Karur KCP Packaging - Rs.66.00

Beginning as supplier of jute bags to cement companies, Karur KCP Packaging Ltd. (KKPL) has today become a one-stop shop for the packing requirements of any industrial sector. Since its inception in 1961, the group has grown into multi-dimensional and multi-product group manufacturing paper, paper bags, polypropylene bags and flexible intermediate bulk containers (FIBC). In fact, KKPL is the only company in India manufacturing extensible sack kraft paper (ESKP) that is used for making multiwall sacks. Currently, 75% of its revenue is contributed by the paper and paper bags division and the rest by PP bags and FIBC.

KKPL’s hi-tech plant for paper and paper bag division is located at Pondichery whereas its reputed manufacturing facility for PP bags and FIBC is at Mayanur near Karur. Its paper bag division produces eco friendly paper bag using imported ‘bottomer’ machines from Japan having an installed capacity of 9 million bags per month. The paper unit manufactures special paper called ESKP thru CLUPAC, which is a patented US technology and has a production capacity of 70 TPD. Catering mainly to cement companies, its PP bag division produces 5 million bags per month. Also, its latest plant for FIBC manufactures world-class Jumbo bags of 500 kg to 2500 kg capacity with the entire production earmarked for exports to USA and EU countries. Last year, KKPL diversified into the non-cement sector namely Carbon Black, Tea, Fertilizers, Grains, Spices, Chemicals and Dyes etc. Due to this increasing demand, the company is planning to increase its Paper production capacity from 65 TPD to 80 TPD. Similarly, the FIBC bags capacity will be increased from 300 TPM to 400 TPM.

From jute to polypropylene then paper and now FIBC, KKPL is continuously growing its product range and expanding capacity. For Dec.’05 qtr., its sales increased by 15% to Rs.56.50 cr. whereas profit after tax spurted by 125% to Rs.2.30 cr. Company is estimated to end FY06 with sales of Rs.220 cr. and NP of Rs.8 cr. i.e. EPS of Rs.8 on an equity of Rs.10 cr. Incidentally, company has a total debt of around Rs.115 cr. on which it pays an interest of Rs.19 cr. @ whopping 16% p.a. To fund its expansion and reduce its debt substantially, KKPL is coming out with FCCB to raise around Rs.70 cr. which may dilute equity to the extent of 100% going forward. Hence only aggressive investors are advised to buy as the scrip can give 50% returns in a bullish market in 6~9 months.

Austin Engineering - Rs.82.00

Austin Engineering Company Ltd. (AEC) was incorporated as private limited company in 1978 and was subsequently converted into public limited company in 1985. Founded by 5 technocrats, AEC today manufactures the widest range of ball and roller bearings in a single manufacturing unit in India. AEC manufactures all types of bearings, which include Ball Bearings, Cylindrical Roller Bearings, Needle Roller Bearings, Tapered Roller Bearings, Spherical Roller Bearings and Flexible Roller Bearings etc. It makes more than 2500 different types of bearings in sizes ranging from 10mm inner diameter to 1000 mm outer diameter. . Its products are mainly consumed by the auto and engineering industry apart from steel plants, textile machinery manufacturers, power plants, defence industry, railways and the replacement market. The company has a strong, reputed clientele including Tata Motors, SAIL, Premier Automobiles, Punjab Tractors and Defence. It also exports to developed countries like USA, UK, Germany, Italy etc.

AEC’s has two manufacturing plants spread across 3,50,000 sq ft at Patla in Gujarat with an installed capacity of 3 million bearings. Due to rapid development and flexible manufacturing system, batch size is not a constraint and is its strong point to meet its customers' needs. It has an in-house R&D staffed by well-qualified engineers, a metallurgical lab using the finest gauges to critically follow the material behaviour after every process. The company continuously undertakes comprehensive modernization and technology upgradation as its product is well accepted by OEMs as an import substitute. AEC is planning to launch a number of new and high value added products, which will further strengthen its competitive edge in future. It has also established subsidiaries in Italy and USA to increase its exports.

Due to the huge demand from user industries and the strong industrial growth, AEC is witnessing the best of times. For Dec.’05 qtr. its Sales rose by 53% to Rs.15 cr. and NP almost tripled to Rs.1.10 cr. reporting a quarterly. EPS of Rs.3.35 on its current equity of Rs.3.28 cr. For full FY06, company is estimated to clock sales of Rs.55 cr. and NP Rs.3.50 cr. For FY07, sales may further rise to Rs.65 cr. with NP Rs.4.50 cr. This means an EPS of Rs.11 and Rs.14 for FY06 and FY07 respectively. The company is also expected to return to the dividend list from this fiscal itself. With reserves of nearly Rs.15 cr. i.e. book value of Rs.55 and a market cap of only Rs.26 cr., the scrip is trading reasonably cheap in the fast growing engineering sector. Investors are strongly recommended to buy it at CMP for 100% appreciation with a price target of Rs.150 in 15~18 months.

