Alufluoride Ltd - Rs.17.55

Promoted by V S Prasad and K Ramachandra Reddy, Alufluoride Ltd (AL) was incorporated as a private limited company in Nov.'84 and subsequently converted into a public limited in Oct.'92. In 1995, it set up a plant to manufacture aluminium fluoride (ALF3) at Vishakapatnam with technical know-how from Navin Fluorine Industries. Since then, AL has emerged as reputed manufacturer and exporter of ALF3 with a current production capacity of 6000 TPA. ALF3 is used as flux in reducing the melting point of Alumina during the electrolytic process of producing Aluminium. This is of critical importance for lowering consumption of electricity during the smelting process. Consequently, Aluminium Smelters are the biggest users of ALF3.

AL’s plant is located 10 km from the Vishakapatnam seaport and is the only plant in Andhra Pradesh producing high purity AIF3 with the new technology developed by Alusuisse, Switzerland. Importantly, the company has an agreement with the adjoining plant of Cormandel Fertlizer to supply 4,000 TPA of Hydrofluosilicic Acid exclusively to them. Accordingly the company’s plant converts fluorine pollutants discharged from Coromandel’s fertilizer plant into hydrofluosilicic acid and then to ALF3. Hence, this technology is a pollution abatement, import substitute, conserves natural resources like fluorspar & sulphur, cost effective, converts waste into wealth and earns valuable foreign exchange. Moreover, during the production process two by-products viz. Silica and Calcium Fluoride are released, which are also used by the chemical industry. Over the last few years, the company could not perform well due to short supply of acid from Coramandel Fertlizers. But in FY06, the company succeeded in sourcing an alternate supplier for Hydrofluosilicic. Acid for conversion on an ad-hoc basis and is now working at higher capacity utilization. With higher operational efficiency, its production capacity has now been increased to 6,000 TPA against 5,000 TPA earlier.

Since aluminium smelters in India are abroad are increasing their production capacities and new aluminium smelters are coming up with higher capacities, this will result in increased demand for AIF3. Besides, the company is also planning to increase its focus on exports, due to increased orders at better prices from the Middle East and other countries. On account of better cash flows, AL has repaid all its dues and has become a debt-free company. For H1FY07, while sales grew by 35% to Rs.10.60 cr., the NP zoomed by 220% to Rs.1.40 cr. Its OPM improved substantially to 15% compared to 10% last year due to higher price realization and better operating efficiency. It may end FY07 with a turnover of Rs.22 cr. and NP of Rs.2 cr. which means an EPS of Rs.3 on its equity of Rs.7 cr. Investors are advised to buy it only at sharp declines around Rs.14-15 as the scrip can once again test its 52W high of Rs.24 in 9~12 months

Helios & Matheson - Rs.137.00

Founded in 1991, Helios & Matheson Information Technology Ltd. (HMITL) is a leading healthcare focused IT Services company based in south Bangalore. It offers is the most comprehensive range of services in the industry that span the entire software services lifecycle from application development and integration to application lifecycle management. It offers competencies in application management services, business & technology consulting, application outsourcing, ITES- BPO services, offshore delivery, project management services, public sector services, maritime practice, enterprise security & privacy practice and executive education info systems. It has been ranked among the 30 fastest growing IT companies in India as per NASSCOM ranking 2005. Its clientele includes reputed names like Delta Dental, Johnson & Johnson, Wellcare, Cisco, Toyota, Texaco, Mitsubishi, IBM Global, Seagate, Walt Disney, Natsteel, ABB, Accenture, Citicorp and Pepsi among others.

HMITL has a worldwide presence through subsidiaries in USA and Singapore and via strategic acquisitions of growing and dynamic infotech companies in USA, UK, Canada, Singapore and India. In the last couple of years it has made various acquisitions including The Laxmi Group and Maruthi Infotech of USA and Systematic Solutions in India. To further strengthen its healthcare presence, it acquired a controlling stake in a 23-year old NASDAQ listed company ‘The A Consulting Team Inc.’, New York. Apart from its strong on-site presence, the company also has an extensive offshore infrastructure comprising offshore development centres in India to provide world-class solutions to clients worldwide. Last fiscal, it has added several strategic clients who have the potential to grow into multi-million dollar accounts. Currently, it employs around 1500 people. However, its plan to takeover Three Vmoksha Company didn’t work out and the company has claimed Rs.50 cr. from it for loss of goodwill. To fund its infrastructure development and other strategic acquisition plan, HMITL recently raised US $25 million (around Rs.110 cr.) by way of bonds through the FCCB route to be converted at Rs.162 per share. Interestingly, it holds cash of more than Rs.140 cr. against it current market cap of Rs.280 cr.

