Ponni Sugars (Erode) Ltd - Rs.79.00

Ponni Sugars Erode Ltd (PSEL) is an offspring of Ponni Sugars and Chemicals Ltd under a demerger scheme sanctioned by the Hon’ble High Court of Madras on 10th September’01. As per the terms of the scheme, the company took over the business of Erode mill, which was set up with 1250 TCD capacity in 1984. Subsequently in 1994, its capacity was raised to 2500 TCD. Right since its inception, this Esvin group company was structured on the concept of total diversion of bagasse for paper and became the first sugar mill in the country to use alternative fuel in its boilers in place of conventional bagasse fired boilers. It also entered a bagasse tie-up arrangement with a group company, Seshasayee Paper and Boards Ltd., for a mutually beneficial and rewarding long-term relationship. It also successfully implemented an innovative lift Irrigation Scheme by bringing in dry lands under cane cultivation, utilizing the effluent discharge of the neighbouring paper mill. Today, PSEL is an efficient and quality producer of sugar, catering to both domestic and international markets. It has ISO 9001:2000 and ISO 14000:1996 certification and enjoys an Export House status under the Exim policy.

Due to buoyancy in the Sugar sector, PSEL is undergoing expansion to augment its crushing capacity to 3000 TCD i.e. 7.5 lakh tonnes per year. This will be done at a capex of Rs.2 cr., which will be funded through internal accruals. The company has also undertaken an 'Energy Saving Project,' which will result in considerable reduction in steam consumption besides marginally enhancing the effective operating capacity. It envisages the introduction of instrumentation control, installation of certain additional equipment and redesigning steam distribution arrangement. Meanwhile, its in-house R&D unit has received renewal of recognition for 3 more years up to 31st March’08 from Government of India, Ministry of Science & Technology. Being in Tamil Nadu, no State Advised Price is payable by PSEL and it is relieved of all uncertainties in respect of past liabilities on this score. As raw sugar imports are duty-free now with an export obligation to be completed in 36 months, Expectations of an above average monsoon augurs well for the industry.

However, PSEL is one of the smallest players in terms of size and has no presence in cogeneration or downstream products although plans are afoot to broad base its operations in future. Besides, the company has brought down its debt equity ratio to 1:1 from whopping 3:1 earlier and has also restructured/replaced its high cost (15%) with low cost (9%) debt leading to considerable savings in interest costs. For FY06, its top line grew by 55% to Rs.136 cr. but its net profit increased by 90% to Rs.11.40 cr. registering an EPS of Rs.14 on its equity of Rs.8.20 cr. It declared 18% dividend also. For FY07, it may clock a turnover of Rs.150 cr. and net profit of Rs.13 cr. i.e. an EPS of Rs.16. Hence at a fair discounting by 6 times, its scrip should trade at Rs.100 (50% appreciation) in 9-12 months. Buy at declines.

Sayaji Hotels - Rs.49.00

Established in 1982 and promoted by the Dhanani family of Indore, Sayaji Hotels Ltd. (Sayaji) currently manages two 3 star hotel properties, one each in Vadodra (Baroda) and Indore. Located in the heart of city, the Indore Hotel is the flagship hotel and enjoys good patronage. It has 230 rooms and suites, 5 restaurants, 9 banquets and wedding halls, a health and fitness club, pub & discotheque, state-of-the-art Quorum lounge, a full-fledged club and entertainment centre with swimming pool, bowling alley, lawn tennis, golf, virtual games, squash, billiards, saloon and spa etc. On the other hand, its Vadodra property has 73 rooms with 3 restaurants and 5 banquet halls. To a large extent, Sayaji is immune to the cyclical nature of the hotel industry as most of its occupants are business travellers. Interestingly, its ratio of food & beverages (F&B) sales to room sales is 1.6 times as against, the industry norm of 0.7. Presently, Sayaji enjoys 75% and 12% market share in Indore and Vadodara respectively.

