Shree Hari Chemicals - Rs.29.50

Established in 1987, Shree Hari Chemicals Export Ltd. (SHCEL) is among the reputed manufacturers and exporters of a wide range of dyes & intermediates. Its Dyes division manufactures reactive dyes, acid dyes and direct dyes whereas under Intermediates it produces H-acid, Gamma Acid, Peri Acid, Toblas Acid, J.Acid, K.Acid etc. In addition to this, it also makes F.C.Acid, Vinyl Sulphone etc. with its updated technology and zero error in-process control system. The eventual product of the company is an intermediate for various types of dyestuffs. Interestingly 75% of India's total dyestuff production is intended for the textile industry and the balance 25% is used in leather, paper, food, soap/detergents and cosmetics etc. And with these sectors growing rapidly, the demand for the company’s products is bound to increase.

With an administrative office in Mumbai, SHCEL’s main manufacturing plant is situated on a 13,500 sq. mts. plot at the premier industrial estate in Mahad, about 175 km from Mumbai. It is in proximity to the main market of Mumbai, as well as to the ports of Mumbai & Nhava Sheva. The company also has production facilities with its associates in Gujarat. Nearly 40-50% of the production is exported to blue chip companies around the world. It has been awarded quality management system ISO 9001:2000 by SWISO, Switzerland. Last year, the company set-up a Solvent plant system, which is the latest technology available in the world, to increase the yield and improve quality. Besides, it has its own full-fledged Effluent Treatment Plant as per norms prescribed by the Maharashtra Pollution Control Board. It is also a member of Common Effluent Treatment Plant (CETP) managed by the Mahad Manufacturing Association and has contributed Rs.27.46 lakh to it. Importantly, earlier China was an exporter of dye & intermediates to India whereas recently it started importing some of these intermediates from India. Due to this, the company is witnessing a phenomenal increase in demand as well as better price for some of its products.

This is clearly visible in its December 2006 quarter numbers. Sales have more than doubled to Rs.20.52 cr. whereas its OPM shot up to 19% compared to 6% last year. Net profit stood at Rs.1.36 cr. against Rs.0.10 cr. in the last fiscal i.e. quarterly EPS of Rs.3. This means that the company has made a very smart turnaround from December’06 quarter. Whether it continues to report such performance is to be keenly watched. However, the annual per capita consumption of dyestuffs in our country stands at a merely 50 grams compared to the world average of over 200 grams. Hence there is a great potential growth of the dyestuffs demand in the domestic market. Also, India's share in the global dyestuff market is around 6.8% with an annual growth rate of around 20%. Assuming that the company repeats its December 2006 performance, it may end FY07 with net sales of Rs.70 cr. with net profit of around Rs.3.50 cr. This works out to an EPS of approx Rs.8 on its equity of Rs.4.50 cr. Eventhough the scrip is near its 52W high, it is trading at a P/E ratio of 3.5. And the company reports an OPM of more than 15% for the March 2007 quarter, the scrip can zoom up 50% in no time. Only speculative investors can take some exposure with the chance of getting handsome gains in short-term.

Patels Airtemp - Rs.34.00

Incorporated in 1973, Patels Airtemp (India) Ltd (PAL) is one of the leading designers, manufacturers and suppliers of the complete range of heat exchangers such as shell & tube type, finned tube type and air cooled heat exchangers, pressure vessels, columns & air-conditioning and refrigeration equipments like coils, air handling units, fan coils, fans & blowers, condensers & chillers etc. All these industrial process plant equipments are supplied to leading industrial sectors like power projects, refineries, fertilizers, cements, petrochemicals, engineering, pharmaceuticals, textiles, chemical etc. Importantly, the company also undertakes turnkey projects in the highly specialized and related area of Humidification, Ventilation and Air-Conditioning i.e. HVAC. Its expertise in HVAC project includes industrial air conditioning, pharmaceutical plant air conditioning, textile humidification, pressurization and ventilation systems, evaporative cooling systems etc. Besides, it also undertakes project work for air-conditioning multiplexes, offices, educational institutions, halls, theaters, hospital etc.

