Tanfac Industries Ltd - Rs 38.00

Incorporated in 1972, Tanfac Industries Ltd (TIL) is a joint sector company promoted by Tamilnadu Industrial Development Corporation (TIDCO) and Aditya Birla group. TIDCO is still holding 26% stake whereas 25% is held by Aditya Birla group of companies. Today, TIL is one of the largest suppliers of fluorine chemicals in India. It is mainly engaged in the manufacture of inorganic chemicals and fluorine based chemicals such as aluminium fluoride (ALF3), anhydrous hydro fluoric acid (AHF), sodium silico fluoride, ammonium bifluoride, sulphuric acid, potassium fluoride, cryolite and various chemicals. These products have vital applications in industries as varied as aluminium smelting, petroleum refining, refrigerant gases, steel re-rolling, glass, ceramics, sugar, fertilizers, heavy water, etc. Besides it also produces organic fluorides & speciality fine chemicals which are used as intermediates in the manufacture of pharmaceuticals and agrochemicals.

TIL’s manufacturing plant and facilities are spread over 60 acres in the chemical complex of SIPCOT at Cuddalore near Pondicherry. It has technical collaborations with Davy Process (formerly BUSS AG), Switzerland for ALF3 and Chenco, Germany for hydrofluoric acid. Currently, company has an installed capacity of 15600 tpa each for ALF3 & AHF, 75000 tonne for sulphuric acid and 3400 tonne for specialty fluorides. It also has an ISO 9001, 14001, & TPM certification. Being an Aditya Birla group company, Hindalco is its major customer apart from NALCO. Besides, nearly 30% of the production is being exported to countries across the globe. Notably, aluminium industry worldwide has been growing at a fast pace and this has led to a significant improvement in demand for aluminium fluoride. Since 60% of company’s revenue comes from ALF3, this augurs well for TIL.

Financially, company has made a strong turnaround in FY07 with sharp jump in operating margin on back of higher price realization. Its sales grew by 11% to 123 cr but the NP zoomed up 550% to 6.70 cr compared to 1 cr last year. Ironically its OPM improved to 11% against 5% in FY06. Hence it reported an EPS of 7 Rs on equity of 10 cr and declared 15% dividend. Accordingly it can register sales of 130 cr and PAT of 7.75 cr ie EPS of 8 Rs for FY08. Therefore investors can accumulate this scrip at declines as scrip has the potential to give 25 - 30% return in 12 months. Moreover in case Tamilnadu government opts for divesting its stake, the share price can shoot up sharply.

Jupiter Bioscience - Rs 165.00

Established in 1985, Jupiter Bioscience Ltd (JBL) is a reputed pharmaceutical company specializing in niche areas of peptides, advanced organic chemistry, chiral chemistry, and biotechnology. Infact it ranks among global top 10 players in the peptide chemistry and the only one in India with a distinction of integrated model of peptide pharmaceuticals. Along with its subsidiaries, company is an end to end peptide solution provider covering the entire spectrum from key peptide raw materials to finished formulation. It manufactures 14 categories of peptide reagents, 6 variety of coupling reagents and more than 100 varieties of protected amino acids. Broadly, company has segmented its product profile in three groups namely ‘Peptide raw material’, ‘Drug Intermediaries’ and ‘Special & fine chemicals’ with around 50% revenue coming from the first and other 50% from the rest two divisions. In future, 65% of revenue is expected to come from peptides alone.

Presently JBL is having three manufacturing facilities – one in Karnataka (Bidar) and two in Andhra Pradesh (Cheriyal & Medak) with a combined installed capacity of 372 TPA. Against this its actual production is around 175~200 tonnes representing nearly 50% capacity utilization. This means it can easily double its topline without any capital expenditure. Besides, JBL has set up two wholly owned subsidiaries to cater the higher segment of peptide value chain. Notably, till March’06 JBL has already invested whopping 55 cr in these subsidiaries. For specially catering to the regulated market like USA, Europe, Japan etc, its US subsidiary is setting up FDA approved facility in Maryland for the manufacture of custom peptides, clinical peptides and peptide-based generic active pharmaceutical ingredients (APIs). It will start commercial operation from this fiscal. On the other hand its Indian subsidiary namely Sven Genetech is mainly into the business of development of process capabilities for several products that are pre-cursors to new generation drugs in the fields of AIDS treatment, Cardiology, Oncology, Immunology, Endocrinology, vaccines and others.

