Value Picks for 2008

Value Picks for 2008

Sr. No	Company Name	Current Price (Rs)	Target Price (Rs)	Expected Appreciation*
1	ANG Auto	165	225	40%
2	Bihar Tubes(avoid)	195	300	50%
3	GM Breweries	140	225	60%
4	Hind Rectifiers	210	325	55%
5	Honda Siel Power	270	375	40%
6	Indo Asian Fuse Gear	155	220	40%
7	International Combustion	545	875	60%
8	Lokesh Machine	125	175	40%
9	Mazda Ltd	95	150	60%
10	Micro Technologies	310	450	45%
11	Numeric Power	850	1350	60%
12	Rama Paper	33	50	50%
13	Spanco Tele	230	325	40%
14	Stone India	175	250	40%
15	Tera Software	95	175	80%

In alphabetical order * By Dec 2008

Smart Investment (Guj)

Orient Ceramics

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Kamanwala Housing

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Small & Beautiful (Guj)

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Although share price of Anjani Portland (50.00) has moved up smartly in recent past still it has lot of steam left. Under the leadership of Mr. K V Vishnu Raju, company has made a strong turnaround in FY07 and is further growing at a healthy pace in FY08. Notably, it has a captive limestone mine, captive power generation unit and state-of-the-art technology from Nihon of Japan. In line with its modernization and diversification plans, company acquired a grinding unit in an open auction conducted by A.P.I.D.C which has further augmented its grinding capacity. On the back of robust performance, company gave maiden dividend of 10% for FY07. For H1FY08 it registered 50% growth in sales to 59 cr and 60% rise in NP to 8.60 cr. On an estimated OPM of around 26~27%, it can record a PAT of 16 cr on topline of 125 cr for FY08. This works out to an EPS of 9 Rs on equity of 18.40 cr. Buy for a target of 75 Rs in a year’s time

Post its recent merger with two group companies M/s N.R. Paper and Boards Limited and Suman Paper and Boards Ltd, NR Agrawal Industries (34.00) has become one of the largest manufacturer of double coated duplex boards (heavy weight coated) and newsprint with total installed capacity of 130,000 MTPA for duplex board and 40,000 MTPA for news print. Besides, to diversify its product range, company has started manufacturing cream wove i.e. writing & printing paper form this fiscal. Moreover, as per unconfirmed reports it has acquired 90 acres of land near Vapi to set up a 125,000 MTPA Greenfield plant for newsprint cum writing and printing paper. Despite company facing some pressure on its margin, it may end FY08 with sales of Rs 325 cr and PAT of Rs 9 cr. This translates into EPS of little more than Rs 5 on current equity of Rs 17 cr. Accumulate at declines.

Aro Granite (95.00) is one of the largest manufacturer and exporter of modular granite tiles and slabs with the share of more than 5% of India’s total export of granite products. Company is in the midst of expanding its tile capacity to 5,40,000 sq mtr from 1,80,000 sq mtr, whereas slab capacity will be enhanced to 3,90,000 sq mtr from 2,95,000 sq mtr. To meet its raw material requirement company has started importing rough granite blocks from Saudi Arabia, Norway, Brazil & Finland etc. As company has reported lacklustre performance for first two qtr its share price hasn’t moved for quite long time. For FY08 it is expected to report a topline of Rs 110 cr and PAT of Rs 14 cr i.e. EPS of 19 Rs on small equity of 7 cr. In order to increase the liquidity, the equity shares of the company have also been listed in NSE from April.2007. On the back of huge expansion, FY09 is expected to be much better and share price can appreciate by 50% in 12~15 months.

Belonging to Aditya Birla group, Bihar Caustic (90.00) is among the leading manufacturers of caustic soda, chlorine and hydrochloric acid. After increasing its caustic soda capacity by 50% last year, company is now further expanding it from 225 to 265 TPD by addition of electrolysers as well by debottlenecking. Besides, it is putting up a stable bleaching powder plant at an estimated cost of Rs.7.50 cr to be operational by mid 2008. But most importantly, company has recently set up an aluminium chloride project and expects to produce and sell about 12000 MT of aluminium chloride in FY08. On the margin side, company is consistently reporting an OPM of around 45% and NPM of more than 20% which is excellent as per any standards. For FY08 it is estimated to clock a turnover of 185 cr and profit of 40 cr which leads to an EPS of 17 Rs on equity of 23.40 cr. Fundamentally, the scrip can move upto Rs 120 in six months. Moreover, there are also rumors of company getting merged with Hindalco which can trigger the share price further.

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N R Agrawal Industries Ltd - 32.00 Rs

Belonging to the Mumbai based NR Agarwal group, N R Agarwal Industries Ltd (NRAIL) was incorporated in 1993 by Shri N. R. Agarwal, a qualified chemical engineer having over 40 years of experience in the paper industry. Hence, company is basically engaged in production of duplex board and newsprint. Infact today, it is the second largest manufacturer in terms of duplex (packaging) board in India. It makes grey back & white back, double coated duplex boards (heavy weight coated) from 200 to 550 GSM in different size as per industry standards. These coated duplex boards are mainly used a packaging material by various industries such as cigarette, pharma, FMCG goods, cosmetics, liquor, food and beverages, industrial products etc. Hindustan Unilever, Colgate, Glaxo, Ranbaxy, Nicholas Piramal, Gillette, Rasna, Reynolds, Amul etc are few of its end user. Besides, duplex boards are also exported across the globe to many countries including Sri Lanka, Bangladesh, Philippines, Egypt, East Africa and Gulf Countries to name a few. Under newsprint division, company manufactures five different qualities i.e. deluxe, deluxe prime, super deluxe, premium and super premium depending on the specific needs of publishing houses. It has been regularly supplying to Indian Express group, Lokmat, Sandesh, Jagran, Sakal, Pudhari, Janmabhoomi, Mumbai Samachar etc.