PAL has two manufacturing units in Gujarat – one at Mehsana and another at Ahmedabad. It has technical collaboration with M/s. TEK FINS Inc., USA, for design and manufacture of air-cooled heat exchangers. To support its turnkey HVAC projects, the company has even backward integrated its facility to manufacture package air conditioners, ductable air-conditioners, split air-conditioners, window air-conditioners etc. to cater to the domestic industrial segments. Importantly, all the products that it manufactures in the plant are designed in-house using the most advanced software. The company is accredited by the American Society of Mechanical Engineers (ASME) and the National Board of Boilers & Pressure Vessels. It maintains quality standards to satisfy third party inspections from leading agencies such as Lloyds, EIL, BVIS, IBR, CCOE, PDIL, LINDE, H&G, Technimont ICB, UHDE, CHEMTAX, BAXCOUNSEL etc. For updating its heat transfer technology, it has also become member of HTRI (Heat Transfer Research Inc., USA). It caters to a very huge clientele including leading companies from across the industry and is an approved supplier for most of them. Although miniscule, it also exports equipments to Indonesia, Srilanka, UAE, Jordan UK, Ukraine etc.

Due to strong industrial growth and the fast growing economy, this engineering fabrication company is doing extremely well. For the first nine months ending 31st December 2006, its sales and net profit have increased by 50% and 60% respectively. It is expected to end FY07 with a topline of Rs.45 cr. with bottomline of around Rs.2.35 cr. This works out to an EPS of Rs.5 on its equity of Rs.5.07 cr. For FY08, it can easily register 20% growth which means an EPS of Rs.6. This fast growing engineering company is trading fairly cheap at a P/E multiple of less than 6 and is available at a market cap of merely Rs.17 cr. Investors are strongly recommended to buy this scrip at current levels with a price target of Rs.50 i.e. 50% appreciation in 9-12 months.

STOCK WATCH

Eastern Silk Inds. Ltd. (Code: 590022) (Rs.243.05) is a leading manufacturer & exporter of silk fabrics with nearly 30% share of the organised silk market. It is present across the entire value chain from yarn to basic/design fabrics to embroidered fabrics and made-ups. It is now aggressively shifting towards the lucrative machine-made fabrics instead of handloom and powerloom fabrics. Secondly, it is implementing a huge capex of Rs.300 cr. to expand its weaving capacity and foray into home furnishing and made-ups business in a big way. Since the last four years, its OPM is constantly improving and is expected to be 20% for FY07 compared to 10% in FY03 and is expected to register net sales of Rs.475 cr. with net profit of Rs.63 cr. This translates into an EPS of Rs.40 on its current equity of Rs.15.80 cr. Currently, the scrip is trading at a P/E multiple of just 6 and has the potential to touch Rs.320 in the medium-term. It has also decided to split the face value of its Rs.10 paid-up share to Rs.2, which will improve its liquidity going forward.

Coral Laboratories Ltd. (Code: 524506) (Rs.119.50) manufactures a variety of formulations in capsules, dry syrup, tablets, liquid orals, special diagnostic kits, ointments, creams, injections, eye/ear drops etc. catering to inflammatory, bacterial, biotic, protein deficiencies and skin conditions. Last year, after expanding the capacity of its Daman plant, the company set up a new UK MHRA and US FDA compliant formulations plant n at Dehradun in Uttarkhand, which enables it to enter the regulatory export markets of developed countries. Its second project for the manufacture of 'Betalactum' is almost completed and the third project for injectibles is under implementation. Although its third quarter was not so great, it may still end FY07 with sales of Rs.32 cr. and net profit of Rs.6.50 cr. This translates into an EPS of Rs.18 on its current equity of Rs.3.57 cr. For FY08, it can report sales and net profit of Rs.40 cr. and Rs.8.50 cr. respectively. Buy on sharp declines only.

ITL Industries Ltd. (Code: 522183) (Rs.28.40) is a reputed metal cutting solutions provider offering a wide range of machine tools and cutting lubricants besides trading in hydraulic power packs and hydraulic presses. Apart from making Industrial Blades, Power Hackshaw Machines, Special Purpose Machines, Hydro Testers, Lubricants and other supporting equipments, it also manufactures Tube and Pipe Mills, Section Mills, Straightening Machines, Draw Benches, Automatic Cut-offs, Accumulators etc. It has already completed its modernization and expansion project with a capex of Rs.2.5 cr. last year and has also acquired the land in the SEZ in Pithampur for meeting global opportunities. Notably, it has healthy orders in hand due to good demand for tubes & pipes manufacturing machines along with its newly launched circular saw machine. The company is expected to declare very good numbers for the March’07 quarter and may end FY07 with sales of Rs.21 cr. with net profit of Rs.1.50 cr. i.e. an EPS of Rs.5 on its tiny equity of Rs.3.25 cr. At the current market cap of merely Rs.9 cr., it’s a risk-free buy, which can double in a year’s time