Given the phenomenal rise in IT investment by companies in life sciences, healthcare insurance and health maintenance bodes well for HMITL. For H1FY07, it reported a topline of Rs.184 cr. up by 80% and bottomline of Rs.27 cr. against Rs.17 cr. on a consolidated basis last year. Driven by a strong European and US presence, deep client relationships, a powerful suite of services and a seamless global delivery model backed by investment in infrastructure, HMITL is on a strong growth trajectory. For the full year FY07, it may register consolidated sales of Rs.375 cr. with net profit of Rs.55 cr., which works out to a consolidated EPS of Rs.20 on its fully-diluted equity of around Rs.27 cr. Investors are strongly recommended to buy the HMITL share at current levels with a price target of Rs.210 (50% appreciation) in 9-12 months.

STOCK WATCH

Cement companies are expected to report fantastic numbers for the Dec.’06 quarter on back of higher price realization. JK Lakshmi Cement (Code: 500380) (Rs.143.10) belonging to the reputed HS Singhania Group and owner of the popular ‘JK Lakshmi’ brand is a good bet at the current levels. For the first half, while net sales jumped 40% to Rs.352 cr., net profit tripled to Rs.62 cr. In a couple of months, its additional capacity of 5,00,000 tonnes will commence production and another 5,00,000 tonnes by Dec.’07 thereby taking its total cement production capacity to 4 million tonnes. Moreover, it is setting up a 36 MW pet coke based captive power plant in the next 6 months, which will bring down its power cost substantially. For FY07, it is estimated to register a topline of Rs.725 cr. with PAT of Rs.115 cr., which means an EPS of Rs.18 on its fully-diluted equity of Rs.65 cr. The scrip can rise 50% in 9~12 months. Buy at dips.

ITL Industries (Code: 522183) (Rs.35.50) is an established metal cutting solutions provider offering a wide range of machine tools and cutting lubricants apart from trading in hydraulic power packs and hydraulic presses. It recently completed its modernisation and expansion project with a capex of Rs.2.5 cr. and has also acquired land in the SEZ in Pithampur for meeting global opportunities. Notably, its orders in hand is at a historic high with more than Rs.18 cr. due to the good demand for tube & pipe manufacturing machines along with its recently launched circular saw machine. Although its first half was not spectacular, for full year FY07 it is expected to report a total revenue of Rs.22 cr. with and NP of Rs.1.60 cr. This will lead to an EPS of Rs.5 on its equity of Rs.3.25 cr. For FY08, it can post an EPS of more than Rs.6 on a conservative basis. At a reasonable discounting by 12 times against its FY08 earning, the scrip has the potential to go up to Rs.75.

Transpek Industry (Code: 506687) (Rs.88.60) is Asia’s largest manufacturer of Thionyl Chloride, which is an intermediate for crop protection chemicals in the agrochemicals industry. Besides, the company is also focusing on other market segments such as intermediates for pharmaceuticals, dyes and polymers. Last fiscal, due to adoption of improved technology and de-bottlenecking of certain equipment, it enhanced its production capacity to 19500 TPA from 16500 TPA. For H1FY07, sales increased by 40% to Rs.47.50 cr. and NP zoomed 120% to Rs.4.30 cr. Notably, its OPM improved substantially from 16% last year to 21.50% this year. Currently, it is implementing further expansion of thionyl chloride capacity to 24,000 TPA and is also starting production of the second stream of continuous Acid Chloride plant with double capacity. For the full year FY07, it may report sales of Rs.100 cr. with NP of Rs.9 cr. i.e. an EPS of Rs.18 on its equity of Rs.5.07 cr. At a reasonable discounting of 8 times, the scrip has the potential to cross Rs.150 in 9~12 months.

Sagar Cement (Code: 502090) (Rs.126.40) is one of the reputed cement manufacturers from South India having a clinker capacity of 0.55 million tonnes and grinding capacity of 0.3 million tonnes. It sells its product under the brand name of ‘Sagar Priya’ and enjoys one of the highest margins in the industry mainly on account of low power and freight costs. For the first half ending Sept 2007, its sales jumped by 75% to Rs.56 cr. and NP stood at a whopping Rs.15 cr. against a net loss of 0.97 cr. in the corresponding period last year. To meet the increasing demand, the company is aggressively expanding its clinker capacity by 4 times to 2 million tonnes and grinding capacity by 6 times to 2 million tonnes. For the full year FY07, it can clock a turnover of Rs.125 cr. with net profit of Rs.28.50 cr. This works out to an EPS of Rs.22 on its diluted equity of Rs.13 cr. Scrip is bound to cross Rs.175 sooner than later. Grab it before it shoots up.

Span Diagnostics (Code:524727) (Rs.51.55) is a pioneer and trendsetter of high quality products used by pathology & clinical laboratories in the diagnostics industry and is also one of the largest manufacturers of diagnostic reagents. It also has exclusive tie-ups with reputed companies worldwide for marketing, distributing and servicing their products in India and also takes contract manufacturing of a wide range of quality reagents and kits in bulk for private labels. For H1FY07, its sales increased by 25% to Rs.14.70 cr. whereas PAT zoomed up 170% to Rs.1.03 cr. Considering the strong demand for its products and rise in contract manufacturing, it may end FY07 with total revenue of Rs.55 cr. and net profit of Rs.2.25 cr. i.e. an EPS of Rs.7 on its small equity of Rs.3 cr. Accumulate at sharp declines.

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.