Transpek Industries - Rs.93.00

Transpek Industries Ltd. (TIL) was actually set up in 1965 for manufacturing Transparent Acrylic Sheets and hence was named ‘Transpek’. Since then, the company has grown into a leading manufacturer and exporter of a range of chemicals servicing the requirements of textiles, pharmaceuticals, agrochemicals, polymers etc. In fact, today TIL is Asia’s largest manufacturer of Thionyl Chloride and Acid Chloride. Thionyl Chloride is an intermediate for crop protection chemicals in the agrochemicals industry. Managed by the Shroff family of Excel Industries fame, TIL used to be the largest and only manufacturer of sodium hydro sulfite, safolite, safoline, zinc oxide and zinc dust. But these businesses have been transferred to Transpek Silox Industry Ltd., a joint venture company.

With it’s expertise in sulphur and chlorine chemistry and ability to undertake projects involving sulphonation, acid chloride reaction, friedel-craft, esterification and high pressure reaction, TIL also does Custom Synthesis and Toll Manufacturing. Notably, its R&D activity is so strong that the manufacturing technologies for all its existing products are developed in-house. In fact, last fiscal it adopted improved technology for the manufacture of Thionyl Chloride and with de-bottlenecking enhanced its installed capacity from 16500 TPA to 19500 TPA. It is further planning to expand the capacity to 24000 TPA. Moreover, it has also commissioned the continuous Acid Chloride plant, which will lead to consistency in production and quality, better efficiency and lower man-power requirement. It is putting special thrust on exports and is in the process of tying up business with several reputed overseas companies. Also in order to hedge itself from the seasonality in business, the company is focusing on other market segments such as intermediates for pharmaceuticals, dyes and polymers.

Fundamentally, the company is doing extremely well. For the six months ending 30th Sept.’06, while sales increased by nearly 40% to Rs.47.50 cr. net profit zoomed 120% to Rs.4.30 cr. importantly, its OPM improved substantially to 21.50% against 16% last year. Assuming the same growth record, it is estimated to end FY07 with sales of Rs.100 cr. and net profit Rs.9 cr. This will lead to an EPS of Rs.18 on its current equity of Rs.5.07 and it may declare 35% dividend for FY07. Having a book value of Rs.70 and with a dividend yield of nearly 4%, this scrip is trading fairly cheap at P/E multiple of 5. Investors are recommended to buy it at declines with a price target of Rs.150 i.e. 50% return in 12-15 months.

IG Petrochemicals Ltd - Rs.72.00

Incorporated in 1988, IG Petrochemicals Ltd. (IGPL) is the world’s third largest producer of Pthalic Anhydride (PAN), mainly used in the manufacture of plasticizers for production of PVC products, shoe soles etc., Alkyd Resins used for manufacturing paints and as an intermediate in the production of dyes and pigments and for the in production of unsaturated Polyester Resins. IGPL is a recognized EOU with exports accounting for 75% of sales. It is an ISO accredited 9001:2000 company for Quality Management Systems from BVQI. A few years back, the company was in a very bad shape and registered as a sick company with BIFR. But by aggressive debt restructuring and better market conditions, it made a smart turnaround and is now on a strong footing. It has also been de-registered from BIFR in June’06 as its net worth has positive.

IGPL’s plant is located at MIDC-Taloja in Maharashtra, 50 kms away from JNPT in Nhavasheva and has an installed capacity of 1,20,000 MTPA. It uses the Orthoxylene Oxidation method which produces high-pressure steam that makes the plant self-sufficient in power and steam requirements and is therefore, one of the most cost-effective plants for manufacturing PAN in the world. Earlier, the company had to import its main raw material i.e. Orthoxylene at higher prices but now sources 70% indigenously from Reliance Industries at much lower cost. Also the price of PAN has risen substantially due to strong demand from the user industries. Importantly, the company is now working at 100% capacity utilization compare to less than 75% in FY06 and is planning to expand its production capacity to meet the rising demand. With higher capacity utilization coupled with better price realization, the company is witnessing one if its best times and is expected to end FY07 on a buoyant note.

Last fiscal, the company undertook major financial restructuring by settling the debts and liabilities of all banks and financial institutions. This was made possible by an investment of Rs.125 cr. by Spinnaker, a global fund, in the form of convertible debentures. Recently, IGPL came out with stunning numbers for the Dec.’06 quarter. Sales increased by 50% to Rs.150 cr. whereas it registered a net profit of Rs.10.90 cr. against net loss of Rs.15.60 cr. last year. Notably, it recorded the highest OPM of around 14% due to high realization, low raw material cost and increased capacity utilization. Besides, the recent fall in crude oil prices also augurs well for the company. For FY07, it is estimated to clock a turnover of Rs.600 cr. with PAT of Rs.33.50 cr. This translates into an EPS of Rs.13 on its current equity of Rs.26.30 cr. and EPS Of Rs.11 on its diluted equity of Rs.30.80 cr. Investors are advised to accumulate this scrip at sharp declines only as it has the potential to hit Rs.100 (50% appreciation) in 15-18 months.

