Ambika Cotton Mills - Rs.162.50

Ambika Cotton Mills Ltd. (ACML) was established in 1988 to produce high quality cotton yarn, both carded and combed, for knitting and weaving. Since then it has become a leading yarn manufacture of South India with a capacity of 56,000 spindles. Today, apart from manufacturing high quality, contamination free cotton yarn, ACML has diversified into manufacturing Compact Spinning Yarn, a premium yarn made out of specialty cottons like PIMA (Cotton sourced from USA), GIZA (Cotton sourced from Egypt) and Australian Cotton, which go into the making of premium branded shirts and T-shirts. As one of its unit is an 100% EOU, exports account for nearly 50% of its turnover with exports to Taiwan, China, Hong Kong, Turkey, Korea, Singapore, Israel directly and to USA and European markets through merchant exports. Its main overseas clients are Quannitex Enterprise Corporation, Taiwan, Pacific Textiles, Hong Kong and Winnitex Investment Co., Hong Kong.
ACML has two manufacturing facilities located in Dindigul, Tamil Nadu, of which one is 100% EOU. Both its plants are equipped with state-of-the-art machines like combers from Rieter, draw frames from Cherry Hara, autoconers from Murata and other machines from LMW. Recently, the company completed its expansion scheme of 14,112 spindles for manufacture of compact yarn and is further expanding its capacity by another 10080 spindles which is expected to be completed by September’06. On completion of this expansion, its total installed capacity will be 66,000 spindles of which the compact spinning capacity will constitute 41,000 spindles. Besides, the company has also expanded its windmill capacity by 6.4 MW (8 Wind Machines of 800 KW) and the total wind energy capacity as on date is 13 MW generating 3.66 cr. units. Hence, its total power requirement will be met by the wind mills and thereby considerably reduce its cost of electricity. For future growth, ACML has planned to augment its spinning capacity by 43200 spindles, of which 33,600 spindles will be for the manufacture of compact yarn and 9600 spindles will be for manufacture of doubled yarn. This facility is expected to come into operation by September’07. To fund its expansion, ACML has allotted 8,75,000 equity shares at Rs.185 per share aggregating Rs.16.2 cr. on a preferential basis to Ascent India Fund, whose trustee is Unit Trust of India Investment Advisory Services.
For FY06, its sales grew by 25% to Rs.105 cr. but net profit jumped by 50% to Rs.19 cr. registering an EPS of Rs.32 on its small equity of Rs.5.90 cr. For FY07, it may clock a turnover of Rs.120 cr. and PAT of Rs.18 cr. (due to higher tax provisioning) i.e. EPS of Rs.30. Considering its 52W H/L of Rs.373/RS.145 and book value of Rs.160, the scrip seems to have bottomed out and has the potential to rise 40% i.e. Rs.240 in a year’s time.

Saksoft Ltd - Rs.75.50

Saksoft Ltd. was originally incorporated as Saksoft InfoTech Ltd. in November 1999 but later changed Saksoft Ltd. in September’02. It is a specialized provider of business intelligence, business performance management, software solutions and Quality Assurance/ Testing to the Banking, Financial Services and Insurance (BFSI) industry. It has expertise in developing custom applications in retail banking, credit card applications, lending, trading, clearing and settlement systems. In short, it is a full service provider offering products, custom application development, testing, operations support etc besides offering resource augmentation services both onsite and offshore to its clients. Being a mid-size IT company, Saksoft provides high-end services at the strategic level and is able to fill the gap for banks and FIs for their niche requirements, which usually big IT companies do not find appealing given their size. Saksofts’ various application and systems like SakC2C Program, SakAssure Program, SakXtend Program, SakSupport Program are well-accepted by the BFSI industry.

