ITL Industries - Rs.36.00

ITL Industries Ltd (ITL) was established in 1986 as a commercial Tool Room to cater to the needs of local engineering industries. Since then, it has become the pioneer and leader in high speed sawing technology and has established itself in domestic and global market as an innovative and reliable metal cutting solutions provider. In 1999, ITL ventured into a completely new segment of Pipe and Tube machine manufacturing where micron and metallurgy is of utmost importance and started manufacturing Tube and Pipe Mills, Section Mills, Straightening Machines, Draw Benches, Automatic Cut-offs, Accumulators etc. Today, it offers 60 different models of bandsaw machines ranging from 100 mm to 1500 mm cutting capacity with manual, semi-automatic, automatic and fourth generation CNC machines. Apart from saw machines, ITL is also making Industrial Blades, Power Hackshaw Machines, Special Purpose Machines, Hydro Testers, lubricants and other supporting equipments. It is also engaged in the trading of hydraulic power packs and hydraulic presses.

From being the sole manufacturer of India's first 100% indigenously designed and developed High Speed Double Column Band Saw Machine, ITL has recently developed and manufactured India's first high Speed CNC Circular Sawing Machine which has been well-accepted by most engineering companies. With its technical tie-up with a Kasto Maschinenfabrik GmbH Germany, ITL manufactures three models of Kasto Sawing Machines with cutting capacities 250 mm and 400 mm diameters in India. Today, ITL has become the hub for Tube Technology for leading manufacturers as it has technical know-how from USA, Europe and Japan through which it offers state-of-the-art equipment crafted by a highly experienced technical team. Its clientele includes biggies of auto and engineering industry including BHEL, Bharat Forge, Escorts, Hero Honda, L&T, Tisco, Kalyani Group, ABB apart from Defence, ISRO and the Ordnance factories. With an outlet in USA, ITL has established itself as a reliable qualified vendor to world leaders in engineering with exports to Europe, Middle East and South East Asian countries. It regularly participates in events, Trade Exhibitions in India and abroad and is set to appoint 5 dealers, one each in UK, Poland, Germany, Turkey and South Africa to capture a share of the export market.

With a healthy order book position and due to the ongoing boom in the engineering and capital goods sector, ITL is expected to perform much better in coming years making it a solid bet for the medium to long-term. For FY06, ITL is expected to report a turnover of Rs.18 cr. and NP of Rs.1.50 cr. i.e. EPS of around Rs.5 on its equity of Rs.3.23 cr. The company is expected to declare a dividend of Rs.1 which works to a yield of about 3%. For FY07, it can post sales of Rs.25 cr. and NP of Rs.2.50 cr. i.e. EPS of Rs.8 and the dividend is expected at Rs.1.50. In spite of such strong fundamentals, the scrip is available at a market cap of Rs.12 cr. and is trading at a PE of less than 5 against its FY07 earning. Investors are strongly recommended to buy at current levels as its share price can double in 15 months.

Sarla Polyester -- Rs.133.00

Incorporated in 1995, Sarla Polyester Ltd (SPL) is a 100% Export Oriented Unit (EOU) engaged in the manufacturing & texturising of synthetic yarns. It manufactures polyester, nylon texturised, twisted and dyed yarn. It also makes spandex and lycra/spandex covered yarns. In fact, it supplies lycra-covered yarns to various parties including Delta Inc. of USA, which is one of the largest producers of socks in the world. SPL is able to develop and satisfy all kind of requirements of manufacturers of sewing thread, hosiery socks, knitwear, woven labels, window lace, raschel and levers, lace, hosiery yarns, medical textiles, narrow fabrics, woven fabrics, industrial yarns and hand knitted fabrics. Currently, SPL exports to more than 20 countries across the globe including USA, UK, Canada, Germany, Australia, Malaysia, Sweden, Italy etc.

SPL has its units at Silvassa and Vapi, both of which are vertically integrated plants and have the flexibility to process orders ranging from a few thousand to several hundred thousand kgs. It also has its own dyeing house with muff / hank dyeing facility to dye nylon yarn with high level of stretch and elasticity. In FY04, it also set up a new unit with a capacity of 2,734 tonnes a year at Silvassa at a cost of Rs.20cr. process various types of polyester and nylon among others. With this, its total capacity has gone up to 9434 TPA. To increase its product range, SPL has already put in place an ultra modern spinning plant to produce high-tenacity nylon threads with a capacity of 1,200 TPA. These high tenacity yarns in the mid range denier have a wide range of applications and are used for car airbags, parachutes and other defence related fabrics, fishing nets, industrial fabrics and filters/hoses apart from being used for sewing of leather shoes, car upholstery etc. Interestingly, it is also expanding its lycra/spandex/rubber covering capacity though it has India's largest covering capacity. It is also investing around Rs.2 cr. in Savitex SA de CV in Honduras, Joint Venture established for the manufacture of Synthetic dyed yarns on 50% partnership share basis.

