Amarjothi Spinning Mills - Rs.70.00

Incorporated in 1987, Amarjothi Spinning Mills Ltd (ASML) was promoted by the well known Amarjothi Group of Tirupur. Since then, ASML has emerged as one of the major manufacturer of mélange yarn in South India. Its factory is located at Pudusuripalayam in Tamilnadu and has a capacity of around 36,000 spindles. Besides it has recently set up a yarn dyeing unit at Perundurai with an installed capacity of 5,000 kgs per day which became fully operational from March 2005. Interestingly, due to the dismantling of the quota system, exports from Tirupur are expected to increase three fold by 2008 and so is the demand for yarn - the basic raw material. Hence ASML being a major yarn supplier with 80% sales volume coming from Tirupur is set to witness phenomenal growth in coming years.

To cater to this increasing demand, ASML is enhancing its spinning capacity by 60% to 58,000 spindles by end of this fiscal thereby taking its total production capacity to 8mn kg per year from 5mn kg. It has also recently installed two more windmills of 1.65MW each thereby taking the total windmill capacity to 6.6 MW. Thus the entire power requirement of its Spinning Division is met through its own 4 windmills. It is planning to introduce new products like dyed fibre yarn, dyed cotton yarn, PC yarn, sewing thread etc. for future growth. Company has obtained ISO 9001:2000 certification which will increase the trade/export opportunities for the company. It has its eye on the export market too and targets 25% of its earnings to come from exports by FY07 from 5~10% currently.

Being a significant contributor to the country’s total exports the government has announced several incentives like withdrawal of excise duty, concessional rate of interest under TUF scheme, removal of quantitative ceiling on export of cotton yarn to non-quota countries, TEXPROCIL’s endorsement for export of cotton yarn has been dispensed with, import of consumable spares under the EPCGC scheme has been allowed by paying only 5% customs duty etc. All these factors are positives for the company apart from the fall in cotton prices this year. Although the first half numbers of FY06 are not encouraging due to increased depreciation etc, the long-term prospects look very promising. For FY06, ASML is expected to report sales of Rs.80 cr. and NP of Rs.6.75 cr. which amounts to an EPS of Rs.10 on its current equity of Rs.6.75 cr. For FY07, it can earn NP of more than Rs.10 cr. NP i.e. EPS of Rs.15. Thus, the scrip discounts less than 5 times against its FY07 earning. Only long term investors are recommended to buy at current levels as the scrip has the potential to double in 18~24 months.

Kilburn Chemicals - Rs.49.00

Incorporated in 1990, Kilburn Chemicals Ltd (KCL) is a professionally-managed company growing under the guidance of Mr. Deepak Khaitan of the Williamson Magor Group. It is engaged in the production of Titanium Dioxide (TiO2) and ferrous sulphate salt. TiO2 finds use in a variety of industrial products such as paints, footwear, rubber products, plastics, paper, cosmetics etc. whereas ferrous sulphate is a greenish crystalline chemical used in a wide range of applications - as a plant nutrient, in effluent treatment and as a starting material for iron oxide pigments. Importantly, there are only 2 manufacturers of TiO2 in India, which means large portion of the TiO2 demand is fullfilled by imports. KCL also produces Ferro Gypsum, a by-product, which is ideally suitable for groundnut/paddy cultivation and for the sugarcane crop.

KCL’s manufacturing plant is located at Thoothukkudi, Tamil Nadu with an installed capacity of 8250 MTA of TiO2 and 17580 MTA of ferrous sulphate salt. Conforming to ISO & BIS standards, anatase grade TiO2 is manufactured via the sulphate route. This is the only integrated TiO2 plant in India fully-equipped with a self-integrated Pollution Abatement Scheme. An acid re-concentration plant is also under implementation to drastically reduce acidic effluent generation. Being closed to the availability of main raw material i.e. Ilmenite, KCL is able to produce TiO2 at a reasonable cost. As it faces major competition from imports, the biggest breakthrough was the imposition of the final anti-dumping duty on TiO2 imports from China by the department of Commerce in March 2004. Due to increased demand for its products by the user industries, KCL plans to increase production and change the product mix with more value-added products. It’s also putting greater thrust on exports to advance the market for better margins.

Besides, KCL is exploring the possibility of setting up new business in the area of Information Technology. It is also setting up windmills for generation of electricity at a lower cost. For the first six months ended 30th September’05, its total revenue increased by 13% to Rs.29 cr. but its NP doubled to Rs.3.20 cr. For the full year FY06, it may clock a turnover of Rs.65 cr. and NP of Rs.6.50 cr. This works out to an EPS of Rs.9 on its current equity of Rs.7.40 cr. KCL may declare 20% dividend for FY06 which amounts to a dividend yield of 4% at the current market price (CMP). Investors are advised to buy and hold this scrip for at least one year with a price target of Rs.75 i.e. 50% appreciation. Long-term investors can expect it to double in 18~24 months.