Currently, Saksoft has two offshore development centers in India viz. in Chennai and Noida with a total capacity of 750 seats. It also has offices in New York, London, Frankfurt and Singapore. Within a short span of time, it has built-up an enviable clientele of 42 customers comprising leading global banks and financial institutions such as Citibank, Morgan Stanley, Standard Chartered Bank, Development Bank of Singapore, ABN AMRO Bank, Deutsche Bank, Compcredit, TransUnion, Franklin Templeton etc. As of now 70%, of its total revenue comes from America, 8% from Europe, 15% from India and the balance 7% comes from the rest of Asia. Recently, Saksoft signed a partnership agreement with Atos Origin, a global IT services company with strong presence in Asia to market Veri-sens - a business intelligence solution of Saksoft, to retail banks in Malaysia, Thailand and Philippines. The company is undergoing an interim assessment for the coveted CMMI Level 5 by KPMG and the certification is expected soon, which will give it a definite edge over its competitors.

In coming years, BFSI is expected to be the number one industry in terms of IT spending. Similarly, application development, application maintenance, testing, outsourcing, business intelligence and 3rd party testing services, in which Saksoft operates is growing significantly. Hence, the company is poised for substantial growth in future. Last year only, the company came out with its IPO of 25 lakh shares at Rs.30 per share and was oversubscribed by about 39 times. And within a year its share price touched a high of Rs.158 and a low of Rs.64. For FY06, its top-line increased by 40% to Rs.26 cr. whereas its’ bottom-line jumped 60% to Rs.9.20 cr. representing a Net Profit Margin (NPM) of healthy 35%. On a consolidated basis, its turnover and net profit stood at Rs.49 cr. and Rs.9.30 respectively. For FY07, on a consolidated basis it may report total revenue of Rs.60 cr. and net profit of Rs.14 cr. i.e. EPS of Rs.14 on its equity of Rs.10 cr. Investors are recommended to buy it at current levels as the scrip can easily appreciate 50% to about Rs.120 in 6-9 months.

STOCK WATCH

Associated Profiles & Aluminium Ltd. (Code: 531979) (Rs.33.15) basically manufactures wire rods, aluminium grills, sections, railing etc. Last fiscal also began mining activity in the Mahadevia district of Gujarat. In future, it intends to explore the possibility of Wind Power Generation in Dhulia area in Maharashtra under its existing unit viz. Hind Aluminium. For FY06, its sales increased by 25% to Rs.164 cr. but its net profit doubled to Rs.4.40 cr., which works out to an EPS of Rs.9 on its equity of Rs.5 cr. and it announced 12% dividend for FY06. With a dividend yield of around 4% at CMP and a book value of approx Rs.40, this scrip is trading fairly cheap at a P/E of just 3 times. Its share price can appreciate 50% in 6-9 months if the market sentiment turns bullish.

Laffans Petro Ltd. (Code: 524522) (Rs.22.80) manufactures ethylene oxide (EO) derivatives such as Ethoxylates, Glycol Ethers, Acetates, Triethonal-amine and Brake fluids. In fact, it is the only Butyl Glycol and Methyl Glycol manufacturer in India along with their respective acetates. Besides it also produces 'THEIC', an unique surfactant for the wire enameling industry with micron size of less than 100, which is produced by only 3- 4 manufacturers worldwide. It maintains its own fleet of specially fabricated EO tankers and is currently the largest merchant consumer of pure ethylene oxide in the country. Moreover, the company has nearly completed its expansion of Glycol Ethers capacity from 15,000 to 30,000 TPA. For FY06, it reported an EPS of Rs.6 and may report an EPS of Rs.7 for FY07. However, lack of dividend is one of the reasons for its low discounting by marketmen.

Ecoboard Industries Ltd. (Code: 523732) (Rs.11) is in the forefront of treating industrial effluent with technical assistance from Sulzer Chemtech Ltd., Switzerland. It is the largest turnkey supplier of Anaerobic Wastewater treatment plants in the country for primary treatment of distillery effluent and is actively considering setting up effluent treatment facilities for pulp & paper, dairies, food products, sugar, pharmaceuticals etc. The company’s other product ‘Ecoboard' is a 100% wood free tough alternative to conventional particle boards, plywood and other panel products. It made a strong turnaround in FY06 by reporting sales and net profit of Rs.48 cr. and Rs.3.35 cr. respectively. It may end FY07 with a turnover of Rs.55 cr. and PAT of Rs.5 cr. i.e. EPS of Rs.3 on equity of Rs.16.30 cr. Only aggressive investors are advised to buy for handsome gain.