Of late, the profitability of the company has increased dramatically due to improvements in product mix and addition of newer and higher value added items. For future growth, SPL is focusing on value-added products and specialized synthetic yarns, which require highly skilled manpower, especially for mixing dyes. SPL is almost a debt-free company with a very strong financial muscle. For FY06, it is estimated to clock a turnover of Rs.85 cr. and NP of Rs.12 cr. which may rise to Rs.105 cr. with NP of Rs.14 cr. for FY07. This translates into EPS of Rs.17 and Rs.20 respectively. Investors are advised to buy at declines with a price target of Rs.200 (50% appreciation) in 12 - 15 months.

STOCK WATCH

Amex Information Technology (Code No: 532311) (Rs.33) is a relatively small player engaged in BPO and IT enabled products and services. It also provides biometric solutions and offer a range of products from PC based biometric devices to biometrics embedded devices used by OEM's in their Access Control Devices. The company has an enviable clientele in India and abroad. For the qtr. ending Dec. 2005, while it’s total revenue grew by nearly 30% to Rs.11.50 cr., its NP jumped by 80% to Rs.3.30 cr. i.e. EPS of Rs.2 on its current equity of Rs.16.75 cr. For the full year FY06, it is expected to post an EPS of Rs.7. Although the promoters’ stake is only 14%, it’s a dividend paying company and the scrip has the potential to give 50% return in the medium term.

Small cap pharma scrips have been written off by marketmen as if there was no tomorrow! Syncom Formulation (Code No: 524470) (Rs.62.50) too has corrected sharply and is hitting new lows daily. For the nine months ending 30th Dec 2005, it has clocked a turnover of Rs.41 cr. and NP of Rs.5.30 cr. For the full year FY06, it may report a topline of Rs.55 cr. and NP of Rs.6 cr. which translates into an EPS of around Rs.11 on its equity of Rs.5.62 cr. It has prepaid its entire loan and has become a debt-free company. Besides, it is also planning to diversify into power, construction, coal business and investment. For FY06, the company is expected to declare Rs.1.50 dividend, which means a dividend yield of 2.50%. Since it’s an operator driven scrip, only aggressive investors are advised to buy.

After a dream run till Rs.60, Indian Sucrose (Code No: 500319) (Rs.44) has cooled off sharply due to profit booking on the back lacklustre Dec.’05 numbers. From this season, the company has increased its crushing capacity to 5000 TCD from 3500 TCD. Besides it has also acquired a company called Cosmos Industries Ltd with a sugar manufacturing unit at Dhuri in Sangroor district of Punjab with an installed capacity of 2500 TCD. Earlier, it had acquired a distillery that owns 4 well-known brands of Rum. For FY06, it may report Sales of Rs.100 cr. and NP of Rs.12 cr. which translates into an EPS of Rs.8. With the sugar price expected to rise in future, it can report Rs.10~12 EPS for FY07.

Before listing of Gitanjali Gems, we may see some action in the Gems & Jewellery sector. Earlier, this industry was avoided by markemen but with the evolution of retailing and gold prices hitting new highs, it has caught market fancy and the attention of some big operators. Su-raj Diamond (Code No : 507892) (Rs.62) is also positioning itself in the retailing segment in the domestic market through its subsidiary and associate company ‘Su-Raj Diamond Dealers Ltd’ and ‘Forever Precious Jewellery and Diamonds Ltd’. It has nine manufacturing units in the country and also has permission to set up jewellery manufacturing units in SEZ at Kolkata and Kochi. For FY06, it can report a turnover of Rs.1200 cr. and NP Rs.36 cr. which means an EPS of Rs.9. A safe bet.

Steel scrips are coming back into action and most of them registered smart gains last week. National Steel & Agro (Code No: 513179) (Rs.23), belonging to the renowned Ruchi Group has not risen and is still trading very cheap. For FY06, the company may report a turnover of Rs.1750 cr. and NP of Rs.16 cr. Against this, it is available at market cap of only Rs.75 cr. and is discounts its FY06 earnings of Rs.5 by 5 times only. The scrip has the potential to rise 20~25% in the short term. Moreover, the Ruchi Group is consolidating all its business and is planning to focus mainly on its metal business in future. Hence it’s a good long-term bet as well.

The forthcoming Budget is estimated to be favourable for the food processing industry and Agro Dutch Inds. (Code No: 519281) (Rs.38) is tipped to rise sharply post budget. The company has recently raised money through a right issue and is implementing Rs.86 cr. capex plans whereby it is increasing its total capacity to produce 50,000 tonnes of mushroom. This whole expansion will be for frozen mushrooms for which the realization is better than canned mushrooms. Hence it is setting up a plant for individual quick frozen (IQF) mushrooms. Moreover, it is also putting up a Rs.40 cr. facility to manufacture tin cans in Chennai. With lower anti dumping duty in USA and better price realization, the company is estimated to earn a NP of Rs.18 cr. on sales of Rs.210 cr. for FY07. With an EPS of more than Rs.6, the scrip can appreciate handsomely in future whereas the downfall is minimal form the current level.

