Karur KCP Packaging - Rs.66.00

Beginning as supplier of jute bags to cement companies, Karur KCP Packaging Ltd. (KKPL) has today become a one-stop shop for the packing requirements of any industrial sector. Since its inception in 1961, the group has grown into multi-dimensional and multi-product group manufacturing paper, paper bags, polypropylene bags and flexible intermediate bulk containers (FIBC). In fact, KKPL is the only company in India manufacturing extensible sack kraft paper (ESKP) that is used for making multiwall sacks. Currently, 75% of its revenue is contributed by the paper and paper bags division and the rest by PP bags and FIBC.

KKPL’s hi-tech plant for paper and paper bag division is located at Pondichery whereas its reputed manufacturing facility for PP bags and FIBC is at Mayanur near Karur. Its paper bag division produces eco friendly paper bag using imported ‘bottomer’ machines from Japan having an installed capacity of 9 million bags per month. The paper unit manufactures special paper called ESKP thru CLUPAC, which is a patented US technology and has a production capacity of 70 TPD. Catering mainly to cement companies, its PP bag division produces 5 million bags per month. Also, its latest plant for FIBC manufactures world-class Jumbo bags of 500 kg to 2500 kg capacity with the entire production earmarked for exports to USA and EU countries. Last year, KKPL diversified into the non-cement sector namely Carbon Black, Tea, Fertilizers, Grains, Spices, Chemicals and Dyes etc. Due to this increasing demand, the company is planning to increase its Paper production capacity from 65 TPD to 80 TPD. Similarly, the FIBC bags capacity will be increased from 300 TPM to 400 TPM.

From jute to polypropylene then paper and now FIBC, KKPL is continuously growing its product range and expanding capacity. For Dec.’05 qtr., its sales increased by 15% to Rs.56.50 cr. whereas profit after tax spurted by 125% to Rs.2.30 cr. Company is estimated to end FY06 with sales of Rs.220 cr. and NP of Rs.8 cr. i.e. EPS of Rs.8 on an equity of Rs.10 cr. Incidentally, company has a total debt of around Rs.115 cr. on which it pays an interest of Rs.19 cr. @ whopping 16% p.a. To fund its expansion and reduce its debt substantially, KKPL is coming out with FCCB to raise around Rs.70 cr. which may dilute equity to the extent of 100% going forward. Hence only aggressive investors are advised to buy as the scrip can give 50% returns in a bullish market in 6~9 months.

Austin Engineering - Rs.82.00

Austin Engineering Company Ltd. (AEC) was incorporated as private limited company in 1978 and was subsequently converted into public limited company in 1985. Founded by 5 technocrats, AEC today manufactures the widest range of ball and roller bearings in a single manufacturing unit in India. AEC manufactures all types of bearings, which include Ball Bearings, Cylindrical Roller Bearings, Needle Roller Bearings, Tapered Roller Bearings, Spherical Roller Bearings and Flexible Roller Bearings etc. It makes more than 2500 different types of bearings in sizes ranging from 10mm inner diameter to 1000 mm outer diameter. . Its products are mainly consumed by the auto and engineering industry apart from steel plants, textile machinery manufacturers, power plants, defence industry, railways and the replacement market. The company has a strong, reputed clientele including Tata Motors, SAIL, Premier Automobiles, Punjab Tractors and Defence. It also exports to developed countries like USA, UK, Germany, Italy etc.

AEC’s has two manufacturing plants spread across 3,50,000 sq ft at Patla in Gujarat with an installed capacity of 3 million bearings. Due to rapid development and flexible manufacturing system, batch size is not a constraint and is its strong point to meet its customers' needs. It has an in-house R&D staffed by well-qualified engineers, a metallurgical lab using the finest gauges to critically follow the material behaviour after every process. The company continuously undertakes comprehensive modernization and technology upgradation as its product is well accepted by OEMs as an import substitute. AEC is planning to launch a number of new and high value added products, which will further strengthen its competitive edge in future. It has also established subsidiaries in Italy and USA to increase its exports.