With Infosys reporting better than expected numbers, tech sector is once again in action. In such a scenario Aftek Infosys Ltd. (Code: 530707) (Rs.55.55) can see a sharp run before it declares its results. Purely on a fundamental basis, it is among the cheapest IT scrips available on the bourses. For the full year ending 30th June’06, it can report total revenue of Rs.260 cr. and PAT of Rs.80 cr., which works out to an EPS of Rs.9 on its current equity of Rs.17 cr. In future for better efficiency and integrity, the company is planning to merge its group company Elven and V-Soft with itself, exit from its European search engine Seekport and list its home automation unit Digihome on Indian bourses. Although the management doesn’t have a clean track record, still this scrip seems to be a value buy and can be bought for decent gains in the next 6-9 months.

Ramsarup Industries Ltd. (Code: 532690) (Rs.84.75) is the second largest producer of steel wire after Tata Steel. It has an installed capacity of 1,37,000 MT of steel wire and 72,000 MT of galvanized wire with 87,000 MT capacity of TMT bars. To de-risk the company from sectoral changes and to broaden the core business, it has decided to diversify into the business of laying power transmission lines and towers and has already bagged Rs.50 cr. order with another Rs.35 cr. order in the pipeline. Moreover, it has finalised plans to set up a bio-root power generation plant in Gujarat spread across 300 acres of land. For FY06, its turnover grew by nearly 20% to Rs.1018 cr. but its net profit more than doubled to Rs.28 cr. leading to an EPS of Rs.16 on its equity of Rs.17.50 cr. With an expected EPS of Rs.20 for FY07, it’s a strong buy at the current price level.

Gujarat Apollo Equipments - Rs.122.00

Incorporated in 1987, Gujarat Apollo Equipments Ltd. (GAEL) is the flagship company of the Rs.300 cr. Apollo group, which has diversified interest in industrial finance, road building, ship breaking, electronics, software development and environment control. GAEL is India's No.1 manufacturer of Asphalt based road construction & maintenance equipment and manufacturers the entire range of equipments for building roads like Asphalt plants (batch mix plants, drum mix & mobile drum mix plants), wet mix plants or soil stabilization plants, indirect heating equipment, paver finisher, bitumen sprayer, rollers, kerb paver and road maintenance equipments like milling machines and recycling machines. In fact, it is one of the few companies to make higher capacity Asphalt batch mix plants in 120-240 TPH range. Today, GAEL can boast of having over 1,400 customers and an equipment population of about 3,500 units. The company derives revenue from the sale of road construction equipments, spares, annual maintenance contracts (after sales service) and road construction.

GAEL’s IS0 9001: 2000 certified state-of-the-art manufacturing plant is located in Gujarat and caters to all three categories viz. government & semi-government agencies, private corporate customers and small contractors. It also exports its equipment to African countries, Afghanistan, Iraq, Bangladesh, Nepal, Sri Lanka, Maldives and the Middle East for which it has been awarded One Star Export House status by the Ministry of Commerce & Industry. To bring in the latest technology and produce best quality products, GAEL has technology tie-ups and joint ventures with world-renowned companies like Niigata Engineering Co. Ltd., Japan, Barber Greene, USA, Wheelaborator Clean Water Systems of the USA, Famaro Ermont, France, Atlas Weyhausen, Germany, etc. In order to capitalise on the potential demand, the company is scaling up its capacity by 100% over the next two years. The first phase will be of brown field expansion wherein it will expand its capacity by 50% from the current 180 units to 270 units. In the second phase, the company will go for green field expansion and plans to set up an export-oriented unit with 90 units capacity in a Special Economic Zone.

