Aarti Industries - Rs.38.00

Established in 1984, Aarti Industries Ltd. (AIL), is a leading chemical company manufacturing benzene-based downstream and derivative products and has a diversified portfolio divided into four business segments viz. Basic Chemicals, Speciality Chemicals, Agro Chemicals and Pharmaceuticals. AIL is among the largest manufacturers of benzene based intermediates in India with more than 50% market share. Its Inorganic Acid division, manufactures sulphuric acid and its derivatives, in Speciality Chemicals it produces alkylated amines and toluidines, chloro phenols, fluoro compounds and other specialty chemicals. It also makes various bulk pharmaceuticals and agro chemicals comprising of Quinalphos & Carbendazim. Presently, AIL manufactures more than 100 products that are exported to around 65 countries including USA, UK, Germany, Spain, Italy, Switzerland, Belgium, Japan, Korea, China, Russia, etc. It also has representatives in USA and a subsidiary company in UK to provide better services to its overseas customers.

AIL has five manufacturing units, which are of global scale and are situated in Gujarat & Maharashtra. They are highly integrated coupled with cost-efficient manufacturing process at low capital investment. In addition to the Single Super Phospate (SSP) fertilizer manufactured from a by-product, the company has set up a unit to produce Di-calcium Phosphate - a veterinary item from dilute sulphuric acid. Its API Division is managed by its subsidiary Aarti Healthcare which focuses on research and manufacturing, APIs/ advanced intermediates in niche segments viz: anti–hypertensive, anti–asthamatic, anti-cancer, anti-inflammatory, anti-allergic, anti-diabetic, anti-depressants and anti-thalassaemic. As a measure of forward integration, AIL has started contract research and custom synthesis activities at its new plant in Vapi. It is also developing customised products under Secrecy Agreements. Recently, it commenced operation at Block–I of its Tarapur USFDA compliant facility and has started exporting validation batches to the regulated markets. Meanwhile, it is in the process of completing the work at Block-II, III and IV during the year and may start commercial production in near future. Further, it is setting up a new project for downstream product called Para Amino Phenol (PAP) at Jaghadia, Dist. Bharuch in the state of Gujarat.

Importantly, raw materials account for nearly 70% of the company's manufacturing costs and Benzene accounts for one-third of that. Its margins were, therefore, under pressure due to the rising crude oil price. But now that the crude oil price has slipped below $62, it may report better margins in coming quarters. Although, its first quarter numbers were not that encouraging, still on the full year basis it could report sales of Rs.825 cr. with net profit of Rs.55 cr., which translates into an EPS of Rs.7 on its fully diluted equity of Rs.37.75 cr. Besides, it’s an investor friendly company with a good dividend payout ratio. Investors are recommended to buy with a price target of Rs.60 (70% appreciation) in 15-18 months.

Syncom Formulations - Rs.49.00

Established in 1988, Syncom Formulations India Ltd. (SFIL) is one of the fastest growing pharmaceutical companies offering more than 250 products in various dosage forms including tablets, capsules, dry syrups, ointments/creams, dry powders, injections and ampoules. In the branded allopathic and OTC segment, SFIL owns some well-known brands including Qudermis, Syncal, Aciril, Fastac, Nutone, Profeed, Ceftacom etc. Besides allopathic drugs, the company has also taken efforts to bring to mankind the goodness of ‘Ayurveda’, the traditional Indian Medicinal Science through its unique range of herbal products used for various therapeutic and prophylactic purposes. Saloni, Edicare, Ecziguard, Pylgel, Attom, Shilajit, Livoset, Candid, Fastac, Colo are some of its successful herbal brands.

SFIL’s ultra-modern state-of-the-art formulation unit is situated at Pithampur, District Dhar in Madhya Pradesh. Being a WHO - GMP certified facility, it is equipped with the latest machineries and all production activities follow high quality standards of Good Manufacturing Practice (GMP). Presently, SFIL is exports to more than 35 countries worldwide but mainly to Asia, Africa, CIS, Russia and Latin American countries. To explore huge potential, it has made an aggressive entry into branded herbal markets of South Africa and Europe. It has also entered into long-term sales contracts with its distributors in Vietnam, Cambodia, Philippines and Nigeria and is finalizing few distributors in Kenya, Uganda, Sudan, Russia, Ukraine, Moldova and the Domino Republic. SFIL also offers comprehensive contract manufacturing services including pilot plants, technical services, quality control and regulatory services for both domestic as well as foreign companies. It is also negotiating with a Latin American company for contract manufacturing of their brands.

To take advantage of the burgeoning contract manufacturing activities, SFIL is making substantial investment in a new export-oriented unit in the Special Economic Zone (SEZ) at Pithampur near Indore. Apart from contract manufacturing, the company has prepared a blueprint to tap the virgin markets of West Africa by concentrating on in-licensing arrangements with various international players. It is also in the process of expanding its manufacturing and godown capacity with a capex plan of around Rs.5 cr. Due to huge tax incentives, it is installing two Wind Mills of 0.60 MW each at Sangli, Maharashtra with a total capital investment about Rs.7 cr. and has entered into an agreement with the MSEB for power purchase by them. In the last fiscal, the company raised more than Rs.5 cr. through preferential issue of shares around Rs.100 per share. Further it is planning to raise Rs.1.60 cr. by making preferential allotment at Rs.54 per share. For FY07, it is expected to clock a turnover of Rs.55 cr. with NP of Rs.7 cr. which leads to an EPS of Rs.12 on its fully-diluted equity of Rs.5.92 cr. Investors are advised to buy at CMP as the scrip has the potential to touch Rs.65 in the short term and Rs.90 in 12-15 months.

