Stock Watch

As stated earlier, all cement companies are likely to report excellent numbers for the Dec.’06 qtr. JK Lakshmi Cement (Code:500380) (Rs.181) has already announced terrific results. Sales zoomed up by 50% to Rs.229 cr. whereas profit multiplied 5 times to Rs.55 cr. On the back of higher price realization and it registered an EPS of nearly Rs.10 for the quarter. Notably, it reported an OPM of 32% compared to 20% in Q3FY06. To cash on this boom, the company is putting up two grinding units of 5 lakh tonnes each, one of which one is expected to commence operation soon and the second by Dec.’07. Post expansion, its cement capacity will stand augmented to 4 million tonnes. It is also setting up a 36 MW pet coke based captive power plant, which is expected to be operational by June’07 and will lead to substantial saving in power to the extent of Rs.30 cr. per year. For FY07, it may clock a turnover of Rs.800 cr. with net profit of Rs.160 cr. and post an EPS of Rs.25 on its diluted equity of Rs.64.90 cr. Scrip has the potential to touch even Rs.300 in the medium to long-term.

All the liquor scrips have appreciated handsomely in the last few months. Even Mount Shivalik and IFB Industries zoomed up recently but GM Breweries (Code:507488) (Rs.113) is still trading cheap. It made a very smart turnaround in FY06 by registering an OPM of around 16% compared to 7% in FY05. Even for the first two quarters of FY07 it reported a healthy OPM of around 14%. It is the single largest manufacturer of country liquor in Maharashtra and enjoys virtual monopoly in the districts of Mumbai and Thane. It also has the facility to manufacture IMFL but is not utilizing it. Company is investor-friendly and has an uninterrupted record of dividend payment from the day of listing. For FY07, it may report sales of around Rs.185 cr. with net profit of Rs.14 cr., which will lead to an EPS of Rs.15 on its equity of Rs.9.40 cr. At the current market cap of Rs.100 cr., it’s a screaming buy. Buy in huge quantities as the scrip can shoot up sharply post the Q3 results on 25th Jan.

Aro Granite (Code:513729) (Rs.108) is one of the largest manufacturer and exporter of modular granite tiles and slabs with more than 5% share of India’s total export of granite products. For the Dec.’06 quarter, both sales and NP rose by 40% to Rs.25.40 cr. and Rs.3.60 cr. respectively. To meet the increasing demand, the company has increased its tile capacity substantially to 5,40,000 sq. mts from 1,80,000 sq. mts, whereas the slab capacity has been enhanced to 3,90,000 sq. mts from 2,95,000 sq. mts. For FY07, it is estimated to clock a turnover of Rs.110 cr. with net profit of Rs.15.50 cr., which translates into an EPS of Rs.22 on its current equity of Rs.7.02 cr. Last year, one of the promoters, Mr. Prem Arora, sold his entire 25% stake in the company to the other promoter and strategic investor at Rs.75 per share. Now the company is fully managed by Mr. Sunil Arora and is on a strong growth trajectory. Notably, FY08 will be a bumper year for the company as its full capacity will become operational.

In spite of steep rise in residential property prices and marginal upward revision in interest rate, the demand for housing loan is quite robust. Can Fin Homes (Code:511196) (Rs.69) recently announced very heartening result for the December’06 quarter. Its total revenue grew by more than 30% to Rs.49.50 cr. whereas PAT was up by 45% to Rs.9.50 cr. registering an EPS of Rs.4.75 for the quarter. The nine months figures are much more encouraging. On a conservative basis, it is expected to end FY07 with top-line of Rs.190 cr. and profit of Rs.33 cr. which means an EPS of Rs.16 on its equity of Rs.20.50 cr. Due to lack of interest of institutional investors, the scrip is trading very cheap. As on 31st Mar.’07 its book value is estimated to get enhanced to more than Rs.95. It is also expected to declare 30% dividend, which will result into an yield of more than 4%. On the back of such a strong fundamentals and promising future prospects, the scrip is bound to cross Rs.100 in medium-term. Just hold on to it patiently.

Most mid-cap IT scrips have rallied sharply in the past few weeks and Aftek Ltd. (Code:530707) (Rs.71) is no exception. However, it is still discounted very poorly compared to its peers due to promoter concerns and link with some big operators. It has come out with good set of numbers for Q3FY07. Net sales increased by 30% to Rs.82.50 cr. and net profit improved by 25% to Rs.25 cr. In line with the management’s intention to grow inorganically, the company has decided to increase its stake in Digihome Solutions Pvt. Ltd. to 51% from the present 25%. Moreover, it is awaiting High Court permission and shareholders approval to merge C2Silicon Software Solutions Pvt. Ltd. and Elven Micro Circuits Pvt. Ltd. with itself. For FY07 on a standalone basis, it may report a top-line of Rs.325 cr. and PAT of Rs.110 cr. i.e. EPS of Rs.11 on its fully-diluted equity of around Rs.20.70 cr. Scrip can touch Rs.90 in couple of months.