The Central Government is currently awarding contracts for the National Highway Development Project (Phase III) covering 4,000 km of national highway while 2,497 km of roads under Phase I and Phase II are currently under construction. Various other projects such as NSEW, expansion of the Golden Quadrilateral and port connectivity projects have been lined up for the next 5-6 years. This will ensure that the outlook for the company remains bright for many years ahead. Moreover, GAEL is putting special thrust on lucrative exports market and intends to take its share to 40% by 2008 from the current 15-20%. To fund its expansion, the company is coming out with a right issue in the ratio of one share for every two shares held at Rs.100 per share. For FY06, its turnover grew by 70% to Rs.105 cr. but the net profit doubled to Rs.10.50 cr. registering an EPS of Rs.15 on its equity of Rs.7 cr. and it declared Rs.2 as dividend. For FY07, the company is expect to report sales of Rs.135 cr. and net profit of Rs.14 cr. i.e. an EPS of Rs.13 on its expanded equity of Rs.10.50 cr. Investors are strongly recommended to buy at the current level as the share price can easily appreciate 50% i.e. to Rs.180 in 9-12 months.

Suryajyoti Spinning Mills - Rs.32.00

Suryajyoti Spinning Mills Ltd. (SSML) was established in 1990 by Mr. R.K. Agarwal, an entrepreneur with over three decades of textile industry experience. It belongs to the well-known L.N. Agrawal Group, which has other listed textile companies like Suryalaxmi Cotton Mills, Suryavanshi Spinning Mills, Suryalata Spinning in its fold. SSML is one of lowest cost yarn producers and a leading manufacturer of a wide range of yarns in cotton, polyester, viscose and polyester-viscose blends in low to medium counts which are auto leveled and auto coned. From initial capacity of 5040 spindles, the company has constantly expanded its business and currently operates 62416 spindles with almost 100% capacity utilization. Besides catering to domestic market, it exports yarns to Korea, Hong Kong, Spain, Bangladesh, Japan, Portugal, Germany, Italy etc.

SSML operates two mills located at Burgul and Makthal both in Mahabubnagar District of AP with a production capacity of 33,184 & 29,232 spindles respectively. These facilities are equipped with speed frame, draw frame and spinning machinery from Rieter (India/ Switzerland), blow room and carding machines from Truetzschler (India/ Germany) and autoconers from Schlafhorst (Germany). The mills are operating, 360 days a year on a three-shift basis and are backed by 100% standby generators in case of power failures. Notably, the spindles can be interchanged from synthetic to cotton production and back to synthetic with short lead-time depending upon demand. In June’06, SSML completed the first phase of its modernization & expansion, wherein it added 7,056 spindles at its Makthal unit to manufacture value added yarns like multifold and combed yarns. Further, at an investment of Rs.48 cr., it is setting up a new unit at Rajapur by installing new 25200 spindles for the production of higher counts of cotton. Following this capacity enhancement, to be commissioned by March’07, SSML’s installed capacity will increase to 87,616 spindles almost equally distributed between low/ medium count cotton yarn, high-count cotton yarn and synthetic/blended yarn. Moreover, the company is planning to set up a unit at Hyderabad to manufacture bottom weight fabrics and is also working on the feasibility of putting up of a fully integrated state of art weaving, processing and garmenting unit at an outlay of Rs.100 cr.

Incidentally, the total expansion is funded by debt (under TUF scheme) and partly by internal accruals. The company is not going for equity dilution, which is good for shareholders to a certain extent. For the full year ending 31st March’06, sales were marginally up at Rs.140 cr. but PBT increased by 60% to Rs.9.20 cr. After providing for deferred tax it may report a PAT of Rs.6.5 - 7 cr., which works out to an EPS of Rs.5 on its equity of Rs.13.50 cr. It is expected to declare 10% dividend i.e. an yield of 3% on its current market price (CMP). For FY07, it can register an EPS of Rs.7 and at a fair P/E multiple of 8, the scrip has the potential to touch Rs.60 to offer 100% return in a years time.