Rajoo Engineers Ltd - Rs.54.00

Rajoo Engineers Ltd. (REL) was incorporated in Dec.'86 as a small set up mainly to manufacture bag-making machines.In 1988, it diversified into manufacturing plastic processing machinery for extrusion processing of various thermoplastic raw materials into compounds such as profiles, pipes, blown films, cables and wire insulation sheathings, flat cast films, sheet extrusion, raffia tapes, monofilaments, co-extruded films, calendering, thermoforming and strapping. Today it has impressive range of monolayer blown film lines for processing diverse variety of plastics from commodity polymers like LDPE, LLDPE, HDPE, PP to EVA, Nylon, PVC and PS. It has simultaneously taken strides in multilayer blown film extrusion systems, mono and multilayer sheet extrusion systems, pipe and profile lines and also thermoformers. It is also into sale and service of various assemblies related to extrusion systems like screen changers, air rings, die -heads, bare
extruders, bubblecages, winders etc.

REL has huge state of the art manufacturing facilities at Rajkot and Manavadar spread across 17000 sq. mts. and built-up area of 8000 sq. mts. Its central operation is controlled from Ahmedabad whereas it has other professional sales and service set-up in Delhi, Kolkata, Bangalore, Chennai and Hyderabad. It has a modern design office including Research & Development (R&D) centre, where most advanced engineering softwares are used to facilitate new developments and also to upgrade the existing technology of the company's products. REL is regularly exporting its products worldwide and has an installation base in Tanzania, Kenya, Nigeria, South Africa, Russia, Sri Lanka, Bangladesh, Malaysia, Abu Dhabi, Kuwait, Pakistan, Nepal, Vietnam, Lusaka, Namibia, Zambia and more significantly in the sophisticated markets of U.K. and U.S.A. Incidentally in the last couple of years, it has made a successful entry into European markets and has supplied the highest outputs sheet line to Germany, which is considered to be the Mecca of the plastic industry. It also articipated
in the world's second largest plastic exhibition ‘Plastindia 2006’ which was held in Delhi.

The ever growing high-end packaging material requirement from all sectors creates a huge potential for the company's products. Besides, due to increased globalisation and with many European processors looking at India for hi-tech, low cost machineries, exports will remain a lucrative area in coming years. For the six months ending 30th Sept.’06 sales improved by 7% to Rs.12.50 cr. but net profit more than doubled to Rs.1.10 cr. due to higher operating profit. Traditionally, its second half is much better. Hence it is expected to end FY07 with sales of Rs.35 cr. and net profit of Rs.1.85 cr. This works out to an EPS of Rs.6 on its small equity of Rs.3 cr. The management is quite investor-friendly and has been paying handsome dividends since the last five years. For FY07, it may declare 18% dividend, which gives an yield of more than 3%. At a current market cap of just Rs.17 cr., this scrip is trading fairly cheap compared to Kabra Extrusion whose market cap is around Rs.90 cr. With its 52-week high at Rs.64, investors are advised to buy only at declines with a price target of Rs.75 (40% return) in 12-15 months.

LIC Housing Finance - Rs.169.00

Promoted by LIC of India, LIC Housing Finance (LICHF) was incorporated on 19th Jun.’89 and has emerged as the second largest housing finance company after HDFC. It provides long-term finance to individuals for purchase/ construction/ repair and renovation of new/ existing flats/ houses. It also provides finance on existing property for business/ personal needs and gives loans to professionals for purchase/ construction of clinics/ nursing homes/ diagnostic centres/ office space etc. The company also lends to corporate bodies and companies under different schemes for purchase/ construction of office premises for their own use, construction of staff quarters and also for onward lending to meet the requirements of their employees and also to builders and developers for residential and commercial projects.

