry as a System Integrator to provide services related to consulting, systems integration and remote infrastructure management to companies in broadcasting media. On the other hand company has tapped the retail business by launching Taxsmile, an online tax filing portal, and e-Mudhra, an online service for enabling common citizens to use digital signatures. To provide other B2C services, company has formed a brand “I-SERVE” which has bagged a huge contract from Central govt for setting up over 12,000 kiosks, spread across various states in India, for bringing various services to common citizens in rural India. The pricing model for this e-governance project is based on the frequency of each service transactions taking place across kiosks. Besides, 3i has made a strategic tie up with ICICI Lombard, Airtel and Max Newyork Life to open 12,500 retail stores in rural areas to offer bouquet of retail services in general insurance, telecom and life insurance sector respectively. The company may invest Rs 200 crore for the complete project and would earn commission on per transaction basis. Interestingly, company is also in the midst of opening 255 new service centres in tier-II and tier-II cities to help banks and financial institutions in decreasing the processing time for various back office operations. These centre which will constitute a 'hub and spoke' model will be staffed by experts who will specialize in transactional services outsourcing related to processing credit cards, insurance applications, contact point verification, soft collections, cheque clearing services, reconciliations, etc. Meanwhile, to consolidate its fast growing BPO business, company has just now formed a subsidiary to control the BPO business under one company efficiently.
Most importantly, 3i business has been affected to a very limited extent because of US turmoil and bankruptcy. However it has put most of the developed economies into recession which has slowed down the pace of current & future growth of global IT industry. In line with world economic situation, 3i has also toned down its strategy and is now looking for modest organic growth in the short term. Hence it won’t be making any major acquisition in current fiscal although it targets aggressive growth in the long run. Despite challenging times , company is having a healthy order book position to the tune of 1400 cr to be implemented in next 12~15 months. In the past, to fund its various acquisitions, company had raised nearly Rs 575 cr thru FCCB route. As the conversion price is at substantial premium to CMP no bond is expected to come for conversion in the near future. Meantime, taking the benefit of recent notification from RBI, 3i went ahead & bought back nearly Rs 150 cr of FCCB at 50% discount. It may further buy back more FCCB’s in the current fiscal. With no additional funds required for new acquisition, company can easily manage its growth from internal accruals and minimum additional debt.
Fundamentally, on a consolidated basis 3i has recorded 88% growth (37% organic + 51% inorganic) in topline to Rs 2305 cr and 45% growth in net profit to Rs 266 cr. It also recorded an extraordinary profit of Rs 26 cr (due to FCCB buyback) which led to reported PAT of Rs 292 cr. After deducting minority interest and dividend for preference share it reported an EPS of Rs 19 & Rs 21 (incl EO profit) on current equity of 130.75 cr. Although company looks cheap at P/E ratio of 4x times, but due to high debt (debt equity ratio of 2.1x times) its EV/EBITDA is around 6.6x times. With moderate growth expectation it may end FY10 with topline of Rs 2650 cr and bottomline of Rs 260 cr i.e. EPS of Rs 20 on current equity. As the scrip has run up too much in the short term investors advised to buy only at sharp declines for a price target of Rs 95 in 12~15 months.

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As usual Cera Sanitaryware (100.00) has come out with good nos for June’09 quarter. Sales grew by 20% to Rs 40 cr whereas PAT shot up 30% to Rs 3.40 cr posting an EPS of Rs 5.40 for the quarter. At the time when most of its peers are finding it difficult to survive, company has been able to maintain its operating margin at 18~20%. This proves that company has the bargaining power and its niche products don’t face any stiff competition. Earlier it ended FY09 with 20% growth in sales to Rs 170 cr whereas PAT increased by 30% to Rs 13 cr, despite an extra ordinary expense to the tune of Rs 1.60 cr. It is the third largest company in the organized sanitaryware segment with over 20% market share in domestic market. Moreover in the last couple of years, company has evolved itself into a total bathroom solutions provider with a wide product range for the mass as well as premium segment. To take the benefit of high demand, it has recently expanded its production capacity to 24,000 MTPA from 16,500 MTPA. To boost up its retail sales, company has come up with novel idea of setting up live CERA bath studio where consumers, architectures, interior designers etc can actually see how the premium products will look, feel and function in their homes. For FY10 it can clock a turnover of Rs 200 cr and PAT of Rs 16 cr which translates into EPS of Rs 26 on tiny equity of Rs 3.11 having face value of Rs 5/- per share.

