Vinay Cements - Rs.29.00

Incorporated in 1986, Vinay Cements Ltd. (VCL) is the flagship company of the BK Bowri group, which is a leading cement manufacturer in North East India. In fact, it is among the top three players in the region since inception. Its brand name ‘Vinay’ is the largest local cement brand with a market-share of 8% in the region. Importantly, VCL has its own captive mines for cement grade limestones. Since, the company has an installed capacity of only 2,40,000 TPA, it enjoys the status of mini-cement plant with exemption from payment of excise duty. Interestingly, the north eastern market doesn’t have many cement plants and most of the demand is met by importing cement from other nearby states like U.P., MP, Bihar or Orissa.

VCL’s manufacturing facility is the first Fuller Technology based plant incorporating state-of-the-art process control systems for manufacturing both Ordinary Portland Cement (OPC) and Pozzolana Portland Cement (PPC). In FY06, it produced little more than 1 lakh tonnes against an installed capacity of 2.40 lakh tonnes translating into capacity utlization of less than 50%. This means that it has the potential to double its sales without any major capital expenditure. Secondly, the company along with others has promoted a new company called Calcom Cement India Ltd to set up a greenfield cement project of 1.5 million TPA at Chachar in Assam at an investment of about Rs.414 cr. And VCL being a promoter company holds around 59 lakh equity shares of Calcom at an investment of Rs.6 cr. and has also provided corporate guarantee to some extent. This project in itself will be a state-of-the-art cement plant and the biggest cement plant in the North-East and is expected to commence operation by mid-2007.

Due to higher price realisation and better capacity utilisation, VCL is performing extremely well and has reported stunning numbers for H1FY07. However, the major part of the PAT is contributed by other income which it earns as incentives, royalties etc. Notably, the company has paid off all its loans and is currently a 100% debt-free company although it has cash-credit facility with UTI Bank. With huge reserves of Rs.23 cr., the book value of its share stands at Rs.33. For FY07, it is estimated to report a turnover of Rs.55 cr. with net profit of Rs.5.50 cr. leading to an EPS of Rs.6 on its equity of Rs.10 cr. Its long-term prospects are very encouraging along with the hidden value in Calcom Cement. However the other income aspect, huge debtor outstanding of Rs.16 cr. and contingent liability to the tune of Rs.25 cr. is a cause of concern. Investors can buy it at dips with a price target of Rs.45-50 in 12-15 months

Choksi Laboratories Ltd - Rs 19.00

Incorporated in 1993, Choksi Laboratories Ltd. (CLL) is a group of research laboratories offering analysis, calibration, pollution control, research and consultancy services to a broad spectrum of industries. In short, it’s a commercial testing and analysis laboratory. It was the first to start water and soil analysis in central India and also the first to start instrument calibration services for organizations that were seeking ISO certification. In fact, it was the only one to commission and run ONGC’s Effluent Treatment Plant at Amod oil rig probably the largest in India. Today, CLL boasts of serving over one thousand customers, both regional and international and analyzing over 1000 different products. Of late, the company has entered clinical trial research in a big way.

CLL’s labs/branches are located at Chandigadh, Indore, Vadodara, Delhi, Ahmedabad & Vapi and are equipped with ultra modern, sophisticated and very hi-tech equipments imported from various parts of the world. Recently, it commenced a 40-bed clinical research facility at Vapi for carrying out bio-availability and bio-equivalence studies. Notably, CLL is certified by BIS, FDA, Gujarat and Madhya Pradesh PCBs, Department of Health (MP), AGMARK - GOI and several other regulatory bodies. It has also been accredited to NABL, which is internationally recognized through ILAC and is based on ISO/ IEC guidelines. The company has facilities to analyze food & agricultural products, cement & building materials, chemicals, drugs, metals, oil, soil, PVC pipes & paints etc for its client or as a regulatory requirement. It also helps different industries in their research processes. Its Environment Consultancy Division helps companies keep the environment clean and free from pollution. Apart from calibrating services for individual instruments, CLL provides a comprehensive Annual Calibration Contract (ACC) that covers maintenance of calibration due-date charts and on-site/ laboratory schedules etc. Moreover, it offers consultancy services for solid waste management, sewage treatment plants, hotel and hospital waste management, hazardous waste management etc.

