Amarjothi Spinning Mills Ltd - Rs.38.00

Incorporated in 1987, Amarjothi Spinning Mills Ltd (ASML) was promoted by the well-known Amarjothi Group of Tirupur, which has diverse interest in finance, power, education, real estate and textiles. It has emerged as a major yarn producer with special emphasis on mélange yarn. Melange means mixture in French and the company has perfected the art of manufacturing yarn, which gives mixed effect of colour in the yarn. It is a 100 % cotton two tone yarn and could be blended with most fibres like polyester, viscose, modal, wool, silk, polynosic, tencel, lycra etc. Although the company derives major revenue by catering to the local Tirupur market it also exports to Europe, Mauritius, Sri Lanka, Israel, Egypt, Turkey, Hong Kong, Malaysia, Philippines, Korea, China, Japan, USA, European and South African Countries.

ASML’s plant is located at Pudusuripalayam in Tamilnadu and has a capacity of around 40,000 spindles, which results in annual production of around 48,00,000 MT of yarn. It also has an in-house dyeing unit at Perundurai, Erode with capacity for fibre dyeing upto 3000 kgs per day. Moreover, its three windmills with a total capacity of 4.95 MW are in operation generating a substantial portion of power requirement of its spinning mill. ASML has been improving the share of its value added yarn in the market in the form of dyed fibre yarn, dyed cotton yarn, PC yarn, etc. It offers competitive price due to low power cost through windmills, low interest cost, low processing cost, etc. Importantly, the company has obtained ISO 9001:2000 certification, MGMT.SYS RVA C 216 Certification for quality management and systems and OEKO TEX STANDARD-100 certification for not using any harmful substances in the product.

Due to market uncertainties and not so aggressive management, the proposed expansion plan of raising the spinning capacity to 58,000 spindles was put on hold in spite of loans being sanctioned for the purpose. The modernization was also restricted to essential machinery and the balance kept in abeyance. Still, the company reported encouraging numbers for H1 FY07. Both Sales and PAT grew by around 30% to Rs.48 cr. and Rs.3.35 cr. respectively. For full year FY07, it is estimated to clock a turnover of Rs.100 cr. with net profit of Rs.7.50 cr. This will lead to an EPS of Rs.11 on its equity of Rs.6.75 cr. With reserves of more than Rs.25 cr., the book value of its share stands at Rs.48. It declared 14% dividend for FY06 and may announce 16% for FY07, which would give a yield of more than 4% at CMP. With a current market cap of only Rs.25 cr. and its 52W H/L as Rs.79/35 respectively, this scrip is available for a song. Investors are strongly recommended to buy for a price target of Rs.55 (45% return) in 9-12 months. Long-term investors can expect 100% return in 18-24 months.

Savera Hotels Ltd- Rs.60.00

Established in 1969, Savera Hotels Ltd. (SHL) is a leading classified four-star hotel company. It owns the huge 260 rooms, centrally air-conditioned ‘The Savera’ hotel located in the heart of Chennai, which is just 11 km from the international airport and merely 5 km from the main railway station. The company also owns a pub in Bangalore and a restaurant cum pub in Hyderabad - both of which are doing extremely well. Notably, the facilities provided by the hotel are nothing less than five star category and are of an international standard. It has a hi-tech business centre with secretarial service, private office space, boardrooms, all modern communication devices round the clock service apart from Interpreters/translators on call. It boasts of having 9 conference halls of varying capacities starting from 50 people upto 800 people for conducting seminars, meetings and functions. Banquet facilities are also offered to host wedding receptions, birthday parties, anniversaries and get-togethers. Interestingly, the hotel has various restaurants including a 24 hour multi-cuisine restaurant cum coffee shop, a roof top restaurant offering authentic Mughlai Cuisine, a South Indian speciality restaurant, a cosy Bar offering a range of imported and Indian liquors and a cake shop. Besides, the hotel has a health club, fitness centre, swimming pool, florist, beauty parlour, men’s saloon, shopping arcade, book shop, travel desk, money changer etc.

SHL is taking significant steps to enhance the guest experience by improving its products and service levels in line with international standards. Furthermore, the company continued with its ongoing programme of investing in renovation and upgradation of rooms, suites and other public related services thereby improving the average room rate. To cash in on the ongoing boom in the hotel industry, the company has started exploring new business avenues in the pilgrims/business destinations and soon new hotel outlets with innovative measures will be launched in Madurai, Coimbatore and Hyderabad. SHL is also focusing on diversification in the floriculture business at Ooty by acquiring control of an existing company.

With infrastructure developments taking place in Chennai and huge commercial space being added, business in the city is bound to increase. Besides the tourism industry is growing significantly throughout the world and more particularly in India. The average room rate (ARR) and occupancy levels are quite high and expected to remain robust in future. For FY06, while the company’s topline increased by 20% to Rs.30 cr., its net profit zoomed by 190% to Rs.3.60 cr. due to higher room rates. H1 FY07 is much more encouraging with sales improving by nearly 20% to Rs.16 cr. and net profit doubling to Rs.1.60 cr. The second half is traditionally better for hotels; SHL is expected to end FY07 with total revenue of Rs.35 cr. and profit of Rs.4.50 cr. This means an EPS of Rs.8 on its equity of Rs.6 cr.