PBA Infrastructure (60.00) is engaged in execution of civil engineering projects and specializes in construction of highways, dams, runways and heavy RCC structures, bridges and other infrastructure projects of various govt bodies. It is executing projects from Kashmir to Kanyakumari and has taken up new works like toll collection and quarrying to augment its income. It reported almost flat nos for the latest March’09 quarter resitering a topline and bottomline of Rs 105 cr and 2.20 cr respectively. But on the full year basis it recorded a decline of 20% in net profit to Rs 11.75 cr on flat sales of Rs 366 cr. Thus it posted an EPS of Rs 8.70 for FY09 on equity of Rs 13.50 cr. However looking at the special thrust on infrastructure sector in the recent budget the future outlook of the sector looks promising. Recently company bagged an order from MMRDA (Mumbai) to the tune of Rs 71 cr for building 16 skywalks in the city. It is among the few companies which regularly makes public disclosure of the order bagged by it. Being a Mumbai based company its work is mostly concentrated in city of Mumbai, Pune and other part of Maharashtra. Traditionally, company has been having a high debt equity ratio, which in future may come down as company is contemplating to raise funds thru equity route. To conclude company can grow at CAGR of 15~20% for the next 3~4 years. Buy at declines.

Jaihind Projects (95.00) core area of specialization & operation includes laying oil & gas pipe lines across the country. It has capability to lay pipelines from 4” to 56” in diameter thru different terrains ranging from rocky to desert and snowy to marshy land. Apart from GAIL - its biggest client, company also undertakes projects for ONGC, Cairn Energy, BPCL, IOC, GSPC, GSPL, Mahanagar Gas, Reliance Infra, L&T, Delhi Jal Board etc. To cash on the opportunity of the India growth story, company has taken an aggressive stance and is expected to grow at CAGR of 40~50% for next 3~4 years. It has increased its bidding process across new geographies and is open to form JV’s to bag bigger contracts. Last month, in consortium with other companies it bagged a huge contract to the tune of Rs 231 cr from GSPL for E.P.C. Project for Darod - Jafrabad Gas Pipeline Project - Section A. For FY09, company’s revenue shot up 125% to Rs 323 cr whereas net profit more than doubled to Rs 13 cr on a consolidated basis. This translates into an impressive EPS of Rs 19 on current equity of Rs 7.10 cr. Recently, company made a preferential allotment of 25 lac warrants to be convertible into equity @ Rs 60 per share. This will lead to 35% equity dilution in near future. Despite this investors are advised to keep accumulating it at every sharp decline. Incidentally scrip hit a low of Rs 32 early this year and has since then tripled to Rs 100 currently.

In order to consolidate and integrate its operation, Kirloskar Electric (45.00) has recently merged Kaytee Switchgear Ltd (KSL) & Kirsloskar Power Equipments Ltd (KPEL) with itself. Accordingly for FY09 it has reported sales of Rs 866 cr and PAT of Rs 30 cr leading to an EPS of Rs 5.60 on expanded equity of Rs 50.50 cr. Apart from manufacturing wide range of power as well as distribution transformer company also produces several types of special transformers like furnace, flame proof as well as conventional dry type, earthing, special converter, high voltage testing, short circuit testing, nitrogen gas cushioned, cast resin etc. It is also one of the leading manufacturers of AC/DC motors, AC generators, DG sets, tractions etc. At the same time, its Switchgear division manufactures high voltage switchgear in the range of 3.3 to 36kV for indoor as well as outdoor applications. Recently, it has setup up a new plant at Maharashtra & Haryana for transformer & rotating machine respectively. Due to drastic fall in metal prices and synergies of merger, KECL has the potential to improve its margin going forward and can report an EPS of more than Rs 8 in FY10. A good bet for medium to long term.