Post the recent amalgamation with two group companies namely M/s N.R. Paper and Boards Limited and Suman Paper and Boards Ltd, NRAIL now boast of having four manufacturing units located at Vapi, Gujarat with total installed capacity of 130,000 MTPA for duplex board and 40,000 MTPA for news print. Against this company sold 99480 tonne of duplex board and 30812 tonne of newsprint during FY07. Notably, as its feed stock company uses imported waste paper of various categories carefully selected after years of R&D. And it has already developed several sources of such raw across the world over a period of time. On the power front, company has recently put up 5 MW captive co-generation power plant in Sept 2006 at Unit I besides having 3 MW plant at Unit II. To diversify its product range, company has started manufacturing cream wove i.e. writing & printing paper form this fiscal itself. It has also taken up 2nd phase of modernization of existing plant at the cost of 25 cr. Moreover, as per unconfirmed reports it has acquired 90 acres of land near Vapi to set up a 125,000 MTPA Greenfield plant for newsprint cum writing and printing paper

With the growing culture of super market & departmental store, the consumption of packaging duplex board is increasing manifold. And with print media becoming stronger day by day, the demand for news print is also robust. Importantly, to improve the operating efficiency NRAIL has recently implemented the SAP ERP system and has even won the SAP Award for customer excellence among 152 companies. Financially, company recorded 30% growth in sales to Rs 267 cr whereas net profit doubled to Rs 11 cr posting an EPS of more than Rs 6 for FY07 and gave 15% dividend. However, the first two qtr nos indicates the company is facing some margin pressure and may accordingly end FY08 with sales of Rs 325 cr and PAT of Rs 9 cr. This translates into EPS of little more than Rs 5 on current equity of Rs 17 cr. Considering its cash EPS of more than Rs 10 Rs, 4% dividend yield at CMP, 73% promoter stake and gross block of 150 cr, it’s a decent buy at an enterprise value of 150 cr. Investors are advised to buy at declines with a price target of 50 Rs (i.e.40% return) in a year’s time.

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Sundaram Brake Lining Ltd - 350.00 Rs

Established in 1976 as a joint venture with a world famous friction materials manufacturer, Sundaram Brake Lining Ltd (SBLL) is now a fully Indian owned company belonging to reputed TVS group of South India. It is engaged in manufacturing of automotive, non-automotive and industrial friction materials with specialization in asbestos-free brake linings and pads. Infact it enjoys the status of being the first Indian friction material company to introduce asbestos free brake blocks. Its products are extensively used in commercial vehicles, passenger cars, tractors (agricultural) and motor cycles. Besides, it also makes asbestos-free woven clutch facings, disc pads, flexible rolls, and insitu bonded shoes. It has a strong presence in the Indian original equipment market as it provides the logistic support for just-in-time deliveries to ensure zero production stoppage at its customer’s plants. It also services the Indian aftermarket through more than 140 TVS owned wholesaler outlets spread across major towns. On the other hand it derives 30% of total revenue from exports to around 70 countries worldwide. SBLL boasts of catering to the after market needs of international applications like Mercedes Benz, Volvo, Scania, Renault etc. It is also the preferred supplier to some of the well known axle manufacturers as original equipment. Ironically, apart from being an ISO / TS 16949 and ISO-14001 certified, SBLL has the singular distinction of being the first friction material manufacturer in the world to win the coveted Deming application prize for practising Total Quality Management (TQM).

SBLL has four manufacturing plants with two plants dedicated exclusively to produce asbestos-free brake linings and pads. To increase the export revenue, company has established Plant 4 in Mahindra World City - a notified Special Economic Zone (SEZ), last year only. The combined production capacity of all four facilities is 1.2 million brake blocks per month. Notably, company products have been tested to meet European ECE-R90, American FMVSS 121, Australian ADR 35/38, South African SABS 1506 requirements besides the Indian IS 11852. To service the US and Canadian markets instantly and establish a brand recognition, company has a warehouse facility in North America along with a business representative in USA who works closely with the US/Canadian brake re-builders and distributors. In view of changing trends, from drum brake linings to disc brakes for commercial vehicles the company is giving special focus on CV Pad business and in the process has created a wide range of 39 references and are aggressively marketing the same worldwide. It regularly participates in international fairs in North Amercia, Europe, Africa, Middle and Far East. Interestingly, company is also negotiating with various overseas buyers for servicing branded product programmes to ensure further export growth.

With more and more countries banning use of asbestos based friction material products, the future prospects of SBLL, being a pioneer looks promising. The number of countries which uses only asbestos free friction products has now increased from 34 to 37 countries. Secondly, the uptrend in domestic market is expected to continue on back of strong economic as well as industrial growth. However, rising input costs, constant downward pressure on prices by customers, availability of cheaper products and adverse exchange rate fluctuations are few factors putting pressure on the margin front of the company. Hence it is expected to clock a turnover of Rs 190 cr - same as FY07 with marginal decline in net profit to Rs 12.50 cr for FY08. This works out to an EPS of Rs 46 Rs on tiny equity of Rs 2.70 cr. Against its current market cap of 95 cr, SBLL is having huge reserves of Rs 62 cr (BV - Rs 240), Gross Block of Rs 117 cr and low debt equity ratio of 0.65x. Moreover company is having an excellent track record of uninterrupted dividend payment for last 15 years and at CMP the dividend yield comes to nearly 4%. Considering its 52 week H/L as Rs 598/320, this is one of the safer bet in the current all time high market. Investors are recommended to buy at current levels, as scrip can appreciate 50% in 12~15 months.

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Indo Asian Fuse Gear (155.00) manufactures wide range of electrical circuit protection equipment including distribution boards, switch boards, switch panels, fuse switches, MCCBs, HRC Fuses, MCBs, RCDs, etc. Besides, it’s one of the largest manufacturers of CFLs and MCB’s in India. To capitalize the ongoing boom, it is diversifying into power sector business and will undertake distribution projects on behalf of state electricity boards, corporations and utilities on franchise basis. Meanwhile, it has forayed into cables & wires manufacturing business as well with a planned investment of 100 cr in phases. For the higher end segment, company is setting up a plant in Haridwar under a joint venture with Simon Holding (Spain) for manufacturing home and building automation products for the first time in India. On the other hand it is putting up a facility in Saudi Arabia thru a tie up with Saudi National Glass for production of Compact Fluorescent Lamps (CFLs) and High Intensity Discharge Lamps (HID Lamps). On the back of not so encouraging nos for FY07 and H1FY08, the share price is still available at 50% discount against its high of Rs 320 in May 2006. For FY08 it is expected to clock a turnover of Rs 300 cr and PAT of Rs 18.50 cr which works out to an EPS of Rs 12 on equity of Rs 15.05 cr. However company has the potential to post an EPS of around Rs 18 for FY09. At a modest discounting by 12x times against FY09 earning share price can move upto 220 Rs in medium term.

Belonging to the respected BC Jindal group, Jindal Polyfilms (275.00) is India’s largest manufacturer of flexible packaging films. It makes polyester films (BOPET), polypropylene films (BOPP), metallised films and coated films with in house ability to produce polyester chips for captive consumption. With its new unit at Silvassa becoming operational recently, the current production capacity of the company stands enhanced to BOPET (111000 tpa), BOPP (90000 tpa), metalized film (40000 tpa), coating (18000 tpa) and polyester chips (70000 tpa). Importantly, JPL’s export of high value BOPET film to European union doesn’t attract anti dumping duty although it’s imposed on other manufacturers in India. Moreover it also has a foreign subsidiary company viz. Rexor SAS, a leading metallised and coated film producer in France. Company has posted excellent set of nos for H1FY08 as sales grew by 35% to 613 cr but PAT jumped up 180% to 68 cr which is more then entire FY07 profit of 65 cr. Accordingly it is estimated to end FY08 with topline of 1350 cr and bottomline of 130 cr i.e. EPS of 46 Rs on equity of 28.10 cr. Notably company is having massive reserves of 760 cr leading to a book value of 280 Rs. Although scrip has seen a smart run up in recent past, still it has lot of steam left. Accumulate at sharp declines.