In spite of such strong fundamentals, the SHL scrip is trading every cheap at market cap of only Rs.35 cr. With real estate prices hitting sky high, the replacement cost is several times higher than its market cap. Lastly, with a book value of Rs.30 and dividend yield of more than 3%, the scrip has the potential to double in 15-18 months.

STOCK WATCH

Liberty Phosphate Ltd. (Code: 530273) (Rs.18.50) is the largest manufacture of Single Super Phosphate commanding more than 14% market share. Its ‘Double Horse’ brand is very popular among farmers and is said to have the having highest sale in India. Due to unimpressive numbers for the Sept.’06 quarter, its share price is stagnant and the scrip has not participated in the ongoing rally. However, for the 6 months ending Sept.’06, its sales have more than doubled to Rs.75 cr. whereas net profit rose marginally to Rs.1.70 cr. due to higher interest cost and depreciation. Recently, it raised around Rs.5 cr. through an issue of 20 lakh equity shares at Rs.15 per share to promoters and their relatives. For FY07, it is estimated to clock a turnover of Rs.150 cr. with net profit of Rs.3.50 cr., which works out to an EPS of Rs.6 on its diluted equity of Rs.6.13 cr. With a market cap of only Rs.12 cr. this is the cheapest profit making fertilizer company stock.

Last week, cement scrips saw some correction giving an opportunity to accumulate them. Vinay Cements Ltd. (Code: 518051) (Rs.27) is a leading manufacturers of cement in the North East and has a small cement plant with a capacity of around 2,50,000 MTA producing both Ordinary Portland Cement and Pozzolana Portland Cement under the brand name ‘Vinay’. On the back of higher realization, it reported stunning numbers for the Sept.’06 quarter as sales jumped up by 130% to Rs.13 cr. and net profit shot up by 500% to Rs.1.60 cr. With the demand for cement expected to remain strong, it can end FY07 with turnover of Rs.55 cr. and net profit of Rs.6.50 cr. This would lead to an EPS of Rs.6.50 on its equity of Rs.10 cr. Hence at a P/E multiple of 4, book value of Rs.33 and a market cap of only Rs.25 cr., this is one of the cheapest scrips in the cement sector.

Recently, Hazoor Media & Power Ltd. (Code: 532467) (Rs.31) came out with a decent set of numbers for the Aug.’06 quarter. Revenue increased by 35% to Rs.5.30 cr. whereas net profit rose by 10% to Rs.1.45 cr. For the full year ending Aug.’06, its topline grew by 40% to Rs.20 cr. and net profit increased by 25% to Rs.5.5 cr. This works out to an EPS of Rs.6 on its current equity of Rs.3.70 cr. having a face value of Rs.4 per share. It declared 10% dividend also apart from announcing 1:1 bonus earlier. Of late, the company has ventured into real estate development and is getting itself renamed as ‘Hazoor Multi Projects Ltd.’. Notably, it owns huge property near Amby Valley Lake City, Lonavala, and has already deployed Rs.17 cr. for development and intends to make further investment of Rs.65 cr. in Phase I. It is a debt-free company and its current market cap is just Rs.25 cr. To fund its construction activity the company is planning to raise capital through the equity route, which will lead to a re-rating of the scrip.

Gradually, the paper sector is coming into the limelight again with some foreign broking firms getting bullish on this sector. South India Paper Mills Ltd. (Code: 516108) (Rs.52) is trading relatively cheap at a market cap of less than Rs.40 cr. It reported satisfactory numbers for Sept.’06 quarter with sales registering 10% rise at Rs.28 cr. while PBT grew by 23% to Rs.3.75 cr. For H1FY07, its sales improved by 15% to Rs.55 cr. and net profit rose by 12% to Rs.5.30 cr. in spite of a higher tax outgo. The company is planning to raise its capacity to around 86,000 TPA by Dec.’07 from 55,000 TPA. For FY07, it may report a total revenue of Rs.110 cr. with net profit of Rs.9 cr. i.e. EPS of Rs.12 on its equity of Rs.7.50 cr. Moreover, it’s a handsome dividend paying company with the yield working out to around 5% at CMP. A safe bet in the current market situation.

Real Strips Ltd. (Code: 513558) (Rs.33) is a leading manufacturer and exporter of stainless steel strips, coils and cold rolled coils. Its products are used in various industries like automobiles, construction, oil & gas, petrochemicals, food & dairy, sugar, pipes & tubes, chemical process, electronics, surgicals etc for very specialized application. It declared fantastic numbers for Sept.’06 quarter. Sales jumped by 70% to Rs.23 cr. and net profit spurted by 55% to Rs.1.10 cr. thereby registering an EPS of Rs.3.30 for the quarter. H1FY07 numbers are also very encouraging. The company has even put up windmills with a capacity of 1.25 MW and 0.35 MW respectively, as alternative energies to save power cost. For the full year FY07, it is estimated to clock a turnover of Rs.85 cr. and net profit of Rs.3.25 cr. i.e. EPS of Rs.10 on its tiny equity of Rs.3.27 cr. At a current market cap of Rs.10 cr. only and with a book value of Rs.37, this scrip is trading extremely cheap.