Today, LICHF has over 8,00,000 house owners who have enjoyed the company's financial assistance. It possesses one of the industry's most extensive marketing network with 6 regional offices and 115 area offices backed by chain of camp offices nationwide. It has a team of 875 employees apart from over 5500 Direct Sales Agents (DSAs) and Home Loan Agents (HLAs) to extend its marketing reach. It has also set up a representative office in Dubai to cater to the Non- Resident Indians (NRIs) in the Gulf countries covering Bahrain, Dubai, Kuwait, Qatar and Saudi Arabia. It has floated a 100% subsidiary ‘LICHFL Care Homes Ltd.’ to provide 'Assisted Living Community Centres' for Senior citizens. The first such centre at Bangalore comprising 98 units spread across 10 acres has already commenced operation. The company has also made investments in certain real estate funds of Kotak (Rs.50 cr.) and CIG Realty fund (Rs.100 cr.). To further ride the real estate upcycle, it is toying with the idea of launching its own real estate fund and increasing its investments in these ventures.

The housing finance industry continues to show a high growth rate mainly on account of improved standards of living, urbanisation, a desire for home ownership and easy availability of credit at affordable rates of interest and opportunity for tax saving in respect of interest payment and principal repayment of housing loan. Financially, LICHF has been making serious efforts to reduce the cost of borrowings and increase its spread. It has successfully brought down the average cost of funds to less 10% by changing its funding pattern and restructuring its debt. It has also brought down its NPA level below 2% and intends to bring it below 1% going forward. For FY07, it is expected to register a total revenue of Rs.1550 cr. and PAT of Rs.280 cr. This translates into EPS of Rs.33 on its current equity of Rs.85 cr. It has massive reserves of around Rs.1250 cr. leading to a book value of Rs.158, which will swell to Rs.180 by Mar.’07. Investors are recommended to buy at current levels, as the risk reward ratio is quite favourable with a price target of Rs.230 (40% return) in 12-15 months

STOCK WATCH

After two disappointing quarters Torrent Cables (Code: 504096) (Rs.173) have made a smart come back in the thirdquarter. Sales jumped up 55% to Rs.51 cr. whereas net profit increased by 65% to Rs.7 cr. registering a whopping EPS ofRs.9 for the quarter. The company could control raw material costs whence its OPM shot back to 23% against 11% &13% in the preceding two quarters respectively. However due to not-so-good H1, it may end FY07 with sales of Rs.175cr. and PAT of Rs.18 cr. i.e. EPS of Rs.24 on its equity of Rs.7.50 cr. With government’s special thrust on power sector reforms, the demand for cables is estimated to remain robust in coming years. It is estimated to report sales of Rs.225 cr. with net profit of Rs.24 cr. for FY08, which means EPS of Rs.32. So at a realistic discounting by 8 times against its FY08 earning, its share price can once again test the Rs.250 level in a year’s time. Accumulate at declines.

Micro Technologies (Code: 532494) (Rs.277) has declared its Dec.’06 numbers, which are very encouraging. Total revenue increased by 125% to Rs.28 cr. and the PAT doubled to Rs.8.75 cr. Recently, it launched a unique Global e- Security product called Micro Internet Access Security System – BANK for the banking industry to secure online-based accounts. Its other products are also well-accepted. Few weeks back, its Micro Vehicle Navigator System won the approval of the Municipal Corporation, UAE. Considering its nine month figures, it may end FY07 with sales of Rs.105 cr. with PAT of Rs.30 cr. This translates into an EPS of Rs.29 on its equity of Rs.10.50 cr. For FY08, it may report a topline of more than Rs.150 cr. and bottom-line of Rs.42 cr. i.e. EPS of Rs.40. At a reasonable P/E ratio of 14 against its FY08 earning, the share price can touch Rs.550 in 12-15 months. A strong buy.

Andhra Petrochemicals (Code: 500012) (Rs.16) is engaged in the business of manufacture and sale of Oxo-Alcohols. Notably, it is the only producer in India and currently has the capacity to produce around 42,000 MTPA with the balance demand being met by imports. Recently it came out with terrific numbers for the Dec.’06 quarter. Sales increased by more than 30% to Rs.64 cr. but net profit spurted to Rs.10 cr. compared to merely Rs.14 lakh last year. Due to higher pricerealization and lower power cost, it reported a record high OPM of 33% against 9% last fiscal. Since its entire feed stocksand fuels are petroleum products, its raw material cost is expected to come down substantially as crude price has taken a sharp hit in the last couple of months. For FY07, it is expected to clock a turnover of Rs.250 cr. and with net profit of Rs.30 cr., which translates into an EPS of Rs.4 on its equity of Rs.85 cr. For FY08, it can report an EPS of more than Rs.5. Hence even at a reasonable P/E ratio of 6, the scrip can easily appreciate by 50% from current levels.