Rain Calcining - Rs.42.00

Incorporated in 1989, Rain Calcining Ltd (RCL) was promoted by Jaganmohan Reddy and associates, HIE-Rain and AMICOR. Today, it is Asia’s largest and the world’s 5th largest producer of Calcined Petroleum Coke (CPC) catering to 8% of the world's total requirement. CPC produced by calcining Green Petroleum Coke (GPC), is a high purity carbon used largely in the electrolytic smelting process that produces aluminium. CPC is also used in making graphite electrodes for arc furnaces, titanium dioxide, polycarbonate plastics, steel, carbon refractory bricks for blast furnaces and as a material for cathodic protection of pipelines. Presently there are no known viable substitutes for CPC.

Being a 100% EOU, RCL’s manufacturing facility is located on a 42.5-acre site in the Visakhapatnam Port Area and very close to deep water dock where CPC is discharged and export shipments of CPC are loaded. Last year, RCL completed the capacity expansion of its CPC plant from 3,00,000 to 4,80,000 MTPA and has started commercial production from May'05. Incidentally, this capacity expansion has come at a very appropriate time when aluminium smelting capacity is on the rise and CPC prices are ruling high at around US$200 per tonne and expected to rise further to US$ 220 in FY07. In addition, the company operates a 49 MW power plant, form which it partially consumes power and sells the balance to other industrial consumers in Andhra Pradesh. Importantly, RCL has entered into definitive revised agreements with Oxbow for the marketing of CPC and also for supply of raw material viz. GPC. Oxbow is one of the world's largest marketer and distributor of petroleum coke and currently holds 5% equity stake in the company as a foreign promoter. Moreover, RCL along with other leading Kuwait companies is setting up a green field calciner project in Kuwait with a capacity of 3,50,000 MTPA. Post completion, RCL and Oxbow are expected to have exclusive operating/maintenance contract and a CPC marketing contract.

Last fiscal, RCL’s profit took a plunge because of a sharp and sudden run up in sea freight and lower revenue from the power division due to a damaged turbine. Since then, however, things have improved a lot with freight rates remaining low in FY06 and CPC prices shooting up due to strong demand and low supply. Besides, the damaged turbine blade is expected to be replaced by a new one this month when it will regain back its power generation capacity to 49MW from 39MW currently. Taking into consideration these factors, RCL is expected to end FY06 with Sales of Rs.525 cr. and NP of Rs.60 cr. and FY07 with sales of Rs.625 cr. and NP of Rs.80 cr. This will lead to an EPS Rs.5 and Rs.6 respectively. Investors are strongly advised to buy at CMP with a price target of Rs.75 (75% return) in 9~12 months.

Vijay Shanthi Builders - Rs.36.00

Incorporated in 1992, Vijay Shanthi Builders Ltd (VSBL) was promoted by Mr. V.C. Jain who is in housing construction for over 15 years. Since then the company has successfully positioned itself as a quality builder because of quality construction and timely delivery. VSBL is well-known for offering luxury houses at affordable prices to the discerning citizens of Chennai. Till now, the company has constructed nearly 240 buildings and made 7500 families happy. It is presently handling residential projects to suit middle income and higher income groups of Chennai and in its outskirts.

Due to the sharp upswing in the demand for plush housing in Chennai, VSBL has entered the high end market in 2004-05 as these premium flats easily get sold off due to the demand-supply mismatch. Although it will continue building budget houses for the masses, it is gradually shifting its focus to more luxurious apartments catering to high society. Its elite ongoing projects include Courtyard in Nugambakkam, Astalakshmi - row houses in Adyar, Krsna in Egmore etc. Notably, each flat in these project cost around 50 lakh to 1 crore and all the flats are fully-booked and the company has started giving possession. Another prestigious project of 1,10,000 sq.ft called Rain Tree at Alwarpet is under construction comprising of 42 exclusive lifestyle apartments priced at around Rs.1.25 cr. each. Its other projects are Atrium at Adyar, Whispering Meadows, Habitat, Aradhana, Gangotri etc all at Perungudi. VSBL is also coming with some prominent projects like Patio at Nugambakkam, Four Seasons at Mylapore, Tranquility at Alwarpet, Lake View at Amabattur, Palm Meadows at Velachery, Forest at Pallavaram etc. It is also developing a property at Udaipur by the name Lilly Pond. Moreover, its mineral water division is faring satisfactorily contributing around Rs.2 cr. in topline.

Recently, the company has negotiated and finalised 40 acres of land at Pallavaram and another 15 acres to be finalized soon. Due to the increasing number of software companies, Chennai has become a hub of housing activity. Moreover, with tax benefits, easy home loans and higher standard of living, the demand for housing will continue to rise in the foreseeable future. For FY06, the company is estimated to report a total revenue of Rs.55 cr. with NP of Rs.4.75 cr. which will amount to an EPS of Rs.4 In spite of such strong fundamentals and bright future ahead, the company has a market cap of only Rs.40 cr. and is trading at a cheap valuation of 9 times against its FY06 earning and 7 times against its FY07 earning respectively. Investors are strongly recommended to buy the scrip at CMP with a price target of Rs.75 (100% appreciation) in 12~15 months.