STOCK WATCH

Lot of positive developments are taking place in Micro Technologies Ltd. (Code:532494) (Rs.267.50). The company has appointed Madison Communications, one of the top ad agencies for its publicity campaign. Recently, it also launched a unique Global e-Security product called Micro Internet Access Security System – BANK for banking industry to secure online-based accounts. This month, its Micro Vehicle Navigator System won approval from the Municipal Corporation UAE, which is a good breakthrough for the company in the global market. For the first half, its topline grew by 80% to Rs.48 cr. and PAT zoomed by 135% to Rs.13.90 cr. With its focus on Security, E-commerce, Telecommunication, Wireless Technology and GIS, its future is very promising and the company has potential to grow multifold. For FY07, it can register revenue of about Rs.100 cr. with profit of Rs.25 cr. i.e. EPS of Rs.24 on its equity of Rs.10.50 cr. For FY08, it can easily report Rs.30 EPS. Hence, the scrip may touch Rs.420 considering an average P/E multiple of 14 against its FY08 earnings.

Easun Reyrolle Ltd. (Code:532751) (Rs.629.45) is a strong and independent solution provider in power system protection, control, automation, metering and switching. Of late, it has ventured into construction of projects on turnkey basis wherein it will concentrate on substation projects and power system automation project. For the nine months ending 30th Sept.’06, its top-line as well as bottom-line grew by 25% to Rs.59 cr. and Rs.7.25 cr. respectively. For future growth, it is setting up a 45,000 sq ft world class manufacturing facility at Hosur for medium voltage switchgear at an investment of Rs.12 cr. and recently, its in-house R&D won recognition from Govt. of India (DSIR). For FY07, it is estimated to report a top-line of Rs.135 cr. and bottom-line of Rs.16 cr. This works out to an EPS of Rs.48 on its tiny equity of Rs.3.33 cr. For FY08, it may report EPS more than Rs.60. At a reasonable discounting by 14 against its FY08 earning, the scrip should trade around Rs.850. Given its huge reserve of Rs.35 cr. it is a strong bonus candidate as well. A strong buy.

Few broking firms have turned bullish on Jupiter Bioscience Ltd. (Code:524826) (Rs.136.40). As P/E ratio reports, the company has developed eight generic peptides which are ready for launch. Besides, Sven Genetech and its US subsidiary have formed another wholly-owned subsidiary in Japan to supply peptide and chiral intermediaries to the top four Japanese pharma companies. Moreover, it is setting up a 5500 sq. ft. manufacturing facility in Maryland, USA, to cater the US, Canadian and European markets. It is also looking to acquire few companies globally. To fund the company’s growth plans, the promoters are infusing Rs.40 cr. by subscribing to 27.5 lakh share warrants to be converted into equity shares at Rs.146 per share. Further Rs.95 cr. will be raised by debt and FCCB issue. For full year FY07, it is expected to clock a turnover of Rs.90 cr. with net profit of Rs.21 cr., which works out to an EPS of Rs.24 on its current equity of Rs.8.86 cr. However on its diluted equity of Rs.11.61 cr., EPS comes to around Rs.18. The company is at an inflexion point and its real growth will be witnessed in FY08 and FY09. A good long term bet.

Surya Pharma (Code:532516) (Rs.88) is among the top five Indian players in betalactum and cephalosporin range of anti-infectives and is gradually moving up the product value chain from being a manufacturer of betalactum antibiotics (a low-margin product) to a maker of third-and fourth-generation cephalosporin’s (a high-margin product). It has also diversified into the lucrative lifestyle segments like anti-histamines and cardio vascular drugs. Of late, it has made an impressive foray into contract research and manufacturing (CRAMS) space. Apart from carrying out massive capacity expansions at its existing facilities in Baddi and Banur, it is setting up a new US-FDA compliant facility in Jammu at an investment of Rs.90 cr. For FY07, it is estimated to clock a turnover of Rs.275 cr. and net profit of Rs.27 cr. which leads to an EPS of Rs.15 on its fully-diluted equity of around Rs.18 cr. Scrip can appreciate 50% in 9-12 months. Accumulate at declines.

Aro Granite Inds - Rs.111.00

Incorporated in 1989, Aro Granite Industries Ltd (AGIL) is one of the largest manufacturers and exporters of modular granite tiles (polished and flamed) and slabs. In fact more than 5% of India’s total export of granite products are made by AGIL. The company has won CAPEXIL’s ‘Certificate of Merit’ award for three consecutive years and ‘Special Export Award’ for five years. It has access to rich natural stone deposits that enable it to provide clients with rare and exclusive colours. The marketing network of AGIL spans the globe and is currently meeting the granite needs of USA, Canada, Europe, Russia, Japan, Austalia, New Zealand, South Africa etc. Although exports account for over 95% of sales, there is increase in demand in the domestic market too with the emergence of multiplexes and large shopping malls and the boom in housing. Most airport projects use granite as the flooring material, which augurs well for the company.

