Bhagiradha Chemicals - Rs.139.00

Incorporated in 1994, Bhagiradha Chemicals Ltd. (BCL) is one of India’s largest manufacturers of Chlorpyriphos, the best-selling insecticide that is used on a wide variety of crops such as cotton, chilli, rice, sorghun, soyabean, sugarcane, groundnut, vegetables, ornamentals, flowers and plantation crops like citrus, mango, grapevines etc. apart from use in the preservation of wood & timber. Thus BCL manufactures agrochemical actives for the domestic market and exports two insecticides viz. Chlorpyriphos and Imidacloprid and two herbicides viz, Triclopyr and Fluroxypyr. It also has a facility to make bulk formulations for which it has already generated authentic chemical and toxicological data for Chlorpyrifios Ethyl Technical, Chlorpyrifos Methyl Technical, Triclopyr Butoxy Ethyl Ester Technical and formulations for registration of these products in importing countries.

Its plant with an installed capacity of 2000 TPA is located near the eastern coastal town of Ongole, 300 kms north of Chennai. It exports to Australia, South Africa, China, Germany, Singapore, Spain, U.K. Belgium, Greece, Italy, Malaysia, Taiwan, Indonesia, Peru, Brazil, etc. The company is now entering contract manufacture of high-value agrochemicals and has entered into an exclusive contract manufacturing agreement with Dow Agro Sciences, Europe, for supply of 200 to 250 tonnes of Fluroxypyr or Methyl Ester Intermediate for 4 years from 2006. This deal is an important milestone for BCL since Dow AgroSciences is the original inventor of Fluroxypyr and was its sole producer till now and chose BCL as its partner despite the fact that the two are competitors in the Triclopyr and Chlorpyriphos market. More such deals are expected as large MNCs want to outsource some of their global requirements from India.

For future growth, BCL is arranging marketing tie-ups and is planning to expand its manufacturing facilities as opportunities for export of pesticides are increasing cost competitive manufacture and as products coming out of patent. Besides, the usage of weedicides and fungicides is growing in India although the consumption of insecticides is declining with increased cultivation of genetically modified (GM) crops. Due to better product mix, BCL has reported encouraging results for H1FY07. Sales improved by 35% to Rs.48 cr. whereas net profit jumped 80% to Rs.6.20 cr. For full year FY07, it can clock sales of Rs.100 cr. with NP of Rs.12.75 cr. leading to an EPS of Rs.25 on its equity of Rs.5.05 cr. That means at CMP of Rs.135, the scrip is trading at a P/E ratio of less than 6 times. Investors can buy with a price target of Rs.200 (50% return) in 15-18 months.

Sagar Cement Ltd - Rs.119.00

Established in the early Eighties as a mini-cement plant Sagar Cement Ltd. (SCL) has emerged as a leading player in producing SRC, IRS-40 special grade slag cement and OPC marketed as ‘Sagar Priya’ and has one of the highest margins in the industry mainly on account of low power and freight costs. It sources almost 2/3rd of its power requirement from its subsidiary company Sagar Power Ltd, which has two mini hydel power units with total capacity of 8.5 MW. Its power consumption at 80 units/tonne of clinker is one of the lowest compared to the industry norm of 90-95 units/tonne.

SCL has a clinker capacity of 5,50,000 TPA and grinding capacity of 3,00,000 TPA at Mattampally in Nalgonda District of Andhra Pradesh (AP). It has adopted the time tested dry process rotary kiln technology for manufacture of clinker and with constant upgradation with latest technologies like O-Sepa separator for its cement mill, Rotary packing systems, I KN Kids Cooler for cooling section and a six stage pre-heating system, it has the most modern plant among mini cement plants in AP. In FY05, it sold off its loss-making Bayyavaram unit with a grinding capacity of over 1,00,000 TPA. However, Amreshwari Cements Ltd, an associate company with 4,00,000 TPA grinding capacity does grinding for it. SCL also has a low transportation cost per tonne of cement sold because it sells majority of its cement within a radius of 200 kms from its plant compared to the industry standard of 400-500 kms. On the input side, it has captive limestone reserves within 30 kms and sources coal from the Singareni collieries which are 150 kms away.

