Manappuram Finance & Leasing - Rs.26.00

Established in 1992, Manappuram General Finance & Leasing Ltd (MGFLL) is the flagship company of the 55 yr old Manappuram group of South India. It was the first NBFC from Kerala permitted to accept NRI deposits both on repatriable and non- repatriable basis. It is managed by a broad-based board comprising eminent professionals from banking, business, legal, computer, finance and capital markets etc. The company is accredited with ISO 9001-2000 certification from M/s NQA London, which conducts periodic surveillance audits to ensure the continued validity of their certification. Also MGFLL has paid dividends to shareholders every year since the first full year of its operations.

Headquartered in Thrissur district of Kerala, MGFLL has a network of 32 branches interspersed in Kerala, Tamil Nadu, Karnataka and Maharashtra. To widen its activities in metro cities, the company opened 14 new branches in FY05. It is currently strengthening the fee-based segment having diversified into marketing Life and General Insurance products along with full-fledged Forex operations, Instant Money Transfer and online share trading facility. It has entered into various tie-up arrangements with Birla Life Insurance, Cholamandalam General Insurance, Western Money Union Transfer, Apollo Sindhoori, ICICI Direct etc. It is also acting as a corporate agent for Car & Housing loans of ICICI and HDFC Bank. With a strong nationwide coverage through its several branches, MGFLL is well equipped to synergise its existing Hire Purchase and gold loan business with these fee-based activities. To look after the fee-based activities exclusively, it has promoted a subsidiary company by the name Manappuram Insurance Agents and Brokers (P) Ltd.

Financially, MGFLL continuously strives to identify and mobilise cheaper sources of funds while lowering the related operating and financial expenses. Apart from enjoying overdraft facility from various banks, the company has been sanctioned fresh limits of overdraft facility from M/s Indusind Bank to the tune of Rs.2 cr. It also managed to arrange for cheaper funds by way of securitisation with ICICI Bank and Sundaram Finance. The capital adequacy ratio of the company was 17.54% as on 31-03-2005 against the statutory requirement of 15%. Few months back, it made a preferential allotment of 10 lakh shares @ Rs.25 per share to promoters which prove that the management is confident of its future prospects. For FY06, it may post total revenue of Rs.19 cr. and NP of Rs.3.25 cr. which will lead to an EPS of Rs.6 on its current equity of Rs.5.50 cr. With mid caps coming back into action, this scrip may see a smart rally in the near future and may even cross its 52 week high of Rs.43 in 15~18 months.

Kallam Spinning - Rs.32.00

(KSL) was promoted by Shri Kallam Haranadha Reddy and associates and belongs to the reputed Kallam Group of Industries with vast experience in ginning, pressing, oil extraction, spinning and other cotton related business. It was originally incorporated as Kallam Agro Ltd but its name was subsequently changed to KSL in 1997. Since then, it has emerged as leading producers of combed cotton yarn in South India. With the abolition of the quota system, textile/garment export from India is poised for a massive growth in future which means proportionate rise in the demand of yarn as well. Besides, favourable govt policies and stable cotton prices are good for cotton yarn manufacturers. Due to better price parity and strong demand, KSL has partially shifted the thrust from exports to the domestic market but is still planning to set up an EOU spinning mill to tap the higher end market of USA and Europe.

KSL’s Mill is located at Guntur in AP with an installed capacity of 22,608 spindles. It also has a Hydel power plant with a capacity of 1.6 MW for captive consumption. To cater the rapidly increasing demand, KSL is implementing Rs.22 cr. capex plan under which it is putting up a new spinning mill at Dhulipalli near Sattenapalli in Guntur with a production capacity of 14,500 spindles. The whole project will be funded mainly through debt and partially through internal accruals and is expected to become operational by the end of this fiscal. Besides, there are good prospects for expansion of its spinning capacity because of the booming demand for cotton yarn in the post quota regime.

On the financial front, KSL has already got a term loan of around Rs.15 cr. from Andhra bank under TUF scheme and the bank has reduced the interest rate to 9.50% for all existing loans. It sales were flat at Rs.32 cr. in FY05 but NP zoomed 170% to Rs.2.70 cr. posting an EPS of Rs.4 on its equity of Rs.6.85 cr. Notably for the first six months of FY06, it has already earned a NP of Rs.2.52 cr. which is equivalent to its NP for the whole of FY05. Hence for the full FY06, company may report a topline of Rs.35 cr. and bottomline of Rs.4.50 cr. which transforms into an EPS of around Rs.7. Moreover, the company is yet to receive balance insurance claim of Rs.1.51 cr. from New India Assurance which will add to its other income in future. FY07 will even be more rosy due to the impact of expansion and it can sport an EPS of Rs.11~12. Investors are strongly recommended to buy as this scrip, which can double in 12~15 months.