STOCK WATCH

With the boom in the auto sector on the back of strong industrial growth, the casting industry is reportedly doing very well. Gujarat Intrux Ltd. (Code No: 517372) (Rs.29.30), which is engaged in manufacture of Stainless Steel, Alloy Steel and Non-Alloy Steel castings has come out with good numbers for the Dec’05 qtr. Sales grew by 18% to Rs.4.90 cr. but its NP increased by nearly 50% to Rs.0.61 cr. For full year FY06, it may report NP of Rs.2.10 cr. i.e. an EPS of Rs.6 on its small equity of Rs.3.44 cr. Last year, the company had enhanced its capacity from 100 to 150 MT per month and with ferro alloy (its main raw material) prices expected to remain low, the company is unlikely to face any margin pressure in future. A good bet in the small-cap segment.

Fertilizer scrips are tipped to rise sharply in the near future in anticipation of some favourable announcement in the forthcoming Budget. Liberty Phosphate (Code No: 530273) (Rs.39), one of the low cost manufacturers of single super phosphate (SSP) with 12% market share is the cheapest bet in this sector. For the Dec’05 qtr., its total revenue increased by 21% to Rs.24.50 cr. whereas its NP spurted 87% to Rs.1.12 cr. due to lower tax provisioning. For the full year, it is expected to clock a turnover of Rs.80 cr. and NP of Rs.3.20 cr. This works out to an EPS of Rs.8 on its current equity of Rs.4.13 cr. Its share price can shoot up 30~40% in 6 months or so.

After hitting continuous upper circuits and making an all time high of Rs.305, Eldeco Housing (Code No: 523329) (Rs.237) has corrected sharply to Rs.225 on profit-booking. This North-based housing construction company has under taken several new mega projects worth Rs.250 cr. in Lucknow. Eldeco is fully booked for the next 3 years and its real estate development is going on in full swing. For Dec 05, its total revenue was up 18% to Rs.8.50 cr. whereas its NP has more than trebled to Rs.1.03 cr. For FY06, company is expected to post an EPS of around Rs.25~30 on very tiny equity of Rs.1.97 cr. For FY07, it is estimated to post bumper profit on completion of various projects. Scrip has the potential to test Rs.350 level in a bull market. Hold on to your position.

In spite of high crude oil prices, Laffans Petro (Code No: 524522) (Rs.31) reported pretty decent numbers. For the Dec.’05 qtr. its topline increased by 11% to Rs.38 cr. and its NP grew by 13% to Rs.1.26 cr. For FY06 ending on 30th Sept.’06, the company may report a topline of more than Rs.150 cr. and bottomline of Rs.4.50 cr. leading to an EPS of Rs.6 on its current equity of Rs.8 cr. when its book value is estimated to touch Rs.42. With a market cap of just Rs.25 cr., its share price is sure to rise 50% in 9~12 months. But in spite of being a profit making company, it’s yet to declare a maiden dividend.

When all auto ancillaries are richly discounted even against their expected FY07 earning, Subros (Code No: 517168) (Rs.177) is trading reasonably cheap with low sales to market-cap ratio. Professionally, it’s one of the well-managed companies with a uninterupted dividend track record since 13 yrs. For Dec.’05 qtr., though its Sales were marginally down to Rs.133 cr. its NP increased by nearly 50% to Rs.6.50 cr. due to better operating efficiency. Its OPM improved to 12% from 9% last year. Last fiscal, the company expanded its capacity to 5,00,000 AC units per annum and is now doubling the capacity to 10,00,000 units by setting up plants at Manesar & Pune. Although it is currently supplying to MUL and Tata Motors only, M&M, GM, Ford, ALL, Volkswagen and Renault may start buying from Subros. With an expected EPS of Rs.17 and Rs.20 for FY06 and FY07 respectively, its share price is sure to cross Rs.250 in the medium to long term. A solid buy.

Ashiana Housing & Finance - Rs.78.00

Incorporated in 1986 and promoted by B P Gupta, O.P. Gupta and R K Modi, Ashiana Housing and Finance (I) Ltd (AHFL) belongs to the Ashiana Group with diversified interests in food processing, engineering, edible oil and leather garment exports. AHFL is in housing development for the last two decades and has established its reputation as a real estate developer that provides quality of construction, safety of investment and integrity of commitment. Starting from Patna, the company has extended its residential as well as commercial activities to Jamshedpur (Jharkhand), Bhiwadi (Rajasthan), Ghaziabad (UP), Gurgaon, Greater Noida and the National Capital Region(NCR) around Delhi. AHFL can boast of developing 40 lakh sq. ft. of construction and buildings. Some of the reputed residential complexes are Ashiana Villa, Ashiana Garden, Gulmohar Park, Ashiana Bageecha, Ashiana Greens etc in Bhiwadi.

