Mount Shivalik Industries Ltd - 102.00 Rs

Incorporated in 1993, Mount Shivalik Industries (MSIL) is engaged in the business of manufacturing and marketing beer. It belongs to the well known Mount Shivalik group promoted by Bali family, who are pioneers in brewery’s business since 1970’s thru Mount Shivalik Breweries Ltd (MSBL), a group company. They were the first to introduce the concept of the super strong beer in India way back in 1984, with its flagship brand ‘Thunderbolt'. The group was also the first to bring in pub culture in north India by opening pubs in Chandigarh. Later, they diversified into hospitality sector too with Mount Shivalik Hotels and Resorts Ltd, which owns and runs Motels, beer gardens, pubs, highway restaurants and other recreational facilities. On the other hand, MSIL today specializes in production of strong as well as mild beer and markets then under various brands across India. ‘Thunderbolt’, ‘Torpendo’, ‘Punjab Extra Strong’& ‘Stroh super strong’ are its popular brand under strong beer category, whereas ‘Golden Peacock’ & ‘Stroh’s Premium Lager’ are its mild beer brands. MSIL also has the privilege to brew and market “Cobra” beer which is one of the most popular beer brands in the UK.

MSIL’s state-of-the-art brewery plant is located at Delhi-Jaipur highway, Dist. Alwar, Rajasthan with an intalled capacity of 300,000 hecto litres per annum. It is the single largest manufacturing unit of beer in Rajasthan. Notably, it produces international class beer under technical expertise and tie up with world leaders like M/s Stroh Brewery, USA & Cobra Beers, UK. Incidentally, company also has a small hospitality division which has recently opened its first restaurant-cum-bar at Jaipur in Feb’07. Meanwhile, its other group company MSBL, has also augmented its manufacturing capacity at its plant in Delhi-Chandigarh highway, Punjab. Together, they enjoy a market share of nearly 10% in India with dominant presence of about 25% share in north Indian market. Off late, the Indian breweries and distillery industry is witnessing accelerated consolidation with leading foreign players picking up controlling stake in domestic majors. And at one point of time, SAB miller, Heineken and Carlsberg were interested to acquire majority stake in Mount Shivalik group, but the deal didn’t match on the valuation front. It even makes sense for Cobra Beers to takeover this group, as they are quite bullish on Indian market and intends to increase their market share which is being dominated by King Fisher. Hence, to get better valuation the Mount Shivalik group is considering to restructure and consolidate its brewery business and may even merge its unlisted entity i.e. MSBL with the listed one i.e. MSIL. Once the decision is finalized and official announcement is made, the share price of the company will shoot up vertically.

Besides, as per unconfirmed reports a leading domestic major is also interested to acquire the company and has carried out the due diligence. Ironically the management is ready to shell out if they get their desired price. Considering this, lot of speculative interest has build up in the scrip as it has appreciated more than 50% in last few months. Fundamentally, MSIL reported excellent nos for H1FY08. Sales shot up 65% to 56.50 cr whereas PAT almost trebled to 5.20 cr. However on a conservative basis it may clock a turnover of 100 cr and NP of 6 cr for FY08. This works out to an EPS of Rs 10 on equity of 6.05 cr. For FY09 company has the potential to post an EPS of Rs 13 Rs. Thus, the company is currently discounted by merely 7x ~ 8x times against its expected FY09 earnings and is available reasonably cheap at an EV of 68 cr. Investors are recommended to accumulate at declines with a price target of 160~170 Rs in 15 months. And in case the merger of MSBL with itself fructifies or some MNC / domestic major stuck a deal to acquire the company, the scrip will be re-rated and may zoom past 200 Rs in no time.

