Pacific Costspin - Rs.10.50

Established in 1994, Pacific Cotspin Ltd (PCL) was promoted by the Mehras of Kolkata who have proven track record of more than 30 years in the field. It is a 100% Export Oriented Unit (EOU) manufacturing 100% cotton combed and carded waxed yarn. The group’s other activities include manufacturing of quality mercerized tubular knit fabrics, narrow woven elastic trimmings etc. This govt. recognized star export house enjoys leadership position in exports of coarse and medium yarn i.e. ranging from 20’s to 60’s count. It also produces contamination free yarns, organic cotton yarn, compact yarn, fancy yarns etc which are well accepted in international market. Its products are mainly exported to South Korea, Bangladesh, Srilanka, Tunisia etc.

PCL’s strength lies in its ultra modern state-of-the-art manufacturing facility in West Bengal. It is centrally air-conditioned and equipped with a fully automatic and computerized spinning system. The latest generation hi-tech machineries have been imported from global manufacturers from Switzerland, Germany and Japan. It has also installed Uster Lab Equipments to monitor quality at each stage of production. Presently, the installed capacity of the plant is 30,000 spindles with a daily production capacity of 13 tonnes of yarn. But to encash on the growing opportunities due to the dismantling of quotas for Indian textile exports to USA and EU, the company is implementing a huge capex plan of Rs.80 cr. to increase its capacity by 25,200 spindles. This will almost double its production capacity.

To fund its aggressive expansion, the promoters are bringing in Rs.10 cr. by a preferential allotment of Rs.58 lakh shares @ Rs.17 per share to themselves. Another Rs.15 cr. is to be raised via 1:2 right issue later. Notably, the company is continuously improving its operational efficiency, productivity and cost control, which alone can improve its bottom- line in a highly competitive environment. For FY06, it is estimated to clock a turnover of Rs.150 cr. and NP of Rs.6 cr. which translates into EPS of Rs.2.60 on its current equity of Rs.23.15 cr. assuming a 20% growth for FY07, the company can register sales of Rs.180 cr. and NP of Rs.7.50. This works out to an EPS of Rs.2 on its fully-diluted equity of Rs.39.40 cr. Hence investors are strongly recommended to buy it at current levels with a price target of Rs.16~18 (i.e. 60% appreciation) in 15~18 months.

Hester Pharmaceuticals - Rs.102.00

Hester Pharmaceuticals Ltd (HPL) was incorporated in 1987 as a private ltd. company but converted into public ltd. company in 1993. It produces and markets veterinary and pharmaceutical products viz., Animal Health products, Poultry Vaccines, Poultry Diagnostic, Laboratory Kits and Reagents. Today it is one of the largest poultry vaccine manufacturers in India and the only company from India to export poultry vaccine. It has the licence to produce 12 types of live poultry vaccines and 28 types of Inactivated poultry vaccines. It produces vaccines for Fowl Pox, Fowl Cholera, Bronchitis, Gumboro, AE, LT, REO, EDS and Newcastle diseases besides combination vaccines. The company has good presence in the South mainly in Andhra Pradesh, Karnataka and Tamil Nadu. As it is a biotech company producing biologicals, HPL will soon be rechristened as Hester Bioscience Ltd. to reflect its activities more accurately.

HPL’s state-of-the-art manufacturing facility is located at Mehasana, near Ahmedabad in Gujarat. It holds ISO-9001:2000 & GMP certification from the drug authorities. Production procedures for poultry vaccines based on in-house advanced capabilities are being followed in the areas of virus propagation in specific pathogen-free embryos, tissue culture, batch fermentation of bacteria, lyophilization, emulsion preparation etc. Importantly, the company is the exclusive distributor for Merial Inc, the worlds largest Animal health company for marketing its complete range of poultry vaccines in India. Besides, HPL also represents Synbiotics of USA exclusively for poultry disease diagnostic kits. It also offers seromonitoring services under which it helps producers evaluate the immune response to administered vaccines and/or to obtain evidence of flock exposure to field strains.

In order to cater to the growing demand for poultry vaccines, HPL has embarked on a Rs.25 cr. expansion plan to increase its capacity by 300% i.e. 4 times from 120 cr. doses to 500 cr. doses of poultry vaccines by Oct 2006. This expansion will enable the company to manufacture not only the current poultry vaccines which are in high demand, but will also enable it to add a few specialty poultry vaccines. In future it also intends to diversify into the production of cattle and sheep vaccines in the new expanded facility. To fund its expansion, it has already raised around Rs.3 cr. through preferential allotment of around 2 lakh shares at Rs.150 per share and is now coming out with 2:5 right issue at Rs.70 per share. This shows the investor-friendly attitude of the management. For FY06, its total revenue increased by 25% to Rs.20 cr. but its net profit grew 12% to Rs.4.43 cr. posting an EPS of Rs.12 on its current equity of Rs.3.71 cr. Considering the company’s aggressive plan and special thrust on exports we estimate it to post a topline of Rs.28 cr. and PAT of Rs.7 cr. for FY07. This will work out to an EPS of Rs.13 on its fully diluted equity of Rs.5.20 cr. And at a reasonable discounting of 12x the scrip can cross the Rs.150 mark in the medium term. Moreover, once the record date for the right issue is announced, the scrip will shoot up by 25-30% in the short term. A solid buy.