Belonging to BK Birla group, Mangalam Cement (185.00) is one of the leading cement manufacturers with an installed capacity of 1.8 million tonne. Its “Birla Uttam” brand is quite popular in western India as company derives 30% revenue from Rajasthan, 35% from UP, 25% form Delhi and balance form Haryana. Due to buoyancy in market, company is implementing Rs 75 cr capex plan which will enhance its production capacity by 0.50 million tonne thereby taking the total installed capacity to 2.30 million tonne. The project is near completion and expected to commence shortly. For future growth, company intends to setup another 1.5~2 million tonne plant either at same location or at Chittod where company has applied for a mining lease. But most importantly, company has installed 17.50 MW captive thermal power plant which started generating power only from August 2007. Earlier company was buying power from grid at Rs 4.06/unit. Thus, apart from preventing production loss, the power plant is likely to result into saving of Rs 120/tonne i.e. round about 15 cr per year. Hence for FY08 ending March 2008 it may report a turnover of Rs 525 cr and PAT of Rs 95 cr i.e. EPS of Rs 34 on equity of Rs 28.25 cr. Investor can buy at current levels with a price target of Rs 240 in medium term. Meanwhile BIFR has discharged the company from the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 and hence it ceases to be a sick unit.

As the demand for housing as well as housing loan continues to rise due to strong economic growth, Canfin Homes (78.00) is still one of the decent bet considering its cheap valuation. Apart from housing loan it also offers other personal loans like mortgage loan, loan against rent receivable etc. To provide free insurance to its client along with housing finance, it has tied-up with Aviva Life Insurance. It has a pan India presence with four zonal office and 43 branch offices across the country. However, because of stiff competition the net interest margin of the company is under pressure. For the first six month its revenue increased by 20% to Rs 109 cr but net profit declined by 20% to Rs 12 cr. Thus it may report total revenue of 225 cr and net earning of Rs 28 cr i.e. EPS of Rs 14 on equity of 20.50 cr. As company is having huge reserves of 177 cr i.e. book value of 97 Rs, the share price can shoot up Rs 120 in a year’s time. Moreover, to consolidate their position Canara Bank - the parent company has come out with open offer to acquire nearly 21% stake @ Rs 78 per share. That means the downfall is negligible.

Smart Investment (Guj)

Rama Paper
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Panoramic Universal
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Small & Beautiful (Guj)

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Medi Caps (85.00) is one of the largest manufacturers of empty hard gelatin capsules shells which are widely used to package drugs, vitamins, antibiotics and cosmetics. It has pioneered many advanced features in product development such as “Pearlz Capsules” (Metallic Colored) as well as Python Printing & Li-Fill Caps. With all the major pharma companies undergoing aggressive expansion, the future prospect of downstream companies like Medi Caps is encouraging. Financially, it has been reporting consistent nos with other income forming the major part of net profit. Ironically, it is a cash rich company and is having an investment portfolio of whopping 26 cr only in mutual funds from which it has been able to churn out impressive Rs 5~6 cr on annual basis. Being a debt free company, at the current market cap of 27 cr, company’s core business is available for free. For FY08 it is expected to report a topline of 20 cr and PAT of 7.50 cr, including other income. This translates into EPS of Rs 24 on small equity of 3.12 cr. Buy at declines.

To take the advantage of the increased demand of Indian pharmaceutical products in the international market, Ahlcon Parenterals (68.00) - manufacture of life saving Intravenous Fluids and medical disposals, has off late made arrangements with several international agencies for increasing the base of export markets. It has recently added many new foreign customers to its existing list and is putting special thrust to increase direct and indirect exports. It has already filed product dossiers in both the regulated as well as unregulated markets and the registration formalities with more than fifteen countries are in progress. Accordingly company has upgraded its production facilities to conform to latest GMP standards as per international guidelines and specific requirement of the giant pharma customers. Since the plant is working at 100% capacity utilization, company is undergoing aggressive expansion to almost triple the small volume parenteral capacity from 59 million units to 162 million units. At the same time, it will continue to produce 32 million units of large volume parenteral. On the back of lackluster performance for the Sept qtr, scrip has been an underperformer for quite long time. As company is facing stiff competition in domestic market, it may end FY08 with sales of 55 cr and NP of 7.50 cr i.e. EPS of 10 Rs on equity of 7.20 cr. But with new capacity becoming operational and increase revenue from exports it has the potential to report an EPS of Rs 14 for FY09. Keep accumulating at declines.

Murudeshwar Ceramics (112.00) is one of the leading manufacturers of vitrified tiles, ceramic tiles and granites in India with its popular brand 'NAVEEN’. Importantly, company derives nearly 80% of revenue from sales of vitrified tiles which enjoy higher margin than the rest two. On the back of constant expansion, its present capacity stands at 6.3 million sq mtr of vitrified tiles, 2.7 million sq mtr of ceramic tiles and only 72,000 sq mtr for granites. Notably, institutional clients constitute 60% of total sales and retail clients constitute balance 40%. This is backed by a strong marketing network with 6 distributors, 74 show rooms, 45 depots and about 400 dealers spread across India. It is expected to report a topline of 275 cr and bottomline of 30 cr on conservative basis for FY08 i.e. EPS of 17 Rs on equity of Rs 17.50 cr. Notably, its Cash EPS stands at whopping 32 Rs. As current fiscal being a silver jubilee year for the company, it may declare liberal bonus for its shareholders. At CMP, scrip is trading at a P/E ratio of merely 6.5x times and is available at an EV of 400 cr which is below its gross block value of Rs 470 cr. However, icing on the cake is the 20 acres surplus land owned by the company near electronic city where it intends to develop IT park. Share price can shoot up to 175 Rs in medium term.

Belonging to well known Ruchi group, National Steel(40.00) has a cold rolling mill and a modern state-of-the-art colour coating line which produces sophisticated and unlimited range of coloured steel with high corrosion resistance. It manufactures galvanized corrugated & plain steel sheets as well as coils under the brand name “APPU” and currently has a capacity of 2,10,000 tonnes of galvanized steel, 2,40,000 tonne of cold roll steel and 80,000 tonne of colour coated line. For FY08 it is expected to clock a turnover of 2000 cr and net profit of 23 cr i.e. EPS of Rs 7 on equity of 32.60 cr. Notably, company has been making highest tax provisioning of around 34%. Despite its share price has seen a smart rally in recent past and is hitting new 52W high, still it is available fairly cheap at an enterprise value of 400 cr. Considering its book value of 58 Rs, scrip has the potential to appreciate 30~40% in medium term.