Few days back, GM Breweries Ltd. (Code: 507488) (Rs.89.90) came out with average numbers for the March’07 quarter. It made an all time high sales of Rs.47 cr., although it’s just 7% higher on YOY basis. It seems that the company made some accounting adjustment in FY06 and reported Rs.7.40 cr. net profit for the March 2006 quarter. However, for March 2007 quarter, it earned a decent OPM of 15% whereas its net profit stood at just Rs.3.60 cr. For the full year FY07, net sales increased by 12% to Rs.173 cr. whereas its OPM worked out to 13%. After a tax provision of Rs.6.20 cr. (i.e. 34% on the PBT), it reported a PAT of Rs.11.90 cr. This translates into an EPS of Rs.13 on its equity of Rs.9.36 cr. In spite of fall in profit in absolute terms, the company declared 18% dividend compared to 15% last year. For FY08, the company can clock a turnover of Rs.190 cr. with net profit of Rs.15 cr. i.e. an EPS of Rs.16. At a forward discounting by 8 times, the scrip can easily touch Rs.125 in a good market.

TIL Ltd - 186.00 Rs

Established in 1944, TIL, earlier known as Tractors India Ltd. is India's leading providers of technology intensive, application specific heavy engineering equipment for use in core infrastructure sectors. In fact, it is the pioneer and undisputed leader in mobile crane manufacturing and has now emerged as an integrated provider of total material handling solutions. Importantly, TIL enjoys exclusive marketing rights in the northern and eastern India for the Caterpillar (USA) range of construction/earth moving equipments and engines. TIL’s product profile is broadly segmented into three divisions:

1. Material handling equipment (30% revenue): This division manufactures material handling equipment such as cranes, forklifts trucks, reachstakers, articulated self loading cranes, anode transport vehicles etc. Besides, it also markets imported heavy duty crawler cranes, heavy logistic vehicles, aerial work platforms etc. Notably, TIL produces mobile cranes of 10 to 100 tonnes in diesel, electric and hydraulic versions and is the only domestic manufacturer of cranes in the range of 30 – 100 tonnes.

2. Construction equipment (50% revenue):This division markets earthmoving, construction and mining equipments like hydraulic excavator, skid steer loader, motor grader, wheel loader, off highway trucks & dumpers, track type tractor etc. manufactured by Caterpillar (USA), one of the world’s biggest manufacturer of construction equipment with a very strong reputation. It also trades in critical spares parts and provides after-sales service to customers.

3. Power systems (20% revenue): This unit is engaged in assembly, supply, erection and commissioning of power generating sets (diesel-based) driven on Caterpillar engines in the 180 - 2250 KVA range, which find diverse use in several industry segments like hospitals, railways, hotels & restaurants, cinema houses, multiplexes, residential colonies and factories. It also offers higher range of gas/heavy fuel based ‘CAT’ power systems and engines with capacities from 1.6 MW to 12MW.

TIL has two plants, one at Kolkata for material handling equipment and the other near Delhi for power systems. Besides, it has 34 service centres all across the country and has technical collaborations with international manufacturers like Boss (UK), Grove (USA), National Crane (USA), Luna Euipos (Spain) & Hencon (Holland) for making equipments in India. It is also bringing in higher technology from Manitowoc, USA, for competing with other foreign players in crane sizes of above 100 tonnes. Due to better margins, TIL has started focusing more on value added high tonnage offerings such as Reach Stackers (container handling mobile equipment) and Electric Level Luffing cranes (for Bulk Cargo). It has a very healthy order book position with good orders flowing from Tata Steel, Reliance Petroleum, Bharat Coking Coal, Punj Lloyd, ONGC, Madhucon, Soma, KMC etc. Of late, it has also started renting equipment, which is growing rapidly and has a huge potential. Meanwhile, TIL plans to introduce high technological products like 40 tonnes RTG, 10-35 tonnes Electrical Level Luffing Cranes, Refuse Collection Vehicles & Fire/Crash Rescue Vehicle. Moreover, as the company is working at optimum capacity utilization it intends to enter into the used equipment market and may even go for a greenfield expansion to increase capacity.