Fundamentally, it hasn’t shown great performance yet but the potential is huge and the future looks very promising. For FY06, its sales improved by 15% to Rs.7.60 cr. and net profit dropped by 10% to Rs.0.81 cr. on the back of higher interest cost and depreciation. For the first six months ending 30th Sept.’06, total revenue grew by nearly 20% to Rs.4.70 cr. but profit increased by only 10% to Rs.0.65 cr. However, the company enjoys an operating profit margin (OPM) of over 35% and net profit margin (NPM) of more than 10% and at the current market cap of Rs.10 cr., it can turn out to be a multi-bagger if held for 2-3 years. For FY07, it is expected to report a total revenue of around Rs.10 cr. with PAT of Rs.1.30 cr. This translates into EPS of Rs.3 on its equity of Rs.4.85 cr. At CMP of Rs.18, the scrip is discounts its FY07 earnings by merely 6 times, which is very cheap for such a niche player. With a 52-week high/low as Rs.45/Rs.13, the downside to this stock is minimal whereas on the upside, the scrip can easily double in 15-18 months. Strong buying recommended for long-term investors only.

STOCK WATCH

Simmonds Marshall Ltd. (Code: 507998) (Rs.45.85) is the market leader in Nyloc nuts and manufactures wide range of world class nuts like flange, cage, weld, cap, castle, couplings, u-nuts, wheel nuts etc. It also has a cold forged automotive components division, which is capable of cold forging small and shallow components for automobile manufacturers and their ancillaries. For H1FY07, while sales grew by 20% to Rs.11 cr., net profit jumped 40% to Rs.1.10 cr. registering half-yearly EPS of more than Rs.5. It may declare 15% dividend for FY07, which gives an yield of more than 3% at CMP. Due to the robust demand for its products, the company is constantly adding and modernising its plant & machinery to enhance its production capacity. On a conservative basis, it is expected to end FY07 with sales of Rs.22 cr. and PAT of Rs.1.80 cr. This works out to an EPS of Rs.9 on a tiny equity of Rs.2.10 cr. Buy immediately as the scrip has the potential to appreciate by 50% in a year’s time

Madhav Marbles & Granites Ltd. (Code:515093) (Rs.132.75) is India’s third largest manufacturer and exporter of granite tiles and slabs. Almost all its entire production is exported to countries like U.S.A., Germany, Holland, U.K, Italy, Spain, Japan, Australia and South Africa. It derives around 55% revenue from the Granite Slabs 30% from granite tiles, 10% from marbles and the rest 5% comes from power and other activities. For H1FY07, its sales and revenue grew by 30% to Rs.48 cr. and Rs.11.50 cr. respectively. However, to cash in on the construction boom, the company has diversified into the realty business comprising Urban Infrastructure, Township, Housing and construction development projects. To fund these plans it, may come out with FCCB/GDR issue in the near future. For FY07, it is estimated to clock a turnover of Rs.100 cr. with PAT of Rs.19 cr. i.e. EPS of Rs.21 on its current equity of Rs.8.95 cr. Buy at declines.

Cubex Tubings Ltd. (Code:526027) (Rs.63.15) is engaged in manufacturing copper and copper alloy tubes, rods, strips, profiles and wires which are used by the core sector and other critical industries such as thermal & nuclear power plants, refinery & petrochemicals, telecommunications, electrical & electronics, defence, condensers & heat exchangers, railways, automobiles etc. Recently, it bagged around Rs.10 cr. order from Siemens for seamless condenser tubes. Its sales & net profit increased by 50% & 60% to Rs.46 cr. and Rs.4.50 cr. respectively for the H1FY07. Earlier this year, the company got permission to import low cost waste and scrap that will reduce the cost of its production. Also as copper prices are in a downward trend since the last few months, it bodes well for the Cubex. For FY07, it may report a topline of Rs.90 cr. with net profit of Rs.9 cr. which will result in an EPS of Rs.12 on its fully diluted equity of Rs.7.70 cr. Buying is strongly recommended as the scrip can give 50% return in 9-12 months.