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Balaji Amines Ltd- 130.00 Rs

Balaji Amines Ltd (BAL) was setup in 1988 for manufacturing of aliphatic amines in India to cater the growing requirements of value based specialty chemicals. Since then, it has emerged as the leading producer of methylamines, ethylamines and their derivatives. Importantly, BAL is among the few handful manufacturers across the world as amine manufacturing technology is a closely guarded process. And ironically company is using indigenously developed technology i.e. without any technical foreign collaboration. Thus, its one of the lowest cost producers of methylamines in the world. Today, it also produces specialty chemicals which are import substitutes like Morpholine, hydroxylamine, N-Methyl Pyrrolidone etc and few natural products (herbal extracts) such as solanesol, calcium sennosoid, coleus forskohlii, camptothesin etc. Company’s products find application in various important industries including like pharmaceuticals, agro chemicals, water treatment, rubber chemicals, dyes & pigment, paper, explosives, rocket fuel oil refineries, photography etc. Besides, Morpholine - which is being manufactured by company for the first time in India through indigenously developed technology, finds extensive application in manufacture of corrosion protection compounds used in refineries, ships, steel plants etc. Being ISO 9001-2000 certified, company’s product are very well accepted in international market and it derives nearly 15% of total revenue from export to several countries such as UK, USA, Canada, Latin America, Germany, Italy, Middle East, South Africa, France, Brazil, Mexico etc

Presently, BAL has two manufacturing facilities - one at Sholapur-Maharashtra for amines & derivatives and second one at Hyderabad – AP for natural products. On the back of regular expansion, it has an installed capacity of 18000 MTPA of methyl amines, 3000 MTPA of ethyl amines & 13000 MTPA of intermediates. In July 2007, it revamped its methyl amines plant by adding the balancing equipments and enhancing the production capacity, further by 30%. It has strong presence in domestic market with major clients from pharma sector including Aurobindo, Aventis, Clariant, Dr. Reddy’s, Glaxo, Merck, Ranbaxy, Sun Pharma, Wyeth, Wockhardt, etc. Earlier it also entered into a long term strategic arrangement with BASF for supply of N-methyl-2-pyrrolidone. Notably, company is the only manufacturer for Morpholine and N-methyl-2-pyrrolidone (NMP) with a monopoly status in India and hence, has recently set up a separate dedicated plant at Solapur to manufacture them with a capacity of 2000 MTPA & 3000 MTPA respectively. Company has also established a hydrogen plant in house to cater to the needs of captive requirement and is successfully running chlorine chloride plant (solutions & solid) with a capacity of 5000 MTPA. Last fiscal it also put up a plant for manufacture of Co-Enzyme Q10.

Meanwhile, BAL boasts of having two state-of-the-art R&D centers at both its plants. Infact, its Hyderabad R&D unit which has is approved by Department of Science and Technology, Govt. of India has identified some new products under natural products and processes are being developed. It has also successfully carried out R&D activities in process automation of various plants to reduce the consumption of raw materials and utilities. Financially, company has been reporting satisfactory nos and has recorded 10% growth in sales to Rs 99 cr whereas PBT remained flat at Rs 10 cr for the first six months ending Sept 2007. However, as company started to make tax provisioning every qtr (instead of last qtr) from this fiscal only, it posted 30% fall in net profit to Rs 6.90 cr. Accordingly it is expected to clock a turnover of Rs 200 cr and PAT of Rs 12.75 cr for FY08. This leads to an EPS of Rs 20 on equity of Rs 6.50 cr. Incidentally, BAL is not affected by rupee appreciation as its raw material import is almost equivalent to export revenue. Infact, it is expected to improve its profit margin going forward due to various initiatives taken by the company. It has the potential to report a topline of Rs 230 cr and bottomline of Rs 16 cr i.e. EPS of Rs 25. Investors are advised to buy at current levels with a price of Rs 180 in 9~12 months and Rs 240 in 15~18 months.

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Smart Investment (Guj)

Z F Steering Gear India Ltd
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Indoco Remedies Ltd
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Small & Beautiful (Guj)

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Ironically, the share price of Rama Paper (34.00) which hit a high of Rs 59 in 2005 is still hovering around Rs.35, inspite of improvement in fundamentals. Off late, company has increased its paper production capacity to 44000 TPA and is further enhancing it to nearly 60000 TPA in near future. It is putting up an additional line of paper manufacturing machine to produce tissue and poster paper with annual capacity of 16320 TPA under a capex of 24 cr. But most importantly, company has put up 6 MW co-generation power plant for captive consumption which has already commenced operation leading to substantial saving in power and fuel cost. Last fiscal company raised around 16 cr thru equity route by making pref allotment to promoters and others @ 35 Rs. As on today promoters are holding 41% stake. For FY08 it is estimated to clock a turnover of 80 cr and profit of 5.50 on back of higher operating margin. This can shoot up to 100 cr of sales and 8.50 of NP for FY09. With means an EPS of Rs 6 and 9 for FY08 and FY09 respectively on fully diluted equity of 9.70 cr. Buying strongly recommended as share price can shoot up to 50 Rs in short term and 75 Rs in medium to long term.

Although share price Liberty Phosphate (35.00) has shot up smartly in recent past still it’s trading cheap compare to other fertilizer scrips. Company is the largest manufacture of Single Super Phosphate, commanding more than 14% market share. Presently, it has four manufacturing units having total installed capacity of 463,000 MTPA of SSP fertilizer. Against this, its production stood at only 280,000 tonne for FY07 i.e. capacity utilization of merely 60%. Earlier it raised 10 cr to fund its working capital requirement and hence may end FY08 with sales of 175 cr and PAT of 3 cr. This works out to an EPS of 5 Rs on diluted equity of 6.13 cr. At the current market cap of merely 20 cr, this scrip still has the potential to appreciate 50% from current levels. Accumulate at sharp declines.

Micro Forge (31.00) as re-listed in May’07 with the base price as 23.00 Rs. Since then it made a high of 52/- Rs in early June and has now settled down to 30/- Rs. It is engaged in manufacturing of forging and machined components for automobile industry with an installed capacity of 14,000 MTPA. Apart from making flanges, it also forges alloy steel, stainless steel, carbon steel for various auto part ranging from 0.5kg to 40 kg single piece weight. Company made a strong turnaround for FY07 as sales jumped up 40% to 79 cr but PAT increased multifold to 3.10 against 0.30 cr on back of improved operating efficiency. It has reported encouraging nos for the first six months as well and may end FY08 with a topline of 85 cr and bottomline of 3.50 cr. This translates into EPS of 6 Rs on equity of 5.60 cr. At an EV of less than 35 cr it’s a value buy and share price can once again test 50 levels in medium term.