Orient Paper & Industries Ltd - Rs 45.00

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 (60%):- 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 current installed capacity of 3.40 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 60% to total revenue but more than 90% of the company’s profit comes from this division only. Its cement division is amongst the most cost-efficient units in the country with one of the highest EBIDTA percentage. Hence to take advantage of the market growth and success of its brands and distribution network, company has aggressively expanded its capacity in the last couple of years. With an installed capacity of 2.40 million ton in FY07, company added 1 million ton of capacity in FY08 and another 1.60 million ton in FY09 thereby taking the total cement production capacity to 5.0 million ton. However the latter 1.60 million ton enhanced capacity is expected to begin commercial production shortly. As demand supply situation for cement is favorable in Maharashtra and Andhra Pradesh, cement prices are holding stable although they may see some correction in 2010 as several Greenfield projects are expected to go on stream in next one year. Thus to maintain its margin in future as well, OPIL has taken initiatives to reduce its cost of production and is in the midst of setting up a 50 MW captive power plant at Devapur plant. The project is expected to get complete within this calendar year. Meanwhile, in FY08 company generated more than Rs 10 cr on sale of 107353 units of CERs and is entitled to get similar CERs each year until 2012 based upon its performance under the CDM project.

· PAPER DIVISION (20%):- OPIL manufactures a wide range of writing and printing paper specially photocopying and office paper category apart from being a market leader in tissue paper with more than 40% market share. Its paper mill is located at Amlai in M.P having an installed capacity of 95,000 TPA. Notably, the demand for tissue paper is growing at around 15% per year and to meet this rising demand, company undertook an expansion of 25,000 TPA which is almost completed and may being production within a month. Thus its total tissue paper capacity now stands enhanced to 35,000 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. During FY08 it assisted 4500 farmers to plant 5 lac clonal plants and 128 lac seed rooted plants in a land area of over 5000 hectares. It even constructed sixth mist chamber and is contemplating to further build two more mist chambers to double the clonal propagation capacity to 20 lac seedlings. Oh the other hand, its second plant in Orissa at Brajrajnagar which is spread across 850 acres is non operational since 1999. If disposed off it can fetch revenue of Rs ~100 cr.

· ELECTRICAL APPLIANCES (20%):- 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 35 lakhs fans per year. Having a market share of over 17% in the organized sector, 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. Having global presence across 20 nations such as USA, Egypt, South Africa, Saudi Arabia etc, company enjoys the status of being the largest exporter of fans from India. Oflate, OPIL has ventured into lighting segment by setting up a modern manufacturing facility for Compact Fluorescent Lamps at its Faridabad plant. This is another fast growing segment which company intends to scale up in coming years.


To summarize, OPIL’s topline will continue to grow on the back of increased production in all the three segments although the bottomline may not grow at the same pace. But importantly, OPIL has a very healthy operating cash flow which not only funds the capex plan but has also helped the company in reducing the debt on its books. In the last two years company has repaid most of its loan and has significantly brought down its total debt to Rs 165 cr from Rs 435 cr in 2006. As a result, it has a very healthy debt equity ratio of 0.16x times as on 31st March 2008. During FY08 company raised Rs 160 cr thru right issue in the ratio of 3:10 @ 36 per share. Financially, OPIL has done well for FY09 as sales increased by 17% to Rs 1520 cr whereas adjusted PAT (Excl extraordinary item) also improved by 15% to Rs 235 cr. However company made an extraordinary provision of Rs 48 cr by writing off the dues from a JV company which made the reported PAT to shrink to Rs 200 cr. This translates into reported EPS of Rs 10 whereas adjusted EPS works out to an EPS of 12 on equity of Rs 19.30 cr having face value as Rs 2 per share. With lot of additional capacity to go an air in the current fiscal, OPIL has the potential to clock a turnover of Rs 1800 cr and PAT of Rs 270 cr i.e. EPS of Rs 14 on current equity. Although share price has tripled from the low it hit in 2009 and is trading at 40% discount to its all time high, still investors can accumulate at sharp declines with a price target of Rs 75 in 12~15 months.