Incidentally, TIL’s wholly-owned subsidiaries in Union of Myanmar, Singapore and Nepal are also doing well. With the Government’s emphasis on infrastructure development and the investment plans of industries such as cement, steel, coal, etc. as well as the port and mining sectors, the future prospects of TIL look very promising. Also, as the peak load shortage continues, its Power System business will continue to grow. On a standalone basis, it may earn a profit of Rs.18 cr. on revenues of around Rs.550 cr. This means EPS of more than Rs.18 on its equity of Rs.9.73 cr. For FY08, its EPS can increase upto Rs.22 and consolidated EPS may stand at Rs.30. Thus, the scrip is trading at forward P/E multiple of 8, which is extremely cheap. Investors are strongly recommended to buy it at current levels with a price target of Rs.260 in a year’s time. Long-term investors can expect much higher levels.

Accel Frontline - Rs.61

Established in 1991, Accel Frontline Ltd. (AFL) is an IT Services provider specialising in consulting, infrastructure, applications, outsourcing and support services. It has a strategic alliance with the reputed Singapore based Frontline Technologies Corporation Ltd. The company has structured its business by carving out the following four strategic business units (SBUs):

IT Infrastructure Solutions: More than 50% of its revenue comes from this segment, which offers its customers the chance assess, build, deploy and optimise IT Infrastructure for mission critical applications. The solutions include system integration of data centres, networks, storage management, disaster recovery and security.

Infrastructure Management Services: With 30% revenue contribution, this SBU provides IT infrastructure maintenance, facilities management services, application management services and IT outsourcing.

Enterprise Software Solutions: This unit contributes nearly 10% of its revenue and specialises in providing ERP consulting, application management, outsourced product development and industry specific solutions with software products like ‘Accel EMS’ for the manufacturing domain, ‘Prodigy’ and ‘Accel UMS’ for the Education domain, ‘Accel HealthSPACE’ for the Healthcare domain and ‘Best B’ for the Banking domain.

Business Process Outsourcing Services: Although its BPO division generates only 10% revenue, it has an unique model under which it provides warranty outsourcing, logistics management, repair depot and technical helpdesk services to major IT and telecom product companies.

Presently, AFL operates out of its head office, 8 regional offices, 22 area/branch offices and 80 service locations. It has state-of-the-art software development centres in Chennai and Kochi. Its BPO division operates at 39 locations with its head office in Chennai and presence in other major centres and the metropolitan cities. It also has two subsidiary offices in Singapore and Dubai. Besides, the company is a certified partner for Sun Microsystems, Microsoft, IBM and Oracle to deliver applications on their platforms and provide support for such applications. Notably, AFL’s business processes conform to ISO 9001:2000, SEI CMMI Level 5 and BS 15000 standards. With a prestigious client list of over 2000 corporates and having presence in seven countries, AFL is now planning to tap the Far East, Middle East, and African countries apart from increasing its market penetration in USA.

Couple of months back, AFL acquired the banking solutions division of a Chennai based software company, which specializes in software products for banking applications and implementation and migration services for Core Banking software in India, Middle East and Africa region. Recently, the company also entered into a strategic partnership with Seagate Technology, USA, to provide professional data recovery services through its extensive network. More importantly, a few days back it was awarded a prestigious contract by the Centre for Railway Information Services for installing and maintaining smart card based Automatic Ticket Vending Machines (ATVMs) across Western and Central railway stations including the suburban stations of Mumbai. On a standalone basis, it is expected to register total revenue and PAT of Rs.200 cr. and Rs.15 cr. respectively for FY07, which can improve to Rs.250 cr. and Rs.20 cr. for FY08. This works out to an EPS of Rs.7 & Rs.9 for FY07 and FY08 respectively. Hence at a forward P/E of less than 7 and at its current market cap of Rs.135 cr., the scrip is trading fairly cheap. Secondly, it’s trading at 20% discount to its issue price of Rs.75. Investors are strongly recommended to buy it at current levels with a price target of Rs.100 in a year.