Mazda Ltd (95.00) is among the few engineering companies in the world, manufacturing very specialized, high technology and critical equipments for various industries like power, refineries, fertilizers, chemicals, nuclear, sugar, paper, food, pharma etc. It has a technical collaboration with world renowned Croll-Reynolds Inc. USA, who holds 12% stake in the company. Besides, company also has a biotechnology division dealing in carbohydrates, rare sugars & miscellaneous bio-chemicals and hence it recently diversified into business of manufacturing food and drink concentrates in a small scale under brand name “BCooL”. Presently, under FII category HSBC Financial is holding approx 8% stake which it acquired at 155 Rs in Dec 2006. For FY08 it may clock a turnover of 60 cr and NP of 5.50 cr which means EPS of 13 Rs on small equity of 4.26 cr. At a modest discounting by 12x times, share price has the potential to cross Rs 150 levels.

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Rama Papers Mills Ltd - 30.00 Rs

Promoted by Mr. Pramod Agrawal in 1985, Rama Paper Mills Ltd (RPML) primarily manufactures newsprint for the newspaper publishers and writing/printing paper for government supplies as well as for printing of text books and note books. It also produces coated/uncoated duplex board used to make packing material like cartons for industrial purpose and packaging of articles in pharmaceuticals, soaps, paste, apparels, and tea industries. However, company derives 60% of revenue from newsprint which is totally exempted from central excise and sales tax. It has wide client base including Hindustan Times, Jan Satta, Indian Express, Amar Ujjala, Dainik Jagran, Gujarat Samachar, Dainik Bhaskar etc. RPML enjoys a strong brand royalty as 80% of its customers are dealing with the company for more than 5 years. And since company is not into exports it is not affected by the rupee appreciation.

RPML is having three manufacturing units spread across 12 acres of land at Kiratpur in Dist. Bijnor in Uttar Pradesh. To cater the rising demand, it augmented its production capacity from 39,500 TPA to 44,000 TPA in Dec 2006 by installation of some balanc­ing equipments. More importantly, company has put up a captive power plant of 6 MW which commissioned operation only from April 2007. It incurred a total capital expenditure of Rs 31.50 cr for both the projects, financed by term loan of Rs. 22 crore and balance by internal accruals. Ironically, due to captive power generation, company is able to make substantial saving in power and fuel cost to the extent of Rs. 450 per tonne of paper produced, on a very conservative basis. This means, a straight away addition of minimum Rs 2 cr to the bottomline. Besides, only 4 MW is actually used for captive consumption with balance 2 MW being as surplus currently. To diversify its product portfolio, RPML is putting up an additional line of paper manufacturing machine to produce tissue and poster paper with annual capacity of 16320 TPA under a capex of 24 cr. For this company has already taken a bank loan and is planning to start the production by mid 2008. With this its total capacity will stand increased to 60,000 TPA.

Morever, company is contemplating to make some modifica­tions in all the machines in phases to be completed by 2009-10, which will further enhance its capacity to 80000 TPA. To fund its growth plan, company raised 8.75 cr in early 2006 thru private placement of 25 lac shares @ 35 Rs and now recently it again raised 7.50 cr thru preferential allotment of around 21 lac shares @ Rs 36 to promoter group. Hence its current fully diluted equity stands Rs 9.7 cr with 41% promoter stake. Financially, the first two quarter nos of the company were not so encouraging, maybe due to some disruption in its manufacturing facility. Hence for FY08 it is estimated to clock a turnover of 80 cr and profit of 5.50 on back of higher operating margin. But for FY09 it can report more than 100 cr of sales and 8.50 of PAT. This means an EPS of Rs 6 and 9 for FY08 and FY09 respectively. Moreover, against its gross block of Rs 79 cr, company is currently available at an enterprise value of only Rs 70 cr which is extremely cheap. Investors are strongly recommended to buy at current levels as share price can shoot up to 50 Rs in six months and 75 Rs in medium to long term.

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To take the advantage of the increased demand of Indian pharmaceutical products in the international market, Ahlcon Parenterals (68.00) - manufacture of life saving Intravenous Fluids and medical disposals, has off late made arrangements with several international agencies for increasing the base of export markets. It has recently added many new foreign customers to its existing list and is putting special thrust to increase direct and indirect exports. It has already filed product dossiers in both the regulated as well as unregulated markets and the registration formalities with more than fifteen countries are in progress. Accordingly company has upgraded its production facilities to conform to latest GMP standards as per international guidelines and specific requirement of the giant pharma customers. Since the plant is working at 100% capacity utilization, company is undergoing aggressive expansion to almost triple the small volume parenteral capacity from 59 million units to 162 million units. At the same time, it will continue to produce 32 million units of large volume parenteral. On the back of lackluster performance for the Sept qtr, scrip has been an underperformer for quite long time. As company is facing stiff competition in domestic market, it may end FY08 with sales of 55 cr and NP of 7.50 cr i.e. EPS of 10 Rs on equity of 7.20 cr. But with new capacity becoming operational and increase revenue from exports it has the potential to report an EPS of Rs 14 for FY09. Keep accumulating at declines

Seshasayee Paper (202.00) is engaged in manufacturing of printing/writing papers, packing/wrapping papers and specialty papers. Presently, it has the pulping capacity of 230 TPD and paper manufacturing capacity of 115,000 TPA. To enhance its environmental performance, it is implementing Mill Development Plan at estimated cost of 350 cr which will make the company self sufficient in wood pulp requirements. Under this plan, company is replacing its 30 yr old wood pulp mill of 230 TPD capacity with a comparatively newer but second hand pulp mill from USA which has advanced technological features, like RDH Pulping, Oxygen De-lignification, ECF Bleaching etc apart from having higher capacity of 350 TPD. However due to delay in supply of some key equipment, the project is expected to complete by March 2008. Meanwhile to de-risk its dependence on government and other agencies, company has entered into agreements with farmers holding over 3000 acres of land and planted Eucalyptus Hybrid/ Casuarina varieties to develop its own source of plantations. For FY08 it is expected to clock a turnover of 500 cr and NP of 45 cr which works out to an EPS of 40 Rs on equity of 11.25 cr. Despite company having high debt equity ratio, scrip can be bought at declines.