SCL has planned massive expansion with a capex of Rs.300 cr. to be funded in the debt/equity ratio of 2:1 to set up a second line kiln of 4500 TPD capacity and thereby increase its clinker production by 4 times to 20,00,000 TPA. It would also increase its cement capacity by 6 times to 20,00,000 TPD by installing two new grinding units (line 3&4) of 140 TPH each. To part-finance its expansion the company has already allotted 18.50 lakh warrants to promoters to be converted at Rs.82 per share and may further raise capital through private placement as and when required raise around Rs.200 cr. through debt. With the new capacities set to be operational by late 2008, SCL also plans to export cement. With a spectacular performance in H1FY07, it can end FY07 with sales of Rs.125 cr. and net profit of Rs.28.50 cr. This will work out to an EPS of Rs.22 on its diluted equity of Rs.13 cr. Although further equity dilution is expected going forward, investors should accumulate this stock on declines with a price target of Rs.180 (50% return) in 12-15 months.

STOCK WATCH

Few market players have started taking interest in textile scrips since last week. Hence investors can buy Kallam Spinning (Code:530201) (Rs.20), a south-based cotton yarn manufacturer as it’s a pure value buy with negligible downward risk. For H1FY07, its sales increased by 40% to Rs.21.50 cr. but net profit declined by 15% to Rs.2.10 cr. mainly due to increase in other expenditure. A few months back, however, it completed its Phase–I of its expansion by adding 11040 spindles thereby taking its total spinning capacity to 33650 spindles. So, its second half will be far better. Besides, it’s undergoing Phase-II expansion adding another 11040 spindles to be completed by mid-2007. Due to its captive hydel power plant, company’s power & fuel cost is also quite low. So for FY07, it is expected to clock a turnover of Rs.48 cr. with net profit of Rs.3.60 cr., which can lead to an EPS of Rs.5 on its current equity of Rs.6.85 cr. Promoters are also planning to increase their stake by a preferential allotment of equity to themselves in the near future, which will trigger the share price to new highs. With a dividend yield of 5%, it’s a screaming buy in such an all-time high market.

Due to constant expansion Uttam Galva’s (Code:513216) (Rs.32) cold rolled capacity currently stands at 7,50,000 MTA, whereas its Galvanised Steel capacity is 4,50,000 MTA. For the six months ended 30th Sept.’06, its total revenue grew by 35% to Rs.1206 cr. and net profit zoomed up 60% to Rs.50 cr. Importantly, it maintained an OPM of above 10% even in such adverse conditions, which is indeed remarkable. Due to robust demand, the company is still undergoing rapid expansion to increase its capacity further to 10,00,000 MTA for cold rolled coils (CRC) and 7,00,000 MTA for Galvanized Steel. On a conservative basis, it is expected to end FY07 with a top-line of Rs.2500 cr. and bottom-line of Rs.88 cr. This works out to an EPS of Rs.11 on its current equity of Rs.83.40 cr. The company had raised about Rs.200 cr. through the FCCB route, to be converted into equity shares at Rs.64.50. Even if we assume that the conversion rate will be revised to Rs.48 its diluted equity will Rs.125 cr. Hence the fully diluted EPS works out to Rs.7 on a very conservative basis. The scrip is trading extremely cheap and can easily appreciate by 50% in 6-9 months.

Panama Petro (Code:524820) (Rs.123) manufactures speciality petroleum products under the brand name 'PANOL' for diverse user industries like printing, textiles, rubber, pharmaceuticals, cosmetics, power and various industrial oils. The company's tie-up with Petronas of Malaysia and Lubcon of Germany is likely to result in manifold increase in its sales and profitability in coming years. Besides, its also looking forward for further tie-ups with Petronas for the manufacture of its Automotive Lubricants in India. For H1FY07, its revenue shot up 65% to Rs.81 cr. and net profit jumped up 50% to Rs.5 cr. For future growth, it has plans to set up a plant in the excise-free zone in Baddi, Himachal Pradesh in FY08. The fall in crude oil prices is also beneficial to the company to some extent as it constitutes the raw material. For FY07, it is expected to clock a turnover of Rs.165 cr. and net profit of Rs.9.50 cr., i.e. EPS of Rs.20 on its diluted equity of Rs.4.76 cr. Buy with a price target of Rs.160 in 6¬9 months.

