VST Tillers and Tractors - Rs.100.00

Established in 1965, VST Tillers and Tractors Ltd (VST) was promoted as a joint venture by VT Velu and VT Krishnamoorthy in technical collaboration with the Mitsubishi group of Japan, which currently holds more than 4% stake in the company. VST manufactures power tillers (10-15BHP), tractors (18.5 BHP), diesel engines & precision components like crankshafts & connecting rods. Its products are sold under the brand name - VST Shakti, Mitsubishi-Shakti and Euro Trac. The company is the undisputed market leader in the Indian tiller market enjoying more than 50% market share. It also exports its products to countries in South & East Asia, Middle East, Africa, Eurpose, USA etc. It is also into trading supplying imported machinery from other countries such as rice transplanters, combine harvesters, garden tillers, reapers, hedge trimmers, bush cutters, hole diggers etc

VST has three manufacturing facilities spread across Bangalore, Mysore and Hosur. The total installed capacity is around 13,000 units of tillers and tractors combined. Currently, it is working only at 70% capacity leaving ample scope for further growth with no capex requirement in the short term. Its power tillers already have a strong presence in Karnataka, Tamil Nadu, Maharashtra, Orissa, Gujarat and is gaining market share in West Bengal and Andhra Pradesh. Its tractors division is growing at an enormous pace with strong demand coming in especially from Maharashtra and Gujarat. Its precision components division besides contributing to revenue continues to supply critical engine components for captive consumption. Last year, this division won TS16949 certification, which will help in further developing the overseas market for its engine component business. In order to beat the competition and increase its market share in the lower end tillers market, VST has decided to import Chinese tillers in the CKD form, assemble them at its Hosur facility and market them under a new brand Dragon Power Tiller (14 HP horizontal four stroke single cylinder) through its marketing and distribution network. The company is also in negotiation with its technical partner, Mitsubishi, for setting up a 50:50 joint venture to manufacture diesel engines for power generators and tractors.

To maintain the GDP growth rate, both the Central and State Governments have accorded priority to agriculture and rural development by providing subsidies to small and marginal farmers. This augurs well for the company as its business model is very much dependent on such Govt. schemes. Considering all the factors, the company is expected to clock a turnover of Rs.150 cr. and NP of Rs.7.50 ~ 8 cr. for FY07. This means an EPS of Rs.14 on its equity of Rs.5.80 cr. With a market cap of only Rs.58 cr. and book value of nearly Rs.80, dividend yield of 3% and 52W H/L of Rs.161/68, this scrip is a value buy and has the potential to give 50% return in 12~15 months.

Paradyne Infotech - Rs.68.00

Incorporated in 1997, Paradyne Infotech Limited (PIL) is Mumbai-based IT Company focused on three main strategic business areas viz. - software services, managed services & system integration. It also offers BPO services, which largely comprise of database management services for existing clients. PIL’s services and enterprise solutions are in the areas of e-Commerce, Business Intelligence, Business Process Management and Customer Relationship Management that are provided to specific industries like Banking, Financial Services, Insurance, Education & Research, e-Governance, Manufacturing & Retail, Healthcare and Telecom. Its managed services include facilities management, network management, remote management, disaster recovery management, maintenance services, application management and database management. PIL has a good resource base of technical professionals for system integrations like database integration, application integration, server integration, desktop and operating system (OS) integration, network integration, security integration and storage integration.

PIL has developed two key software products ‘HrWorQ’ & ‘FinWorQs’, which got a good response from the market and are doing well. HrWorQ is a complete integrated solution, which provides a new generation IT architecture for the Human Resource management within an organization. FinWorQs is a core banking technology that is completely centralized, customer-centric, fully integrated solution addressing the needs of Foreign Banks, Nationalized Banks and Co-operative Banks. It has an impressive clientele, which include JM Morgan Stanley, IDBI Bank, Corporation Bank, SBI, Indian Navy, HUDCO, Reliance Infocomm, Idea Cellular, Hughes Telecom, ONGC, IPCL, Globus Stores, KPIT Cummins etc. Notably, PIL has various strategic and partnership alliances with international biggies like Oracle, Sun Microsystems, Veritas, IBM, Acer, CISCO, APC, HP and Microsoft. It has recently won the coveted Deloitte Technology award for being among the 500 fastest growing technology companies across Asia Pacific region. The company also has a wholly owned subsidiary called Sundune Corporation in USA, which looks after the implementation and support functions as well as exclusively marketing its products in USA.

In Oct 2005, it came out with IPO to raise around Rs.14 cr. for funding its modernization & expansion plan including upgradation of products, infrastructure, R&D lab and a software development centre apart from setting up data and call centres. For future growth, PIL is aggressively shifting its focus from system integration to software services, which would improve its profit margins going forward. On a conservative basis, we expect it to report sales of Rs.125 cr. and NP of Rs.10 cr. For FY07, this works out to an EPS of Rs.9 on its equity of Rs.10.90 cr. Hence with reasonable discounting by 12 times, it can cross Rs.110 (50% appreciation) in 9~12 months. Buying recommended on declines.

