JaiHind Projects - Rs.36.00

Established in 1963, Jaihind Projects Ltd (JPL) was originally formed as small metals and welding workshop in Rajkot in the name Jaihind Welding Works by the late Mr. Lalchand Hinduja. Since then, it has grown into globally competitive engineering and construction company serving the oil & gas, steel, water supply and power industries and has executed some of the longest pipeline projects in the country. Company’s USP lies in its huge fleet of more than 1500 equipments with 70 different machineries. JPL has a central equipment maintenance and repair workshop and storage facilities in Ahmedabad and uses sophisticated asset maintenance, repair and operations software solutions to manage its workshop and fleet of equipment to ensure reliability. Besides, it is committed to implementation, documentation and maintenance of a quality system to meet the requirements of ISO 9001:2000. Importantly, JPL has a very strong track record of executing the most demanding projects in the allotted time frame and completion ahead of schedule. JPL activities can be divided under 4 major heads:

1. Pipeline Laying: Cross country pipeline laying is the prime area of operations for the company. With over 2500 kms of cross country pipelines and over 1500 kms of plant piping constructed for oil & gas, water, effluent industries. It has laid pipelines from 4” to 56” in diameter and has covered onshore, near shore and offshore through different terrains ranging from rocky to desert and snowy to marshy
2. Corrosion Protection: Corrosion Protection Services include the use and application of modern cathodic protection techniques, protective coating materials including internal tank linings, pipeline coatings, water treatment chemicals, general corrosion inhibitors and a wide variety of chemicals & applications.
3. Engineering Turnkey Projects: This involves project conceptualization to commissioning, which interalia includes survey, investigation & designing, fabrication work, foundation, erection and commissioning work.
4. Urban Infrastructure: The various projects JPL has undertaken in this industry segment comprise of turnkey execution of intake wells, approach RCC bridges, Pump-houses, Pumping machineries, Treatment Plants, Reservoirs, Sumps, Buildings, Roads, Substations, Instrumentation, Transmission, Rising, Gravity Mains and Gas distribution networks.

For FY06, company is estimated to report total revenue of Rs.50 cr. and PAT of Rs.1.20 cr. which may shoot up to Rs.70 cr. and Rs.2 cr. for FY07. This works out to an EPS of Rs.2 and Rs.4 respectively on its small equity of Rs.5.11 cr. The reason for this engineering company commanding a market cap of only Rs.18 cr., is that it was traded in physical form earlier. But now it is available in demat form and is being accumulated by known circle. Hence investors are recommended to but at CMP with a price target of Rs.70 (100% appreciation) in 12~15 months.

Dhanlaxmi Fabrics - Rs.56.00

Dhanlaxmi Fabrics Ltd (DFL) promoted by Devinder Kumar is the flagship company of the Dhanlaxmi Group, which is in the textile business since 1975. Today, it is a one stop shop for garment exporters, fabric exporters and local garment manufacturers. It manufactures quality fabrics at its weaving unit, undertakes processing of fabrics and job work such as dyeing, bleaching, printing and then finishing the same. It is also into yarn dyeing of cotton and viscose yarn. The company’s specialized machines can produce all types of fabrics upto 63” width i.e. cotton, manmade, blended, lycra of 60 gm. per mtr. to 600 gm. per mtr quality in reactive, vat, disperse and discharge colours with soft, smooth, waterproof, fireproof, normal and glazed finishes. DFL is a recognized supplier to well-known garment exporters including Sonal Garments, Texport Syndicate, Leela Scottish Lace, Creative Home Fashions Ltd., Bombay Rayon, Choudhary Garments, Hytone, Gini Silk Mills etc. whose end customers in the global market are Walmart, JC Penny, GAP, OTTO etc.

