Surya Pharmaceutical Ltd. (Code:532516) Rs.79

Incorporated in 1992, Surya Pharmaceutical Ltd. (SPL) manufactures and markets a range of active pharmaceutical ingredients, drug formulation and bulk intermediates that address various therapeutic segments. Starting as a manufacturer of penicillin derivatives, today SPL is among the top five Indian players in betalactum and cephalosporin range of anti-infectives. In fact, it is moving up the product value chain from being a manufacturer of betalactum antibiotics-a low margin product, to a maker of third and fourth generation sterile range of cephalosporins - a high margin product such as cephaclor, cephixime, cefprozil, cefdinir etc. It has also diversified into high-margin lifestyle segments like anti-histamines and cardio vascular drugs and is increasing its focus on exports for the long-term. In the near future, the company may set up or acquire a pharmaceutical manufacturing unit in Europe.

SPL has five manufacturing facilities spread across three states in northern India. It has two plants at Baddi - HP, two plants at Banur – Punjab and one at Panchkula – Haryana. Nearly half the production is exported to more than 60 countries across Europe, South East Asia, the Far East, Middle East, Latin America and Africa. Lately, SPL made an impressive foray into contract research and manufacturing (CRAMS) space with an order worth Rs.350 cr. to be executed over the next few years. For that, it is implementing an ambitious Rs.90 cr. expansion plan of setting up a new US-FDA compliant facility in Jammu. This new facility will manufacture high-margin products such as statins, sterile & oral cephalosporins and advanced intermediates and formulations. This would also help the company in servicing MNCs through the contract-manufacturing route. Further, it is also carrying out massive capacity expansions at its existing facilities in Baddi and Banur and upgrading them to US FDA Standards. Its bulk drug facility at Panchkula has been completely revamped to produce anti-histamine bulk products like loratidine and fexofenadine.

To finance its growth plans, SPL raised around Rs.54 cr. via FCCBs to be converted into equity shares at Rs.160 per share. Besides, it has already allotted Rs.40 lakh warrants to promoters and others, which will be converted into shares at Rs.70 per share. It may raise another Rs.225 cr. in future through the ADR/ GDR route. Thus, financially the company has made all arrangements for its working capital and expansion requirements. For FY06, its top-line registered a gain of 40% to Rs.238 cr. whereas its net profit recorded 180% growth to Rs.24 cr. posting an EPS of Rs.22 on its equity of Rs.11.08 cr. For FY07, it may earn a net profit of Rs.28 cr. on sales of Rs.300 cr. And since its equity will get bloated to Rs.18 cr. due to the FCCB and convertible warrants, the EPS works out to Rs.15. Hence the scrip is trading fairly cheap at a forward P/E of less than 5 times. Although there is the risk of further equity dilution due to the likely ADR/ GDR issue, but still it’s a good bet and can give 50% return if held for 15-18 months.

Bartronics India - Rs.61.00

Bartronics India Ltd. (BIL) was originally incorporated in 1990 as Super Bartronics Private Ltd. and was converted into public limited company in 1995. It got its current name i.e. BIL on 1st January’96. Starting its business from the field of bar coding and smart card technology, today BIL is India’s undisputed leading Automatic Identification and Data Collection (AIDC) solution provider offering consulting services, design software, hardware, personalization and full implementation services. Presently, it provides solutions pertaining to diverse range of AIDC technologies such as barcode technology, RFID (Radio Frequency Identification), RFDC (Radio Frequency Data Communication), EAS (Electronic Article Surveillance), Smart Card technology and Biometric technology.

BIL’ product range includes Barcode scanners, Barcode printers, Barcode Decoders, Smart Card Readers, Data Collection Terminals (DCTs) and Portable Transaction Computers, Radio Frequency (RF) and InfraRed (IR) based equipment and Access Control Systems. It also provides PVC Cards, Magnetic Cards, Smart Cards and contactless/ Proximity Cards to its clients across the world. In fact, the company is a topnotch provider and high-end supplier for Barcoding Printers and Scanners, HHTs, DCTs, Media Supplies like Direct Thermal Labels, Thermal Transfer Labels and Tags in addition to Universal Access Points and Vehicle Mounted computers. BIL’s clientele include government establishments, MNCs, large private sector corporates and the Retail Industry at large. A few of its prestigious clients are HLL, ABB, Hero Honda, ITC, Ranbaxy, TCS, L&T, Ranbaxy, Cummins, GM, IBM, Panasonic etc.

AIDC is now being seen as a radical and revolutionary data carrier and identifier discipline with principles and practices that can be applied virtually to every sector of industry, commerce and services where data is handled and needs to track and trace individuals, materials and equipment. Moreover, RFID is a technology that holds tremendous potential and BIL is certainly in a position to leverage its expertise. In short, the company is poised to grow exponentially in coming years. To fund its growth plans and meet working capital requirements, the company raised around Rs.50 cr. through IPO route at Rs.75 per share in December’05. For FY06, it reported total revenue of Rs.29 cr. and net profit of Rs.5.34 cr., which is expected to shoot up to Rs.50 cr. and Rs.8 cr. respectively for FY07. This translates into an EPS of Rs.4 and Rs.5 respectively. Being in such a fast growing sector and holding immense potential, the company deserves far better discounting. At a reasonable P/E ratio of 18 the scrip should trade in the region of Rs.90-100 (40-50% appreciation). Investors are recommended to accumulate BIL at declines and hold it for at least a year. For real long-term investors i.e. holding period for 3-5 years it can even turn out to be a multi bagger.