STOCK WATCH

Last week, Rama Papers (Code No.: 500357) (Rs.38.05) came out with very encouraging numbers for the March 2006 quarter. Its sales grew by 15% to Rs.20 cr. whereas net profit jumped 170% to Rs.1.90 cr. posting a quarterly EPS of Rs.2.50. For full FY06, it recorded sales of Rs.77 cr. and net profit of Rs.5.50 cr. despite making huge tax provision of Rs.3 cr. Due to buoyancy in the paper industry, the company is going in for capacity expansion and also setting up a 6 MW captive power plant. It has already got a loan from Bank of Baroda and its balancing equipment project is expected to be completed by this month end which will increase its production capacity to 44000 TPA from 39500 TPA. Besides, its power project is estimated to be commissioned by November 2006, which will result in considerable savings in power cost. For FY07, it may clock a turnover of Rs.100 cr. with net profit of Rs.8 cr. i.e. EPS of Rs.11 on its equity of Rs.7.60 cr. The major reason for the scrip trading so cheap and commanding a market cap of only Rs.30 cr. is because it is in Z category. But soon it will be transferred to its original group as the company has completed all the formalities. Just go and buy this scrip.

Maintaining its consistent double digit growth rate, Jupiter Bio Science (Code No.: 524826) (Rs.148.65) has once again come out with satisfactory numbers for March 2006 quarter. Its top-line increased by 14% to Rs.23 cr. and net profit grew by 15% to Rs.6 cr. whereas for the full FY06, it reported sales of Rs.78 cr. and net profit of Rs.20.50 cr. against Rs.71 cr. and Rs.14 cr. in the previous year. The EPS for FY06 works out to Rs.23 on its equity of Rs.8.90 cr. The company is a niche player enjoying a NPM of 26% and is perhaps the only peptide company in Asia with technology to manufacture peptides from the basic stage. To fund its expansion, the promoters are infusing fresh money, which establishes their confidence & commitment to its growth story. The EGM has already approved the to make preferential allotment of 27.50 lakh shares to the promoters at the rate to be calculated as per SEBI guidelines. Besides, it is also planning to raise Rs.90 cr. through FCCB/ADR/GDR route which will lead to its re-rating and substantially increase its market capitalization. Though it has not performed for quite long on the bourses its still one of the most undervalued scrip in this sector.

In line with our expectation, International Combustion (Code No.: 505737) (Rs.406.50) has come out with terrific set of numbers for March 2006 quarter. Sales were up 50% to Rs.21 cr. and net profit increased by 120% to Rs.1.85 cr. thereby registering an EPS of Rs.8 for the quarter. Full FY06 figures are even better as its top-line grew by 46% to Rs.67 cr. but its PAT spurted by 160% to Rs.5.70 cr. Notably, the current tax provision (excluding deferred tax) for FY06 is whopping Rs.3.34 cr. This means that the company has paid nearly 40% tax on PBT of Rs.9 cr. It is expected to declare 50-60% dividend compared to 25% last year. All its divisions are doing exceptionally well and have a healthy order book position. For FY07, it is estimated to report sales of Rs.90 cr. and net profit of Rs.8 cr., which translates into EPS of Rs.35 on its tiny equity of Rs.2.27 cr. At a reasonable discounting of 18x for the Engineering/ Capital Goods sector, the scrip has the potential to cross Rs.600 in the medium term. Company may even declare bonus/ stock split later in this calendar year.

Due to huge saving in interest cost on account of debt restructuring, Sujana Universal (Code No.: 517224) (Rs.28.05) has turned around smartly. To fund its working capital requirement and other plans, the company had raised around Rs.70 cr. Through a GDR issue and is now raising another Rs.16 cr. by preferential allotment of 46 lakh shares at Rs. 35. Because of better cash flows and the growing economy, the company is working more efficiently and effectively. Its casting, bearings and light engineering component divisions are faring exceedingly well on the back of strong demand. For March 2006 quarter its sales were flat at Rs.222 cr. but net profit quadrupled to Rs.9.11 cr. For the full FY06, it may report top-line of Rs. 875 cr. and net profit of Rs.30 cr., which means EPS of Rs.6 on fully diluted equity of Rs.48 cr. With a recent high of Rs.46 and a market cap of only Rs.120 cr., the scrip can easily rise 50% in 9-12 months.

Satnam Overseas (Code No.: 512559) (Rs.94.60) is the undisputed leader in branded Basmati rice with more than 35% market share with reputed brands like Kohinoor, Trophy, Charminar, Rose, Darbar, Shehanshah and Falcon. It is aggressively expanding its presence in the lucrative ready-to-eat foods (RTE) segment and is constantly augmenting its product portfolio. Recently, it has set up a frozen food processing facility at Haryana and has already received orders from Singapore, Mauritius, UK and South Africa. It also has plans to enter into the business of fresh fruits and fruit based snacks and desserts. For FY06, its total revenue grew by 7% to Rs.541 cr. but its net profit increased by 40% to Rs.21.50 cr. due to higher operating margin. This works out to an EPS of Rs.11 on its current equity of Rs.19.60 cr. Considering its future plans and management quality, the scrip is trading relatively cheap than its peers and has the potential to appreciate 25-30% in a years time. A solid bet in the agro based food processing sector. The risk–reward ratio is in favour of bulls.