Eastern Silk (230.00) is among the few companies to be fully integrated from spinning, yarn dyeing, weaving, printing, embroidery, fabric dyeing, finishing to making made-ups. It has gradually moved up the value chain by putting special thrust on production of machine made high fashion fabric and home furnishing. It has recently completed expansion programme at its Anekal’s Unit 2 facility thereby taking the total fabric manufacturing capacity to 18.5 lac metres from 14 lac metres per annum. It is also setting up made-up plant at Bommasandra near Bangalore having an installed capacity of 1500 sets per day with an investment of 18 cr and is expected to commence operation in this fiscal itself. Incidentally, company derives 80% of total revenue from export, but at the same time 70% of raw material is imported by the company. Secondly, company also undertakes hedging activities and hence is protected from rupee appreciation to some extent. It reported encouraging nos for the first two quarters and is estimated to clock a turnover of 550 cr and PAT of 68 cr for FY08. This translates into EPS of Rs 43 on equity of 15.80 cr. For future growth, company is looking to make some foreign acquisition for which it may raise 240 cr thru FCCB/GDR route. It is also contemplating to split the face value of share to 2/- Rs from 10/- Rs which will improve the liquidity going forward.

Murudeshwar Ceramics (112.00) is one of the leading manufacturers of vitrified tiles, ceramic tiles and granites in India with its popular brand 'NAVEEN’. Importantly, company derives nearly 80% of revenue from sales of vitrified tiles which enjoy higher margin than the rest two. On the back of constant expansion, its present capacity stands at 6.3 million sq mtr of vitrified tiles, 2.7 million sq mtr of ceramic tiles and only 72,000 sq mtr for granites. Notably, institutional clients constitute 60% of total sales and retail clients constitute balance 40%. This is backed by a strong marketing network with 6 distributors, 74 show rooms, 45 depots and about 400 dealers spread across India. With the ongoing boom in construction sector, increasing mall culture and strong demand for hi-tech commercial complexes, the future prospect of the company is quite promising. It is expected to report a topline of 275 cr and bottomline of 30 cr on conservative basis for FY08. This works out to an EPS of 17 Rs on equity of Rs 17.50 cr. Notably, its Cash EPS stands at whopping 32 Rs. As current fiscal being a silver jubilee year for the company, it may declare liberal bonus for its shareholders. At CMP, scrip is trading at a P/E ratio of merely 6.5x times and is available at an EV of 400 cr which is below its gross block value of Rs 470 cr. However, icing on the cake is the 20 acres surplus land owned by the company near electronic city where it intends to develop IT park. Share price can shoot up to 175 Rs in medium term.

Z F Steering Gear (India) Ltd - 205.00 Rs

Belonging to well known Firodia group of Kinetic fame, Z F Steering Gear India Ltd (ZF) was incorporated in 1981 to manufacture mechanical - worm & roller and power steering gears in financial and technical collaboration with M/s. ZF Friedrichafen AG Germany, world's largest independent steering gears manufacturer. Today, ZF is market leader in both mechanical and hydraulic power steering gears especially for commercial vehicles and tractor industry. Its product range includes ball and nut power steering gear, rack and pinion power steering gears, worm and roller manual steering gears, intermediate shafts, vane pumps, steering columns, bevel gears box, universal joints, servocom steering gear etc. It has an enviable clientele including all auto majors like Tata Motors, Ashok Leyland, M&M, Eicher Motors, Escorts, Bajaj Tempo, Swaraj Mazda, PunjabTractors, Volvo, L& T John Deere, New Holland etc. Off late, it has entered passenger car segment by supplying rack & pinion power steering gears for ‘Indica’ car. In near future, company is looking to develop new products such as collapsible steering column for cars, telescopic steering columns for HCV, aluminum pump for higher HP engines, pump parts localization etc

ZF’s state-of-the-art manufacturing plant at Pune-Maharashtra is equipped with advanced specially designed machinery from ZF Germany for manufacturing critical components and has its own in-house heat treatment facility consisting of sealed quench furnaces, pit carburised furnaces for case carburising, nitriding etc. To cater the rising demand, last fiscal company expanded its installed capacity of power steering fears from 150,000 to 240,000 per annum and of mechanical steering gears from 100,000 to 120,000 per annum at a capital expenditure of approx. Rs. 7 crore. Against this, it sold 124,811 units and 92,155 units respectively for entire FY07. Moreover, in view of encouraging response from the automobile manufacturers, ZF is in the midst of further expanding the production capacity to 300,000 units of power steering gears and 150,000 units of mechanical steering gears. Secondly, it has entered into a 26:74 joint-venture with its collaborator ZF Lenksysteme, GmbH, to promote a new company for developing and manufacturing new products which will be different and not competing with its current product range. Importantly, sales of commercial vehicles are increasing due to improvement in road-infrastructure and also the ruling of Supreme Court to ban overloading of commercial vehicles. It recorded a growth of 33%, producing 520,000 vehicles during 2006-07 compared to 391,083 vehicles in the previous year. On the other hand, tractors also recorded 20% rise in sales on the back of increased focus by the government in providing subsidies. Thirdly, with India emerging as the hub for small-car manufacturing, many players have announced capacity expansions and many new international-players have taken initiative in setting-up their state-of-art production facilities in India. And since ZF’s future prospects are closely linked to the demand for commercial vehicles, multi-utility vehicles and tractors, it is expected to do much better in the coming years.

Financially, ZF is by and large a debt free company. Infact, it has invested around 37 cr in unlisted firms which yields handsome dividend in form of other income. Promoters currently hold about 72% of the equity, of which German collaborator is holding 26% stake and Bajaj Tempo holding nearly 10% stake. Management of the company is very professional and investor friendly with an impeccable track record of uninterrupted dividend payment since last two decades. For FY07 they paid 80% dividend which gives a yield of 4% even at CMP. Ironically, ZF has still not tapped the global market which presents a huge opportunity to be explored in future. At the same time with zero revenue from exports it is not affected by the sharp rupee appreciation unlike other auto ancillary companies. Infact, it has benefited to some extent as it imports few of its raw material. For FY07 it registered 15% growth in sales to 217 cr whereas NP increased by 20% to 27.50 cr posting an EPS of Rs.30. However, the first two quarter nos for FY08 are not so encouraging as sales declined by 10% to 95 cr and NP remained flat at 11.75 cr. Hence on a conservative basis it is estimated to clock a turnover of around Rs 205 cr and Net profit of Rs 24 cr which leads to an EPS of 27 Rs on equity of 9 cr. Considering debt free status of company with healthy cash EPS of 40 Rs, huge reserves of 80 cr, strong promoter holding, high dividend yield and 52W high low as 297/160 Rs its fairly a value buy at current market cap of 180 cr. Investors can expect 40% appreciation in 12~15 months. But at the same time one should note that rising import of cheaper power steering gears from China is a threat to the company

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Indoco Remedies Ltd - 295.00 Rs

Promoted by Mr. Suresh Kare in 1947, Indoco Remedies Ltd (IRL) is engaged in research & development, manufacturing, marketing and distribution of pharmaceutical products and services in the domestic and international market. Basically, it manufactures API’s, formulations and provides contract research and manufacturing services (i.e. CRAMS). Besides, it has a unique revenue inflow from the dossier development and marketing them. Over the years IRL has a built a strong brand portfolio of 120 products across 11 major therapeutic segments. Earlier, it was focusing on acute therapies like - respiratory, anti-allergy, anti-infective, dental, ophthalmic etc which are volume led business. But off late it has also ventured into the high growth and lucrative lifestyle segment like anti-diabetes, cardiovascular, central nervous system, nutrition, dermatology etc. It has a strong presence in domestic formulation market with more than 75% of total revenue coming from it, whereas the balance 25% comes from export to over 33 countries globally including regulated and semi regulated markets. Notably, company boasts of having 10 brands which are among the top five in their respective segments with Febrex Plus, Cyclopam, Vepan, Sensodent and ATM being the most successful. In order to ensure focused sales approach, IRL has created separate marketing divisions namely Indoco, Spade, Warren, & Surge-Radius, each with specific therapeutic focus and working as an independent profit centre. This year company created two more divisions – Warren Excel and Spera.