STOCK WATCH

Property rates are rising in ‘B’ group cities and construction work is in full swing. Eldeco Housing (Code No: 523329) (Rs.156), a north-based civil construction company has taken several new mega projects worth Rs.250 cr. in Lucknow. Few months back, it launched 4 projects which fetched an overwhelming response in the market. Its other projects like Park View Apts, Suraksha Enclave, Sanskriti Enclave are nearly completed. For FY06 it can report an EPS of Rs.20~25 on its tiny equity of Rs.1.97 cr. A screaming buy in such a growing sector.

Belonging to reputed Winsome Group, Winsome Textiles (Code No: 514470) (Rs.24.05) is a professionally managed company manufacturing 100% cotton yarn for weaving as well as for knitting. To cash in on the post quota boom, the company in undergoing expansion by installing additional 5 combers to convert part production of its carded cotton yarn to combed yarn which has better margins. Also, some balancing machines are being installed for dyeing to enhance productivity. With lower cotton prices and higher demand for yarn, the company is expected to perform much better in the future. For FY06, it can report sales of Rs.150 cr. and NP of Rs.3.50 cr. which means an EPS of Rs.6 on its small equity of Rs.5.90 cr. With a current market cap of a mere Rs.15 cr. and book value of Rs.46, this scrip is a pure multibagger if held for 2~3 years.

The share price of growing mid-cap companies like Mahalaxmi Seamless (Code No: 513460) (Rs.35) has corrected more than 50% in the recent correction and is still hovering around the same level. It is one of the largest producers of cold drawn seamless tubes and its products are used in various industries like petroleum, chemicals, fertilisers, thermal power plants besides oil processing, sugar mills and automobiles. Its pipes and tubes are also used in boilers, heat exchangers and condensers, besides pneumatics and instrumentation. For FY06, it is expected to report sales of Rs.35 cr. and NP of 3.5 cr., which means an EPS of Rs.7 on its current equity of Rs.5.30 cr. A solid buy.

The fall in price of hot rolled (HR) coils is positive for Stelco Strips (Code No: 513530) (Rs.18.55) as it manufactures and markets Cold Rolled Steel Strips/Sheets. Currently, its thrust is to increase exports to China, Ethiopia, Vietnam, Germany etc which currently constitute 36% of its Sales. Moreover, it is implementing a forward integration programme of a continuous galvanising line for the manufacture of G.P and G.C sheets. For the first current six months its Sales doubled to Rs.72 cr. and the NP almost tripled to Rs.1.80 cr. For FY06, it can post an EPS of Rs.6. With a book value of Rs.28 and preferential allotment at Rs.31, the share price can easily appreciate 50% in 12 months.

Eventhough the Sensex is hitting all time highs, there in not much action in mid-cap and small-cap stocks. Seasons Textile (Code No: 514264) (Rs.11.60) which hit a high of Rs.30 a few months back finds no buyers currently at Rs.11. The company manufactures furnishing fabrics and its thrust on exports by tapping new markets in USA & Europe will change its fortunes. In FY05, it modernised it plant and added new capacity of 2,40,000 mtrs. For FY06, it may report Sales of Rs.35 cr. and NP of Rs.2 cr. which means an EPS of Rs.3 on its diluted equity of Rs.6.60 cr. For FY07 it can post an EPS of Rs.5. With a book value of Rs.25 and having made preferential allotment at Rs.15, this scrip is available for a song with a minimal downside risk. Pick it up and keep it for one to two years.

E-Governance has become the buzzword with all State governments and they have allocated huge budgets for various projects. CCS Infotech (Code No:532405 ) (Rs.9.25) being the leading hardware supplier to banks, educational Institutions, government Institutions, state electricity boards, LIC etc is set to benefit from it. It has even started to bid for BOLT projects with the government which will bring in long term revenues. Besides, it has started manufacture of notebooks in the brand name of CCS at its Pondicherry factory. It has even entered a partnership agreement with IBM for marketing Desktops and Laptops. For the six months ending 30th Sept.’05, its Sales has more than tripled to Rs.27 cr. and NP jumped 335% to Rs.2.35 cr. Considering its order in hand position it can report an EPS of around Rs.4 on its current equity of Rs.9.20 cr. Aggressive investors can buy at current levels for handsome gains in the medium to long term.