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ADF Foods Ltd - 78.00 Rs

Established in 1932 as a small retail store selling dry fruits, ADF Foods Ltd (erstwhile known as American Dry Fruits Ltd) has gradually emerged as one of the leading Indian exporter in the processed food industry. It is engaged in manufacturing, processing and marketing a wide range of canned, bottled and processed spices, vegetables and ready-to-eat foods for exports. Today, it boasts of having more than 300 varieties of traditional and ethnic Indian food products including pickles, cooking pastes, chutney, spices in whole and ground form, IQF Indian vegetables, instant mixes, canned ready to eat vegetables, canned vegetable in Brine, frozen foods, various Indian curries and snacks. It constantly innovates and renovates products in its portfolio to meet the changing habits of the consumer. ADF markets its product under five brands, out of which “Truly Indian” and “DES” have been launched last year only. “Ashoka” is their flagship & premium brand whereas “Aeroplane” and “Camel” brands are market leaders in chutney and pickle segment. ADF’s products are quite popular in USA, UK, Canada, Australia & Middle East apart from being sold in leading supermarkets and retail chains across other countries like New Zealand, Japan, Hong Kong, Singapore, Germany, France, Spain and Denmark.

ADF has two EOU manufacturing facilities located at Nasik, Maharashtra & Nadiad, Gujarat and both have obtained various quality certifications such as the internationally recognized BFIC (British Retail Consortium) Global Standard - Foods, ISO 22000/HACCP & ISO 9001:2000. Last fiscal, company increased its capacity by 1000 MT for production of frozen food products at its Nadiad unit. This year it expanded its activity in Nasik EOU division for production of chutneys, retort and ready-to-eat products. Moreover, it is in the process of setting up a third unit in Surat Special Economic Zone with an investment of 20 cr for manufacturing pickles and frozen food products. Importantly, only couple of years back ADF ventured into fast growing & lucrative frozen food / ready-to-eat segment and today this segment is already contributing nearly 25% of total revenue. In its efforts to further diversify its product line, ADF recently launched a range of ready-to eat frozen wraps with a choice of irresistible fillings like aloo tikki, achari aloo, pindi chole, paneer burji, paneer schezwan etc. With the advanced food preservation technology, the shelf life for these products is increasing day by day. Moreover, it has also expanded its menu by introducing / developing non-Indian dishes viz. Asian dishes and Mediterranean dishes. In short, ADF aims to be among the top 3 companies in the world in the ethnic Indian foods segment and promote spice-rich Indian cuisine across the globe, especially to the Non Resident Indian population.

Earlier, there was a dispute between the promoter family members, which have been settled in an out-of-court settlement and accordingly ADF has bought 'Ashoka' & 'Classic Ashoka' trade names which were originally owned by other family members thru Power Brands Food Ltd. The deal has been finalized at 20 cr against which ADF will issue 50 lakh equity shares and will merge Lustre investments (holding company for Power Brands) with itself. World over, the ethnic foods market, especially the Indian ethnic foods market is growing leaps and bounds and ADF with its strong and well differentiated brands, well diversified product portfolio and efficient distribution network is all set to cash on this opportunity. Besides, ADF is also looking to enter domestic market as the demand for ready-to-eat foods is on rise in metro/urban cities due to newly developing social structure of nuclear families and lack of time. This demand is further fuelled by ongoing retail revolution with development of organized large format supermarkets and departmental stores. This will not only derisk its revenue model but also offers a huge potential market which is expected to grow exponentially in future. To fund its growth plan, ADF is planning to raise 30 cr thru private placement of 41.50 lakh equity shares and warrants @ 70 Rs per share and may further raise 50 cr thru FCCB route. For FY08 it is estimated to clock a turnover of 100 cr and net profit of 10 cr which translates into EPS of 6 Rs on enhanced equity of 15 cr. Considering company’s brand value and growth potential it is trading reasonably cheap at an enterprise value of 130 cr. However the appreciating rupee and substantial equity dilution in future is a cause of concern. Hence long term investors are advised to accumulate at sharp declines only with a price target of 120 Rs in 15~18 months.

