Gujarat Apollo Equipments - Rs.122.00

Incorporated in 1987, Gujarat Apollo Equipments Ltd. (GAEL) is the flagship company of the Rs.300 cr. Apollo group, which has diversified interest in industrial finance, road building, ship breaking, electronics, software development and environment control. GAEL is India's No.1 manufacturer of Asphalt based road construction & maintenance equipment and manufacturers the entire range of equipments for building roads like Asphalt plants (batch mix plants, drum mix & mobile drum mix plants), wet mix plants or soil stabilization plants, indirect heating equipment, paver finisher, bitumen sprayer, rollers, kerb paver and road maintenance equipments like milling machines and recycling machines. In fact, it is one of the few companies to make higher capacity Asphalt batch mix plants in 120-240 TPH range. Today, GAEL can boast of having over 1,400 customers and an equipment population of about 3,500 units. The company derives revenue from the sale of road construction equipments, spares, annual maintenance contracts (after sales service) and road construction.

GAEL’s IS0 9001: 2000 certified state-of-the-art manufacturing plant is located in Gujarat and caters to all three categories viz. government & semi-government agencies, private corporate customers and small contractors. It also exports its equipment to African countries, Afghanistan, Iraq, Bangladesh, Nepal, Sri Lanka, Maldives and the Middle East for which it has been awarded One Star Export House status by the Ministry of Commerce & Industry. To bring in the latest technology and produce best quality products, GAEL has technology tie-ups and joint ventures with world-renowned companies like Niigata Engineering Co. Ltd., Japan, Barber Greene, USA, Wheelaborator Clean Water Systems of the USA, Famaro Ermont, France, Atlas Weyhausen, Germany, etc. In order to capitalise on the potential demand, the company is scaling up its capacity by 100% over the next two years. The first phase will be of brown field expansion wherein it will expand its capacity by 50% from the current 180 units to 270 units. In the second phase, the company will go for green field expansion and plans to set up an export-oriented unit with 90 units capacity in a Special Economic Zone.

The Central Government is currently awarding contracts for the National Highway Development Project (Phase III) covering 4,000 km of national highway while 2,497 km of roads under Phase I and Phase II are currently under construction. Various other projects such as NSEW, expansion of the Golden Quadrilateral and port connectivity projects have been lined up for the next 5-6 years. This will ensure that the outlook for the company remains bright for many years ahead. Moreover, GAEL is putting special thrust on lucrative exports market and intends to take its share to 40% by 2008 from the current 15-20%. To fund its expansion, the company is coming out with a right issue in the ratio of one share for every two shares held at Rs.100 per share. For FY06, its turnover grew by 70% to Rs.105 cr. but the net profit doubled to Rs.10.50 cr. registering an EPS of Rs.15 on its equity of Rs.7 cr. and it declared Rs.2 as dividend. For FY07, the company is expect to report sales of Rs.135 cr. and net profit of Rs.14 cr. i.e. an EPS of Rs.13 on its expanded equity of Rs.10.50 cr. Investors are strongly recommended to buy at the current level as the share price can easily appreciate 50% i.e. to Rs.180 in 9-12 months.

Suryajyoti Spinning Mills - Rs.32.00

Suryajyoti Spinning Mills Ltd. (SSML) was established in 1990 by Mr. R.K. Agarwal, an entrepreneur with over three decades of textile industry experience. It belongs to the well-known L.N. Agrawal Group, which has other listed textile companies like Suryalaxmi Cotton Mills, Suryavanshi Spinning Mills, Suryalata Spinning in its fold. SSML is one of lowest cost yarn producers and a leading manufacturer of a wide range of yarns in cotton, polyester, viscose and polyester-viscose blends in low to medium counts which are auto leveled and auto coned. From initial capacity of 5040 spindles, the company has constantly expanded its business and currently operates 62416 spindles with almost 100% capacity utilization. Besides catering to domestic market, it exports yarns to Korea, Hong Kong, Spain, Bangladesh, Japan, Portugal, Germany, Italy etc.

SSML operates two mills located at Burgul and Makthal both in Mahabubnagar District of AP with a production capacity of 33,184 & 29,232 spindles respectively. These facilities are equipped with speed frame, draw frame and spinning machinery from Rieter (India/ Switzerland), blow room and carding machines from Truetzschler (India/ Germany) and autoconers from Schlafhorst (Germany). The mills are operating, 360 days a year on a three-shift basis and are backed by 100% standby generators in case of power failures. Notably, the spindles can be interchanged from synthetic to cotton production and back to synthetic with short lead-time depending upon demand. In June’06, SSML completed the first phase of its modernization & expansion, wherein it added 7,056 spindles at its Makthal unit to manufacture value added yarns like multifold and combed yarns. Further, at an investment of Rs.48 cr., it is setting up a new unit at Rajapur by installing new 25200 spindles for the production of higher counts of cotton. Following this capacity enhancement, to be commissioned by March’07, SSML’s installed capacity will increase to 87,616 spindles almost equally distributed between low/ medium count cotton yarn, high-count cotton yarn and synthetic/blended yarn. Moreover, the company is planning to set up a unit at Hyderabad to manufacture bottom weight fabrics and is also working on the feasibility of putting up of a fully integrated state of art weaving, processing and garmenting unit at an outlay of Rs.100 cr.

