Pricol Ltd - Rs.37.00

Establised in 1972, Pricol Ltd. (Pricol), formerly known as Premier Instruments and Controls Ltd., is a reputed manufacturer and supplier of automotive instruments enjoying more than 50% share in the domestic market. In fact, it is the undisputed leader in the dashboard industry with current capacity of more than one crore units. Apart from dashboards, it also manufactures speedometers, cables, switches, sensors, control valve assemblies, oil pumps, windshield washer motor kits, heater ventilation, air condition control units, disc brakes and other precision machined components. Pricol, this produces 14 products catering to the two-wheeler segment, 16 products for cars and MUVs segment, 7 products for trucks segment and 16 products for the tractors and other vehicles segment. The two-wheeler segment contributes about 48% of its revenue followed by cars and MUVs at 34%. Its clientele includes all the leading auto players such as Ashok Leyland, Eicher, Bajaj Auto, GM, Hero Honda, LML, Maruti, M&M, Tata Motors, Toyota, TVS, Yamaha etc.

Pricol has five huge plants spread across India with three plants near Coimbatore, one at Pune and one at Gurgaon. Importantly, Japanese auto component giant, Denso Corporation, is the joint venture partner and has invested 12.5% in the equity capital of the company. Pricol also exports about 12% of its turnover to USA, Canada, Mexico, South America, Europe, Turkey, Egypt, Middle East, Asia, Australia, New Zealand, etc. To cash in on the growing demand in the automobile sector, Pricol is expanding its capacity by setting up a plant in Indonesia and Uttaranchal. The Uttaranchal plant, which may be ready by January’07 will manufacture 10 lakh sets of speedometers, oil pumps, fuel sensors and gear systems for Bajaj Auto in the two-wheeler category and around one-lakh sets of instruments and field sensors for Tata Motors and Mahindra and Mahindra in the cars and MUV segment. The Indonesian plant is expected to start production by December’06 and will produce around 8,50,000 sets out of which around 2,50,000 sets will be supplied to TVS Motors and Bajaj Auto. Pricol also plans to set up a unit in Iran to supply instrument clusters.

Due to stiff competition in the domestic market, the company is concentrating on garnering overseas business. It is also in the process of opening marketing and sales offices in Europe and USA. For FY06, inspite of a rise in the top-line by 7% to Rs.482 cr., its net profit declined by 20% to Rs.33 cr. However for June’06 quarter it reported a decent set of numbers with sales registering 20% rise to Rs.133 cr. and profit improved by 30% to Rs.9.60 cr. Hence for FY07, it may post a turnover of Rs.525 cr. with net profit of Rs.40 cr. on its equity of Rs.9 cr., which will translate into an EPS of Rs.4.50 against the Re.1 face value of its share. Although the share price may not see a phenomenal rise in future, still 50% appreciation i.e. a price target of Rs.50 can be expected in 12-15 months.

ABC Bearings - Rs.124.00

Promoted by M.I. Patel Group, ABC Bearings Ltd. (ABL) was established in 1960 by setting up a plant in Lonavala in collaboration with Steyr Diamler Puch of Austria. Today, ABL is the market leader in tapered bearings with its main area of focus on roller bearings for commercial vehicles and tractors. The company’s revenues are predominantly from domestic sales with 75-80% of it coming from OEM supplies and the rest through aftermarkets. Its client list includes most of the auto and tractor players such as Tata Motors, Mahindra & Mahindra, Escorts, Eicher, Ashok Leyland, Punjab Tractors etc. In the international market its products are exported to USA, Canada, Dubai, Peru, Italy, Singapore, Indonesia, Bangladesh, Sri Lanka etc.

Earlier, the company had two plants one in Gujarat and other in Maharashta. But since October’05, it stopped manufacturing activities in Lonavala, Maharashtra and shifted the machineries to its Bharuch plant. This has led to savings in labour cost and other incidental expenses besides concentration of manufacturing at one place. Presently, it has an installed capacity of 6.4 million bearings per annum. ABL also has a long-term licensing and technical assistance agreement with NSK to upgrade its manufacturing process and improve the quality of its products. To expand its presence in industrial bearings and increase exports, ABL is undergoing expansion to double its capacity to 12 million bearings by 2010. Moreover, to reduce its dependence on the original equipment segment, the company has recently shifted its attention towards the lucrative replacement market. Importantly, the company has a wholly owned subsidiary by the name MIPCO Seamless Rings Ltd. engaged in the production of ring manufacturing & forgings for captive consumption by ABL.

For FY06, its sales increased by 20% to Rs.152 cr. but net profit jumped 40% to Rs.15.70 cr. registering an EPS of Rs.14 on its equity of Rs.11.55 cr. It gave Rs.4 as dividend compared to Rs.3 last year. Although in FY06, profit margin was impacted to some extent by rising metal prices this has cooled off now as evident from its first quarter numbers. For the June’06 quarter, turnover grew by 30% to Rs.48 cr. but PAT increased by 55% to Rs.5.40 cr. Notably, its OPM improved to 21% compared to 14% last year. Company is also one of the best tax payer shelling out nearly 35-40% of PBT as tax. For the full year, it is estimated to report a top-line of Rs.185 cr. and profit of Rs.18 cr. i.e. an EPS of Rs.16. Hence investors are advised to buy only at declines with a price target of Rs.200 (60% appreciation) in 12-15 months.