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Apart from being a leading caustic soda manufacturer, Chemfab Alkali (105.00) has ventured into fast growing retail health care segment and also manufactures water purifying machinery & sells packaged drinking water under brand name “TEAM”. It is also the only Indian manufacturer of multi bore hollow fibre ultra filtration membranes, whose marketing is done by M/s Dupont, worldwide. Notably, company has already opened three outlets of ‘Team Health Shoppe’ at Chennai to market its own ‘Team Eubio’ care products as well as proven products from other manufacturers. Thru these shops it offers a range of health care, body care, beauty care, skin care hair care and other nutritional food products. Its ‘Energy Herbal Water’ which can neutralize acidic wastes in the body and reduce weight has been a super hit and is witnessing strong demand. Few months back, due to some labor unrest at the manufacturing plant, its last two quarter performance got hit badly but now everything is fine and company is back on track. Thus, it is expected to report sales of 110 cr and profit of 16.50 cr for FY08 which leads to an EPS of 18 Rs on small equity of 4.60 cr with face value as Rs 5/-. Despite marginal fall in net profit this fiscal, company is expected to maintain 100% dividend which gives a handsome dividend yield of around 5%. Moreover in future, management may de-merge its health care division which will lead to re-rating of the company.

Blue Bird (72.00) is one of the leading manufacturers of paper based notebook products and office stationery products like executive notepads, diaries, arch-lever files, perforated pads, registers, filler papers and folders. Although notebook forms the core business with more than 80% revenue, company has also ventured into publishing academic textbooks and self study books for children apart from general publications in subjects such as ayurveda and biographies. It also offers commercial printing under which it designs and prints annual reports, brochures, catalogues, offer documents, coffee table books, calendars, greeting cards, magazines, text books, publications etc. In order to cater the central and south India market efficiently, company has recently put up two new plants at Indore and Bangalore apart from having its main plant in Pune. It is also expanding its distribution network and has ambitious growth plans for publication division. Although, its H1FY08 nos are not so encouraging, still it is expected to end FY08 with sales of 550 cr and PAT of 30 cr i.e. EPS of Rs 9 on equity of 35 Rs. Considering its IPO at Rs 105 in Nov 2006 and 52 week H/L as Rs 128/55, it still has the potential to rise 20~25 % in short term.

Like other IT scrips, investors are selling Tera software (82.00) also in fear of rupee appreciation with knowing that company derives 100% of its revenues from the domestic markets. Hence it is totally unaffected by any sort of rupee appreciation against US dollar. It is actually is one of the leading e-governance solution providers, undertaking data entry/scanning works for digitization of information maintained under Right to Information Act. It also undertakes short-term projects like issue of photo ID cards, ration cards and election commission cards. In consortium with Electronics Corporation of India Ltd, company has bagged huge e-governance order, taking its total order book position to around 250 crore to be executed in next five years. Recently, company has been selected as empanelled vendor for rollout of IT services in govt sector through National Informatics Centre Services Inc. for a period of one year which can be extended for another one year. On the back of excellent half yearly nos, company is estimated to report total revenue of 75 cr and PAT of 16 cr i.e. EPS of 13 Rs on equity of 12.50 cr for FY08. Moreover company has few acres of surplus land in Hyderabad, which it plans to either sell or enter into JV with infrastructure company. At a modest discounting by 12x times, share price has the potential to cross 150 Rs in medium term. In short it’s a mini Vakrangee Software.

Roto Pumps (64.00) 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. On the back of strong industrial growth and robust demand for its product, company has undertaken an expansion cum modernization plan at its manufacturing facilities. It recorded 24% growth in sales to 18 cr and 40% rise in net profit to 1.20 cr for half year ending Sept’07. Accordingly it may register a topline of 40 cr and bottom-line of 2.75 cr for fiscal year 2008. This translates into EPS of 9 Rs on a small equity of 3.09 cr. Hence with promoters holding 70% stake, the floating stock is very low. This means scrip can see a vertical rise if it catches market fancy. Moreover for FY09, company has the potential to post an EPS of more than Rs 12. At the current enterprise value of Rs 26 cr, scrip is trading fairly cheap. Long term investors should keep accumulating at decline for a price target of 100 Rs in 12~15 months.