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It seems that Vivimed Lab (75.00) has posted a loss for the March’09 quarter on standalone basis as its net profit for the full year declined to Rs 14.50 from Rs 16.50 for nine months ending Dec’08. Despite this, it has recorded flat nos for FY09 with sales of Rs 151 cr and PAT of Rs 14.50 leading to an EPS of Rs 15.50 on current equity of Rs 9.40 cr. However on a consolidated basis (incl. financial of M/s James Robinson,UK) company has clocked a turnover of Rs 276 cr and PAT of Rs 22 cr for FY09 which translates into consolidated EPS of Rs 23. Earlier company acquired 100% stake in M/s James Robinson,UK which is an international manufacturer and supplier of speciality chemicals used in hair dyes, pharmaceuticals and photographic films/prints to ophthalmic sunglasses. Company itself is a speciality chemical manufacturer catering to segments including oral care, sun care, skin care, hair care, natural extracts, preservatives, anti microbial, anti oxidants, anti-aging molecule etc. Infact it is world’s 2nd largest manufacturer of Triclosan - an antibacterial used for oral care and one of the top three companies for Avis – a chemical which improves UV absorbing ability of Sunscreen. Of late, it has decided to acquire Har-met International Inc a small importer of pharmaceutical & cosmetic product, based in USA. Organically as well company has been expanding its capacity and has chalked out Greenfield expansion plan in Uttaranchal and Hyderabad. Presently it boasts of having five manufacturing facilities spread across Karnataka, Andhra Pradesh & Uttaranchal. Earlier in 2007, company had raised nearly 60 cr thru FCCB route which may not get converted into equity considering the CMP. Buy at declines.

After ending FY09 with spectacular performance Oil Country Tubular (55.00) has reported decent performance for the Q1FY10. Its topline grew by nearly 20% to Rs 72.50 cr and bottomline improved by 25% to Rs 13.70 cr thereby posting an EPS of Rs 3 for the quarter. For FY09 it has recorded 25% increase in sales to Rs 420 cr whereas its net profit zoomed up 125% to Rs 65 cr on the back of saving in interest cost. Ironically, in the last fiscal company cleared all its term Loans to the institutions and banks thereby gaining the coveted status of debt free. It is one of the leading companies in the world processing a range of tubular goods required for the oil drilling and exploration industry. Its wide product range covers drill pipe, heavy weight drill pipe, drill collars, production tubing, casing, tool joints, couplings, pup joints, nipples, subs, and cross overs. Thus it will be one of major beneficiary of the recent budget as new tax exemptions will be granted to companies laying and operating cross country natural gas or crude or petroleum oil pipeline network for distribution on common carrier principle. This will indirectly boost the demand for pipes. On the other hand it is also quite active on the export front as nearly 50% of total revenue comes from catering to international market. Infact it is contemplating of setting up a joint venture between Golden Dunes International, Oman, & UMW Petropipes (L) Ltd, Malaysia for putting up a pipe threading facility in Oman. Although company hasn’t made the order in hand public still it can clock a turnover of more than Rs 500 cr and PAT of around Rs 75 cr which leads to an EPS of Rs 17 on equity of Rs 44.30 cr. Worth accumulating at every declines

