JK Lakshmi Cement - Rs.135.00

Incorporated in 1982, JK Lakshmi Cement Ltd. (JKLC), formerly known as JK Corporation, is the flagship company of the reputed and diversified Hari Shankar Singhania group which also manages JK Paper Ltd. and JK Industries Ltd. From a modest beginning with a small plant of 5,00,000 TPA capacity, JKLC today with 3,00,000 MTA is one of the leading cement companies in the northern and western markets. Its brand name ‘JK Lakshmi’ is quite popular and emphasises on ‘Mazbooti ki Guarantee’. The company has a wide network of 1500 dealers apart from its own marketing offices in Rajasthan, Gujarat, Maharashtra, Punjab, Haryana, Delhi, UP, Uttaranchal, HP and J&K with 60 godowns at various places in every state to ensure uninterrupted supply to customers. However, 70% of its sales comes from Rajasthan and Gujarat alone.

JKLC’s manufacturing plant is located at Sirohi in Rajasthan having a clinker capacity of 28 lakh TPA and grinding capacity of nearly 30 lakh TPA. It has acquired the latest technologies from Blue Circle Industries PLC of UK and Fuller International of USA. Incidentally, the blended cement production of the company accounts for less than 50% against the industry norm of about 65%. Blended cement has a better margin as the cost of production is low due to mixing of 20% fly ash. The company is, therefore, taking measures to increase the proportion of blended cement to 75% by FY07 and to 85% by FY08. Currently, JKLC is also selling clinker in the open market due to insufficient grinding capacity. Hence it is putting up two grinding units of 5 lakh tonnes each, of which one is expected to commence operation in the next few months and the second one by Dec.’07. Post expansion, its cement capacity will stand augmented to 40 lakh tonnes i.e. 4 million TPA. It is also setting up 36 MW pet coke based captive power plant, which is expected to be operational by Jun.’07 and will be lead to substantial saving in power cost to the extent of Rs.30 cr. per year.

Post restructuring and de-merger, the company’s balance sheet has become much stronger. To fund its expansion plan, it has issued around 36 lakh equity shares to Fenner India at Rs.97.50 and 41 lakh warrants to be converted into shares at the same rate. With the rise in share capital/reserves and repayment of debts beginning Jan.’07, its debt-equity ratio will improve going forward. And importantly, the OPM of the company is rising sharply due to higher realization, higher capacity utilization and lower cost of production and it may report an OPM of 28% for FY07 compared to 14% in FY05. For H1FY07, its net sales jumped 40% to Rs.352 cr. whereas net profit tripled to Rs.62 cr. On a conservative basis, it may end FY07 with turnover of Rs.725 cr. and PAT of Rs.115 cr. i.e. EPS of Rs.18 on its fully diluted equity of Rs.65 cr. At its current equity capital of Rs.57 cr., the EPS would work out to more than Rs.20. For FY08, it may report much higher EPS. Assuming a reasonable discounting of 12 times, the scrip could trade above Rs.220. Investors are strongly recommended to buy for 50% return in a year’s time.

Span Diagnostics Ltd - Rs.48.00

Incorporated in 1976, Span Diagnostics Ltd (SDL) is a pioneer and trend-setter of high quality products used by pathology & clinical laboratories in the diagnostics industry. It is the oldest and largest manufacturer of diagnostic reagents in India with a rich experience of more than three decades. SDL has segmented its product portfolio, into three divisions. Its Span PDP i.e. Popular Diagnostic Products Division, focuses on clinical and pathological laboratories, blood banks and hospitals for infectious disease serology, rheumatology and hematology. Its Span ID i.e. Instrument Division concentrates on clinical pathology laboratories, hospitals, physicians, and research institutes for laboratory automation, system for biochemistry, hematology, ELISA & allergy testing. And its Cogent i.e. Clinical Chemistry Division caters to the clinical laboratories & hospitals in the areas of biochemistry, stains, indicators and readymade analytical reagents.

SDL has one of the largest state-of-the-art ISO-9001:2000, WHO cGMP accredited advanced manufacturing facilities with ISO 13485 & CE accredited products in Asia. Apart from manufacturing in-house, it has also entered into exclusive tie-ups with reputed companies worldwide for marketing, distributing and servicing their products in India. It has alliances with Nihon Kohden-Japan, Corgenix-UK, Biotecnica Instruments-Italy, General Biometrics-USA, Allmedicus-Korea, Hitachi Chemical Diagnostics-USA to name a few. Besides, the company also takes contract manufacturing of a wide range of quality reagents and kits in bulk for OEM i.e. private labelled. Notably, SDL has a well-equipped research laboratory with talented pathologists, biochemists, microbiologists and molecular biologists who that can undertake production of various purified molecules, e.g. antigens, tumour markers, tissue proteins etc. in commercial quantities employing the protocols supplied by customers. Similarly, it has a well-maintained animal facility with mice, guinea pigs, rabbits, sheep and goats for the contract production of polyclonal and monoclonal antibodies in bulk quantity.Apart from having a strong marketing team of technically qualified sales and service staff, SDL has an efficient and extensive distribution network comprising of 4 regional offices and more than 250 dealers across the Indian subcontinent. Its products are also exported to around 45 countries worldwide.