After a co-opearation agreement with Clariant group last year, JBL has recently entered a 10 year product purchase agreement with Ranbaxy to leverage the latter's vast global market reach and put the company's upcoming peptide products on a fast-track. Accordingly Ranbaxy is taking 15% stake and will be investing nearly 50 cr in the company thru preferential allotment of 31.77 lac warrants to be converted @ 147 Rs per share. Moreover, last month JBL also raised 100 cr thru QIP route by placement of approx 65 lac shares @ 153, basically to fund the growth plan of both its subsidiaries. Importantly, till now JBL has been investing and creating facilities for its subsidiaries although they have still not started contributing to topline or bottomline significantly. So once the subsidiaries start working at optimum level, they will give a huge fillip to company’s financials. Even on a standalone basis its fundamentals are quite strong with operating margin in the range of 45-50%. For FY07 its sales improved by 30% to 104 cr and PAT increased by 50% to 25 cr. Considering its Q4 performance and recent tie up with Ranbaxy, it can clock a turnover of 180 cr and PAT of 45 cr for FY08. This translates into standalone EPS of 21 Rs on fully diluted equity of 21.32 cr. Despite company having a debt of more than 100 cr and miscellaneous expenditure to the tune of 60 cr on a consolidated basis, investors can buy at current levels as scrip can appreciate 50% in 9~12 months.

Stock Watch

Lakshmi Electricals, belonging to well known LMW group is engaged in the manufacturing of electrical components like switch gear, control panel, contactors, thermal overload relays, control relays and textile machinery components using engineering plastic. It reported decent set of nos for the March quarter as sales grew by 35% to 18.50 cr and NP shot up 40% to 1.95 cr. Even for the full year its sales increased by 40% to 68 cr and profit jumped up 50% to 7.90 cr. This translates into EPS of 32 Rs on a very tiny equity of 2.46 cr. For FY08, it is expected to clock a turnover of 80 cr and profit of 8.75 cr ie EPS of 36 Rs. At a reasonable discounting by 12x times scrip has the potential to touch 425 Rs. Moreover company has a hidden value in the form of its 100% profit making subsidiary called “Harshini Textile” having a spinning capacity of 25200 spindles. This can add further 50 Rs to the valuation of the company. In short a great buy at current levels.

Despite paper manufacturers raising the paper price regularly and doing well, market has ignored this sector completely. Recently, South India paper mills reported excellent result and declared 30% dividend which gives a yield of 5% at CMP of 60 Rs. For the March quarter, its sales grew marginally to 28 cr but NP zoomed up 120% to 2.85 cr registering a qtrly EPS of 3.80 Rs. For entire FY07 sales were up 13% to 113 cr and NP increased by 50% to 10.50 cr. This led to an EPS of 14 Rs on equity of 7.50 cr. Still the scrip gets poor discounting by merely 4x times and has a markep cap of 45 cr. Currently, company is in the midst of 55 cr expansion and forward integration project whereby it is enhacing its capacity from 55,000 TPA to 85000 TPA. The project is expected to complete by Dec 2007. Besides in future, it also intends to set up a green-field plant with an investment of 125 cr. Accordingly, for FY08 it is expected to report sales of more than 125 cr and NP of 11.50 cr ie EPS of 15 Rs. But the real growth will be in FY09 due to increase capacity, hence its good long term buy.