STOCK WATCH

The share price of Balaji Amines Ltd. (Code: 530999) (Rs.214.50) has crashed severely over the last few days on the back of sanctions imposed by USA on the company. This gives a golden opportunity for long-term investors to buy as the company hardly exports to USA and this sanction will not have any monetary effect on the company. It is a leading producer of specialty chemicals viz. Aliphatic Amines and its derivatives at its plant in Osmanabad District in Maharashtra. For the first quarter ending 30th June’06, its sales increased by 55% to Rs.46 cr. whereas net profit jumped 60% to Rs.4.85 cr. For the full year FY07, it may report sales of Rs.175 cr. with a net profit of Rs.13 cr. i.e. an EPS of Rs.40 on its tiny equity of Rs.3.25 cr. with a 52-week high of Rs.510, it’s a good bet at current levels.

The last fiscal was not good for KIC Metaliks Ltd. (Code: 513693) (Rs.39.50) due to high raw material costs for iron ore and mettalurgical coke and lower price realization for pig iron. But things have improved this fiscal as raw material prices have cooled off from their highs. It already has a 1,44,000 TPA captive coke oven plant and is now setting up a Hot Blast Stove, which will be operational by 31st October’06. For the June’06 quarter its sales improved by 125% to Rs.38 cr. whereas net profit increased by 50% to Rs.2 cr. A few months back, it allotted about 6 lakh shares at Rs.80 on preferential basis. To fund the expansion, promoters are planning to bring in more money by making preferential allotment to themselves. For FY07, it is estimated to clock a turnover of Rs.150 cr. and net profit of Rs.7, which means an EPS of Rs.14 on its current equity of Rs.4.30 cr.

Gujarat Apollo Equipments Ltd. (Code: 522217) (Rs.135.20) is India's No.1 manufacturer of Asphalt based road construction & maintenance equipment and produces the entire range of equipments for building roads like Asphalt plants, soil stabilization plants, indirect heating equipment, paver finisher, bitumen sprayer, rollers, kerb paver and road maintenance equipments like milling machines and recycling machines. For the current first quarter, its sales doubled to Rs.34 cr. and PAT spurted by 130% to Rs.3.20 cr. In spite of being in such a high growth trajectory, the company is available at single digit P/E ratio. Recently, it concluded its 1:2 right issue offer at Rs.100 per share and the share is trading at just 15% premium to that. For FY07, it can register total revenue of Rs.135 cr. and net profit of Rs.13.50 cr. i.e. an EPS of Rs.13 on its expanded equity of Rs.10.50 cr. A risk-free buy which can give 50% return in 12-15 months.

To cater to the increasing demand, Mangalam Cement Ltd. (Code: 502157) (Rs.161.75) is investing around Rs.75 cr. to enhance its cement capacity to 1.6 MT from 1.1 MT and clinker capacity to 8,25,000 lakh tonnes from 6,00,000 lakh tonnes. It is also setting up a captive thermal power plant of 17.5MW capacity, which is expected to be commissioned by June’07. For the June’06 quarter, sales increased by 35% to Rs.113cr. but its net profit zoomed 380% to Rs.19 cr. Interestingly, the company’s OPM has improved substantially to 27% compared to 11% last year due to better operating efficiency and reduction in other expenses. For the full year ending September’06, it may report sales of Rs.400 cr. and profit of Rs.60 cr. i.e. EPS of Rs.21 on its current equity of Rs.28.20 cr. Although most cement scrips are richly discounted, this scrip is trading a market cap to sales ratio of almost 1 and is available at 35% discount from its recent high of Rs.230.

In the paper and newsprint sector, Rama Paper Mills Ltd. (Code: 500357) (Rs.27.50) is trading extremely cheap and at mouth watering levels. It is a reputed producer of newprint/ writing and printing paper with an installed capacity of around 40,000 TPA. For the June’06 quarter, its top-line grew by 20% to Rs.21 cr. whereas its bottom-line registered a gain of 10% to Rs.1.90 cr. The company is implementing a massive expansion for which the promoters have infused their own money to the tune of Rs.9 cr. by making preferential allotment of 25 lakh shares at Rs.35 to themselves. The promoter holding as on June’06 stands at 52%, which imparts confidence to shareholders over the management’s commitment. Its book value has also grown to Rs.26. For FY07, it may report sales of Rs.100 cr. with net profit of Rs.7 cr., which translates into an EPS of Rs.9 on its diluted equity of Rs.7.60 cr. A screaming buy.