Bilpower Ltd (Code: 531590) (Rs.205) is a pioneer in manufacturing Transformers, Electrical Laminations, Stampings and Cores. Besides it’s a leading trader of CRGO & CRNGO and produces the largest range of transformer cores in India. Two days back, it reported terrific numbers for the Dec’06 quarter. Net Sales has more than doubled to Rs.66 cr. and net profit has shot up 130% to Rs.7 cr. reporting an EPS of Rs.9 for the quarter. After taking over Tarapur Transformers, it is planning to merge Sun Transtamp, a power ancillary equipment company with itself. For the full year FY07, it may report a turnover of Rs.235 cr. and profit of Rs.20 cr., which will lead to an EPS of Rs.22 on its fully diluted equity of Rs.9 cr. The company is interested in further acquisitions and is in talks with different companies, for which it may raise capital through FCCB/GDR route in the near future. This is another EMCO in the making. Buy at every decline.

Gayatri Projects (Code: 532767) (Rs.362) a leading construction and infrastructure company has recently announced excellent results for the Dec.’06 quarter. Total revenue has increased by more than 50% to Rs.153 cr. – the highest ever in the company’s history whereas net profit zoomed up by 120% to Rs.8.50 cr. registering an EPS of Rs.8.50 for the quarter. For the nine months ending Dec. 2006, it has already recorded sales of Rs.336 cr. with profit of Rs.20 cr., which is higher than earned in entire FY06. Currently, it has massive orders of nearly Rs.2500 cr. spread across road work, irrigation works and other projects. To fund its working capital requirement, the company is planning to raise US $30 million through the FCCB route, which will trigger its share price in the near future. For FY07, it is expected to clock a turnover of Rs.500 cr. with net profit of Rs.30 cr., which will lead to an EPS of Rs.30 on its current equity of Rs.10 cr. However,
its equity may get diluted by 30% due to the FCCB issue in future. The share is trading cheap compared to its peers due to promoter concerns. But it can still rise 25-30% in good market conditions.

Zen Technologies - Rs.63.00

Incorporated in 1993, Zen Technologies Ltd. (ZEN) is a pioneer in the design, development and manufacture of world class, state-of-the-art training simulators for the defense sector. In fact, it was the first company in India to commercialize PC-based visual simulation technology for small arms training simulators. A simulator is nothing but a training device that duplicates artificially the conditions likely to be encountered in some operations. Apart from training security forces, simulators are extensively used for weapons training, aviation, maintenance, medicine, power plants, bridges, ships and entertainment. The four main products of the company that are widely accepted by the market are Small Arms Training Simulator (ZEN SATS), Hand Grenade Simulator (ZEN HE36S), Advanced Weapons Simulator (ZEN AWeSim), and Driving Training Simulator (ZEN DTS). Last fiscal, it introduced two new products TacSim (Tactical Engagement Simulator) and ATGM (Anti-Tank Guided Missile Simulator), for which it has partnered with SAAB Training Systems, Sweden, for production of TacSim. Besides, it also manufactures Tactical Reconnaissance system (ZEN TReS), Forward Observer Simulator (ZEN FOS), Radar Scan Converter (ZEN RSC), Integrated Missile Simulator (ZEN IMS) etc. Recently, it has also developed a cabin crew simulator with great potential for in-flight cabin crew training.

To develop simulators, the company has also acquired a range of skills including software, electronics, mechanical, and optics which gives it an upper edge over its competitors. ZEN has supplied simulators to over 70 customers all over India but its main customers are Defence Services, State Police forces, Para Military forces and the Navy of a South East Asian country. Notably, its simulators are widely accepted by Indian Security Forces. Now with its ZEN DTS product, the company is targeting the civilian market in a big way. Moreover, it has been participating in the overseas defence exhibitions, wherein strong interest is being shown in simulators. Hence to set up its foothold in international market, ZEN has decided to establish a subsidiary in United Arab Emirates (UAE) to tap the Middle East and African counties. After bagging an Information Security Management System (ISMS) certificate as per ISO/IEC 27001:2005 standard by STQC, the company is betting big on exports and is partnering with strong local organizations in the overseas market.