Fundamentally, the company is doing well and has reported stunning numbers for the Sept.’06 quarter. While sales have increased by 25% to Rs.14.70 cr., the PAT zoomed up 170% to Rs.1.03 cr. registering an EPS of Rs.3.40 for the quarter. However, for the full year FY07 it is expected to clock a turnover of Rs.55 cr. and net profit of Rs.2.25 cr. This works to an EPS of Rs.7 on its small equity of Rs.3 cr. Investors are advised to accumulate at declines as the scrip has the potential to give 50% returns in 15 months.

STOCK WATCH

Gayatri Projects (Code:532767) (Rs.315) is one of the fastest growing construction companies in India executing major civil works including construction of concrete/masonry dams, earthern dams, national highways, bridges, canals, aqueducts, airports, ports, etc. Currently, it has massive orders in hand of nearly Rs.2000 cr. which is 5 times its FY06 total revenue and is spread across road works, irrigation works and other projects. For the six months ending 30th Sept.’06, its total revenue grew by 20% to Rs.183 cr. but net profit zoomed by 60% to Rs.11.70 cr. A few months back, the company had come out with an IPO and is now further planning to raise capital though FCCB route to fund its various projects. As its IPO was placed at Rs.295, the FCCB issue may be more than Rs.350 per share. For FY07, it expected to clock a turnover of Rs.450 cr. with net profit of Rs.30 cr. posting an EPS of Rs.25 on its current equity of Rs.11.90 cr. At a reasonable P/E multiple of 16-18, the scrip should trade in the range of Rs.400-450. At its current market cap of Rs.350 cr., it is one of the cheapest infrastructure scrips trading at 12 times P/E ratio.

FCS Software Solutions (Code:532666) (Rs.83) is a leading provider of IT services and has carved out a niche for itself in areas like e-learning, digital content services, IT consultancy, product engineering services and 24/7 Application support. It caters to the US market only. With the global demand for IT Applications increasing rapidly, the company is aggressively expanding its overall capacity. For H1FY07, its topline as well as bottomline grew by 35% to Rs.72 cr. and Rs.9.85 cr. respectively. Last year, it started a new unit in Punchkula (Haryana) and this year it has acquired 1.66 acre land at Chandigarh Technology park under the SEZ Scheme. It has been further allotted a plot of 4000 sq. mtrs. at Noida. Besides, it is also planning to expand its operations to Gurgaon. For the full year FY07, it may report total revenue of Rs.150 cr. with PAT of Rs.18.50 cr. This will lead to an EPS of Rs.13 on its equity of Rs.14 cr. At the current P/E multiple of 6 it is one of the most undervalued companies in the mid-cap IT sector and has the potential to give handsome returns if held for more than a year.

Indian Toners and Developers (Code:523586) (Rs.27) is a leading manufacturer of compatible black toners for photocopiers, laser printers, digital machines and multi-function machines like scanners, printers and fax copiers. It is the single largest exporter and undisputed market leader in the domestic market through its brand ‘Supremo’. For the first half FY07, its sales improved by 30% to Rs.21 cr. but net profit jumped up 45% to Rs.2.10 cr. To maintain its market share, the company has decided to set-up a new project in Sitarganj in Uttranchal for the manufacture of toners and developers and plans to enhance its presence in the international market by opening a representative office in China. For the full year FY07, it may clock a turnover of Rs.45 cr. with net profit of Rs.4.50 cr. i.e. an EPS of Rs.6 on its equity of Rs.8 cr. With a book value of Rs.31 and 52-week high at Rs.41, the scrip has the potential to give 50% return in 12-15 months.

The Hotel Industry is currently enjoying the best of times with high occupancy rates and increased tariff charges and Savera Hotels Ltd. (Code:512634) (Rs.74) is no exception. This company owns the huge 260 rooms, centrally air-conditioned ‘The Savera’ hotel located in the heart of Chennai and is expected to report very encouraging numbers for the second half. For the six months ending 30th Sept.’06, its revenue grew by only 17% to Rs.16 cr. but the net profit doubled to Rs.1.60 cr. on the back of robust average room rate (ARR). To cash in on the ongoing boom, 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. For FY07 it is expected to report a topline of Rs.35 cr. with profit of Rs.4.50 cr. i.e. EPS of Rs.8 on its equity of Rs.6 cr. This means that the scrip is discounted merely by 9 times its FY07 earnings. With a current market cap of only Rs.40 cr., the scrip can easily double in 12-15 months.

Few weeks back, RPG Life Sciences (Code:500384) (Rs.94) confirmed that its lease agreements with Hindustan Antibiotics Ltd. for the Pune property and other lease related agreements stand terminated in entirety effective from 15th Feb.’06. This is quite positive, as the company had taken that property on lease till 2015 but had closed down the plant due to uneconomic conditions. Still it was paying the rent and other expenditures as per the lease agreement and will now save that amount, which comes to around Rs.4-5 cr. Meanwhile, the company has filed the DMF for two new oncology products: Dono and Doxo. It is also setting up a new FDA compliant API plant at Thane, which will be operational by Mar.’07. Although its first half numbers were disappointing, for the full year it may report profit of Rs.15 cr. on sales of Rs.135 cr. i.e. EPS of Rs.10 on its diluted equity of about Rs.15 cr. Buy at sharp declines.