Kulkarni Power Tools Ltd. (Code:505299) (Rs.112.35) is a leader in the design, engineering, manufacturing and marketing of power tools like drills, grinders, hammers, cutters, polishers etc. used in construction and other industrial activities. Notably, it has developed strong customer alliances with some of the largest retailers and important brand names in the world. It also owns the ‘Powermaster’ brand of professional tools well-known in Asia and Africa. For H1FY07, while its sales improved by 12% to Rs.20.50 cr., net profit spurted by 65% to Rs.1.40 cr. in spite of huge deferred tax provision. For FY07, it is estimated to register sales of Rs.42 cr. with profit of Rs.3 cr. This translates into an EPS of Rs.18 on its very tiny equity of Rs.1.70 cr. Accumulate at sharp declines with a price target of Rs.200 in 15 months or so.

Bhagiradha Chemicals & Industries Ltd. (Code:531719) (Rs.136) is one of India’s largest manufacturers of Chlorpyriphos, the best-selling insecticide used on a wide variety of crops such as cotton, chilli, rice, sorghun, soyabean, sugarcane, groundnut, vegetables, ornamental flowers and plantation crops like citrus, mango, grapevine etc. apart from use in the preservation of wood & timber. For H1FY07, it reported 35% higher sales of Rs.48 cr. with 80% higher net profit of Rs.6.20 cr. over the corresponding previous period. Earlier this year, it 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. Hence for the full year FY07, it may report sales of Rs.100 cr. with net profit of Rs.12.75 cr. recording an EPS of Rs.25 on its low equity of Rs.5.05 cr. At a reasonable discounting of 8 times, the share can cross Rs.200.

JK Lakshmi Cement - Rs.135.00

Incorporated in 1982, JK Lakshmi Cement Ltd. (JKLC), formerly known as JK Corporation, is the flagship company of the reputed and diversified Hari Shankar Singhania group which also manages JK Paper Ltd. and JK Industries Ltd. From a modest beginning with a small plant of 5,00,000 TPA capacity, JKLC today with 3,00,000 MTA is one of the leading cement companies in the northern and western markets. Its brand name ‘JK Lakshmi’ is quite popular and emphasises on ‘Mazbooti ki Guarantee’. The company has a wide network of 1500 dealers apart from its own marketing offices in Rajasthan, Gujarat, Maharashtra, Punjab, Haryana, Delhi, UP, Uttaranchal, HP and J&K with 60 godowns at various places in every state to ensure uninterrupted supply to customers. However, 70% of its sales comes from Rajasthan and Gujarat alone.

JKLC’s manufacturing plant is located at Sirohi in Rajasthan having a clinker capacity of 28 lakh TPA and grinding capacity of nearly 30 lakh TPA. It has acquired the latest technologies from Blue Circle Industries PLC of UK and Fuller International of USA. Incidentally, the blended cement production of the company accounts for less than 50% against the industry norm of about 65%. Blended cement has a better margin as the cost of production is low due to mixing of 20% fly ash. The company is, therefore, taking measures to increase the proportion of blended cement to 75% by FY07 and to 85% by FY08. Currently, JKLC is also selling clinker in the open market due to insufficient grinding capacity. Hence it is putting up two grinding units of 5 lakh tonnes each, of which one is expected to commence operation in the next few months and the second one by Dec.’07. Post expansion, its cement capacity will stand augmented to 40 lakh tonnes i.e. 4 million TPA. It is also setting up 36 MW pet coke based captive power plant, which is expected to be operational by Jun.’07 and will be lead to substantial saving in power cost to the extent of Rs.30 cr. per year.