STOCK WATCH

Around 80% of BSEL Tech Park, the first project of BSEL Infrastructure Realty Ltd. (Code:532123) (Rs.50) has been sold out and the balance 47,000 sq. ft. is almost finalized which will fetch nearly Rs.50 cr. revenue to the company. Also, out of the 80,000 sq. ft. area acquired by it from CIDCO in the International Infotech Park at Vashi, 60,000 sq. ft. has already been leased. It is constructing a 3,50,000 sq. ft. shopping mall in Nagpur and has recently acquired 30 acre land in Panvel to develop a mega city township. It has also participated in the tender for the allotment of a 5-storied BMC building at Tardeo. In Gujarat, the company is setting up service apartments, a prime budget hotel, a food court with recreational facilities having a saleable area of 6,00,000 sq. ft. In short, the future looks promising for BSEL as it may register total revenue of around Rs.85 cr. and PAT of Rs.35 cr. for FY07. This means an EPS of Rs.6 on its equity of Rs.59.30 cr. Investors should enter only keeping a long term view of 2-3 years as it will start generating huge revenues from 2007-08 onwards.

Besides manufacturing important drugs like Tramadol, Amytriptyline and Paroxetine, Salsalate etc, Wanbury Ltd. (Code:524212) (Rs.109) is the world’s largest producer of Metformin-a diabetes management product with over 20% the global market. To increase its market share, it is in the process of expanding capacities from the existing 3,600 to 4,500 TPA. As a part of its growth strategy, it has launched a super specialty research division ‘Osteolife' catering to orthopaedic specialty. Its merger with Doctors Organic Chemical Ltd & Pharmaceutical Products India Ltd. will take it to a different league as both these companies have world class manufacturing facilities. The company is planning to use the Doctors Organic USFDA approved facility mostly for CRAMS and has embarked upon Rs.25 cr. expansion plan whereby it intends to manufacture high-value products such as sertraline, paroxetine and carvedilol. For FY07, on a standalone basis it is estimated to report a turnover of Rs.175 cr. and net profit of Rs.16 cr. i.e. an EPS of Rs.13 on its equity of Rs.12.75 cr.

After hitting a high of Rs.520, the share price of Eldeco Housing & Inds. Ltd. (Code:523329) (Rs.179) has been beaten down badly to the current level of around Rs.180. It specializes in township development, group housing, commercial/ office buildings, contract work (Civil, Electrical, Infrastructure projects) and belongs to one of the reputed and well-known Eldeco group based in North India. Interestingly, this company is concentrating only in UP with various projects going on in Lucknow, Kanpur, Ghaziabad etc. It has ample work in hand to keep itself busy for the next 3 years. For FY07, it is expected to report total revenue of Rs.75 cr. and net profit of Rs.5 cr. leading to an EPS of Rs.25 on its very tiny equity of Rs.1.97 cr. But the biggest trigger for this scrip will be its other group company, Eldeco Infrastructure and Properties Ltd., coming out with an IPO or merging it with this listed company. With a current market cap of merely Rs.35 cr., it is a good bet for the long-term in the construction and real estate sector.

In order to highlight its brandname and reflect its ready-to-eat (RTE) food business, Satnam Overseas has renamed itself as Kohinoor Foods Ltd. (Code:512559) (Rs.79). It is the undisputed leader in the domestic branded basmati rice segment with more than 35% market share with reputed brands like Kohinoor, Trophy, Charminar, Rose, Darbar, Shehanshah and Falcon. It is aggressively expanding its presence in the lucrative (RTE) segment and is constantly augmenting its product portfolio. Recently, it has set up a frozen food processing facility in Haryana and has already received orders from Singapore, Mauritius, UK and South Africa. It has also tied up with Reliance Industries retail chain to sell its branded basmati rice and other convenience food products. For FY07, it is estimated to clock a turnover of around Rs.700 cr. and a net profit of Rs.30 cr. This translates into an EPS of Rs.10 on its fully diluted equity of Rs.29.60 cr. As food processing is the buzzing sector and has great potential, this company is trading reasonably cheap at a market cap of Rs.225 cr. The scrip has the potential to touch Rs.110 in 6-9 months.