To cash in on the booming hotel industry, Sayaji is coming up with a hotel project in Pune, for which it has recently signed a MOU to purchase land admeasuring 1,80,000 sq. ft on Banglore-Mumbai Express highway. This Rs.95 cr. project will comprise 200 rooms, 100 service apartments, 3 F&B outlets and 5 Banquet Halls. Further, it is planning to build a 360 room 5 Star hotel in Bangalore at an investment of about Rs.120 cr. It has also ventured into the retail sector and has started a multi cuisine restaurant at Pali Hill, Mumbai with the brand name ‘Barbeque Nation’. It has plans to set up more such restaurants in Mumbai at Lokhandwala, Worli, Chembur and Navi Mumbai by the end of 2006. Sayaji is working towards establishing a chain of 100 restaurants across major cities in India with a capex of Rs.50 cr. in the next two years. This means that the company’s revenue growth is going to be driven by F&B outlets as well.

To fund its expansion plans the company has finalized to issue Foreign Currency Convertible Bond (FCCB) of up to US $8 million to Clearwater Capital Partners (Cyprus) Ltd. and fresh 34.15 lakh equity shares on preferential basis to promoters and high net worth investors at a rate of Rs.66 per share. Incidentally, Sayaji has virtually has no tax liability due to previous accumulated losses and subsidy from Department of Tourism (DOT), which is expected to continue for the next two years at least. For FY07, it is expected to report total revenue of around Rs.50 cr. and net profit of around Rs.7 cr. resulting in an EPS of Rs.8 on its current equity of Rs.8.60 cr. On partly diluted equity of Rs.12.50 cr. (i.e. excluding FCCB) its EPS comes to Rs.5.50, whereas on full diluted equity of Rs.18 cr. the EPS works out Rs.4. With average room rate (ARR) and occupancy rates on the rise coupled with its aggressive retail expansion, Sayaji is expected to perform much better in coming years. Investors can accumulate this scrip at sharp dips with a price target of Rs.75 (70% appreciation) in 12-15 months.

STOCK WATCH

More than five decades old, Delton Cables (Code No.: 504240) (Rs.82.75) is one of the largest manufacturers of cables and offers Total Telecom Solution Products- from conventional telecom cables to microwave accessories etc. It is a prime supplier to the Power, Telecommunication, Railways, Steel and Mining sectors in India and has firmly established itself in the international market. For FY06, its turnover grew by almost 50% to Rs.100 cr. but its net profit jumped 370% to Rs.3.50 cr. resulting in an EPS of Rs.12 on its tiny equity of Rs.2.88 cr. It can easily report an EPS of Rs.14 for FY07. Where other cable company shares are richly discounted by 12-14 times, this share is available below 6 times its forward PE. Although, no dividend is a cause of concern, still with its recent high of Rs.150, the scrip can easily double in 15-18 months.

Bilpower (Code No.: 531590) (Rs.90.35) is the pioneer in the field of manufacturing all types of Transformers, Electrical Laminations, Stampings and Cores. In fact, it is the leading trader of CRGO & CRNGO and produces the largest range of ready-to-assemble cores for distribution transformer in India. It reported stunning numbers for the year ending 31st March 2006. Sales have more than doubled to Rs.126 cr. whereas PAT spurted 165% to Rs.11 cr. registering an EPS of Rs.18 on its current equity of Rs.6 cr. For FY07, it is expected to clock a turnover of more than Rs.150 cr. with net profit of Rs.13.50 cr. This translates into an EPS of Rs.15 on its fully diluted equity of around Rs.9 cr. To fund its expansion, the company has already allotted 4 lakh warrants to be converted into equity at Rs.97 per share. Its share price has the potential to hit a new high of above Rs.180 in next 15-18 months.

After hitting Rs.166 on 2nd May’06, FCS Software (Code No.: 532666) (Rs.80.80) was badly beaten down to Rs.66 on 14th June’06. Notably in September’05, the company had allotted 35 lakh shares at Rs.50 per share through a public offering. The company is primarily a niche player in core IT areas like e-learning, digital content services, IT consultancy and product engineering services. It reported encouraging numbers for FY06 with top-line registering 40% growth at Rs.116 cr. and net profit rising 60% to Rs.15 cr. This works out to an EPS of Rs.11 on its expanded equity of Rs.14 cr. It declared 15% dividend. Once the market sentiment changes, this scrip will immediately shoot up to Rs.110-120 levels. A good bet in the IT sector.