DFL’s weaving and processing plants are spread over 1,30,000 sq ft area with fabric and yarn processing units located in Thane and weaving factory of 32 Sulzer looms located at Ichalkaranji. Its yarn dyeing plant has fully automatic, sophisticated imported yarn dyeing machines with all processes controlled by computer. It also has an in-house R&D centre equipped with the latest testing equipments and a full fledged testing laboratory. Being an ISO 9001:2000 certified company, it has Oko-Tex Standard 100 Certificate given by Testex Zurich. It is also capable of meeting all European & American Standards as regards usage of eco-friendly, azo-free dyes, colour chemicals and adheres to all national and international legislation and compliance norms regarding child labour, fire safety, pollution control and general working conditions. It has also set up a Wind Turbine Generator of 1.25 M.W. at Dhule, Maharashtra, which produces around 24 lakh units of power p.a. DFL plans to set up a weaving and knitting project at Bhiwandi at an estimated cost of Rs.50 cr. and set up two more wind power projects in Maharashtra at an estimated cost of Rs.12 cr. The group has an ambitious capex plan of Rs.75 cr. for a weaving unit at Kolhapur with Rapier looms to manufacture fancy cotton shirting’s and a new processing house with latest machineries with a capacity of 1,00,000 mtrs per day.

The company has come out with very impressive results for the March 2006 quarter, sales almost doubled to Rs.16.50 cr. whereas net profit zoomed to 145% to Rs.1.90 cr. reporting an EPS of Rs.3.20 for the quarter. For the full year, its topline grew by 56% to Rs.51 cr. and net profit increased by 63% to Rs.4.65 cr. and posted an EPS of Rs.8 for FY06. It declared a dividend of 14% compared to 10% last year. Considering the company’s growth plans and impressive track record, we estimate it to report sales and net profit of Rs.65 cr. and Rs.6.50 cr. respectively for FY07. This translates into an EPS of Rs.11 on its current equity of Rs.6 cr. Hence, investors are advised to buy on decline with a price target of Rs.80 (40% appreciation) in 12-15 months.

STOCK WATCH

After an amazing run upto Rs.240 level, GM Breweries (Code No: 507488) (Rs.179) has now corrected sharply, giving a good opportunity to buy. With every passing quarter, its sales/ net profit is rising, whereas its OPM has improved substantially at 28% for the March 2006 quarter compared to 9% in June 2005 quarter. It reported stunning results for the March quarter as revenue increased by 50% to Rs.44 cr. and net profit jumped 250% to Rs.7.40 cr. reporting a quarterly EPS of Rs.8. For the full year, it recorded a turnover of Rs.155 cr. and net profit of Rs.13 cr. assuming the same track record; we expect it to end FY07 with total revenue of Rs.185 cr. and net profit of Rs.22 cr. This translates into an EPS of Rs.24 on its current equity of Rs.9.36 cr. At a reasonable P/E discounting of 14-18 times, the scrip should trade in the range of Rs.330-430. It’s a pure value buy, which can give handsome returns if held for the long term.

Kwality Dairy (India) Ltd. (Code No:531882) (Rs.23) is a professionally managed company, manufacturing a wide range of dairy products in bulk as well as in consumer packs, which include skimmed milk powder, dairy whitener, whole milk powder, ice cream mix powder, butter and ghee. It has reputed brands like ‘Indiana’ and ‘Kream Kountry’. FMCG biggies like HLL, Nestle, Birtannia, Cadburys, Parle, Mothers Dairy etc. are a few of its clients. In the near future, it is planning to launch Rasgula, Gulab Jamun, fresh paneer, malted foods etc. It has reported encouraging results for the March 2006 quarter with 35% rise in sales as well as net profit. For the full year, its topline grew by 37% to Rs.99 cr. and PBT increased by 55% to Rs.5.15 cr. After providing for deferred tax, its EPS comes to around Rs.2.20. For FY07, it may report an EPS of above Rs.3. Being in the growing food processing sector, this scrip is trading reasonably cheap with forward discounting by 7 times. Its 52-week high is Rs.42 and current market cap is only Rs.42 cr. The share price can appreciate 50% in 12-15 months.