Wanbury Ltd - 135.00 Rs

Wanbury Ltd (Wanbury) actually came into existence with the merger of the two diverse companies, Wander and Pearl Organics. These two entities are now functioning as the independent business units of Wanbury. While Wander Ltd became the formulations division catering the domestic market, Pearl Organics manufactures bulk drugs for international market under API division. Ironically, Wanbury is the world’s largest producer of Metformin Hydrochloride - a diabetes management product and Salsalate, an anti-inflammatory drug. Presently, more than 50% of revenue comes from export to over 50 countries serving 200 customers including three of the top five generic players in US. And notably, 65% of the total export is done to regulated markets like USA, UK, Europe etc. The key bulk drugs manufactured by the company are ibuprofen, glucosamine, promethazine, tramadol, atenolol, sertraline etc. Under the formulations business, company’s product profile comprises of anti diabetic, neutraceuticals, antibiotics, cough & cold solutions, anti- inflammatory & analgesic with specialization in gynecology, orthopedic pediatrics, nutrition etc. Wanbury also offers telemedicine and video conferencing services which are new revolution in healthcare industry.

Post its recent amalgamation with Pharmaceutical Products India and Doctors Organic Chemicals (DOCL), Wanbury now boasts of having three world class large scale plants spread across Patalganga & Tarapur in Maharashtra and Tanuku in Andhra Pradesh. Of these, it’s Patalganga and Tanuku facilities are USFDA approved for multi-products and also of EDQM standards. Apart from having corporate office in Vashi-Navi Mumbai, it has set up two hi-tech R&D centers: one in Turbhe-Navi Mumbai, for API and another at Chembur-Mumbai, for formulations. Currently, Wanbury has 23 DMFs with USFDA and is looking to file another 4~5 DMFS in near future. Off late it introduced 2 new brands ‘C-Pink’ and ‘Rabiplus’ in domestic market and both are doing exceedingly well. As a part of its growth strategy, company has launched a super specialty research division `Osteolife' catering to orthopedic health issues such as osteoporosis, osteoarthritis and pain management. Besides, with acquisition of DOCL, Wanbury has got into CRAMS business also and does contract manufacturing for leading MNCs like Pfizer etc.

Now most importantly, Wanbury recently acquired the generic ethical formulation business division of Industrial Farmaceutica Cantabria, Spain for approx 250 cr thru its wholly owned subsidiaries. Interestingly, only 40% payment is to be made upfront with balance 60% to be paid in two year and the assets of the Spanish firm will be used as collateral to raise loans to fund the acquisition. Cantabria, which owns 17 brands in various therapeutic segments like traumatology, pain management, asthma, anti depressants, anti eplileptics, anti ulcerants, cephalosporin’s, beta blokers etc is targeting a revenue of Euro 33 million (i.e. Rs 200 cr) with an EBITDA of Euro 8-10 million (i.e. Rs 50~60 cr). Moreover, it has product development worth Euros 6 million in the pipeline for the next year and is expected to grow at CAGR of 15~20% over a five year period. In short this first overseas acquisition has significantly propelled Wanbury into new dimension.

In April’07, company issued FCCB aggregating Euro 15 million in order to fund the Cantabria acquisition, organic expansion, related diversifications and new R&D activities. Out of this, Euro 8 million is fully paid up whereas only 10% is paid-up for balance 7 million and these FCCB’s can be converted into equity shares @ approx 140 Rs. Apart from modernizing and expanding its manufacturing capacity, company is also in the process of acquiring domestic ethical brands. Moreover the rise in outsourcing of pharma activities to low-cost offshore destinations like India bodes well for Wanbury as company is now in a unique position to offer a single point of contract for R&D, process development and commercial production. For FY08, on a consolidated basis including the Cantabria business, it is expected to clock a turnover of 375 cr and PAT of 35 cr. This leads to an EPS of 26 Rs on current equity of 13.60 cr. However on fully diluted equity of 21 cr (post conversion of all warrants & FCCB’s) the EPS works out to 17 Rs. This can move up to 20 Rs for FY09. Hence at a reasonable discounting by 12x times against its FY09 earning, scrip has the potential to cross 240 Rs in 12~15 months. At the same time if rupee appreciation continues, the bottom-line may get affected to some extent.

