Gontermann Peipers (India) - Rs.38.00

Established in 1966, Gontermann-Peipers (India) Ltd. (GPIL) was promoted in technical and financial collaboration with Gontermann-Peipers GmbH-Germany, a front-ranker in the manufacture of rolls since 1825. In 1981, the company was taken over by the Ispat Group and has since grown by leaps and bounds. It is the leading producer of cast iron rolls and forged rolls commanding a major share of the domestic market. On the export front, its products are widely appreciated in Japan, USA, Canada, China, South Africa, Taiwan, South Korea, Thailand, Indonesia and 25 other countries. This flourishing export market has enabled GPIL to receive the EEPC Excellence Award for Excellence for 6 consecutive years for being the highest exporter of rolling mill rolls from India.

GPIL’s plant is located in West Bengal with an installed capacity of 12,000 MT of cast rolls and 3300 MT of forged rolls. For FY06, it produced 9406 MT of cast roll and 1793 MT of forged roll representing a capacity utilization of 80% and 55% respectively. As India's roll production capacity is more than its captive demand, GPIL is focusing on the international market and has recently established new export markets in Italy, Spain, Malaysia and Indonesia. Moreover, China, South East Asia, Europe, USA & Africa are being intensively scanned to ramp up the export volumes. Considering the future trend of the business, GPIL has given special thrust to new product development i.e. enhanced carbide rolls in ICDP segment. Besides, the development of high speed steel rolls is under trial. In view of the market potential and the growth of the steel industry, GPIL has drawn up an expansion-cum-modernization plan of Rs.40 cr. to enhance production capacity and produce value added rolls for the Steel industry. On completion of the project by Dec.’07, it will have an annual production capacity of about 18000 MT finished rolls.

Rolls’ being integral to steel production, the demand is directly linked to the growth of the steel industry. With reputed global steel manufacturers planning entry into the Indian steel market as well as aggressive expansion by domestic steel majors, the rise in the demand for rolls is fairly evident. In FY06, GPIL made a decent turnaround with sales improving by 40% to Rs.122 cr. and registering net profit of Rs.3.80 cr. compared to net loss of Rs.1.50 cr. in FY05. Maintaining the trend, it reported terrific numbers for the Sept’06 quarter. For H1FY07, sales grew by 15% to Rs.66 cr. whereas net profit shot up 50% to Rs.4.60 cr. in spite of higher tax provisioning of Rs.2.55 cr. On an annualised basis, it can clock a turnover of Rs.145 cr. with profit of Rs.9.50 cr. i.e. an EPS of Rs.7 on an equity of Rs.13.90 cr. For FY08, it can even report an EPS of Rs.10. Hence investors are advised to accumulate this scrip at sharp declines with a price target of Rs.55 (40% returns) in 15-18 months.

G M Breweries Ltd. - Rs.120.00

G M Breweries Ltd. (GMBL) was originally incorporated as a private limited company in Dec.'81 but was subsequently converted into a public limited company in Aug.'90. The company was promoted by Mr. Jimmy Almeida, Managing Director & CEO of the company. Today, GMBL is the single largest manufacturer of country liquor in Maharashtra and enjoys virtual monopoly in the districts of Mumbai and Thane. Earlier, it used to make and market Indian made foreign liquor (IMFL) like brandy, rum, whisky etc as Pioneer Special Doctor Brandy, Hot Shot Rum and Reporter’s Choice Whisky but due to competitive market conditions, it has been concentrating on country liquor for the past five years. Its country liquor brands are GM Doctor, Tango and Punch, which are all fast-selling.

GMBL’s plant is located in Thane and it has the facility to blend and bottle both IMFL and country liquor. Interestingly, al products are manufactured using in-house know-how and no outside technology is being used in manufacturing. With the recent installation of additional bottling lines, the capacity of its IMFL & country liquor stands at 1.43 cr. bulk litres & 5.47 cr. bulk litres respectively. Since the plant worked at 75% capacity utilization in FY06, there is tremendous potential to utilize the balance capacity by penetrating into the interiors of Maharashtra.

Interestingly, the company funded the entire expansion plan through debt and internal accrual and hasn’t diluted its capital since its IPO in 1994. Still, its debt equity ratio is quite decent at 1:1. What’s more, it has an uninterrupted record of dividend payment from the day of listing. GMBL made sharp progress in FY06 as sales more than doubled to Rs.155 cr. and net profit stood at Rs.13 cr. compared to Rs.0.75 cr. in FY05. It has reported very encouraging numbers the first half of FY07 as well. Sales improved by 17% to Rs.81.50 cr. but profit doubled to Rs.6 cr. Notably, its OPM stood enhanced to 14% compared to 10% in the corresponding previous half year. Assuming the same trend, it could end FY07 with sales of Rs.185 cr. and PAT of Rs.13.50 cr. leading to an EPS of Rs.15 on its equity of Rs.9.40 cr. At a reasonable discounting of 12 times, its share price can easily touch Rs.180 (40% appreciation) in 9-12 months. On an optimistic note, the scrip has the potential to break its earlier high and cross Rs.275 mark in 18-24 months. It’s a strong buy for medium as well as long-term.