All the negative news like labour unrest, management quality etc is already factored in the share price of Triveni Glass (Code No: 502281) (Rs.60). That’s why the scrip is available at 50% discount to its recent high of Rs.128 even in an all time high market. Post restructuring, the company has made a strong turnaround and for the nine months ending 31st December 2005, it recorded sales and net profit of Rs.140 cr. and Rs.8 cr. respectively. For FY07, it may report sales of Rs.225 cr. and net profit of more than Rs.15 cr., which means an EPS of Rs.12 on its diluted equity of Rs.12.60 cr. Compares to its peers, it is trading quite cheap at its current market cap of Rs.50 cr. Although promoter quality and holding is a concern, we still think it’s a value buy, which can give decent returns in such a bullish market.

International Conveyors (Code No: 509709) (Rs.135) is manufactures PVC conveyor belts, which find application in mining and material handling. Due to limited demand from the domestic market, the company is making special thrust on exports and has ambitious plans to increase its share in the lucrative international market. On the back of better operating efficiency, it reported excellent results for last the two quarters. If it continues on the same track for the March quarter as well, then the scrip will shoot up like anything. However, considering the company’s growth plan, we estimate it to report a topline of Rs.45 cr. and PAT of Rs.4.25 cr. for FY07, which works out to an EPS of Rs.18 on its tiny equity of Rs.2.40 cr. At a reasonable P/E discounting of 12 times, the scrip has the potential to cross Rs.220 in the medium term. Buy before it declares the FY06 results.

Textile scrips are back in action especially the spinning sector. Kallam Spinning (Code No: 530201) (Rs.27) appears to be one of the cheapest buys at the current levels. For the nine months ending 31st December 2005, its sales was marginally up at Rs.24 cr. but its net profit spurted 70% to Rs.2.80 cr. due to better operating efficiency. For the full year, it can report sales and net profit of Rs.33 cr. and Rs.3.50 cr. respectively, which is an EPS of Rs.5 on equity of Rs.6.85 cr. The company is undertaking a Rs.22 cr. capex to increase its production capacity by 30% to 44700 spindles from 33650 spindles. Hence, the company is estimated to end FY07 with a turnover of Rs.40 cr. and net profit of Rs.4.50 cr. i.e. an EPS of Rs.7. With the company enjoying net profit in double digits, the share price has the potential to appreciate 50% in 6-9 months. A good bet in the spinning sector.

Pacific Costspin - Rs.10.50

Established in 1994, Pacific Cotspin Ltd (PCL) was promoted by the Mehras of Kolkata who have proven track record of more than 30 years in the field. It is a 100% Export Oriented Unit (EOU) manufacturing 100% cotton combed and carded waxed yarn. The group’s other activities include manufacturing of quality mercerized tubular knit fabrics, narrow woven elastic trimmings etc. This govt. recognized star export house enjoys leadership position in exports of coarse and medium yarn i.e. ranging from 20’s to 60’s count. It also produces contamination free yarns, organic cotton yarn, compact yarn, fancy yarns etc which are well accepted in international market. Its products are mainly exported to South Korea, Bangladesh, Srilanka, Tunisia etc.

PCL’s strength lies in its ultra modern state-of-the-art manufacturing facility in West Bengal. It is centrally air-conditioned and equipped with a fully automatic and computerized spinning system. The latest generation hi-tech machineries have been imported from global manufacturers from Switzerland, Germany and Japan. It has also installed Uster Lab Equipments to monitor quality at each stage of production. Presently, the installed capacity of the plant is 30,000 spindles with a daily production capacity of 13 tonnes of yarn. But to encash on the growing opportunities due to the dismantling of quotas for Indian textile exports to USA and EU, the company is implementing a huge capex plan of Rs.80 cr. to increase its capacity by 25,200 spindles. This will almost double its production capacity.