Linc Pen & Plastics Ltd - 38.00 Rs

Established in mid 70’s and founded by Mr. S.M. Jalan, Linc group has over the past three decades established itself as one of the market leaders in the writing instrument industry of India. Today, Linc Pens & Plastics Ltd (LPPL) boasts of having a product portfolio of over 200 SKUs including stationery equipment. It offers a wide range of writing instruments from ball pens to gel pens and markers to pencils. Its products are targeted primarily at the mass markets, schools and offices. The USP of the company has been quality product at reasonable price i.e. value for money thru economically priced products with great price-to-performance ratio. It was the first company to launch a gel pen at Rs.10 when the prevailing price of other brands was over Rs.15. Subsequently, it was again the only one to introduce 5/- Rs gel pen, which helped the company to be brand leader in the gel pen segment and increase its market share considerably. Incidentally, it is also the sole marketer for premium international brands like Lamy, UniBall and Bensia. Lamy, is not only the market leader in Germany but has also become one of the renowned brands for fountain pens, ball point pens, roller ball pens, multi system pens and mechanical pencils across the world. On the other Uniball is the most popular brand of Mitsubishi, Japan and Bensia is a well known manufacturer of non-sharpening pencils.

LPPL has three large state-of-the-art manufacturing facilities with two in Goa and one near Kolkata. Apart from having ISO 9001:2000 certification, its plants are also approved by some of the world's leading retail chain of stores like M/s. Walmart Stores Inc, Tesco International, W.H. Smith etc. Presently, 20% of revenue comes from export to over 30 countries. The primary focus of the company has been on private label contracts with top chain stores like Steadtler, Liquimark, Poundland, ICO, Stypen, Dollar Tree, Office Works, CVS, John Lewis, Coop Norden etc to name a few. Here in India, LPPL has ventured into lucrative retailing business with two format stores namely – ‘Just Linc’ and ‘Office Linc’. While the former stocks only ‘Linc’ products, the latter is one-stop shop for all kinds of stationery products required in an office, from pins to laptops. ‘Office Linc' has roped in channel partners like Airtel, DHL, Blue Dart, Microsoft, Music World, Book Cellar, Anderson Printing, Presto, Aqua Java, SKP Moneywise and Talk, who will stock their products and provide after-sales services as well. As on today, total 18 stores of both format are already operational and the company intends to have pan India presence in future. Importantly, LPPL has appointed Rediffusion DYR, the fourth largest ad agency for brand building and has allotted more than 7 cr for ad campaign.

Last fiscal, company revamped its product mix by phasing out couple of high volume low value brands, due to which the average realization per pen increased from 2.25 to 2.60 Rs. It was also successful in increasing the average realization per refill from 0.82 to 1.16 Rs. In order to have better information system, LPPL is implementing ERP system from SAP and has chosen M/s. Price Waterhouse Coopers as their implementation partners. Increasing working population, growing level of literacy, burgeoning middle class, huge retail revolution etc – all these augurs well for the growth of LPPL. After reporting flat performance for FY07, company is now growing at healthy pace and has registered 20% and 30% growth in sales and NP respectively for H1FY08. Thus it is expected to clock a turnover of 175 cr and PAT of 5.50 cr for FY08 i.e. EPS of 7 Rs on an equity of 8 cr. With 52 week H/L as 52/28 Rs, book value of 36 Rs, dividend yield of nearly 4% and specially considering its brand value, the company is available fairly cheap at an enterprise value of 60 cr. At a reasonable discounting by 8x times, scrip has the potential to touch 60 Rs (i.e. 50% appreciation) in 12~15 months. However, investors should keep in mind that company is in a very price sensitive business with cut throat competition and is operating at very low net margin of 2~3%.