STOCK WATCH

SAIL and Tinplate Co. of India Ltd (Code No: 504966) (Rs.90) are the only indigenous producers of tinplate with TCIL enjoying more than 35% of the market share. Due to increasing demand, the company is regularly expanding its capacity and has recently completed its first phase of expansion taking the total installed capacity to 1,70,000 from 90,000 TPA earlier. It is now undergoing the second phase of expansion to double its capacity to 3,50,000 TPA by 2007~08 with an investment of Rs.200 cr. It has also invested in downstream value added facilities like printing and lacquering. For FY07, it is estimated to report sales of Rs.525 cr. and NP of Rs.48 cr. which translates into an EPS of Rs.17 on its current equity of Rs.28.90 cr. The company is expected to come out with excellent March numbers on 27th April. The TCIL scrip is trading fairly cheap and can easily appreciate 50% in 6~9 months. A strong buy.

South Indian Bank (Code No: 532218) (Rs.60) is on a huge expansion spree and is aggressively opening branches in un-represented pockets like MP, UP, Jharkhand, Orissa, Jammu, Uttaranchal, Assam etc. It plans to increase its network from 435 branches to 500 branches spread across 22 States and build a networth close to Rs.1,000 cr. with total business volume of Rs.25,000 cr. by the end of 2008. Nearly 75% of its branches has adopted core banking technology (Finacle). Its capital adequacy ratio (CAR) after the recent public issue stands at 12.51 % and as per estimates its net NPA has slipped below 2% in FY06 from 3.81% in FY05. It has reserves of a whopping Rs.450 cr., which translates into a book value of more than Rs.70. The bank will also get around Rs.23 cr. from IOB for its shares of Bharat Overseas Bank, which will boost its bottomline. With expected NP of Rs.55 cr. i.e. EPS of Rs.8, it is one of the cheapest private banks and has a market cap of less than Rs.450 cr., which makes it an easy takeover target.

Gupta Synthetics Ltd (Code No: 514116) (Rs.151) is a reputed manufacturer of partially oriented yarn (POY) and fully drawn yarn (FDY) with ultra modern plants at Surat and Silvassa. To cater to the rising demand, the company has recently enhanced its production capacity of FDY by 15,000 TPA with a capital outlay of Rs.25 cr. It is also exploring possibilities to take up a backward integration project by installing a Continuous Polymerisation (CP) plant to reduce its dependence on foreign suppliers. It’s also planning to increase the capacity for POY and other texturised yarn. Recently, it decided to make a preferential allotment of 16 lakh warrants to be converted into equity shares at the rate of Rs.155 per share. For FY07, it may report sales of Rs.350 cr. and NP of Rs.14 cr. This works out to an EPS of around Rs.45 on its diluted but tiny equity of Rs.3.20 cr. Although rising crude oil prices is a concern, still it is quite cheap at its market cap of less than Rs.50 cr.

Most marketmen doubt the capability of the promoter’s of Petron Engineering (Code No: 530381) (Rs.169). At a time when all the infrastructure companies are boasting of huge orders in hand, this company has not taken the full benefit of the strong economy. It is least aggressive and has still not increased its networth to bid for bigger projects. Despite all this, it is a value buy and can give handsome returns in the long run. Its takeover by any large engineering company will be the biggest trigger for this scrip. As per sources, the company has a healthy order in hand of more than Rs.400 cr. For FY07, it can register a turnover of Rs.380 - 400 cr. and NP of Rs.12 cr. which means EPS of Rs.16 on equity of 7.50 cr. Scrip has the potential to hit Rs.220 in a 9-12 months.

Jupiter Bioscience (Code No: 524826) (Rs.145) is perhaps the only peptide company in Asia with technology to manufacture peptides from the basic stage and among the ten such companies in the world. For catering to the regulated markets its subsidiary Jupiter Bioscience (USA) is in the process of setting up a GMP facility in Maryland for the manufacture of custom peptides, clinical peptides and peptide-based generic active pharmaceutical ingredients (APIs). Here in India, it has recently acquired a modern manufacturing facility from the pharma major Aurobindo Pharma located at Khazipally for a consideration of around Rs.15 cr. and is spending close to Rs.25 cr. for expanding this facility. The company has embarked upon a huge expansion programme involving a capital expenditure of Rs.94 cr., which will be funded through ADR/GDR/FCCB routes and through preferential allotment to promoters. For FY07, it is expected to report EPS of Rs.15 even on its diluted equity of Rs.17 cr. Scrip has the potential to cross Rs.250. A screaming buy.