Incidentally, the total expansion is funded by debt (under TUF scheme) and partly by internal accruals. The company is not going for equity dilution, which is good for shareholders to a certain extent. For the full year ending 31st March’06, sales were marginally up at Rs.140 cr. but PBT increased by 60% to Rs.9.20 cr. After providing for deferred tax it may report a PAT of Rs.6.5 - 7 cr., which works out to an EPS of Rs.5 on its equity of Rs.13.50 cr. It is expected to declare 10% dividend i.e. an yield of 3% on its current market price (CMP). For FY07, it can register an EPS of Rs.7 and at a fair P/E multiple of 8, the scrip has the potential to touch Rs.60 to offer 100% return in a years time.

STOCK WATCH

Dhanuka Pesticide (Code: 507717) (Rs.107.50) is a well-established manufacturer/ formulator of a wide range of popular pesticides in ECs, Granules, Wettables & Dust Formulations of Insecticides, Fungicides, Weedicides, PGR, Growth Stimulant and Wetting Agents. For FY06, its sales were marginally up at Rs.56 cr. but the net profit rose by 25% to Rs.4.20 cr. reports an EPS of Rs.21 on its tiny equity of Rs.1.98 cr. It declared Rs.4 as dividend (including Rs.2 as interim dividend) for FY06, which means a yield of 4% on its CMP. With good monsoons expected this year throughout India, it will report better numbers for FY07. The company has numerous technical tie-ups with reputed MNCs across the world and has recently decided to merge with itself an unlisted group company, ‘Northern Minerals Ltd.’, which will further strengthen its balance sheet. Buy on declines.

Due to government restriction on sugar exports, the share price of most of sugar companies have tumbled down sharply. Ponni Sugars (Erode) (Code: 532460) (Rs.63.45), which had hit a high of Rs.120 is now available around Rs.60. For FY06, its top-line grew by 55% to Rs.136 cr. whereas its net profit increased by 90% to Rs.11.40 cr. registering an EPS of Rs.14 on its equity of Rs.8.20 cr. and it declared 18% dividend. Besides, it is undergoing expansion to augment its crushing capacity to 3000 TCD from 2500 TCD. For FY07, it may clock a turnover of Rs.150 cr. and net profit of Rs.13 cr. and may post an EPS of Rs.16. Share price can easily touch Rs.100 in 12-15 months.

Panama Petrochem (Code: 524820) (Rs.84) is one of the leading manufacturers and exporters of petroleum specialty products like transformer oil, liquid paraffin, petroleum jelly, cable jelly, ink oil, rubber process oil and antistatic coning oil. Apart from an exclusive marketing tie-up with Lubcon, a German MNC, for marketing its range of specialized oil and grease products, Panama recently signed a five-year pact with Malaysia's Petronas to market and distribute its automotive lubricant `Syntium' in India. For FY06, its turnover grew by 50% to Rs.109 cr. and its net profit jumped 85% to Rs.6.50 cr. To cater the rising demand, the company is implementing Rs.30 cr. capex plan to increase its Ankleshwar and Daman capacity from the existing 35,000 TPA to 50,000 TPA. For FY07, it may report a top-line of Rs.150 cr. and bottom-line of Rs.8.50 cr. i.e. an EPS of Rs.18 on its diluted equity of Rs.4.76 cr. With the company making preferential allotment of 5 lakh shares at Rs.153, this scrip is a good buy at the current level.

Ceekay Diakin (Code: 505923) (Rs.90) is a leading manufacturer of clutches for four wheelers and the LCV segment enjoying 32% market share of the OEM market. It is a supplier to most of the OEMs like Maruti, Eicher, Swaraj Mazda, Toyota, M&M, Tata Motors, GM and Honda. On the back of better performance by the auto sector, the company’s fortune has also improved significantly. For FY06, it clocked 27% higher turnover at Rs.86 cr. but the net profit jumped 136% at Rs.5.25 cr. leading to an EPS of Rs.13 on its equity of Rs.4 cr. For FY07, its EPS can shoot up to Rs.17. Belonging to the M&M group and being in such a fast growing sector, its share price can once again test its recent high of around Rs.150. A solid bet in the auto ancillary sector.

Belonging to the Williamson Magor group, Kilburn Chemical Ltd. (Code: 524699) (Rs.49.65) is the only manufacturer of Anatase Grade titanium dioxide in India apart from SAIL. It also manufactures and exports Ferrous Sulphate the by-product. Due to various tax benefits and for captive consumption, the company is putting up windmills for generation of electricity at a lower cost. On the back of lower provisioning for deferred tax, the company reported bumper profits for FY06. While its sales and operating profit reported a modest double-digit growth at Rs.63 cr. and Rs.12.55 cr. respectively, its net profit zoomed 150% to Rs.8.50 cr. compared to Rs.3.50 cr. last year. This translates into an EPS of Rs.11 on its equity of Rs.7.40 cr. It announced 20% dividend and the scrip is still trading cum dividend with an yield of 4%. Investors can buy it for decent short-term gains.