Virinchi Technology (Code:532372) (Rs.36) is an e-Business solutions provider for large enterprises and government establishments in the areas of e-procurement, private exchanges, supply chains and finance Few of its software products such as Enterprise Enabler 3.0, CaseTrail, Financial & Accounts Management for Enterprises (FAME), TrackPORT, MarketSmart, Secure, Hospitality Management System (HMS) have been huge successes and are witnessing good demand in the global markets. For H1FY07, its sales increased by 30% to Rs.15.50 cr. whereas the net profit spurted by 35% to Rs.5.45 cr. Accordingly, for the full year FY07 it may report a top-line of Rs.32 cr. with net profit of Rs.10.50 cr. This works out to an EPS of Rs.7.50 on its current equity of Rs.13.95 cr. However, to fund its growth plans, the company has already allotted 52 lakh convertible warrants to promoters and strategic investors, which will bloat its equity capital to Rs.19.15 cr. Hence the fully diluted EPS works out to Rs.5.50. The company is expected to perform exceedingly well in coming years and with a NPM of over 30%, this scrip deserves much better valuation.

Albert David - Rs.90.00

Incorporated in 1938, Albert David Ltd. (ADL) is a leading fast-growing and professionally managed pharma company in East India. Its core competency lies in the manufacture of bulk drugs, specialty formulations, herbal/ayurvedic products, disposable syringes & needles and intravenous (IV) solutions. In fact, it pioneered the use of FFS (form, filled & sealed) technology in IV Fluids & Human Placenta extract therapy in India. It has strong presence in various drug therapeutic segemnts like Immunomodulators, Vitamins & Nutritional Supplements, NSAIDs, Apetite Stimulants, Liver Protectives, Anti-Ulcerants, Laxatives, Anti-Arthiritic Preparations, Muscle Relaxants, and Adaptogenics to name a few. New formulations in gynaecology, gastroenterology, anti-diabetics, cardio-vascular, vitamins, anti-ulcer, anti-inflammatory and haematinics are also under consideration.

ADL has manufacturing facilities in Kolkata, Ghaziabad and in Madhya Pradesh, which are WHO GMP certified and accredited to ISO and/or USA FDA. It has technical collaboration with the world's largest manufacturer of amino acids, Ajinomoto Co. Inc. of Japan and with Roussel Morishita of Japan for manufacturing and marketing a wide range of crystalline amino acids, infusion solutions, oral solids and liquids in India. It has a well-organised and well-connected distribution network comprising over 1,25,000 retail outlets, 1600 stockists and 15 Sales Depots spread across the country backed by a 400+ highly trained and dedicated marketing team. Besides, its products are exported to Vietnam, Russia, Belarus, Egypt, Bangladesh, Kenya, Tanzania, Uganda, Sudan, Ethiopia, Nigeria, Zaire, Haiti, Brazil, Canada, USA, UK, Netherlands and Germany. Notably, some of its drugs are already approved by US FDA, UK MCA and European Council and it has DMF registration for bulk drugs like Tolbutamide and Chlorpropamide.

Last fiscal, ADL upgraded and expanded its Ghaziabad facility increasing the installed capacity for IV fluids to meet the robust domestic and overseas demand. Besides, it has already incurred around Rs.17 cr. to modernize and expand its other plants which are expected to be completed this year. In 2006-07, ADL has plans to launch some new products such as ‘Siocare’ (a gynaecological herbal product), ‘Placentrex Cream’ (human placenta extract for wound management), Drotaverine Tablets & Injectables (for management of smooth muscle spasm & colic pain) and a range of Cough Syrups for productive & non-productive cough for adults and children in its product portfolio.

For FY06, ADL’s sales were up by 25% at Rs.117 cr. and net profit increased by 75% to Rs.7.50 cr. For H1FY07, while sales grew by 10% to Rs.74 cr., net profit zoomed up 80% to Rs.10.70 cr. due to the write-back of depreciation. Interestingly, its profit margin improved by 300 basis points to 17% from 14% last year. Hence for FY07, it may report sales of Rs.150 cr. with net profit of Rs.11.25 cr. excluding extraordinary items. This would work out to an EPS of Rs.20 on its equity of Rs.5.70 cr. If we include the depreciation write-back, then the EPS bloats to around Rs.28. With its 52-week high/low at Rs.144/Rs.62, the ADL scrip has the potential to hit a new high. Investors can buy it with a price target of Rs.160 (75% return) in 15¬18 months.