Dhunseri Tea is one of the oldest tea producers and a market leader in Rajasthan with brands like Kala Ghora, Lal Ghora, and Chotte lal. It has massive tea graden estate spread across 1800 hectare in Assam. For FY07 its sales improved by 15% to 67 cr but PAT doubled to 7 cr due to sharp jump in other income. This works to an EPS of 10 Rs on equity of 7 cr. It declared 17.50% as dividend against 12.50% last year. Interestingly, the promoters ie Dhanukas’s have long been associated with the capital market, and Mr C.K. Dhanuka is well known as an investor with a talent for identifying stocks that generate multiple returns. Hence as on date the company has an portfolio of around 30 cr with investment in scrips like Reliance, SBI, Financial Technology, Grasim, Jaiprakash Associate, Syngenta, Areva T&D, Divis, ICIC Bank to name a few. This is apart from its investment of 37 cr in group companies like South Asian Petrochem, Tezpore Tea etc. Ironically, Dhunseri is still sitting on unrealized gain of around 15~20 cr. Despite having a well set tea business, reputed brands, own tea estate and liquid cash worth 30 cr, this scrip is available at a market cap of merely 40 cr. A value buy

Roto Pumps is a reputed manufacturer of progressive cavity pumps and twin screw pumps which have very wide application in agriculture, domestic and industrial sector. Besides India, it has warehouse cum marketing office in Australia and U.K. and also good network of distributors spread across the globe. It recorded 25% growth in sales to 10.50 cr and 45% increase in profit to 0.55 cr for the March quarter. For FY07, sales stood at 34 cr against 24 cr last year whereas NP zoomed up 125% to 2 cr. This translates into EPS of 7 Rs on small equity of 3 cr on which it declared 15% dividend for FY07. Considering the strong demand, it may end FY08 with sales of 45 cr and profit of 3 cr ie EPS of 10 Rs. With its 52W high as 71 Rs, scrip is a safe bet at current levels and can appreciate by more than 50% in 12~15 months. However, the continuous rupee appreciation is a cause of concern for the company.

Seshasayee Paper - 130.00 Rs

Incorporated in 1960, Seshasayee Paper and Boards Limited (SPBL), is the flagship company of the well known "Esvin Group", a group that consists of Ponni Sugars (Erode), High Energy Batteries, Esvin Advanced Technologies etc. SPBL operates an integrated pulp, paper and paper board Mill at Pallipalayam, Erode in the state of Tamilnadu. It produces a wide range of products such as printing and writing papers, packing and wrapping papers and speciality papers. It also has branded products namely, ‘Sprint’, ‘Colour Sprint’, ‘Index’, ‘SprintPlus’, ‘Success’ etc which are quite popular in the southern market. In addition to catering to domestic market, company has been exporting 10-20% of the total production to around 15 countries across the world.. It has been accredited with various certifications such as ISO 9001, ISO 14001 and OHSAS 18001 by M/s Det Norske Veritas, Netherlands for its quality, environment and occupational health and safety management systems.

Presently, SPBL’s manufacturing plant has the pulping capacity of 230 TPD and paper manufacturing capacity of 115,000 TPA. Against this it made an all time high production of 123,468 tonnes of paper for FY07 leading to capacity utilization of more than 107%. At the same, it achieved ‘Zero Stock’ of finished goods inventory, as at the end of the FY07, for the 10th time in the last 13 years which proves the management quality and integrity. To enhance its environmental performance and to sustain compliance under CREP, SPBL is implementing Mill Development Plan at estimated cost of 350 cr which will also make the company self sufficient in wood pulp requirements. This project involves the replacement of the existing three decade old wood pulp Mill with a 350 tonnes per day second hand pulp Mill from USA which has advanced technological features, like RDH Pulping, Oxygen De-lignification, ECF Bleaching for wood pulp etc. The mill has already been dismantled, shipped from USA and arrived at the company’s mill site as per unconfirmed reports. Besides this, a new modern chemical recovery Boiler (in the place of existing two chemical recovery Boilers), a black liquor Evaporation plant, a lime re-burning Kiln and a turbo Alternator set will also be installed. This whole capex is funded thru a mix of 270 cr term loan and 80 cr of internal accrual and is estimated to complete by December 2007. On the other hand, to de-risk its dependence on government and other agencies, SPBL has entered into agreements with farmers holding over 3000 acres of land and planted Eucalyptus Hybrid/ Casuarina varieties to develop its own source of plantations.