STOCK WATCH

Bilpower Ltd. (Code:531590) (Rs.73) has once again come out with terrific numbers reporting all time high turnover and profit figures. For the June’06 qtr. its sales and net profit stood at Rs.44.50 cr. and Rs.4.40 cr. compared to Rs.24.10 cr. and Rs.2.50 cr. last year. Earlier in March this year, it made a preferential allotment of 10 lakh shares at Rs.97 per share to fund its expansion and modernization. Company is one of the reputed manufacturers of Transformers, Electrical Laminations, Stampings and Cores and has the largest range of ready to assemble cores for distribution transformers in India. Considering the strong demand for its product it is expected to end FY07 with a top-line of Rs.175 cr. and PAT of Rs.14 cr., which leads to an EPS of Rs.21 on its diluted equity of Rs.6.80 cr. A screaming buy at current levels as the scrip can easily appreciate 50% in a month or two.

Although most of the textile scrips are in a downtrend due to restrictions on TUF, Winsome Textiles (Code:514470) (Rs.33) is been hitting upper circuits and has appreciated by more than 50% last week. This is because the company has announced fantastic results for the June’06 quarter. Its sales grew by 10% to Rs.34 cr. but its net profit increased substantially to Rs.2.85 cr. compared to Rs.1.08 cr. last year, which was mainly due to increase in stock in trade to the extent of Rs.3.20 cr. Moreover, the company has undertaken modernisation cum expansion projects to add 13000 spindles, 10 tonnes per day dyeing, 2.50 MW Hydro Power Plant along with complete replacement of old ring frames at an estimated cost of Rs.117 cr. For FY07, it is expected to clock a turnover of Rs.150 cr. with net profit of Rs.4.50 cr. i.e. EPS of Rs.8 on its equity of Rs.5.90 cr. With cash EPS (CEPS) of Rs.18 and a book value of Rs.55, this scrip is available extremely cheap at a market cap of less than Rs.20 cr.

On back of strong industrial growth, the bearings industry is doing exceptionally well and Austin Engineering (Code:522005) (Rs.71), too, has come out with flying colours for the June’06 qtr. Its sales rose by 25% to Rs.13.70 cr. whereas it net profit spurted by 80% to Rs.0.80 cr. The company is a leading manufacturer in all types of ball and roller bearings like Ball Bearings, Cylindrical Roller Bearings, Needle Roller Bearings, Tapered Roller Bearings, Spherical Roller Bearings and Flexible Roller Bearings. It has returned to the dividend list and has declared 12% dividend for FY06. For FY07, it is estimated to report a sales of Rs.65 cr. and net profit of Rs.4.25 cr. i.e. EPS of Rs.12 on its diluted but small equity of Rs.3.50 cr. At a reasonable discounting by 8 times, the scrip has the potential to cross Rs.100 level once the market sentiment turns positive.

In the metal sector, Ramsarup Industries (Code:532690) (Rs.86) appears to be one the best bets as it primarily caters to power, housing and infrastructure sectors. Incidentally, it is the second largest steel wire producer and among the very few manufacturers in India to provide the whole range of TMT products using the Thermax technology. It is also expanding its product portfolio by setting up a structural mill with an installed capacity of 1,35,000 tonnes to produce medium weight structurals like angles, channels and beams at a cost of around Rs.70 cr. It has recently forayed into laying of Power Transmission Lines business through its fourth unit 'Ramsarup Infrastructure' and is executing projects of more than Rs.80 cr. For the full year FY07, it may report a turnover of Rs.1350 cr. and net profit of Rs.45 cr., which translates into an EPS of Rs.26 on its current equity of Rs.17.50 cr. Hence the scrip can double in a year’s time.

Another textile scrip which announced good set of numbers is Suryajyothi Spinning (Code:514138) (Rs.56). For the quarter of June’06, its turnover grew by nearly 10% to Rs.35 cr. but the PAT increased by 50% to Rs.3 cr. registering a quarterly EPS of Rs.2.25 on its equity of Rs.13.50 cr. Couple of months back, it completed the first phase of its modernization & expansion by adding 7,056 spindles at its Makthal unit to manufacture value added yarns like multifold and combed yarns. Besides, the civil work of the new unit being set up at Rajapur with an installed capacity of 25,200 spindles is in advanced stage of completion and the project is likely to be completed by March’07. Hence for FY07, it is expected to clock a turnover of Rs.175 cr. and net profit of Rs.9 cr. i.e. an EPS of Rs.7. Scrip is bound to rise 50% in a year’s time.