Aftek Ltd - Rs.53.00

Established in 1986, Aftek Ltd. (erstwhile known as Aftek Infosys Ltd.) is a technology-driven company offering Intellectual Property (IP) based products, solutions and services. It specializes in enterprise business management with core competency in communication arena. It has developed and acquired a huge wealth in terms of IP and is reaping rich dividends now. Its flagship software product called ‘Powersafe’ has been well-accepted in the international market. Powersafe is a gold-certified CA smart solution basically used in energy management as it integrates UPS networks with e-business management frameworks like CA Unicenter, HP Openview etc. Its electronic ticketing machines coupled with its ‘Depot Manager’ software fetched excellent response from public and private road transport organization especially in Europe. Its Digital Home Gateway revolutionised the housing industry by catering to security, safety, automation, entertainment, information and communication. It also has user friendly solutions for industry automation like material handling and access management and markets hi-tech products like Wireless gateway black box, VOIP-PSTN gateway device and small applications like prescription writer, panel simulator etc.

Aftek among the few Indian companies to specialise in Automotive Telematics Embedded Technologies, which is a next generation technology and impacts all aspects of the automotive user experience from human-machine interface, navigation, mapping, traffic information, safety and security aids, mobile internet to remote vehicle diagnostics and control. The company already provides these services to BMW – one of the world’s biggest and most prestigious automobile manufacturers. Presently, it is working on development of Consumer Portal for residential, commercial and industrial consumers, which will act as an intelligent meter and besides measuring the electricity consumption, it will proactively manage the load on the grid in terms of lighting, heating, ventilation, air-Conditioning based on the pre-determined policies and real-time conditions like load on power grid, ambient temperature, power price, etc. Also since last one year, it is developing software called SEPA (Search Engine Performance Advertising) which is state-of-the-art, cutting edge search technology for sponsored links. Incidentally, Aftek is the only Indian company being selected as one of the 200 companies world-wide for innovation, technology, financing and entrepreneurial activity by Red Herring - a renowned US-based media company.

Apart from its organic growth, Aftek is betting big inorganic growth too. It has a wholly-owned subsidiary in the USA called Opdex, which focuses on Energy Management space. Arexera Technologies GmbH is also a wholly-owned subsidiary in Switzerland which specializes in ECM (Enterprise Content Management) and offers a suite of products for Unstructured Data Management. Importantly, via Arexera, Aftek holds 33% stake in Seekport which is the third largest search engine after Google and Yahoo in German language apart from being very popular in French, Italian, Spanish and English. It will also be available in Arabic and some Indian languages in the near future. Aftek has a 25% stake in Digihome, which specializes in the Intelligent Home Management market. It also holds nearly 17% in V-Soft, which handles marketing and sales of the company’s professional services in North America. It also has a strategic 15% stake in Elven, a specialized player in ASIC (Application Specific Integrated Circuit) and FPGA (Field Programmable Gate Array) technologies in the VLSI (Very Large Scale Integration) space. These companies use Aftek’s intellectual properties and/or professional services and thus bring significant value to the company.

Financially, Aftek is debt-free and cash rich company. As on 31st Mar.’06, its cash holding was a whopping Rs.330 cr. (including Rs.75 cr. of unutilized FCCB money) whereas its current market cap is around Rs.475 cr. only. Its strategic investment in other companies including Arexera stands at Rs.118 cr. It has massive reserves of Rs.460 cr. against its small equity of Rs.17 cr. leading to a book value of Rs.56. Last fiscal, the company raised around Rs.160 cr. by allotting 3450 FCCB of US $10000 each to fund an acquisition. Of these, 2270 FCCBs have been converted into equity shares at Rs.94 per share whereas the balance 1180 will be converted at the revised conversion price of Rs.75 per share. Interestingly, possibly to increase their stake, the promoters have allotted 37 lakh share warrants to themselves to be converted at Rs.120 per share and they have already paid 10% of the amount. For FY06 ending 31st Mar.’06 (9 months only) it reported sales of Rs.193 cr. with net profit of Rs.67.50 cr. For H1FY07, its topline grew by nearly 30% to Rs.155 cr. and profit increased by 55% to Rs.59.50 cr. Hence for the full year FY07, it may clock a turnover of Rs.325 cr. with net profit of Rs.108 cr., which works out to an EPS of Rs.11 on its fully diluted equity of Rs.19.50 cr. Thus this company is trading extremely cheap and can easily shoot up by 50% in 6-9 months. Buying is strongly recommended at CMP.