In the recent carnage, Ind-Swift Labs (Code No.: 532305) (Rs.78.75) is one scrip which has become one third from its 52W high of Rs.236. It is one of the largest manufacturers of Clarithromycin in the world and enjoys 30% to 33% of the world capacity for this drug. Importantly, the company has also already received TGA (Therapeutic Goods Administration) certification and EDQM (European Directorate for the Quality of Medicines) certification for Clarithromycin which gives it access for exports to regulated markets. Also, tap the regulated markets of US, Japan & Australia; it has already filed over 7 DMFs in USA and over 50 DMFs in other European countries. The Company has also filed 13 patents for non-infringing processes for its products in USA & India. Moreover, the company has recently launched four new APIs which are Letrozole (Aromtase Inhibitor), Quetiapine Fumerate (Anti-Psychotic), Aripiprazole (Anti-Pshycotic) & Ropinirole (Parkinson Disease). In short, a great buy in the pharma sector.

Although Aarvee Denim (Code No.: 514274) (Rs.71.70) may not declare so goods numbers for March’06 quarter on 28th June due to lower price realization, still it is a strong buy at current levels. The company is implementing an aggressive expansion plan to increase its production capacity by 50% to 72 million metres per month. It is also planning to launch its own brand name ‘ADEN’ in Ahmedabad, Delhi and Mumbai initially. It may end FY06 with sales of Rs.280 cr. and net profit of Rs.35 cr. which may rise to Rs.320 cr. and Rs.42 cr. respectively for FY07. This would mean an EPS of Rs.18 for FY07 on its fully diluted equity of about Rs.23.50 cr. At a reasonable discounting by 7-8 times, the scrip should trade in the range of Rs.130-150. A screaming buy with a very nominal downward risk.

Wanbury Ltd - Rs.72.00

Wanbury Ltd was formed with the merger of Pearl Organics and Wander Ltd. in October’03. Pearl Organics is an API manufacturer focused on the regulated US/ European markets whereas Wander is an ethical formulations company focused on branded formulations in the domestic market. The key bulk drugs manufactured by the company are Gabapentin, Metformin, Ibuprofen, Glucosamine, Salsalate, Mefenamic acid etc. Wanbury is the world’s largest producer of Metformin - a diabetes management product with exports to more than 50 countries. Most of the leading global generic players in regulated markets like Apotex, Mylan, Torr, Barr, Teva, Dexxon, Pliva etc source their product from Wanbury and around 65% of its exports are to regulated markets. In the formulations business, company’s product profile comprises of Gynaecology, Orthopaedic Pediatrics, Nurtrition etc. This division boasts of 450 professionals, 18 brands, 24 distributors and about 1200 stockists across the country.

Wanbury has three manufacturing facilities spread across Patalganga & Tarapur in Maharashtra and Tanuku in Andhra Pradesh. Of these, its Patalganga and Tanuku facilities are USFDA approved for multi-products. It has also set up two hi-tech R&D centres: one in Turbhe, Navi Mumbai, for API and another at Chembur, Mumbai, for formulations. Notably, the company already has 4 Drug Master Files (DMFs) in the US and 2 in Europe, whereas lately it has filed for 4 more DMFs with USFDA in the field of Cardiovasculars, Central Nervous System, Anti-Inflammatory Segment. In the coming few months, it is expected to file 10-15 DMFs further. On the formulation front, Wanbury launched 'Coriminic' range of cough and cold formulations for Pediatric use, which has been well-received in the market. Under the expansion plan, the company has just completed its first phase and commissioned a new unit at Tanuku to manufacture three high value products: Sertraline, Paroxetine and Carvedilol, which have a strong market. The second phase of expansion would be completed by August’06 in which 4-6 new products would be added to the existing product portfolio.