Post restructuring and de-merger, the company’s balance sheet has become much stronger. To fund its expansion plan, it has issued around 36 lakh equity shares to Fenner India at Rs.97.50 and 41 lakh warrants to be converted into shares at the same rate. With the rise in share capital/reserves and repayment of debts beginning Jan.’07, its debt-equity ratio will improve going forward. And importantly, the OPM of the company is rising sharply due to higher realization, higher capacity utilization and lower cost of production and it may report an OPM of 28% for FY07 compared to 14% in FY05. For H1FY07, its net sales jumped 40% to Rs.352 cr. whereas net profit tripled to Rs.62 cr. On a conservative basis, it may end FY07 with turnover of Rs.725 cr. and PAT of Rs.115 cr. i.e. EPS of Rs.18 on its fully diluted equity of Rs.65 cr. At its current equity capital of Rs.57 cr., the EPS would work out to more than Rs.20. For FY08, it may report much higher EPS. Assuming a reasonable discounting of 12 times, the scrip could trade above Rs.220. Investors are strongly recommended to buy for 50% return in a year’s time.

Span Diagnostics Ltd - Rs.48.00

Incorporated in 1976, Span Diagnostics Ltd (SDL) is a pioneer and trend-setter of high quality products used by pathology & clinical laboratories in the diagnostics industry. It is the oldest and largest manufacturer of diagnostic reagents in India with a rich experience of more than three decades. SDL has segmented its product portfolio, into three divisions. Its Span PDP i.e. Popular Diagnostic Products Division, focuses on clinical and pathological laboratories, blood banks and hospitals for infectious disease serology, rheumatology and hematology. Its Span ID i.e. Instrument Division concentrates on clinical pathology laboratories, hospitals, physicians, and research institutes for laboratory automation, system for biochemistry, hematology, ELISA & allergy testing. And its Cogent i.e. Clinical Chemistry Division caters to the clinical laboratories & hospitals in the areas of biochemistry, stains, indicators and readymade analytical reagents.

SDL has one of the largest state-of-the-art ISO-9001:2000, WHO cGMP accredited advanced manufacturing facilities with ISO 13485 & CE accredited products in Asia. Apart from manufacturing in-house, it has also entered into exclusive tie-ups with reputed companies worldwide for marketing, distributing and servicing their products in India. It has alliances with Nihon Kohden-Japan, Corgenix-UK, Biotecnica Instruments-Italy, General Biometrics-USA, Allmedicus-Korea, Hitachi Chemical Diagnostics-USA to name a few. Besides, the company also takes contract manufacturing of a wide range of quality reagents and kits in bulk for OEM i.e. private labelled. Notably, SDL has a well-equipped research laboratory with talented pathologists, biochemists, microbiologists and molecular biologists who that can undertake production of various purified molecules, e.g. antigens, tumour markers, tissue proteins etc. in commercial quantities employing the protocols supplied by customers. Similarly, it has a well-maintained animal facility with mice, guinea pigs, rabbits, sheep and goats for the contract production of polyclonal and monoclonal antibodies in bulk quantity.Apart from having a strong marketing team of technically qualified sales and service staff, SDL has an efficient and extensive distribution network comprising of 4 regional offices and more than 250 dealers across the Indian subcontinent. Its products are also exported to around 45 countries worldwide.

Fundamentally, the company is doing well and has reported stunning numbers for the Sept.’06 quarter. While sales have increased by 25% to Rs.14.70 cr., the PAT zoomed up 170% to Rs.1.03 cr. registering an EPS of Rs.3.40 for the quarter. However, for the full year FY07 it is expected to clock a turnover of Rs.55 cr. and net profit of Rs.2.25 cr. This works to an EPS of Rs.7 on its small equity of Rs.3 cr. Investors are advised to accumulate at declines as the scrip has the potential to give 50% returns in 15 months.