To fund its aggressive expansion, the promoters are bringing in Rs.10 cr. by a preferential allotment of Rs.58 lakh shares @ Rs.17 per share to themselves. Another Rs.15 cr. is to be raised via 1:2 right issue later. Notably, the company is continuously improving its operational efficiency, productivity and cost control, which alone can improve its bottom- line in a highly competitive environment. For FY06, it is estimated to clock a turnover of Rs.150 cr. and NP of Rs.6 cr. which translates into EPS of Rs.2.60 on its current equity of Rs.23.15 cr. assuming a 20% growth for FY07, the company can register sales of Rs.180 cr. and NP of Rs.7.50. This works out to an EPS of Rs.2 on its fully-diluted equity of Rs.39.40 cr. Hence investors are strongly recommended to buy it at current levels with a price target of Rs.16~18 (i.e. 60% appreciation) in 15~18 months.

Hester Pharmaceuticals - Rs.102.00

Hester Pharmaceuticals Ltd (HPL) was incorporated in 1987 as a private ltd. company but converted into public ltd. company in 1993. It produces and markets veterinary and pharmaceutical products viz., Animal Health products, Poultry Vaccines, Poultry Diagnostic, Laboratory Kits and Reagents. Today it is one of the largest poultry vaccine manufacturers in India and the only company from India to export poultry vaccine. It has the licence to produce 12 types of live poultry vaccines and 28 types of Inactivated poultry vaccines. It produces vaccines for Fowl Pox, Fowl Cholera, Bronchitis, Gumboro, AE, LT, REO, EDS and Newcastle diseases besides combination vaccines. The company has good presence in the South mainly in Andhra Pradesh, Karnataka and Tamil Nadu. As it is a biotech company producing biologicals, HPL will soon be rechristened as Hester Bioscience Ltd. to reflect its activities more accurately.

HPL’s state-of-the-art manufacturing facility is located at Mehasana, near Ahmedabad in Gujarat. It holds ISO-9001:2000 & GMP certification from the drug authorities. Production procedures for poultry vaccines based on in-house advanced capabilities are being followed in the areas of virus propagation in specific pathogen-free embryos, tissue culture, batch fermentation of bacteria, lyophilization, emulsion preparation etc. Importantly, the company is the exclusive distributor for Merial Inc, the worlds largest Animal health company for marketing its complete range of poultry vaccines in India. Besides, HPL also represents Synbiotics of USA exclusively for poultry disease diagnostic kits. It also offers seromonitoring services under which it helps producers evaluate the immune response to administered vaccines and/or to obtain evidence of flock exposure to field strains.

In order to cater to the growing demand for poultry vaccines, HPL has embarked on a Rs.25 cr. expansion plan to increase its capacity by 300% i.e. 4 times from 120 cr. doses to 500 cr. doses of poultry vaccines by Oct 2006. This expansion will enable the company to manufacture not only the current poultry vaccines which are in high demand, but will also enable it to add a few specialty poultry vaccines. In future it also intends to diversify into the production of cattle and sheep vaccines in the new expanded facility. To fund its expansion, it has already raised around Rs.3 cr. through preferential allotment of around 2 lakh shares at Rs.150 per share and is now coming out with 2:5 right issue at Rs.70 per share. This shows the investor-friendly attitude of the management. For FY06, its total revenue increased by 25% to Rs.20 cr. but its net profit grew 12% to Rs.4.43 cr. posting an EPS of Rs.12 on its current equity of Rs.3.71 cr. Considering the company’s aggressive plan and special thrust on exports we estimate it to post a topline of Rs.28 cr. and PAT of Rs.7 cr. for FY07. This will work out to an EPS of Rs.13 on its fully diluted equity of Rs.5.20 cr. And at a reasonable discounting of 12x the scrip can cross the Rs.150 mark in the medium term. Moreover, once the record date for the right issue is announced, the scrip will shoot up by 25-30% in the short term. A solid buy.