ITL Industries - Rs.36.00

ITL Industries Ltd (ITL) was established in 1986 as a commercial Tool Room to cater to the needs of local engineering industries. Since then, it has become the pioneer and leader in high speed sawing technology and has established itself in domestic and global market as an innovative and reliable metal cutting solutions provider. In 1999, ITL ventured into a completely new segment of Pipe and Tube machine manufacturing where micron and metallurgy is of utmost importance and started manufacturing Tube and Pipe Mills, Section Mills, Straightening Machines, Draw Benches, Automatic Cut-offs, Accumulators etc. Today, it offers 60 different models of bandsaw machines ranging from 100 mm to 1500 mm cutting capacity with manual, semi-automatic, automatic and fourth generation CNC machines. Apart from saw machines, ITL is also making Industrial Blades, Power Hackshaw Machines, Special Purpose Machines, Hydro Testers, lubricants and other supporting equipments. It is also engaged in the trading of hydraulic power packs and hydraulic presses.

From being the sole manufacturer of India's first 100% indigenously designed and developed High Speed Double Column Band Saw Machine, ITL has recently developed and manufactured India's first high Speed CNC Circular Sawing Machine which has been well-accepted by most engineering companies. With its technical tie-up with a Kasto Maschinenfabrik GmbH Germany, ITL manufactures three models of Kasto Sawing Machines with cutting capacities 250 mm and 400 mm diameters in India. Today, ITL has become the hub for Tube Technology for leading manufacturers as it has technical know-how from USA, Europe and Japan through which it offers state-of-the-art equipment crafted by a highly experienced technical team. Its clientele includes biggies of auto and engineering industry including BHEL, Bharat Forge, Escorts, Hero Honda, L&T, Tisco, Kalyani Group, ABB apart from Defence, ISRO and the Ordnance factories. With an outlet in USA, ITL has established itself as a reliable qualified vendor to world leaders in engineering with exports to Europe, Middle East and South East Asian countries. It regularly participates in events, Trade Exhibitions in India and abroad and is set to appoint 5 dealers, one each in UK, Poland, Germany, Turkey and South Africa to capture a share of the export market.

With a healthy order book position and due to the ongoing boom in the engineering and capital goods sector, ITL is expected to perform much better in coming years making it a solid bet for the medium to long-term. For FY06, ITL is expected to report a turnover of Rs.18 cr. and NP of Rs.1.50 cr. i.e. EPS of around Rs.5 on its equity of Rs.3.23 cr. The company is expected to declare a dividend of Rs.1 which works to a yield of about 3%. For FY07, it can post sales of Rs.25 cr. and NP of Rs.2.50 cr. i.e. EPS of Rs.8 and the dividend is expected at Rs.1.50. In spite of such strong fundamentals, the scrip is available at a market cap of Rs.12 cr. and is trading at a PE of less than 5 against its FY07 earning. Investors are strongly recommended to buy at current levels as its share price can double in 15 months.

Sarla Polyester -- Rs.133.00

Incorporated in 1995, Sarla Polyester Ltd (SPL) is a 100% Export Oriented Unit (EOU) engaged in the manufacturing & texturising of synthetic yarns. It manufactures polyester, nylon texturised, twisted and dyed yarn. It also makes spandex and lycra/spandex covered yarns. In fact, it supplies lycra-covered yarns to various parties including Delta Inc. of USA, which is one of the largest producers of socks in the world. SPL is able to develop and satisfy all kind of requirements of manufacturers of sewing thread, hosiery socks, knitwear, woven labels, window lace, raschel and levers, lace, hosiery yarns, medical textiles, narrow fabrics, woven fabrics, industrial yarns and hand knitted fabrics. Currently, SPL exports to more than 20 countries across the globe including USA, UK, Canada, Germany, Australia, Malaysia, Sweden, Italy etc.

SPL has its units at Silvassa and Vapi, both of which are vertically integrated plants and have the flexibility to process orders ranging from a few thousand to several hundred thousand kgs. It also has its own dyeing house with muff / hank dyeing facility to dye nylon yarn with high level of stretch and elasticity. In FY04, it also set up a new unit with a capacity of 2,734 tonnes a year at Silvassa at a cost of Rs.20cr. process various types of polyester and nylon among others. With this, its total capacity has gone up to 9434 TPA. To increase its product range, SPL has already put in place an ultra modern spinning plant to produce high-tenacity nylon threads with a capacity of 1,200 TPA. These high tenacity yarns in the mid range denier have a wide range of applications and are used for car airbags, parachutes and other defence related fabrics, fishing nets, industrial fabrics and filters/hoses apart from being used for sewing of leather shoes, car upholstery etc. Interestingly, it is also expanding its lycra/spandex/rubber covering capacity though it has India's largest covering capacity. It is also investing around Rs.2 cr. in Savitex SA de CV in Honduras, Joint Venture established for the manufacture of Synthetic dyed yarns on 50% partnership share basis.