To summarize, post up-gradation SPBL’s profit margin are estimated to improve substantially in FY09 due to lesser dependence on imported pulp, reduction in power and fuel cost, increased capacity, greater raw material yield on account of less manufacturing wastage etc. For FY07 it can report sales of 450 cr and PBT of 32 cr. As company has reversed the earlier deferred tax provision, the NP may be around 30 cr. This works out to an EPS of 27 Rs on equity of 11.25 cr. For the current fiscal it is expected to clock a turnover of more than 500 cr and net profit of 34 cr ie EPS of 30 Rs. However, the full benefit of the ongoing capex will be visible only in FY09. Despite its debt-equity ratio being high, scrip has the potential to give reasonable return of 25% in a years time. But buy at declines only.

Micro Technologies - 230.00 Rs

Established in 1992 and promoted by Mr. P Sekhar, Micro Technologies (India) Ltd. (MTIL) is a global provider of security, safety and life-support solutions. Over the years, MTIL has developed a wide range of security and IT products using its leverage over various futuristic technology platforms such as embedded, web-based and client server applications. Today, MTIL can boast of having very unique, hi-tech, first of its kind and innovative products like Lost Mobile Tracking System, Secure-Bank Black Box, Vehicle Black Box, Disaster Management System, Home Security System, Intelligent Black Box, Access Control Solution etc which have huge demand world wide. Some of the company's focus areas comprises of meeting utmost challenges viewing the requirement from the international perspective and delivering quality services in terms of security, e-commerce, wireless telecom and GIS technology universally. Ironically with over 80 IPR’s, its technology has been patented in 123 countries, giving it exclusive rights in these markets. Besides it has various web-based and non web-based software products for banks, hospitals, chartered accountants, lawyers, housing societies, SME’s, transporters etc. To summarize company’s revolutionary products are the USP for the company.

After developing and having world class products in its kitty, MTIL is now focusing more on marketing and distribution to increase its presence in India as well across the world. Accordingly it has appointed more than 2000 dealers/distributors all over India, opened more than 50 Micro Shoppe franchise outlets, increased participation in exhibition and has also increased the advertisement budget substantially for brand building and product awareness. It has also set up Micro Service centres to provide maintenance and support facilities. On the international front, it has a number of strategic alliances with majors like Siemens AG, Sony Ericsson, Automobile Research Association of India (ARAI), Knowledge Vector and Girvan Institute of technology to name a few. It has also entered into marketing tie-ups with numerous foreign companies like Active Solutions, Easy Fleet Solutions, Tokyo Software, Pacific Solution, Status Solutions etc to increase its global presence. Meanwhile, MTIL continues to have a strong R&D team with over 100 people working on multiple innovations to ensure that company introduces five to six new products in the market every year. Recently, it has launched couple of dynamic products like Office Black Box for office security and Electric Black Box for power industry which too has great potential. Notably, company has got a good breakthrough by bagging orders from Department of Explosives, India and Premium Municipal Corporation, UAE.

To fulfill the growing demand, MTIL is undergoing aggressive expansion to triple its capacity. Besides India, company has huge plans for export especially to USA, Middle East and European market. Hence it is desperate to make some acquisitions to make its foothold stronger in international market. On the other hand, it intends to quadruple the count of Micro Shoppe by this fiscal end. It has even launched a novell concept of Mobile Micro Shoppe ie Shops on Wheels. In order to fund its growth plan company is planning to raise around 85 cr thru FCCB/GDR route. It is also making preferential allotment of 11.50 lac shares/warrants which is expected to take place around 300/- Rs per share. To conclude, MTIL is bound to grow at a scorching pace through product innovations, strategic tie-ups and geographical expansion. For FY07 it recorded 80% growth in both sales as well as NP to 106 cr and 32 cr respectively. This means EPS of 30 Rs on equity of 10.50 cr. For FY08 the sales and NP can shoot up to 150 cr and 42 cr ie EPS of 28 Rs on estimated diluted equity of 15 cr. Hence investors are strongly recommended to buy at current levels as share price can easily double in 15 to 18 months.