Due to the huge demand from user industries and the strong industrial growth, AEC is witnessing the best of times. For Dec.’05 qtr. its Sales rose by 53% to Rs.15 cr. and NP almost tripled to Rs.1.10 cr. reporting a quarterly. EPS of Rs.3.35 on its current equity of Rs.3.28 cr. For full FY06, company is estimated to clock sales of Rs.55 cr. and NP Rs.3.50 cr. For FY07, sales may further rise to Rs.65 cr. with NP Rs.4.50 cr. This means an EPS of Rs.11 and Rs.14 for FY06 and FY07 respectively. The company is also expected to return to the dividend list from this fiscal itself. With reserves of nearly Rs.15 cr. i.e. book value of Rs.55 and a market cap of only Rs.26 cr., the scrip is trading reasonably cheap in the fast growing engineering sector. Investors are strongly recommended to buy it at CMP for 100% appreciation with a price target of Rs.150 in 15~18 months.

STOCK WATCH

With the boom in the auto sector on the back of strong industrial growth, the casting industry is reportedly doing very well. Gujarat Intrux Ltd. (Code No: 517372) (Rs.29.30), which is engaged in manufacture of Stainless Steel, Alloy Steel and Non-Alloy Steel castings has come out with good numbers for the Dec’05 qtr. Sales grew by 18% to Rs.4.90 cr. but its NP increased by nearly 50% to Rs.0.61 cr. For full year FY06, it may report NP of Rs.2.10 cr. i.e. an EPS of Rs.6 on its small equity of Rs.3.44 cr. Last year, the company had enhanced its capacity from 100 to 150 MT per month and with ferro alloy (its main raw material) prices expected to remain low, the company is unlikely to face any margin pressure in future. A good bet in the small-cap segment.

Fertilizer scrips are tipped to rise sharply in the near future in anticipation of some favourable announcement in the forthcoming Budget. Liberty Phosphate (Code No: 530273) (Rs.39), one of the low cost manufacturers of single super phosphate (SSP) with 12% market share is the cheapest bet in this sector. For the Dec’05 qtr., its total revenue increased by 21% to Rs.24.50 cr. whereas its NP spurted 87% to Rs.1.12 cr. due to lower tax provisioning. For the full year, it is expected to clock a turnover of Rs.80 cr. and NP of Rs.3.20 cr. This works out to an EPS of Rs.8 on its current equity of Rs.4.13 cr. Its share price can shoot up 30~40% in 6 months or so.

After hitting continuous upper circuits and making an all time high of Rs.305, Eldeco Housing (Code No: 523329) (Rs.237) has corrected sharply to Rs.225 on profit-booking. This North-based housing construction company has under taken several new mega projects worth Rs.250 cr. in Lucknow. Eldeco is fully booked for the next 3 years and its real estate development is going on in full swing. For Dec 05, its total revenue was up 18% to Rs.8.50 cr. whereas its NP has more than trebled to Rs.1.03 cr. For FY06, company is expected to post an EPS of around Rs.25~30 on very tiny equity of Rs.1.97 cr. For FY07, it is estimated to post bumper profit on completion of various projects. Scrip has the potential to test Rs.350 level in a bull market. Hold on to your position.

In spite of high crude oil prices, Laffans Petro (Code No: 524522) (Rs.31) reported pretty decent numbers. For the Dec.’05 qtr. its topline increased by 11% to Rs.38 cr. and its NP grew by 13% to Rs.1.26 cr. For FY06 ending on 30th Sept.’06, the company may report a topline of more than Rs.150 cr. and bottomline of Rs.4.50 cr. leading to an EPS of Rs.6 on its current equity of Rs.8 cr. when its book value is estimated to touch Rs.42. With a market cap of just Rs.25 cr., its share price is sure to rise 50% in 9~12 months. But in spite of being a profit making company, it’s yet to declare a maiden dividend.

When all auto ancillaries are richly discounted even against their expected FY07 earning, Subros (Code No: 517168) (Rs.177) is trading reasonably cheap with low sales to market-cap ratio. Professionally, it’s one of the well-managed companies with a uninterupted dividend track record since 13 yrs. For Dec.’05 qtr., though its Sales were marginally down to Rs.133 cr. its NP increased by nearly 50% to Rs.6.50 cr. due to better operating efficiency. Its OPM improved to 12% from 9% last year. Last fiscal, the company expanded its capacity to 5,00,000 AC units per annum and is now doubling the capacity to 10,00,000 units by setting up plants at Manesar & Pune. Although it is currently supplying to MUL and Tata Motors only, M&M, GM, Ford, ALL, Volkswagen and Renault may start buying from Subros. With an expected EPS of Rs.17 and Rs.20 for FY06 and FY07 respectively, its share price is sure to cross Rs.250 in the medium to long term. A solid buy.