RPG Life Sciences - Rs.116.50

Earlier known as Searle India Ltd., RPG Life Sciences (RPGLS) is world class pharmaceutical organisation engaged in developing, manufacturing and marketing a broad range of branded formulations, generics and bulk drugs developed through fermentation and the chemical synthesis route. Importantly, it is the first Indian manufacturer of critical life saving, anti-cancer drugs, Doxorubicin, Daunorubicin, Epirubicin and the immunosuppressant cyclosporine. In fact, it is the only manufacturers of spironolactone by the fermentation route and one of the two manufacturers of Vitamin B12 in India. It has a presence in all key therapeutic areas including cardiovascular, CNS, antidiabetic, anti-cancer, immuno-suppressants, anti-infectives, anti-inflammatory etc.

RPGLS has four sophisticated plants in Navi Mumbai and Ankleshwar complying with international standards. Some of its units are certified by Therapeutic Goods Administration (TGA) of Australia, MHRA of UK apart from ISO:9001, 9002, 14001 and WHO GMP certification. Its top-of-the-line ultra modern R&D facility focuses on developing non-infringing process technology, designing novel Drug Delivery system, commercialising opportunities in biotechnology etc. RPGLS has a total strength of about 350 medical representatives / field staff, who make the products available to 75,000 all over India. It has an extensive distribution network comprising about 18 C&F agents, 1200 stockists and 45,000 chemists across India. On the international front, its products are exported to Europe, Latin America, Africa, Australia, CIS Nations and South East Asian countries and the company is represented in more than 30 countries through strategic partnerships and joint ventures. It has marketing alliances with European (Ivax) and Canadian (Apotex) companies for four generic products that have a huge potential.

To cash in on the off-patent opportunity in regulated markets, RPGLS is upgrading its fermentation plant to US FDA standard and is setting up new US FDA approvable API plant at Ankleshwar at a capex of Rs.20 cr. Recently, it received the process patent for Risperidone in USA having already won it for UK, Germany, France, Switzerland. It also the Australian and South African patent for its novel formulation of cyclosporine. Financially, the company has made a strong turnaround in FY06 after closing down its loss making unit at Pimpri in Pune, which it had taken on lease from Hindustan Antibiotics Ltd. Its total revenue grew by 15% to Rs.144 cr. whereas and net profit stood at Rs.20 cr. compared to the net loss of around Rs.5 cr. last year. For FY07, it may report sales of Rs.165 cr. and net profit of Rs.25 cr. leading to an EPS of Rs.18 on its equity of Rs.14.30 cr. As its growth story will emerge in FY08 and FY09 only, long-term investors can buy it on declines. The scrip has the potential to cross Rs.250 (130% returns) in 18-24 months.

Oudh Sugar Mills - Rs.120.50

Incorporated in 1932, Oudh Sugars Mills Ltd. (OSML) belongs to the renowned K.K. Birla Group of companies with interests in fertilizers, chemicals, sugar, heavy engineering, textiles, shipping, newspaper publishing, etc. Through organic and inorganic modes of growth, OSML has cautiously but consistently grown from a single unit sugar manufacturer to a company with three sugar units with an aggregate crushing capacity of about 18,000 TCD and two distilleries producing 20.53 million litre per annum of industrial alcohol/ethanol. It also has Bio-Compost plant which produces and sells organic fertilizer and has a fruit and vegetable canning factory at Bamrauli near Allahabad and markets food products under the brand name ‘Morton’.

OSML has three sugar plants - Hargaon Sugar Mills and Rosa Sugar Works in UP and New Swadeshi Sugar Mills in Bihar with a crushing capacity of 7500, 4000 and 6500 of sugarcane crushed per day respectively. All the sugar factories produce pure crystal cane sugar of the highest purity. It has two distilleries units at Hargaon and New Swadeshi with a capacity to produce 11.53 million litres and 9 million litres of industrial alcohol/ethanol per annum respectively. The molasses generated in the sugar factories are used as raw material by these distilleries. Due to the buoyant market conditions in the sugar industry, the company has aggressive capex plans of around Rs.250 cr. The Hargaon sugar mill is being expanded from 7500 to 10000 TCD with a co-generation plant of 6 MW at an estimated cost of Rs.96 cr. and is likely to be completed in a few months. It is also augmenting its Rosa Sugar work capacity to 5500 TCD with a Co-generation plant of 20 MW at an investment of around Rs.120 cr. It also plans to increase the capacity of New Swadeshi Mills by 1000 TCD along with a 5 MW cogeneration plant with a capex on Rs.25 cr. Post expansion, its total crushing capacity will stand enhanced to 23000 TCD. More importantly, with the setting up of cogeneration units, the company will reduce its power and fuel costs substantially apart from generating revenues from the sale of excess power.