Wanbury continues to grow organically as well as inorganically and has acquired Pharmaceutical Products India Ltd., an API manufacturer. It has a facility at Tarapur and another large partly finished facility at Patalganga, which is meant for regulated markets and will be USFDA compliant. Besides, Wanbury has also taken 51% stake in Doctors Organic Chemical Ltd. (DOCL) - another API making company that will enable Wanbury to foray into contract manufacturing for the regulated markets. DOCL has a USFDA approved facility for the manufacture of non-sterile APIs where it manufactures ibuprofen, mefenamic acid, glucosamine and gabapentene and is a contract manufacturer for leading global pharma companies like Pfizer to which it supplies gabapentene intermediate and mefenamic acid. Further, Wanbury is close to acquiring a branded generics company in the UK, which will be its first overseas acquisition and will strengthen its international presence. With all these expansions and acquisitions, Wanbury is estimated to grow phenomenally in coming years and may report Sales of Rs.150 cr. and net profit of Rs.16 cr. for FY07. This translates into EPS of Rs.13 on its equity of Rs.12.75 cr. Hence investors are strongly recommended to buy at current levels to double their money in 12-15 months. With 52W high at Rs.200, it’s a safe bet.

Upper Ganges Sugar - Rs.172.00

Incorporated in 1932, Upper Ganges Sugar & Industries Ltd. (UGSIL) is the flagship sugar venture of the K.K. Birla Group, which has diversified interests in key industries like fertilizers, chemicals, sugar, heavy engineering, textiles, shipping, newspaper publishing, etc. Having a rich experience of more than seven decades and facing all ups and downing the sugar industry, UGSIL is one of the oldest and best sugar mills in India. Apart from sugar, the company also generates revenue from byproducts like molasses, bagasse, industrial alcohol, ethanol etc. It has also installed a Bio Compost Plant to produce organic fertilizer which is marketed under the brand name ‘Uttam Jaivik Khad’ and a tea estate by the name of ‘Cinnatolliah Tea Garden’ spread over 746 hectares in North Lakhimpur, Assam.

After acquisition of a sugar mill from group company, New India Sugar Mills Ltd. in 2004, UGSIL currently has three sugar plants, one in UP and two in Bihar, with a total capacity of 14,500 TCD. Its main plant i.e. Seohara Sugar Mills is located in UP and has a crushing capacity of 10,000 tonnes of sugarcane per day. This plant also has distillery unit with a capacity of producing 16.50 million litres per annum of Industrial Alcohol/Ethanol. Its other two plants in Bihar are Bharat Sugar Mills with a capacity of 2500 TCD and Hasanpur Sugar Mills with 2000 TCD capacity. Due to various fiscal benefits offered by the Bihar government and the strong uptrend in the sector, company is expanding its Bharat Sugar mill capacity to 5000 TCD with a sulphur free sugar refinery and is also setting up 18 MW co-generation plant thru a capex of Rs.125 cr. In view of the increasing demand for electricity and to provide for more remunerative utilization of bagasse, UGSIL is putting up a 24 MW co-generation plant at its UP mill for export and captive use at an estimated capital outlay of about Rs.100 cr. Moreover, to meet the increasing demand for ethanol, the company has undertaken expansion of the distillery unit from the existing capacity of 55 klpd to 100 klpd at an estimated cost of Rs.36 cr. For future growth, UGSIL is also contemplating a greenfield integrated sugar complex in UP having a capacity of 7000 TCD with a co-generation power plant and refinery. Post all its expansion, the company’s total capacity will stand enhanced to about 23000 TCD.

To part-finance its expansion plan, the company recently came out with a rights issue in the ratio of 13 shares for 20 shares held at Rs.150 per share. Currently, the scrip is trading ex-right and is available at around Rs.170 per share. For FY06 ending 30th June’06, company is expected to clock a turnover of more than Rs.400 cr. and PAT of around Rs.30 cr. This will work out to an EPS of Rs.26 on its fully expanded equity of Rs.11.55 cr. and may declare 50% dividend for FY06. For FY07, it may record Sales and net profit of Rs.525 cr. and Rs.40 cr. respectively which would mean an EPS of Rs.35. Hence at a reasonable discounting of 8 times, its share price has the potential to hit Rs.280 (60% appreciation) in 12-15 months.