Nile Ltd. (Code:530129) Rs.73

Nile Ltd. was originally incorporated as a private limited company as Navabharat Industrial Linings and Equipment Pvt. Ltd. in 1984 and was later converted into a public limited company as Nile Ltd. (NIL) in 1994. NL has three main businesses viz. Glass Lining, Lead and Wind Energy. It is one of the leading manufacturers of Glass Lined Equipment, primarily used in pharmaceutical, specialty chemicals, agro chemicals and other similar industries. It has a technical collaboration with Hakko Sangyo Company Ltd., Japan and Comber of Italy. It also makes stainless steel glass-lined reactors, which meet some critical very-low-temperature applications. The lead and lead alloys are supplied to manufacturers of lead acid batteries, plastic stabilizers and metal oxides. The Wind energy generated is sold to Andhra Pradesh power Coordination committee.

NL manufacturing plant is located at Nacharam Industrial Estate, Hyderabad where it has totally integrated fabrication, machining and glass lining facilities. Recently, NL invested in augmenting its infrastructure and increased the installed capacity of the glass lining division from 12 lakh litres to 16 lakh litres. It has also been able to establish itself as a quality supplier of lead/ lead alloys, and has entered into long-term supply arrangements with Amara Raja Batteries apart from other customers in the plastic stabilizer business. Moreover, the company has now started focusing on export markets to boost its sales. Its wind farm is at Ramagiri and is generating power at a reasonable efficiency. The entire energy generated is sold to AP Power Coordination Committee at over Rs.3 per unit under a power purchase agreement.

Fundamentally, the company is quite strong and has a healthy growth track record. For FY06, its sales increased by 25% to Rs.57 cr. whereas PBT jumped 50% to Rs.3.55 cr. On a Net Profit basis, it recorded 35% gain to Rs.2.60 cr., which means an EPS of Rs.9. It declared Rs.3 as dividend, which works out to an yield of more than 4% at CMP. Although its margins are slightly under pressure due to the rising steel prices, still it is estimated to report a top-line of Rs.75 cr. and PAT of Rs.3.50 cr. for FY07. This will translate into an EPS of Rs.12 on its small equity of Rs.3 cr. This means that the scrip is available at a P/E ratio of around Rs.6. Notably, its competitor GMM Pfaudler is trading at much higher valuation. With its 52-week high/low at Rs.139/ Rs.63 and a good dividend yield, this scrip seems to have bottomed out at the current level and may start moving up anytime. Hereafter, investors are advised to buy, keeping a price target of around Rs.110 (50% return) in 15-18 months.

Hyderabad Industries - Rs.307

Established in 1946 and belonging to the CK Birla Group, Hyderabad Industries Ltd. (HIL) is the market leader with around 25% market share in domestic fibre and asbestos cement sheets which are used for roofing of industrial sheds, warehouses, poultry farms, houses of weaker sections and is the most cost effective roofing material available in the market. HIL is among the oldest players and enjoys strong goodwill for its well-known 'CHARMINAR’ brand. It also manufactures new generation building products like Aerocon Panels, an in-house developed/patented product and Autoclaved Aerated Concrete (AAC) blocks. Aerocon prefab panels are used as internal & external partitions, mezzanine flooring in construction of residential quarters, malls, shopping complexes and as a substitute for traditional brick walls. AAC block, a light-weight fly-ash based cement brick, is a substitute to traditional clay bricks and has numerous advantages particularly in multi-storied buildings due to their light-weight and thermal insulation properties. The company is also engaged in the business of Thermal Insulation Products (Refractories) and jointings.

HIL’s state-of-the-art manufacturing facilities are at located Faridabad & Daruhera (Haryana), Chennai (TN), Jasidih (Jharkhand), Wada (Maharashtra), Hyderabad & Vijayawada, Timmapur (A.P) and Jaunpur (UP). Notably, the company uses only the white asbestos (Chrysotile) in its product, which is far superior and safer than the other (blue and brown) types of asbestos. Due to the strong and rising demand, it has setup a greenfield sheet manufacturing plant at Sathariya Industrial Development Area in UP, which recently commenced commercial operation augmenting its total capacity to 6,52,000 TPA. This unit is HIL's first in UP and aims to cater to the UP, Bihar, Chhattisgarh, WB, MP and Nepal markets. Moreover, to cash on the ongoing boom, company is implementing a Rs.100-cr. expansion plan involving setting up of two fibre cement sheet plants each of 120,000 TPA capacity and one AAC block manufacturing facility. With this its capacity for sheeting will stand enhanced to about 9,00,000 TPA.

In the last fiscal, the company sold its loss-making heavy engineering division to Titagarh Wagons for a consideration of Rs.1 lakh as a going concern and also amalgamated the south-based group company Malabar Building Products to consolidate its operations. With construction activity expected to accelerate further in coming years, its AAC Blocks and Aerocon Panels have entered into a new era and has a huge potential. For FY06, its sales grew by 10% to Rs.450 cr. whereas net profit quadrupled to Rs.38 cr. registering an EPS of Rs.53. But due to not so good numbers for the June’06 quarter, its share price tumbled down sharply below Rs.300 from a high of Rs.620. However, due to increased capacity and better utilization, it is expected to close FY07 with turnover of Rs.525 cr. and PAT of Rs.45 cr., which translates into EPS of Rs.60 on its equity of Rs.7.50 cr. Hence investors are recommended to buy at current levels with a price target of Rs.450 (50% appreciation) in 12-15 months.