The company has a sizeable amount of buffer inventory of 1,30,000 MT of sugar as on 31st March’06. With a good monsoon expected this season and with increased capacity, OSML can perform much better in FY07. It recently announced splendid numbers for March’06 quarter. For FY06, ending 30th June’06, the company is estimated to report sales of Rs.475 cr. and net profit of Rs.40 cr., which translates into an EPS of Rs.22 on its equity of Rs.18.20 cr. and may even declare 50% dividend for FY06, which would give an yield of more than 4% on its current market price. For FY07, it may clock turnover of Rs.550 cr. with net profit of Rs.45 cr. i.e. EPS of Rs.25. With a 52-week high of nearly Rs.300 and with no risk of major equity dilution, this is one of the best bets in the sugar sector. Investors can buy it at CMP with a price target of Rs.200 (75% appreciation) in 12-15 months.

STOCK WATCH

Simbhaoli Sugar Mills (Code No.: 507446) (Rs.86.35) recently got listed in NSE. For FY06, while it turnover grew by 11% to Rs.432 cr., its net profit increased 150% to Rs.30 cr. including extraordinary items thereby registering an EPS of Rs.15 on its current equity of Rs.20 cr. It declared Rs.3 as dividend, which means yield of more than 3% at CMP. Due to strong uptrend in the sugar sector, the company is putting up a new integrated sugar plant at Brijnathpur with a crushing capacity of 4000 TCD alongwith a power co-generation of 8 MW and an ethanol distillery with a capacity of 18 million litres. It’s also augmenting its Chilwar plant capacity to 6600 TCD from 3800 TCD. The company is also exploring possibilities to set up a greenfield manufacturing facility in sugarcane growing countries of Africa and South America. Although it’s not the cheapest scrip in the industry, it can still give decent returns in the short-term.

Control Print (Code No.: 522295) (Rs.68.95) is the undisputed market leader in the coding and marking machinery with a market share of around 40%. It has a product range of contact coders, superior touch coders, specialised metal marking systems, sophisticated ink jet coders and also advanced laser coders that can be used to print on any type of material like plastic, glass bottle, paper, wood, steel etc. It came out with decent set of numbers for March’06 quarter and ended FY06 with sales at Rs.38 cr. up 15% with net profit rising by 40% to Rs.6.07 cr. For FY07, it may register a top-line of Rs.50 cr. and bottom-line of Rs.7.50 cr. i.e. an EPS of Rs.10 on equity of Rs.7.40 cr. Being in a growth sector and enjoying a NPM of 15%, its share price can easily cross Rs.100 in the medium term.

NIIT Technologies (Code No.: 532541) (Rs.177) focuses on the well-defined industry verticals of Banking and Financial Services, Insurance, Transportation, Retail and Manufacturing. It offers services in Application Development and Management, Enterprise Solutions including Managed Services and Business Process Management. It reported very encouraging numbers for March’06 quarter. For the full year, its total revenue increased by 20% to Rs.220 cr. whereas its PAT spurted 50% to Rs.60 cr. This translates into an EPS of Rs.15 on its current equity of Rs.38.65 cr. and it even declared Rs.6 as dividend. For FY07, it can report top-line and bottom-line of Rs.275 cr. and Rs.70 cr. respectively i.e. EPS of Rs.18 Interestingly, the company has acquired 20 acre land in Greater Noida to setup a SEZ for its own requirement. Share price can easily cross Rs.250 mark in short to medium term. Accumulate on dips.

GNFC (Code No.: 500670) (Rs.96.30) continues to post encouraging results and has once again ended FY06 on a buoyant note. Its turnover registered an increase of 20% to Rs.2148 cr. whereas its net profit recorded 30% rise to Rs.295 cr. posting an EPS of Rs.20 on its equity of Rs.146.50 cr. It declared handsome dividend of Rs.4.25 and the scrip is still trading cum dividend offering a whopping 5% yield. The company is implementing a merger of its 56% subsidiary Narmada Chematur with itself whereby it will allot one share for every 3 shares of Narmada. For FY07, it is estimated to clock a turnover of Rs.2750 cr. and net profit of Rs.350 cr. i.e. EPS of Rs.22 on its expanded equity of around Rs.156 cr. Hence on a reasonable PE multiple of 8 times, the share price can hit Rs.175 in 12-15 months.

With a good monsoon expected this season coupled with favourable government policies and the banks thrust on agriculture credit growth, investors can look to invest in VST Tillers Tractors Ltd. (Code No.: 531266) (Rs.82.20), a leading manufacturer of power tillers. It recorded a Sales and net profit of Rs.130 cr. and Rs.7.40 cr. respectively for FY06 which may rise to Rs.150 cr. and Rs.8.50 for FY07. This works out to an EPS of Rs.13 for FY06 and Rs.15 for FY07. It has announced Rs.3 as dividend i.e. a yield of 4% at CMP. Although it Shakthi brand power tiller enjoys a 60% market share still to beat the competition it has entered into an agreement with Wuxi Taihu Tractor Co Ltd of China to import and market its tillers in India. It is also planning to set up 50:50 joint venture with Mitsubishi to manufacture diesel engines for power generators and tractors. A good buy at current levels.