Of late, the profitability of the company has increased dramatically due to improvements in product mix and addition of newer and higher value added items. For future growth, SPL is focusing on value-added products and specialized synthetic yarns, which require highly skilled manpower, especially for mixing dyes. SPL is almost a debt-free company with a very strong financial muscle. For FY06, it is estimated to clock a turnover of Rs.85 cr. and NP of Rs.12 cr. which may rise to Rs.105 cr. with NP of Rs.14 cr. for FY07. This translates into EPS of Rs.17 and Rs.20 respectively. Investors are advised to buy at declines with a price target of Rs.200 (50% appreciation) in 12 - 15 months.

STOCK WATCH

Amex Information Technology (Code No: 532311) (Rs.33) is a relatively small player engaged in BPO and IT enabled products and services. It also provides biometric solutions and offer a range of products from PC based biometric devices to biometrics embedded devices used by OEM's in their Access Control Devices. The company has an enviable clientele in India and abroad. For the qtr. ending Dec. 2005, while it’s total revenue grew by nearly 30% to Rs.11.50 cr., its NP jumped by 80% to Rs.3.30 cr. i.e. EPS of Rs.2 on its current equity of Rs.16.75 cr. For the full year FY06, it is expected to post an EPS of Rs.7. Although the promoters’ stake is only 14%, it’s a dividend paying company and the scrip has the potential to give 50% return in the medium term.

Small cap pharma scrips have been written off by marketmen as if there was no tomorrow! Syncom Formulation (Code No: 524470) (Rs.62.50) too has corrected sharply and is hitting new lows daily. For the nine months ending 30th Dec 2005, it has clocked a turnover of Rs.41 cr. and NP of Rs.5.30 cr. For the full year FY06, it may report a topline of Rs.55 cr. and NP of Rs.6 cr. which translates into an EPS of around Rs.11 on its equity of Rs.5.62 cr. It has prepaid its entire loan and has become a debt-free company. Besides, it is also planning to diversify into power, construction, coal business and investment. For FY06, the company is expected to declare Rs.1.50 dividend, which means a dividend yield of 2.50%. Since it’s an operator driven scrip, only aggressive investors are advised to buy.

After a dream run till Rs.60, Indian Sucrose (Code No: 500319) (Rs.44) has cooled off sharply due to profit booking on the back lacklustre Dec.’05 numbers. From this season, the company has increased its crushing capacity to 5000 TCD from 3500 TCD. Besides it has also acquired a company called Cosmos Industries Ltd with a sugar manufacturing unit at Dhuri in Sangroor district of Punjab with an installed capacity of 2500 TCD. Earlier, it had acquired a distillery that owns 4 well-known brands of Rum. For FY06, it may report Sales of Rs.100 cr. and NP of Rs.12 cr. which translates into an EPS of Rs.8. With the sugar price expected to rise in future, it can report Rs.10~12 EPS for FY07.

Before listing of Gitanjali Gems, we may see some action in the Gems & Jewellery sector. Earlier, this industry was avoided by markemen but with the evolution of retailing and gold prices hitting new highs, it has caught market fancy and the attention of some big operators. Su-raj Diamond (Code No : 507892) (Rs.62) is also positioning itself in the retailing segment in the domestic market through its subsidiary and associate company ‘Su-Raj Diamond Dealers Ltd’ and ‘Forever Precious Jewellery and Diamonds Ltd’. It has nine manufacturing units in the country and also has permission to set up jewellery manufacturing units in SEZ at Kolkata and Kochi. For FY06, it can report a turnover of Rs.1200 cr. and NP Rs.36 cr. which means an EPS of Rs.9. A safe bet.

Steel scrips are coming back into action and most of them registered smart gains last week. National Steel & Agro (Code No: 513179) (Rs.23), belonging to the renowned Ruchi Group has not risen and is still trading very cheap. For FY06, the company may report a turnover of Rs.1750 cr. and NP of Rs.16 cr. Against this, it is available at market cap of only Rs.75 cr. and is discounts its FY06 earnings of Rs.5 by 5 times only. The scrip has the potential to rise 20~25% in the short term. Moreover, the Ruchi Group is consolidating all its business and is planning to focus mainly on its metal business in future. Hence it’s a good long-term bet as well.

The forthcoming Budget is estimated to be favourable for the food processing industry and Agro Dutch Inds. (Code No: 519281) (Rs.38) is tipped to rise sharply post budget. The company has recently raised money through a right issue and is implementing Rs.86 cr. capex plans whereby it is increasing its total capacity to produce 50,000 tonnes of mushroom. This whole expansion will be for frozen mushrooms for which the realization is better than canned mushrooms. Hence it is setting up a plant for individual quick frozen (IQF) mushrooms. Moreover, it is also putting up a Rs.40 cr. facility to manufacture tin cans in Chennai. With lower anti dumping duty in USA and better price realization, the company is estimated to earn a NP of Rs.18 cr. on sales of Rs.210 cr. for FY07. With an EPS of more than Rs.6, the scrip can appreciate handsomely in future whereas the downfall is minimal form the current level.