Post dismissal performance for the Dec’08 quarter, Ratnamani Metals (65.00) is coming back on track and has reported satisfactory nos for the March’09 quarter. Its sales improved by 10% to Rs 259 cr and profit increased by 15% to Rs 15.70 cr for the quarter. Accordingly for the entire FY09, it reported nearly 15% growth in turnover to Rs 955 cr although the net profit declined by 20% to Rs 71 cr due to considerable fall in OPM from 21% to 16%. But with the fall and stabilization of metal prices, company is expected to regain its profit margin in coming quarters. Taking the benefit of recent amendments for AS11, company capitalized the exchange fluctuation loss to the tune of Rs 19 cr for FY09. It is basically engaged in manufacturing welded and seamless stainless steel (SS) pipes & tubes, carbon steel (CS) LSAW, HSAW and ERW pipes. To cater the rising demand company is adding 3,000 TPA of capacity in stainless steel tubes and pipes segment, which is to be operational shortly thereby taking the total stainless steel pipe capacity to 22,000 tonne. In carbon steel segment, it is adding 100,000 tonne of HSAW capacity through brown field expansion, which will double its HSAW capacity of 200,000 TPA and take the total carbon steel capacity to 400,000 TPA. As a part of forward integration, company has recently set up a 3 layer polyethylene and epoxy coating line with capacity of 2.7 million sq mtrs. To conclude the future prospect looks promising and scrip can be bought at current levels.

Although ICSA (155.00) reported subdued performance for March’09 quarter but still it ended FY09 on quite a buoyant note. It reported 10% fall in net profit to Rs 34 cr despite an impressive growth of 35% on total revenue to Rs 286 cr for Q4FY09. Still for entire FY09 its revenue was up by 65% to Rs 1111 and net profit increased by 35% to Rs 168 cr posting an EPS of Rs 36 Rs for the year. Company boasts of developing innovative products suitable for power utilities in the field of energy management, energy audit, control application which identifies distribution losses, and help the power utilities reduce their costs & streamline their operations. The list of its popular product includes Intelligent Automatic meter reading, Distribution transformer monitoring system, Theft detection device, Energy audit services, Pole top & Micro remote terminal unit to name a few. Of late it bagged huge orders to the tune of Rs 460 cr from Bihar and Maharashtra State Electricity Boards. More importantly, in the recent budget govt has proposed to enhance the allocation under APDRP scheme by 160% to Rs.2080 cr which will motivate the SEB’s to opt for reduction in T&D losses. Considering its growth potential, scrip is poorly discounted by the market. Keep accumulating at declines for handsome gains in long term

Tamilnadu Newsprint & Paper Ltd - Rs 75.00

Incorporated in 1979, Tamilnadu Newsprint & Paper Ltd (TNPL) was promoted by the Government of Tamil Nadu who still holds around 35% stake in the company. Inspite of being a public sector company, TNPL pioneered the concept of producing paper from Bagasse, namely sugarcane waste thereby using as little wood as possible. Today apart from being one of the lowest cost manufacturer, company boast of having the world’s largest bagasse based paper mill with a capacity of 2,45,000 TPA. It is also the largest exporter of wood free paper from India. TNPL basically manufactures printing and writing paper comprising cream wove, copier and mapiltho paper for business stationery, classical writing, computer stationery and other commercial and quality printing. It offers a range of high-quality surface sized maplitho paper to suit any kind of printing - sheet-fed or web-offset. It is the undisputed market leader for computer stationery in domestic market. Presently company’s product is supplied to over 30 countries across Asia-Pacific, Australia, Middle East, the Mediterranean and the African subcontinent with exports contributing nearly 20% of total revenue. Of late, TNPL has diversified into cement and real estate development in a very small scale.