Surya Pharmaceutical Ltd. (Code:532516) Rs.79

Incorporated in 1992, Surya Pharmaceutical Ltd. (SPL) manufactures and markets a range of active pharmaceutical ingredients, drug formulation and bulk intermediates that address various therapeutic segments. Starting as a manufacturer of penicillin derivatives, today SPL is among the top five Indian players in betalactum and cephalosporin range of anti-infectives. In fact, it is moving up the product value chain from being a manufacturer of betalactum antibiotics-a low margin product, to a maker of third and fourth generation sterile range of cephalosporins - a high margin product such as cephaclor, cephixime, cefprozil, cefdinir etc. It has also diversified into high-margin lifestyle segments like anti-histamines and cardio vascular drugs and is increasing its focus on exports for the long-term. In the near future, the company may set up or acquire a pharmaceutical manufacturing unit in Europe.

SPL has five manufacturing facilities spread across three states in northern India. It has two plants at Baddi - HP, two plants at Banur – Punjab and one at Panchkula – Haryana. Nearly half the production is exported to more than 60 countries across Europe, South East Asia, the Far East, Middle East, Latin America and Africa. Lately, SPL made an impressive foray into contract research and manufacturing (CRAMS) space with an order worth Rs.350 cr. to be executed over the next few years. For that, it is implementing an ambitious Rs.90 cr. expansion plan of setting up a new US-FDA compliant facility in Jammu. This new facility will manufacture high-margin products such as statins, sterile & oral cephalosporins and advanced intermediates and formulations. This would also help the company in servicing MNCs through the contract-manufacturing route. Further, it is also carrying out massive capacity expansions at its existing facilities in Baddi and Banur and upgrading them to US FDA Standards. Its bulk drug facility at Panchkula has been completely revamped to produce anti-histamine bulk products like loratidine and fexofenadine.

To finance its growth plans, SPL raised around Rs.54 cr. via FCCBs to be converted into equity shares at Rs.160 per share. Besides, it has already allotted Rs.40 lakh warrants to promoters and others, which will be converted into shares at Rs.70 per share. It may raise another Rs.225 cr. in future through the ADR/ GDR route. Thus, financially the company has made all arrangements for its working capital and expansion requirements. For FY06, its top-line registered a gain of 40% to Rs.238 cr. whereas its net profit recorded 180% growth to Rs.24 cr. posting an EPS of Rs.22 on its equity of Rs.11.08 cr. For FY07, it may earn a net profit of Rs.28 cr. on sales of Rs.300 cr. And since its equity will get bloated to Rs.18 cr. due to the FCCB and convertible warrants, the EPS works out to Rs.15. Hence the scrip is trading fairly cheap at a forward P/E of less than 5 times. Although there is the risk of further equity dilution due to the likely ADR/ GDR issue, but still it’s a good bet and can give 50% return if held for 15-18 months.

Bartronics India - Rs.61.00

Bartronics India Ltd. (BIL) was originally incorporated in 1990 as Super Bartronics Private Ltd. and was converted into public limited company in 1995. It got its current name i.e. BIL on 1st January’96. Starting its business from the field of bar coding and smart card technology, today BIL is India’s undisputed leading Automatic Identification and Data Collection (AIDC) solution provider offering consulting services, design software, hardware, personalization and full implementation services. Presently, it provides solutions pertaining to diverse range of AIDC technologies such as barcode technology, RFID (Radio Frequency Identification), RFDC (Radio Frequency Data Communication), EAS (Electronic Article Surveillance), Smart Card technology and Biometric technology.

BIL’ product range includes Barcode scanners, Barcode printers, Barcode Decoders, Smart Card Readers, Data Collection Terminals (DCTs) and Portable Transaction Computers, Radio Frequency (RF) and InfraRed (IR) based equipment and Access Control Systems. It also provides PVC Cards, Magnetic Cards, Smart Cards and contactless/ Proximity Cards to its clients across the world. In fact, the company is a topnotch provider and high-end supplier for Barcoding Printers and Scanners, HHTs, DCTs, Media Supplies like Direct Thermal Labels, Thermal Transfer Labels and Tags in addition to Universal Access Points and Vehicle Mounted computers. BIL’s clientele include government establishments, MNCs, large private sector corporates and the Retail Industry at large. A few of its prestigious clients are HLL, ABB, Hero Honda, ITC, Ranbaxy, TCS, L&T, Ranbaxy, Cummins, GM, IBM, Panasonic etc.

AIDC is now being seen as a radical and revolutionary data carrier and identifier discipline with principles and practices that can be applied virtually to every sector of industry, commerce and services where data is handled and needs to track and trace individuals, materials and equipment. Moreover, RFID is a technology that holds tremendous potential and BIL is certainly in a position to leverage its expertise. In short, the company is poised to grow exponentially in coming years. To fund its growth plans and meet working capital requirements, the company raised around Rs.50 cr. through IPO route at Rs.75 per share in December’05. For FY06, it reported total revenue of Rs.29 cr. and net profit of Rs.5.34 cr., which is expected to shoot up to Rs.50 cr. and Rs.8 cr. respectively for FY07. This translates into an EPS of Rs.4 and Rs.5 respectively. Being in such a fast growing sector and holding immense potential, the company deserves far better discounting. At a reasonable P/E ratio of 18 the scrip should trade in the region of Rs.90-100 (40-50% appreciation). Investors are recommended to accumulate BIL at declines and hold it for at least a year. For real long-term investors i.e. holding period for 3-5 years it can even turn out to be a multi bagger.