STOCK WATCH

Bhagyanagar Metals (Code No: 512296) (Rs.27.50) is a good speculative buy. Company has finalized a scheme of restructuring under which it will demerge its metal / telecom business to Surana Infocom / Bhayanagar Telecom and will acquire infrastructure business from Surana Infocom / Surana Telecom. It will also merge Value infrastructure, an unlisted company with itself. Accordingly it will rename itself as Bhagyanagar Infrastruture, a pure infrastructure company and is planning to raise Rs.70 cr. through FCCB route to part-fund the development of an IT park, which would have about 3,50,000 sq. ft. of office space near the GE facility at Hyderabad. Only aggressive investors are advised to buy as promoters don’t enjoy good reputation as far as share market is concerned.

In a market where engineering and infrastructure companies are richly discounted even against their FY07 earning, Petron Engineering (Code No: 530381) (Rs.222) is available at reasonable PE multiple of 12 against its FY06 earning and at a market cap of with Rs.160 cr. Investors might not be aware that it has orders in hand of nearly Rs.400 cr. as it doesn’t inform the exchange every time it bags an order. For FY06, it may report a turnover of around Rs.385 cr. and NP of Rs.13.50 cr., which works out to an EPS of Rs.18 on its tiny equity of Rs.7.50 cr. A solid buy.

Sugar is the flavour of the season and the entire sugar sector is being re-rated. Simbhaoli Sugar (Code No: 507446) (Rs.119), one of the oldest and largest integrated sugar producers is still available at a reasonable valuation. It operates two mills in UP, one having a capacity of 9500 TCD at Simbhaoli and the other at Chilwara whose capacity is being expanded to 6000 from 3800 TCD currently. It is also setting up a new plant with 4500 TCD capacity at Ghaziabad, which will be operational form next season i.e. Oct 2006. Apart from setting up a new 60 KLPD ethanol plant at Chilwara, the company is expanding its ethanol capacity by 30 KLPD and distillery capacity to 120 KLPD at Simbhaoli unit. It also intends to setup a co-gen facility of about 26 MW and 24 MW at both its plant. Just grab it before it shoots up.

Due to the fall in freight rates, shipping sector has been an underperformer in 2005. Still GE Shipping (Code No: 500620) (Rs.243) has performed reasonably well and made a smart upmove last week. Its demerger is already finalised and shareholders will get 4 shares of GE Shipping and 1 share of Great Offshore Ltd. for every 5 shares currently held. This will unlock shareholder value substantially as the offshore business is richly discounted by the market. From the CMP 20~25% appreciation can easily be expected post demerger. Hold it patiently as the dividend yield is also good.

Mid caps and small caps are back in action, hence Fenoplast (Code No: 526689) (Rs.19) is expected to see some action in the near future. It is a reputed manufacturer of PVC leather cloth and PVC films. PVC cloth is used for domestic upholstery, automobile upholstery, soft luggage, footwear industry etc whereas its PVC films are used for blister packaging meant primarily for the pharmaceutical industry. Nearly 30% of the production is being exported to over 28 countries including UK, USA, Germany, France, Holland, South Africa and Singapore and it has a huge reputed domestic clientele. For FY06, it may post sales of Rs.100 cr. and NP of Rs.1.40 cr. i.e. EPS of Rs.3 on its small equity of Rs.4.60 cr. Having a book value of Rs.27 and market cap of merely Rs.9 cr. it can once again test its high of Rs.29.

Indo Asian Fuse Gear (Code No: 532658) (Rs.158) is among the top three players in the domestic compact fluorescent lamp market besides being a leading manufacturer of electrical safety devices such as miniature circuit breakers, HRC fuses, transformers, switchgears wires & wiring accessories, industrial plugs & sockets, contractors relay, distribution boards etc. It is undergoing rapid expansion by setting up 3 units at Haridwar at an investment of Rs.66 cr. For future growth, the company has entered into a joint venture with Nordex Lighting Spa of Italy to manufacture specialized outdoor lighting equipment. Company is planning to acquire two firms in the UK and Germany in a bid to ramp up its international presence. For FY06, the company is expected to post an EPS of Rs.12 which may shoot up to Rs.18-20 in FY07. Scrip has the potential to touch Rs.250 within 12 months.