TNPL is acknowledged as the world leader in technology for the manufacture of paper from bagasse and has the most modern paper mill in the country with unique bagasse procurement, storing, preserving, handling, processing and pulping system. It continues to enjoy its relatively lower reliance on wood because of its vision to make paper primarily from Bagasse - a sugarcane waste product, which is abundant and cheap, as compared to wood which is scarce and expensive. Ironically, due to this technology it actually avoids the chopping down of trees in about 30,000 acres of forest land every year. However it maintains a relationship of 65:35 for bagasse and wood pulp in production to ensure high quality of the paper. After the completion of the Phase – I of Mill Expansion Plan, TNPL now boast of having paper production capacity of 2,45,000 TPA. It has also increased its captive pulp production capacity from 170,000 TPA to 260,000 TPA with element chlorine free (ECF) bleaching. In order to further de-risk the exposure to volatile wood pulp prices, company has been constantly increasing the pulpwood plantation through farm forestry and captive plantation schemes. In the last fiscal i.e. FY09 company has further brought 10,571 acres under its fold thereby taking the total count to 40,291 acres. On the other hand, company is already self-sufficient in power with in-house captive power generation capacity of 86.12 MW and another 35.50 MW thru wind farm. Infact it has been supplying surplus power to State grid.

For FY09, TNPL made an all time high production of 2,54,903 tons of paper against 2,45,471 tons last year with a capacity utilization of 104%. And as usual, for the 18th year in the row company sold the entire production and achieved zero stock of finished goods as on 31st March 2009 which is a unique record in the paper industry. Recently during April’09, TNPL implemented the life cycle extension of its Paper Machine I thru a capital investment of Rs 70 cr. This has improved the runnability of the machine along with improved quality of product. Moreover, considering the robust outlook for paper industry and to maintain its future growth, TNPL is implementing the Phase – II of Mill Expansion plan which will augment the production capacity by whopping 60% to 400,000 TPA from the current 245,000 TPA. The project is expected to complete by June 2010 and involves an investment of Rs 1000 cr (increased from Rs 725 cr estimated earlier). The project has been funded mostly by debt and partially thru internal accruals. Interestingly, TNPL has entered into the carbon trading by having got its Bio-methanation plant registered as CDM project with UNFCCC and is expected to get 37,000 CER as carbon credit till 2013. Moreover it is setting up a mini cement plant with a capacity of 400 tpd for producing high grade cement using the lime sludge and fly ash – the waste material generated in the process of manufacture of paper. TNPL is also constructing an IT Park measuring an office area of 4 lakhs sq. ft. on its surplus land in suburb of Chennai. Both these projects are estimated to complete by mid 2010.
Financially as well as fundamentally company is on a strong footing, but however it has taken a significant debt on its books to finance the mill expansion plan. For FY09 company is estimated to have debt equity ratio of 1.3~1.4x times which is although not alarming. For FY10 it may pay around Rs 125 cr of interest which will eat up nearly 50% of profit thereby having a financial leverage of more than 2x times. However post commencement of the expanded capacity, cash flow will improve considerably and by FY12 its debt equity ratio may fall back to 0.80x times or so. Well, meanwhile for FY09 TNPL has recorded 17% growth in sales to Rs 1097 cr whereas net profit declined by 5% to Rs 107 cr due to substantial jump in interest cost. This translates into an EPS of Rs 15.50 on equity of Rs 69.20 cr. Company has maintained its dividend at 45% which gives an whopping yield of 6% at CMP. However, company has recognized Rs 18 cr gain on exchange fluctuation of earlier years. Moreover it hasn’t provided Rs 47 cr mark to market notional loss on forex derivative contracts but instead created a hedging reserve account. Although its an non operational item but any actual booking of loss may dent the bottomline in the coming years. But considering company’s eco friendly technology, Cash EPS of Rs 30, dividend yield of 6%, book value of nearly Rs 100 and most importantly future growth, scrip is available relatively cheap. Investors can buy at dips to get 50% return within 15 months.

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