Presently, IRL has five facilities for formulation - Goa Plant I, Goa Plant II, Baddi and the rest two plants at Aurangabad & Tarapur for non regulated market. Post acquisition of La Nova Chem and merger with SPA Pharma Ltd, IRL is now backward integrated to manufacture API for captive consumption as well as export with two commercial manufacturing facilities - one at Patalganga & second at New Mumbai. Importantly, company’s Goa plant II is USFDA certified for ophthalmic & injectables whereas the Goa plant I is approved by MHRA-UK & Darmstadt Germany. To fully integrate into CRAMS space, company has set up a state-of-the-art standalone R&D Centre at Rabale, near New Mumbai equipped with facilities like synthetic chemistry labs, F&D, AMD, regulatory and IPR cell. The unique feature of this R&D lab is the Kilo-lab, which can produce one gram to several kilogram quantities of APIs and key intermediates for pre-clinical phase to phase-III clinical studies. The lab intends to take up NDDS research and expects to commercialize the first NDDS product in calendar 2008. In order to maintain the growth momentum for the domestic formulations, the company has been launching around 25 new products every year and is expected to maintain the same pace for coming two years as well. However, currently it is looking forward to capitalize on export opportunities in the high margin regulated markets like US and UK. Under contract manufacturing, company has 21 projects for Germany, 9 for UK & 6 for Eastern Europe. But most importantly, IRL has entered into US market through a supplying pact with Nexus Opthalmic and has already made one shipment to USA. Moreover, it has recently finalized long term joint venture partnership with Amneal Corporation, New Jersey, U.S.A. to develop and manufacture ophthalmic formulations for marketing it in US. Besides, with its product registered in over 50 countries it will continue to export to other non regulated markets as well.

Meanwhile, IRL is taking various initiatives to increase its presence in global market. Like, apart from doing 14 projects for formulation research, it has undertaken six projects for custom synthesis (molecules under Phase-I, II, III) with innovator companies. Notably, for formulation division company has already filed 3 ANDA whereas 10 is underway and another 12 in pipeline. It has also completed 6 CTDs while 8 are under way and 12 in pipeline. For the less regulated market, IRL has filed 3 dossiers in SA, 47 dossiers in CIS, 1 dossier in Brazil and 3 dossiers in AU, NZ. On the API front, company has 9 molecules for DMF, COS & EDMF in CTD format for regulated market under various stages of submission and 8 molecules are in pipeline for regulatory submission. To summarize, IRL has laid the foundation and is now poised to enter into a strong growth trajectory in coming few years.

Although company doesn’t have any capex plan currently, it intends to set up a second manufacturing facility in Baddi, HP with the same capacity as in the present plant, in next two years. Financially, company has amalgamated La Nova Chem (India) Pvt. Ltd., Indoco Healthcare Ltd. and the Pharma Division of SPA Pharmaceuticals Pvt. Ltd with itself. For FY07, company recorded net sales of Rs.326 cr and PAT of Rs.42 cr thereby posting an EPS of 35 Rs. It reported encouraging nos for the first qtr as well. Accordingly, it is expected to clock a turnover of 375 cr and NP of 48 cr for FY08 ending June’08. This translates into EPS of 39 Rs on current equity of 12.30 cr. Hence at reasonable discounting by 12x times scrip has the potential to touch 475 Rs (60% appreciation) in 15~18 months. Investors are strongly recommended to buy at current levels.

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Belonging to Duncan Goenka group, Stone India (158.00) is undisputed leader in locomotive brake systems and has a huge range of mechanical and electrical products for the railroad industry. It boasts of having its own patented beam mounted brake system for all types for freight wagons. Off late, it has ventured into the railway electronics business through introduction of a slew of high value power electronic products like inverters, converters and power supply system for coaches, locomotives, EMUs and metros. Currently, company generates about 90 per cent of its revenue from railways and has a market share of about 25-30 per cent. It has appointed Telewira Tegas SDN BHD, Malaysia, as an exclusive agent for turnkey project work relating to freight car, passenger coach and locomotive up gradation and maintenance for Malaysian railways. Recently, it has partnered with Sumitomo group Japan for manufacturing of air springs which are technically far superior to the existing mechanical suspension system. Importantly, to diversify its product portfolio, it has set up a greenfield facility at Nalagarh, Himachal Pradesh which is likely to go on stream this fiscal itself. Hence for entire FY08 it is expected to register sales of 100 cr and PAT of 13.50 cr i.e. EPS of Rs 18 on equity of 7.60 cr. At a modest discounting by 12x times scrip can touch Rs.220 in medium term.

Wanbury (138.00) is the world’s largest producer of Metformin Hydrochloride - a diabetes management product and Salsalate, an anti-inflammatory drug. With its two USFDA certified plant for multi-products, company already has 23 DMFs with US and is looking to file another 4~5 DMFS in near future. As a part of its growth strategy, it has launched a super specialty research division `Osteolife' catering to orthopedic health issues such as osteoporosis, osteoarthritis and pain management. Recently, company made the first overseas acquisition with the generic ethical formulation business division of IFC-Spain, which owns 17 brands in various therapeutic segments like traumatology, pain management, asthma, anti depressants, anti eplileptics, anti ulcerants, cephalosporin’s, beta blokers etc and is targeting a revenue of Euro 33 million (i.e. Rs 200 cr) with an EBITDA of Euro 8-10 million (i.e. Rs 50~60 cr). Hence on a consolidated basis including the Cantabria business, it is expected to clock a turnover of 375 cr and PAT of 35 cr for FY08. This leads to an EPS of 26 Rs on current equity of 13.60 cr. However on fully diluted equity of 21 cr (post conversion of all warrants & FCCB’s) the EPS works out to 17 Rs. Scrip has the potential to touch Rs.200~220 in medium term.