Changing demographics, low interest rate regime, rising disposable incomes and fiscal incentives have all created a huge demand for housing.. The real estate boom has gradually percolated from the big metros to tier II cities and AHFL is taking full advantage of this boom with its various projects under construction or nearing completion. Its Project Ashiana Rangoli is nearly completed and the hand over of possession has already started. The construction of the company's dream project 'Ashiana Utsav' comprising 640 units has already started and running as per schedule. Market response of the project is very encouraging as this project is planned to cater to the needs of senior persons of the society. Its Jamshedpur project ‘Ashiana Residency Greens’ comprising 149 units is nearing completion and the hand over possession of the flats has started. Due to the flourishing demand for housing in the Neemrana region (Rajasthan), AHFL has opened booking of 60 flats in its residential project ‘Ashiana Green Hill’. It also has a couple of projects under construction in Indirapuram, Ghaziabad by the name ‘Ashiana Upvan’ and ‘Ashiana Greens’. In Greater Noida, its project ‘Ashiana Orchid’ is completely sold out. Interestingly, AHFL is constructing an ultra modern hitech recreational club called ‘Ashiana Gymkhana’ in Bhiwadi with multi cuisine restaurants, banquet hall, conference room, lawn tennis, billiards, basketball ground etc.

The growth trajectory of the real estate sector could move up sharply in coming months due to the gradual opening up of the sector to FDI. Demand for real estate is on an upward swing and this is reflected in the higher prices despite the increase in supply. For its future projects, AHFL has acquired 27 acres of land in Bhiwadi and another 23 acres for a new residential complex called ‘Ashiana Angan’. Some more residential projects in Bhiwadi are in the pipeline. It has also acquired 9 acres of land for setting up a new township named as ‘Ashiana Woodland’ at Jamshedpur in Jharkhand. The company is also planning to enter another rapidly growing city viz. Pune. Surprisingly, the company is nearly debt-free and has an investment of Rs.19 cr. as on 31 March 2005. More importantly, it paid a dividend of 10% in spite of reporting a net loss for FY05, which shows it is a cash rich company. For the nine months ending 30 Sept 2005, its total revenue quadrupled to Rs.24 cr. and NP stood at Rs.2.98 cr. against Rs.0.13 cr. last year. For FY06, it may earn Rs.4 cr. profit on a topline of Rs.35 cr. which may shoot up to Rs.6 cr. on sales of Rs.50 cr. by FY07. This works out to an EPS of Rs.7 and Rs.11 respectively on its tiny equity of Rs.5.35 cr. With a 52W high at Rs.134 and current market of Rs.45 cr., the scrip is trading reasonably cheap and can give 100% return in 12~15 months. Investors are strongly recommended to buy at current levels and hold it for 2~3 years to earn handsome returns.

Gupta Synthetics - Rs.178.00

Synthetic Ltd (GSL) was promoted by the renowned Gupta Group of Companies which has wide and varied experience of over two decades in the manufacture of polyester yarn apart from Texturising, Twisting, Sizing, Dyeing of Yarns and processing of Fabrics. The group is known in textile circles for their business acumen and techno savvy attitude, which has helped them in charting consistent growth even under unfavourable conditions. Currently, GSL is one of the leading yarn manufacturer engaged in production of partially oriented yarn (POY), fully drawn yarn (FDY), drawn texturised and drawn twisted yarns.

Its world class manufacturing facilities are located at Silvassa and Surat. It has all hi-tech imported machineries like Barmag A G machinery for POY spinning imported from Germany and Teijin Seiki for FDY Spinning from Japan etc. Ironically, the company has installed complete IBM infrastructure and is running international class ERP package of SAP and has also connected its manufacturing plants and corporate office by leased lines to get real time information and updates. Due to continuous expansion and modernization, GSL’s current capacity stands at 46,500 TPA for POY, 2500 TPA for FDY, 2200 TPA for drawn texturised yarn and 550 TPA for drawn twisted yarn. To cater to the rising demand, GSL is increasing the production capacity of FDY by 15,000 TPA by installing additional imported FDY Lines at a capital outlay of Rs.25 cr. This expansion is estimated to be completed by April 2006. The company is also exploring possibilities to take up a backward integration project by installing a Continuous Polymerisation plant (CP) to reduce its dependency upon foreign suppliers. Besides, it also plans to increase its production capacity of POY and Polyester Texturised Yarn (PTY). Interestingly, the management is also keen to diversify its activities from polyester products to include nylon based products also.

Recently, the company announced its Dec.’05 qtr. numbers which are very encouraging. It registered a growth of 63% in sales at Rs.80 cr. whereas its NP jumped 260% to Rs.3.20 cr. It is planning to rise around Rs.25 cr. Through a preferential allotment to fund its future expansion plans. With its long experience in the Textile Industry and equipped with all infrastructural facilities, GSL is estimated to clock a turnover of Rs.285 cr. and NP of Rs.9 cr. after all tax provisions for FY06. This works out to an EPS of Rs.56 on its current equity of Rs.1.58 cr. with a diluted EPS of Rs.30. For FY07, it may post an EPS of Rs.40 as the full impact of the expansion will be felt in FY07 only. The 52 week high of the scrip is Rs.207 and the scrip has the potential to touch Rs.240 in the medium term and Rs.320 in 15-18 months.