STOCK WATCH

Most probably by next week, the ban on sugar export will be lifted which will trigger some action in sugar scrips. Dharani Sugar, a small south based sugar company is a good turnaround story. Due to better management and higher price realization, company’s OPM has improved substantially in the last three quarters. Besides from this crushing season, company has expanded its crushing capacity to 4000 TCD from 2500 TCD. It is also augmenting its distillery production to 90 kl a day from the present capacity of 60 kl and is setting up a 15-MW cogeneration unit. For Sept qtr its sales dropped by 15% to 75 cr on account of ban on exports but its NP zoomed to 11 cr compare to 1 cr last year. On a half yly basis its sales and NP stood at 170 cr and 19 cr respectively. Hence for full year we expect it to report total revenue of 380 cr and PAT of 30 cr which works out to an EPS of 12 Rs on current equity of 25.40 cr.

D&H Welding Electrodes is one of an established manufacturer of welding consumables inclding submerged arc welding flux and wires, low heat input welding alloys, welding trans and rectifier, manual metal arc electrode etc. For Sept qtr it reported stunning nos with sales shooting up by 70% to 8.50 cr and NP jumped up 90% to 0.70 cr. Company has chalked out an ambitious plan to grow in the export market and has already executed its first ever export order. Consdiering its half yly nos it may report total revenue of 32 cr and PAT of 2.50 cr. This leads to an EPS of 4 Rs on equity of 5.61 cr. As the scirp has seen a smart rally recently from 19 Rs, investors are recommended to buy at sharp dips and hold it for a year or two to get handsome returns.

From the last quater Ramsarup Industries - producers of steel wire and TMT bars, has started executing laying of transmission lines in Rajasthan. It is also expanding its product portfolio to manufacture medium structurals like angles, channels and beams etc. For the Sept qtr its revenue grew by 12% to 272 cr but NP jumped more than 50% to 8.20 cr. Notably, company has chalked out massive expansion plan of 774 cr to pump its capacity substantially by 2010. It is also eyeing some sick state PSUs in West Bengal and is looking for acquisition of wire manufacturing facility in the southern or the western parts of India. For FY07 it is estimated to clock a turnover of 1250 cr and NP of 40 cr. This works out to an EPS of 23 Rs on current equity of 17.50 cr. Although basically it’s into metal sector but it deserves a better valuation, being an ancillary to infrastructure/power industry.

RS Software, a SEI CMM Level 4 company is a leader in providing quality software services and consulting to international players in the electronic payments space. It clientele include high profile global players in the payment cards industry, insurance, manufacturing and in the retail/logistics sector. For the Sept qtr its revenue increased by 15% to 28 cr but NP spurted by 70% to 2.30 cr due to lower depreciation charges. The half yly nos are also quite encouraging with Sales and NP of 53 cr and 4.40 cr respectively. Recently, company made a right issue in the ratio of 1:2 @ 65 Rs to fund its expansion plan. With its domain focus in working with core applications of authorization, clearing and settlement of high speed electronic payment transactions, the company is poised to growth rapidly in coming years. For FY07 it is expected to report a topline of 115 cr and PAT of 10.50 cr. That works out to EPS of 12 Rs on fully expanded equity of 8.40 cr. Share price has the potential to hit a century in 9~12 months.

In the cement space, Anjani Portland Cement seems a good bet having captive limestone mine, captive power generation unit and state-of-the-art technology from Nihon of Japan. Its manufacturing plant having a capacity of 3 lakh tonne is located at Nalgonda district in AP and produces 53 grade, 43 grade and Portland Pozzolona cement from high grade limestone. For Sept qtr its sales increased by 60% to 18 cr whereas its NP stood at 2.25 cr compare to Net loss of 1.20 cr last year due to better price realization. As the cement prices are expected to remain firm even in south India, company can report a topline of 80 cr and bottomline of 10.50 cr ie EPS of 6 Rs on equity of 18.40 cr. Accumualte at declines only.

Gandhi Special Tubes - Rs.143.00

Gandhi Special Tubes Ltd. (GSTL) was established in 1985 under technical collaboration with Benteler of Germany who supplied most of the critical machines and was involved in the installation and commissioning of the plant. Today, it is among the very few companies that manufacture specialty welded and seamless steel tubes for automobiles and refrigeration. In fact, the company is the pioneer in introducing cold drawn seamless steel tubes normalised/annealed in bright annealing furnace in India. It also produces small diameter welded steel tubes in range of 3.1 to 12.7 mm with inside/outside copper or zinc plating. Incidentally, it has also started manufacturing cold formed tube nuts for fuel Injection tube assemblies as well as hydraulic tube assemblies.