ZEN is also expanding its base to meet future needs and has bought land near the Hyderabad new international airport for construction of world-class integrated facilities. Ironically, its share, which hit a high of Rs.325 in Aug.’05, is available at mere Rs.60 due to constant selling by FIIs. For FY06, its sales as well as net profit have improved by around 10% to Rs.20 cr. and Rs.7 cr. respectively. However for H1FY07, its top-line was flat at Rs.4.50 cr. and it reported a net loss of Rs.0.60 cr. compared to net profit of Rs.0.30 cr. due to higher provision for R&D expenses. Due to dependence on business from government organizations, its quarterly results will be quite lumpy and corresponding quarter on quarter results will be uneven. For the full year FY07, it is expected to register total revenue of Rs.18 cr. with net profit of Rs.4.50 cr. i.e. EPS of Rs.6 on its equity of Rs.7.63 cr. Investors can buy at current levels as the risk:reward ratio is quite favourable with a price target of Rs.90 (50% appreciation) in 12-15 months.

FCS Software - Rs.91.00

Incorporated in 1993, FCS Software Solutions Ltd. (FCS) is engaged in creating customized software solutions, maintaining software applications and creating digital content solutions for its clients. The business model of the company is to create dedicated software developing teams for its customers, which helps reduce the development cost of its clients and make them more efficient. In short, the following three segments are its core competency:

IT Consulting Services: This segment constitutes about 55% of its total revenue and provides Application Maintenance including ongoing functional and application support for a customer’s application maintenance needs. It also provides toll-free voice access, e-mail and chat support 24x7 customer care service.

E-learning & Digital Consulting: The contribution of this segment is about 25% to FCS’s the total revenue and it develops and manages E-learning solutions that help organisations achieve optimal performance. The solutions are tailored to meet specific organisational requirements that set a definite road map for increased return on investment.

Product Engineering Services (PES): About 20% of its total revenue is generated by this segment and it specifically focuses on servicing software product companies. All services, processes and teams are structured to provide Software Product Life Cycle Management.

In a decade of its existence, FCS has carved out a niche for itself in core IT areas like e-learning, digital content services, IT consultancy and product engineering services. It derives nearly 100% of its revenue from USA and its major clients are Canon, Domino, John Deere, AIG in E-Learning & Digital Consulting, GE Transportation, Ace Technologies Inc., Savant Consulting, Oxford Global in IT Consulting business and Synergy Technology, Knowles Electronics, Digital Intelligence Systems Corp., United Software Consulting Solutions Inc, Eliassen Group Inc. for Product Engineering assignments.

Its offshore development centre in India is based in Noida apart from a development centre and marketing office at San Jose, USA. In 2005, the company enhanced capacities by setting up one more unit at Punchkula in Haryana. With the global demand for IT Applications rapidly increasing, FCS is aggressively expanding its infrastructure for which it has been allotted around 2 acres plot in the Chandigarh Technology Park. FCS has further bought another 1 acre plot in Noida. Besides, it was also awarded a plot/building Rs.1.5 cr. at an auction by Punjab and Haryana High Court but the matter is under litigation although the company has made the payment.

In Aug.’05, FCS raised around Rs.17.50 cr. through an IPO at Rs.50 per share. From it, the company has already deployed more than Rs.8 cr. till Mar.’06 and the balance has been invested in fixed deposits with banks. For FY06, its top-line grew by 35% to Rs.116 cr. and bottom-line increased by 60% to around Rs.15 cr. due to better operating efficiency. Maintaining the same trend for H1FY07, its revenue increased by 35% to Rs.72 cr. whereas profit improved by 40% to Rs.10 cr. Accordingly for the full year FY07, it is expected to register sales of Rs.150 cr. with net profit of Rs.19 cr. This works out to an EPS of Rs.14 on equity of Rs.14 cr. For FY08, it can report an EPS of Rs.18. Hence at a reasonable discounting of 12 against its FY08 earnings, the scrip has the potential to touch Rs.200 mark (i.e. 100% return) in 12-15 months.