Ind Swift Laboratories - Rs.165.00

Incorporated in 1995, Ind Swift Laboratories Ltd (ISLL) is part of well-known Chandigarh based Ind-Swift group and was promoted by Ind Swift Ltd in joint venture with the Punjab State Industrial Development Corporation Limited to manufacture Active Pharmaceutical Ingredients (API). It is among the first few players to launch complex products like Clopidogrel, Candesartan, Atorvastatin, Pioglitazone and Citalopram. The company is, in fact, the largest producer of Clarithromycin (around 23% of global capacity) and Fexofenadine in the world after the innovators. It has also set up a US subsidiary, which would essentially seek Custom Research, Custom Manufacturing arrangements and strategic partnership in the US market. It has already tied up with four US companies, which are among the top 15 US companies, for supply of its products.
Presently, ISLL can boast of having nine hi-tech manufacturing units of which three units conform to USFDA Standards and GMP guidelines and were recently put into operation. The new facilities comprise an installed capacity of 40TPA of Statins, a new dedicated facility for 27TPA of anti-histamines, a multi-purpose, high value low volume facility and a new API facility of 50TPA in the tax-free zone of Jammu. Its new state-of-the-art R&D Centre at Mohali in Punjab equipped with the latest equipments and gadgets has also become operational. After launching an anti-diarroheal molecule 'Nitazoxanide' for the first time in Asia, ISLL is planning to launch an anti-alcoholic drug, a molecule for Breast Cancer and two molecules from Statin range, which includes an Anti-Hyperlipidemic drug. ISLL is the third company globally to launch this product. Moreover it has a robust product pipeline of 20 products that are expected to go off patent during 2007-2010. The products that will drive the company's future growth include Ezetimibe (antihyperlipidemic), Rosuvastatin, Montelukast (anti-asthmatic) and Pioglitazone, an anti-diabetic drug. ISLL is also focusing on CRAMS in a big way for which it has tied up with two European companies for contract research and manufacturing services.
For future growth, ISLL intends to mark its presence in the regulated markets of USA & Europe by filing of 25 DMFs by 2007-08 when drugs worth US$ 84 billion go off patent by 2008. It has already filed 1 DMF with USFDA and 2 Common Technical Documents (CTDs) with European authorities. Apart from filing the patent for 2 non-infringing processes, it is ready with 4 in the current year and 12 more by next year. Couple of months back, the company raised US $10 million through the GDR to be converted into equity @ Rs.186 per share. For FY05, sales grew 44% to Rs.240 cr. whereas NP tripled to Rs.26.50 cr. As the full impact of the expansion will be visible only in coming years, its future prospects are very promising. For FY06, it may report Sales of Rs.325 cr. and NP of Rs.40 cr. This means an EPS of Rs.19 on its current equity of Rs.20.90 cr. and diluted EPS of around Rs.15~16. Long-term investors are strongly recommended to buy as the scrip has the potential to double in 15~18 months.

Shasun Chemical & Drugs - Rs.80.00

From a modest beginning in 1976, Shasun Chemical & Drugs Ltd (SCDL) has acquired a worldwide reputation in the manufacture of Active Pharmaceutical Ingredients (APIs) and their intermediates. Its main products are Ibuprofen and its derivatives such as S+Ibuprofen and Ibuprofen Lysinate, Ranitidine, Nizatidine (Anti-ulcerants) etc. In fact it is one of the world’s largest producers of Ibuprofen and supplies about 15% of USA’s requirement of the bulk drug. Its products are exported to more than 150 countries across Europe, North America, Latin America & Asia. SCDL has licensed technology from Eastman Chemical Company of USA to manufacture and market the excipients like HPMCP & MAP, which find use in enteric coating applications. Besides, its a major player in the anti-inflammatory, anti-ulcerative and anaesthetic segments. It has also formed an alliance with Suven Pharmaceuticals Ltd and Innovasynth Technologies (India)Ltd in the field of life sciences covering R&D and manufacturing to service global pharma companies in collaboration with Austin Chemical Co., USA.
SCDL has two manufacturing facilities at Pondicherry and Cuddalore, both GMP compliant facilities and inspected by US FDA, UK MHRA, EDQM, TGA and other regulatory bodies. Employing over 100 scientist & research associates, its new R&D facility in Chennai does contract research under a full time equivalent (FTE) model and contract manufacturing under the custom synthesis model. It is also in the process of setting up a commercial facility for creation of significant biotechnology capabilities & capacities especially in the area of protein processing solutions and has already set up a pilot scale fermentation unit with 100 litres capacity. It is accelerating new product developments and drugs such as Isradipine and Gabapentin, which are expected to post a significant growth in the next 2/3 years. SCDL is gradually transforming itself from an export centric approach to a CRAMS centric business model. It is also aggressively expanding its presence in the formulations segment and has entered into various manufacturing and supply agreement with multinationals like Glenmark, Codexis Inc., USA, Alpharma Inc. USA etc for marketing a number of generic formulations in US and Europe.
For future growth, the company is placing a greater thrust on the CRAMS segment. And with a strong infrastructure base and long successful relationships with pharma MNCs, it is all set to grow significantly in coming years. Recently, the company went for a stock split from Rs.10 to Rs.2 face value. For FY05, its revenue grew by 22% to Rs.327 cr. and NP increased by 30% to Rs.31 cr. Its first half for the current year was pretty decent and for the full FY06 it is expected to clock a turnover of Rs.375 cr. and NP of around Rs.35 cr. This works out to an EPS of approx Rs.8 on its current equity of Rs.9.16 cr. on Rs.2 FV. Thus the stock is trading reasonably cheap at 10 PE and investors can accumulate it at current levels for 50% returns in 12~15 months.