Raunaq Automotive - Rs.28.75

Raunaq Automotive components (RACL) was established in 1989 as a joint sector project between the Pradeshiya Industrial & Investment Corporation of UP Ltd. (PICUP) and Bharat Gears Ltd to manufacture high quality transmission gears & shafts for automotive & industrial applications and belongs to the well-known Raunaq Group, which consists of companies like Apollo Tyres, Bharat Gears, Premier Tyres, Raunaq Intl, Raunaq Finance, Apollo Finance, Apollo Intl’ and Bharat Steel. Today, RACL is the largest transmission component manufacturer in North India catering to import substitution of critical transmission components. Apart from manufacturing all types of transmission gears for a variety of vehicles including two-wheelers, tractors, cars and jeeps, LCVs and heavy vehicles, it also makes axle shafts mainly for heavy vehicles. Besides engine timing gears, sprockets/ratchets, industrial gears, synchronizing cones and rings etc are also produced by the company.

RACL's has a huge hi-tech manufacturing facility at Gajraula about 100 km. from Delhi. It has the most advanced gear cutting system as well as state-of-the-art programmable fully automated CNC machines that enhance accuracy and reliability of every transmission gearing component and axle shaft. Due to its superior quality and timely delivery, it has a reputed clientele comprising Tata Motors, M&M, Ashok Leyland, Greaves, Yamaha, Honda, Escorts, Force, Hero, VST Tillers etc. Apart from the domestic market, RACL has developed products for export for prestigious international customers like Kubota, Alois Pottinger, Bombardier Rotax, Areva T&D, Herotec etc. It also supplies to leading OEMs in Japan, Austria, Germany and other European companies. Although the margins of this industry have come down in the recent past due to stiff competition and pressure from OEM, still RACL has a strong potential for growth due to the heavy demand in the domestic market as well as the global sourcing requirement of overseas automotive manufacturers.

Earlier, RACL was a loss making company but it made a strong turnaround in FY06 due to a BIFR rehabilitation scheme. It still it has accumulated losses of Rs.4 cr., which will be wiped off in this fiscal. It has undertaken various restructuring steps like broadening its distribution network, closing down some uneconomical branches, cutting down the cost of manufacturing, increasing efficiency, reducing waste etc. With these measures, the company has made a successful turnaround and for the nine months ending 31st December 2006, its sales scaled up by 50% to Rs.39 cr. and net profit shot up 70% to Rs.3.25 cr. Applying this for full year, it may clock a turnover of Rs.55 cr. with PAT of Rs.4.50 cr., which translates into an EPS of Rs.6 on its current equity of Rs.7.93 cr. For FY08, it can report an EPS of Rs.8. Therefore, investors are recommended to buy it at current levels as it can easily give 50% return in 12-15 months.

Ricoh India - Rs.33.50

Ricoh India Ltd (RIL) was originally established as a joint venture with the RPG group as RPG Ricoh Ltd. in 1993. It was later re-incorporated as RIL with 76% ownership by Ricoh Company Ltd. (RCL), Japan, in 1998. RCL is a leading global player in the area of Imaging solutions like Digital Plain Paper Copiers, Colour Plain Paper Copiers, Fax machines, Thermal paper etc. Networking Input/Output systems like Multifunction Printers, Services and Software, Scanners, Networking System Solutions like PCs, Servers, Networking equipment, Networking software etc. In fact, the Ricoh Group currently enjoys the largest market share for plain paper copiers in Europe and Japan and is No.2 share in USA. Thus with its parent company’s strong products pricing and operational support, RIL is poised to grow exponentially in coming years.

RIL’s product range includes Colour Multifunction Printers, Black & White Multifunction Printers, Colour Laser Printers and Copy Printers. The Aficio range of products provides affordable adaptability to have printing, copying, scanning and fax capabilities in one machine. Its compact colour Laser printer takes care of fast colour printing requirements with a high-geared engine, almost instantaneous warm-up time and automatic duplex eliminating the need for two separate
devices. RIL has a nationwide presence with 15 branch offices, over 250 dealers, and employs over 900 people. With a market share of 25%, the company is well on its way to become the number 1 solutions provider in Document Management Systems. Interestingly, the company believes that there is a huge scope for office automation products in Tier II & III cities that still remains to be fully exploited. Hence it is also targeting cities like Ahmedabad, Lucknow, Vishakapatnam, Jaipur, Chandigarh, Pune, Hyderabad, Coimbatore etc.

The office automation industry in India has witnessed a transformation powered by technological advancement. Digital technology is advancing at an ever-increasing pace. More and more companies are now realising that the use of Multi Function products not only helps them to reduce cost but also helps in enhancing productivity. With the growing demand for digitalization, the office automation industry is expected to grow substantially in coming years and all this augurs well for the company. To consolidate its Indian operation, Gestetner India Ltd, a sister concern was merged with RIL a couple of years back which has resulted in a favourable impact on the overall performance of the company. For FY07, RIL is estimated to clock total revenue of Rs.185 cr. with net profit of Rs.12.50 cr., which works out to an EPS of more than Rs.3 on its equity of Rs.39.77 cr. For FY08, it may register around an EPS of Rs.4. Hence at a P/E multiple of less than 8 times against FY08 earnings. With a current market cap of merely Rs.125 cr. this MNC is available extremely cheap. Strong buying is recommended with a conservative price target of Rs.50 in a year’s time.