It has two manufacturing units at Hosur in Tamil Nadu with an installed capacity of 180,000 sq. mt. of tiles and 295,000 sq. mt. of slabs. It is among the few companies having resining facility and the plants are equipped with the most sophisticated environment friendly granite processing machinery line from Italy. The strategic & geographical location of the plant ensures close proximity and direct access to quarries in South India, which are known for the finest and widest range of granites. Besides, to overcome the shortage of rough stones, it also sources its raw material from few other countries such as Saudi Arabia, Norway and Finland. Considering the growing international demand for granite tiles & slabs and the bulging order book position, AGIL is increasing the existing production capacity of both tiles and slabs by 360,000 sq. mt. and 95,000 sq. mt. respectively. The expansion is near completion thereby taking its capacity to 5,40,000 sq. mt. of tiles and 3,90,000 sq. mt. of slab. The total outlay for the expansion was about Rs.34 cr. funded by debt of Rs.24 cr. from ICICI Bank Ltd. and the balance from internal accruals.

In March 2006, Mr. Prem Arora, co-promoter and co-founder of the company exited this business and AGIL is now led by Mr. Sunil Arora only. Interestingly, Pearl Mineral Pvt. Ltd. a key supplier of rough granite blocks to the company, has taken about 14% stake, which ensures consistent and continuous supply of quality raw material. However, with the government support, the Indian Granite Industry is going to become the hub for sourcing world requirements. For H1FY07, sales increased by 45% to Rs.53.50 cr. and net profit tripled to Rs.8.50 cr. registering a half yearly EPS of Rs.12. For the full year FY07, it may clock a turnover of Rs.110 cr. and PAT of Rs.15 cr. i.e. EPS of Rs.21 on its equity of Rs.7 cr. For FY08 it can register an EPS of more than Rs.35. That means the scrip is trading at a P/E of merely 3 times against its FY08 earnings. Hence investors are advised to accumulate this scrip at sharp declines to double their money in 15 months.

RS Software - Rs.88.00

Established in 1991, RS Software India Ltd. (RSS) is a leader in providing quality software services and consulting to global players in the electronic payments space. Its bandwidth of offerings covers all segments from card associations to processors, acquirers & issuers, ISOs, all the way down to the merchants who manage POS terminals at retail outlets. Since inception, the company has acquired extensive understanding of the credit and debit card domains and is engaged in building tools, frameworks and customizable industry components for use in payment systems applications for smart cards, payment gateways and mobile-based technologies. It offers a gamut of services that include Transaction Processing, Dispute Resolution, Risk Mitigation and Data Analytics. In the hi-tech space, the company is creating Biometric offerings for securing financial transactions through fingerprint identification and is working towards developing frameworks that include multi-modal biometrics for solutions in areas that require high degree of security. It also has substantive expertise in Embedded & Hi-tech Systems while its technology bandwidth spans across mainframes, mid-range, client-server, systems software, web technologies and ERP.

Operating out of the Salt Lake Electronics Complex in Kolkata and having offices in UK and USA, RSS is amongst the first companies to receive the ISO 9001: 2000 certification and CMM Level 4 and P-CMM level 3 assessments in the year 2000. It is one of the first companies to bring the IBM Mainframe architecture to India in 1991 and the fiftieth company to receive the BS7799 Certification in 2005. Its clients include high profile global players in the Payment Cards industry, Insurance, Manufacturing and in the Retail/Logistics sector. However its top client, VISA, contributes about 60% of the revenues with 90% of the revenues coming from its top 5 clients. The offshore/onsite mix is around 40/60 while the revenue mix is in the ratio of Maintenance-31%, Development–21%, Testing-30% and Consulting-18%. Apart from the UK and US, the company is working towards expanding its operations to Asia Pacific and Far East countries also. For future growth, the company is expanding aggressively to set up a new infrastructure of 60,000 sq. ft. in Kolkata, which would be completed by FY08. To complement this, it is planning to increase the headcount to 600 employees from 500 currently and further to 850 by FY08.

To fund its expansion and repay some of its high cost borrowing, RSS recently raised approx Rs.16 cr. through a Rights issue at Rs.65 per share. In the last couple of years, the company has financially turned around strongly and has transformed itself from a plain vanilla software service company to a specialist in the niche payment system domain. For H1FY07, while its topline improved by 15% to Rs.53 cr., its bottomline doubled to Rs.4.40 cr. due to better margins and lower depreciation. For the full year FY07, the company is expected to clock total revenue of Rs.115 cr. with PAT of Rs.9 cr., which translates into EPS of Rs.11 on its fully expanded and diluted equity of approx Rs.8.40 cr. For FY08, its EPS can shoot up to Rs.16. Hence investors are strongly recommended to buy at current levels with a price target of Rs.130 in 9-12 months.