GSTL’s main plant is located at Gujarat and smaller unit is in Pune. It has the latest facilities including CNC machines for bending, hydraulic head forming, welding/brazing, flushing, pressure testing etc. The company also manufactures tubular components like condensers, compressor parts, fuel injection tube assemblies, hydraulic tubes etc. The company has an enviable clientele and is a preferred supplier to reputed manufacturers such as Tata Motors, Godrej, Maruti Udyog, M&M, Bajaj Auto, Imperial Auto, L&T, BHEL, Kirloskar, Rexorth, Carrier, Voltas, Daewoo, Bluestar, LG, Samsung etc. Since all these biggies are on a massive growth path GSTL has a promising future. Apart from selling its products all over India, the company also exports to Germany, UK, South East Asian countries etc. In order to meet the increase in demand for its product, the company is undertaking an expansion project by installing a bright annealing furnance from Germany with a capacity of 2400 MT per annum. This project is expected to be commissioned within this fiscal. To enhance its global presence, the company is exploring the possibility of tapping the European and US markets where production costs are substantially higher. To avail of to various tax benefits, GSTL has installed two windmills with capacity of 1.25 MW each at Dhalgaon in Maharashtra at an investment of Rs.11.50 cr.

Financially, GSTL is a debt free company with a good dividend payment record for the last 10 years. For FY06, its sales improved by 20% to Rs.55.50 cr. while net profit shot up by 65% to Rs.16 cr. on lower tax provisions. For the September’06 quarter, its revenue increased by 20% to around Rs.15 cr. and profit grew by 25% to Rs.3.40 cr. With automobile, refrigeration and general engineering industries displaying healthy signs of growth, GSTL is expected to report a top-line of Rs.60-65 cr. and bottom-line of Rs.16 cr. This works out to an EPS of Rs.22 on its equity of Rs.7.35 cr. The 52-week high/low of the scrip is Rs.208/Rs.100 respectively. At a reasonable P/E ratio of 8, the share price has the potential to touch Rs.180 and on an optimistic P/E ratio of 12, it can cross Rs.260. Hence investors are advised to accumulate this scrip at sharp dips for a price target of Rs.180 (30% return) in 12 months.

APM Industries - Rs.36.00

Established in 1974, APM Industries Ltd. (APM) belongs to the Rajgarhia Group with diverse interests in textiles, refractories, papers, finance, alumina products etc. The company is led by Mr. R K Rajgarhia, chairman & managing director and the promoters have proved their mettle by making Orient Abrasives, a group company, as India’s largest manufacturer of Calcined and Fused Alumina products. APM, too, grown constantly since inception and is today a well-known name in the textile yarn industry. It is mainly engaged in manufacturing and marketing of synthetic and blended yarn like polyester/viscose, acrylic yarn etc. It sells its yarn under the brand ‘Orient Syntex’. APM’s manufacturing facility is located at Bhiwadi in Alwar district of Rajasthan with its head office in Kolkata and corporate office in Delhi. Thus it has presence in North, West and the East.

From a modest beginning with few spindles and limited capacity, APM today has an installed capacity of over 40,000 spindles. Due to its constant modernisation and increased productivity, its capacity was raised from 37952 to 41984 spindles in FY04, to 43136 spindles in FY05. Currently, APM is implementing a capex plan under the Technology Upgradation Fund Scheme (TUFS), wherein the spindlage will stand enhanced to 48320 spindles within this fiscal. The company also has a captive power plant of around 5 MW but due to the rise in fuel oil price it alternatively buys power from Rajasthan State Electricity Board. Recently, the company entered the export market in a small way but intends to increase its presence in coming years. For the domestic market, it has been regularly developing new products for exporters of fabrics, furnishings and fancy yarn.

Fundamentally, the company is quite strong and has not diluted equity since more than a decade. On a tiny equity of Rs.4.32 cr., it has huge reserves of Rs.28 cr. leading to a whopping book value of Rs.75. Its gross block stands at Rs.92 cr. against which it provides depreciation of Rs.5.50 cr. As on 31st March’06, its total debt was Rs.45 cr. whereas it had an inventory of Rs.20 cr. For so many years, the promoters have maintained their stake above 66%, which is a good indication. For the six months ending 30th September’06, sales grew marginally by 6% to Rs.76 cr. but net profit zoomed 90% to Rs.2.90 cr. on the back of lower interest cost. This means it already clocked an EPS of Rs.7 for the first half. However on a conservative note, APM may end FY07 with a turnover of Rs.155 cr. and net profit of Rs.4.25 cr. Hence with an expected EPS of Rs.10 and CEPS of Rs.23, the scrip is trading extremely cheap even in this all time high market. Although the dividend payout is low, the company has been paying uninterrupted dividend since the last 12 years. A pure bargain hunt, this scrip is bound to double in a 12-15 months.