Most investors believe that Kallam Spinning Mills Ltd. (Code: 530201) (Rs.22.40) has posted bad numbers for the Dec.’06 quarter as its NP has plunged by 20% to Rs.0.23 cr. Actually, it has declared mind-blowing results with the highest sales and profit figures in its history. Sales increased by 70% to Rs.15 cr. and PBT jumped by 80% to Rs.2.70 cr. However following its conservative accounting procedure, it provided a whopping Rs.2.30 cr. as deferred tax provisioning in this single quarter. If not, its NP would have been huge Rs.2.50 cr. i.e. quarterly EPS of Rs.3.60 since the company has completed Phase – I of its expansion by adding 11040 spindles in last quarter only, the same kind of topline will be maintained in future also. Besides it’s undergoing Phase-II expansion by adding another 11040 spindles to be completed by mid-2007 which will take its total spindle capacity to nearly 45000 spindles. For FY07, it is expected to clock a turnover of Rs.52 cr. with NP of Rs.4 cr., which leads to an EPS of Rs.6 on its current equity of Rs.6.85 cr. Although, it has a huge debt of Rs.40 cr., the scrip still has the potential to rise by 50% in 6¬9 months.

In the Cement sector, Deccan Cements Ltd. (Code: 502137) (Rs.169.50) is doing extremely well. It’s a south based cement manufacturer having a mini cement plant of nearly 3,00,000 tonnes capacity and slag cement production capacity of 5,00,000 tonnes. For the Dec.’2006 quarter, its sales shot up by 60% to Rs.43 cr. whereas NP quadrupled to Rs.7.80 cr. due to higher price realisation. Importantly, the company has a captive power generation facility through the hydel as well as windmill route, which makes it one of the lowest cost producers of cement. In future, the company plans to set up a massive 10 lakh tonnes cement plant along with captive power facility to emerge as a bigger player in the South Indian market. Importantly, from the last six quarters the company is constantly increasing its OPM with every passing quarter. For Dec.’06 quarter, its OPM stood at 30% compared to 12% last fiscal. Considering its first nine months figures, it may end FY07 with turnover of Rs.170 cr. and after making tax provisions of Rs.14.50 cr. it may report net profit of Rs.28 cr. This translates into a whopping EPS of Rs.40 on its small equity of Rs.7 cr. At a reasonable discounting of 6, the share price can touch Rs.240 in short to medium term. The management may even declare Rs.5 as dividend for FY07. A good bet.

Another company from the Textile sector, which reported good numbers, is Winsome Textile Inds. Ltd. (Code: 514470) (Rs.60.05). Although sales fell by 10% to Rs.32 cr. its PAT quadrupled to Rs.3.75 cr. due to better profit margin and other income of Rs.1.50 cr. Notably, its closing stocks shot up substantially for the Dec.’06 quarter, which means its will report good sales for the running quarter. For future growth, the company has undertaken modernisation cum expansion projects to add 13000 spindles, 10 TPD dyeing, 2.50 MW Hydro power plant along with complete replacement of old ring frames at a capex of Rs.117 cr. For the first nine months, it has already clocked a revenue of Rs.102.50 cr. and NP of Rs.9.76 cr. without tax provisioning. Hence on a conservative basis, it may end FY07 with sales of around Rs.140 cr. and NP of Rs.9.50 cr. i.e. EPS of Rs.16 on its small equity of Rs.5.87 cr. With 58% promoter holding and Enterprise value of merely Rs.100 cr., this is a screaming buy even at current levels.

Agro Dutch Industries Ltd. (Code: 519281) (Rs.32.55) reported fantastic results for the Dec.’06 quarter. While sales grew by 35% to Rs.48 cr. its net profit zoomed by 70% to Rs.10.85 cr. registering a quarterly EPS of Rs.3.70. Notably, its OPM shot up to 37% from a mere 19% in the preceding two quarters. In order to become the world’s largest mushroom producer, it is expanding its mushroom growing capacity from 36,000 to 50,000 TPA apart from doubling its can making capacity to 12000 tonnes. It has already clocked sales and profit of Rs.154 cr. and Rs.19.50 respectively for the first nine months. Hence on a conservative basis, it is expected to end FY07 with a topline of more than Rs.200 cr. and net profit of Rs.19 cr. after making total tax provisioning of nearly Rs.9 cr. for the full year. This works out to an EPS of Rs.6.50 on its current equity of Rs.29.56 cr. As the promoters themselves are planning to invest Rs.28 cr. through preferential allotment of 1 cr. warrants to be converted at Rs.28 per share, it’s a risk-free buy at current levels. Although the company is not paying any dividend, its share price is bound to hit Rs.50 in a year’s time.