Royal Orchid (142.00) operates in hospitality sector with major presencein Bangalore. Currently it manages eight properties including five star hotels, budget, resort, serviced apartments etc with a total room strength of around 655 rooms. Interestingly, company follows a unique “Asset light” business model of taking properties on lease or entering into a contract for managing & operating the existing hotel instead of owning them outright. This has helped the company manage its funds efficiently, have lower payback period on its projects & earn attractive operating margins. In the next few months, it is planning to open “Royal Orchid Central” – four star category hotels at Pune (120 rooms) and Hyderabad (65 rooms) to cater the business class. Subsequently it has plans to open five star hotels at Mumbai, Bangalore and Delhi. But for major growth, company wants to target the lower end of the hospitality pyramid and has plans to set up a chain of 50 budget hotels across India under the brand ‘Pepper Mint’ in next 3 to 5 years. For FY08, it may report total revenue of 150 cr (excl. other income) and NP of 35 cr on consolidated basis i.e. EPS of 13 Rs on equity of 27.25 cr. For FY09, EPS is expected to shoot upto 16~17 Rs. Accumualte at declines.

Lokesh Machines (118.00) is engaged in the design, development and manufacture of custom built special purpose machines and general purpose CNC (computerized numerical controls) machines along with their components. Presently, it derives 70% revenue from machining division whereas rest 30% comes from auto component division. Company primarily caters to customers in the auto OEM, auto ancillaries and general engineering space. Hence it supplies mainly to Tata Motors, Bajaj Auto, Force Motors, Cummins, Bharat Forge, Kirloskar Oil Engines, Everest Kanto Cylinders etc with separate dedicated facilities for M&M and Ashok Leyland. Off late, it has also made a foray in the overseas markets with orders from M/s FPT Industries Spa-Italy, Honda Motorcycles-Japan and HOWA-Japan. Further, its technical partner Wenig Wemas-Germany has also placed initial order of 100 machines worth 20 cr. For the latest Sept qtr, sales grew by 25% to 28 cr and Net profit increased by 50% to 3.40 cr. To fund its growth plan company came out with an IPO at Rs.140 per share in April 2006 and raised Rs.42 cr. On listing day it hit a high of 300 Rs, whereas and currently it’s available at 15% below its issue price. For FY08 it is expected to clock a turnover of 110 cr and PAT of 14.50 cr which leads to an EPS of 12 Rs on equity of 11.80 cr. Scrip can easily appreciate to 175 levels in a years time.

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ADF Foods Ltd
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Mount Shivalik
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Apart from being a leading caustic soda manufacturer, Chemfab Alkali (105.00) has ventured into fast growing retail health care segment and also manufactures water purifying machinery & sells packaged drinking water under brand name “TEAM”. It is also the only Indian manufacturer of multi bore hollow fibre ultra filtration membranes, whose marketing is done by M/s Dupont, worldwide. Notably, company has already opened three outlets of ‘Team Health Shoppe’ at Chennai to market its own ‘Team Eubio’ care products as well as proven products from other manufacturers. Thru these shops it offers a range of health care, body care, beauty care, skin care hair care and other nutritional food products. Its ‘Energy Herbal Water’ which can neutralize acidic wastes in the body and reduce weight has been a super hit and is witnessing strong demand. Few months back, due to some labor unrest at the manufacturing plant, its last two quarter performance got hit badly but now everything is fine and company is back on track. Thus, it is expected to report sales of 110 cr and profit of 16.50 cr for FY08 which leads to an EPS of 18 Rs on small equity of 4.60 cr with face value as Rs 5/-. Despite marginal fall in net profit this fiscal, company is expected to maintain 100% dividend which gives a handsome dividend yield of around 5%. Moreover in future, management may de-merge its health care division which will lead to re-rating of the company.

Blue Bird (72.00) is one of the leading manufacturers of paper based notebook products and office stationery products like executive notepads, diaries, arch-lever files, perforated pads, registers, filler papers and folders. Although notebook forms the core business with more than 80% revenue, company has also ventured into publishing academic textbooks and self study books for children apart from general publications in subjects such as ayurveda and biographies. It also offers commercial printing under which it designs and prints annual reports, brochures, catalogues, offer documents, coffee table books, calendars, greeting cards, magazines, text books, publications etc. In order to cater the central and south India market efficiently, company has recently put up two new plants at Indore and Bangalore apart from having its main plant in Pune. It is also expanding its distribution network and has ambitious growth plans for publication division. Although, its H1FY08 nos are not so encouraging, still it is expected to end FY08 with sales of 550 cr and PAT of 30 cr i.e. EPS of Rs 9 on equity of 35 Rs. Considering its IPO at Rs 105 in Nov 2006 and 52 week H/L as Rs 128/55, it still has the potential to rise 20~25 % in short term.

Like other IT scrips, investors are selling Tera software (82.00) also in fear of rupee appreciation with knowing that company derives 100% of its revenues from the domestic markets. Hence it is totally unaffected by any sort of rupee appreciation against US dollar. It is actually is one of the leading e-governance solution providers, undertaking data entry/scanning works for digitization of information maintained under Right to Information Act. It also undertakes short-term projects like issue of photo ID cards, ration cards and election commission cards. In consortium with Electronics Corporation of India Ltd, company has bagged huge e-governance order, taking its total order book position to around 250 crore to be executed in next five years. Recently, company has been selected as empanelled vendor for rollout of IT services in govt sector through National Informatics Centre Services Inc. for a period of one year which can be extended for another one year. On the back of excellent half yearly nos, company is estimated to report total revenue of 75 cr and PAT of 16 cr i.e. EPS of 13 Rs on equity of 12.50 cr for FY08. Moreover company has few acres of surplus land in Hyderabad, which it plans to either sell or enter into JV with infrastructure company. At a modest discounting by 12x times, share price has the potential to cross 150 Rs in medium term. In short it’s a mini Vakrangee Software.

Roto Pumps (64.00) is a reputed manufacturer of progressive cavity pumps and twin screw pumps which have very wide application in agriculture, domestic and industrial sector. Besides India, it has warehouse cum marketing office in Australia and U.K. and also good network of distributors spread across the globe. On the back of strong industrial growth and robust demand for its product, company has undertaken an expansion cum modernization plan at its manufacturing facilities. It recorded 24% growth in sales to 18 cr and 40% rise in net profit to 1.20 cr for half year ending Sept’07. Accordingly it may register a topline of 40 cr and bottom-line of 2.75 cr for fiscal year 2008. This translates into EPS of 9 Rs on a small equity of 3.09 cr. Hence with promoters holding 70% stake, the floating stock is very low. This means scrip can see a vertical rise if it catches market fancy. Moreover for FY09, company has the potential to post an EPS of more than Rs 12. At the current enterprise value of Rs 26 cr, scrip is trading fairly cheap. Long term investors should keep accumulating at decline for a price target of 100 Rs in 12~15 months.

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