LT Overseas - Rs.44.00

Incorporated in 1990, LT Overseas Ltd. (LT) is primarily in the business of milling, processing and marketing of branded & non-branded basmati rice and manufacturing of rice food products in the domestic and overseas markets. Its operations include contract farming, procurement, storage, processing, packaging and distribution. Presently with around 22% market share, it is the third largest player in domestic basmati rice segment after Satnam Overseas and KRBL. Incidentally, the company owns 19 brands with ‘Daawat’ and ‘Heritage’ as its leading brands. Apart from all types of basmati rice, the company’s product portfolio comprises brown rice, white rice, steamed rice, parboiled rice, organic rice, quick cooking rice, value added rice and flavoured rice in the ready to cook segment. Globally, its products are being sold in more than 35 countries including quality conscious markets like USA, Canada, UK and the European Union. In fact, it is among the first few players in the rice industry to achieve ISO:9001 and Hazard Analysis and Critical Control Point (HACCP) certification from British Standards Institute.

Presently, LT has a capacity to process 30.5 TPH of paddy of which 27 TPH is processed at its own facility at Bahalgarh, Haryana, and the balance 3.5 TPH is processed in facility leased from group concerns at Sonepat and Amritsar. Notably, it is among the few rice manufacturers to use silos for storage of rice. Moreover, all its processes are fully mechanized and the output is untouched by hand. It is also using automatic colour sorting machines for quality purposes since 1992. It also has an R&D division that concentrates on developing processes for getting better aroma, better head grains yield and reducing the stickiness and developing value added rice. Recently, it has entered into an agreement with Satake Corporation, Japan, for exclusive right to use new milling technologies for value added rice which will give LT a technological edge over its other local competitors. It has formed a strategic alliance with Phoenix Agri Silica Corporation for developing a silica plant to convert husk ash, a waste generated during the milling process into silica - a raw material used in the cement industry. Meanwhile, it has also entered into contract farming agreement with Tata Chemical. LT has a very strong distribution network with more than 100 distributors covering almost every state. As 40% of its revenue comes from exports, it has exclusive arrangement with distributors in North America, South America and the European Union and has of late started supplying basmati rice directly to retail chains in US and Canada. It is also taking some initiatives to increase its presence in the Far East, Africa and the Middle East region.

A few months back, LT raised around Rs.40 cr. through an IPO at Rs.56 per share primarily for putting up a new parboiled rice processing and milling capacity of 6 TPH, a new milling line for producing value added rice with capacity of 5 TPH and to set up silos and flat storage facilities. It is also putting up a power plant of 2MW for captive consumption. In a pre-IPO placement, LT allotted 7.14 lakh equity shares to Bennett Coleman & Co and another 50,000 equity shares with Deramann Ltd at a price of Rs.70 per share. To increase its domestic market share, the company has applied for another 30 brands which are pending at various stages. Considering all these factors, it may report sales and net profit of Rs.450 cr. and Rs.20 cr. respectively for FY07. This may shoot up to Rs.550 cr. and Rs.32 cr. respectively for FY08. The EPS works out to Rs.9 for FY07 and Rs.14 for FY08. Investors are strongly recommended to buy at current levels as the share price can easily double in a year’s time.

Andhra Petrochemicals - Rs.14.20

Promoted by Andhra Pradesh Industrial Development Corporation and Andhra Sugars Ltd, Andhra Petrochemicals Ltd. (APL) was established as a joint sector company in 1984 with a licenced capacity to produce 30,000 MTPA of Oxoalcohols at Visakhapatnam. However, the company started commercial production from February 1994 only. Since then APL is almost the sole producer of Ox-Alcohol and its derivatives like N-Butanol, 2-Ethyl Hexanol and I-Butanol in India. Its products are used mainly for plasticizers, emulsion paints, adhesives, paper/textile processing, fuel additives, surfactants, mining, stabilizers, solvent extractions, agricultural chemicals, engine machinery lubrication etc. They are also used in rubber chemicals, printing inks, resins, pharmaceuticals, urethane catalysts, dyes, varnishes, nitro cellulose lacquers, acrylates, pesticides, etc.

APL’s manufacturing facility is located at Visakhapatnam (A.P) near the port and is equipped with imported technology supplied by M/s. Davy McKee Ltd., UK, now known as M/s. Davy Process Technology. It has an installed capacity of 39,000 MTPA but has been working above 100% capacity utilization since the last few years. In fact for FY06 it achieved an all time record production of 42,714 MTs, which will probably be beaten this fiscal. As APL is the only producer of oxo-alchohol in India, the rest of the demand is being met by imports. As per industry estimates, the demand for Oxo-Alcohols will continues to rise at 8% p.a. in coming years. This means that the company has a huge potential to expand. Although it has no such plans at present, it intends to do so in future to beat the competition form cheaper imports and increase its market share. Meanwhile, in order to bring down the power cost, the company has initiated steps to install an Uninterrupted Power Supply (UPS) system to feed all essential equipment drives, which will enable the captive D.G. sets to normally shut down and operate only as emergency generators during power failure.

Since crude oil prices were very high in FY06 and as Propylene/Naphtha are the main raw materials for APL, its financial performance was under severe pressure in FY06. This year, however, crude prices have fallen drastically below $60 per barrel and hence APL has made a strong turnaround. For the first nine months ending 31st December 2006, its sales improved by 35% to Rs.184 cr. but net profit increased by more than six times to Rs.20 cr. More importantly, its PBT stood at Rs.36 cr., which translates into an annualized EPS earning before tax of Rs.6. Accordingly, for the full year FY07, it may report a turnover of Rs.250 cr. with PAT of Rs.30 cr., which translates into an EPS of Rs.3.50 on its equity of Rs.85 cr. It may declare a maiden dividend of 7.5% for FY07, which amounts to a yield of more than 5% at CMP. Although APL is endeavouring for restoration of input tax credit on naphtha, the prospects of the industry are still dependent on the government policies concerning VAT and petroleum prices. Investors are advised to buy at current levels with a price target of Rs.24 i.e. 70% return in 15-18 months.

STOCK WATCH

FCS Software Solutions Ltd. (Code:532666) (Rs.76.85) 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 application support 24x7. For the December 2006 quarter its total revenue grew by 35% to Rs.40 cr. but net profit shot up by 50% to Rs.6.35 cr. due to better operating margins. Last year, it started a new unit in Punchkula (Haryana) and this year it has acquired 1.66 acres of land at Chandigarh Technology Park, under the SEZ scheme. Besides, it is planning to expand its operations to Gurgaon and has been allotted a plot of 4000 sq. mts. at Noida. It may end FY07 with a top-line of Rs.150 cr. with PAT of Rs.21 cr. i.e. an EPS of Rs.15 on its equity of Rs.14 cr. With 69% promoter stake, expected dividend of 30% and 52-week high of Rs.166, this scrip is available extremely cheap at the current market cap of just above Rs.100 cr.

Shree Hari Chemicals Export Ltd. (Code:524336) (Rs.25.50) is a reputed manufacture and exporter of dyes and intermediaries. It produces reactive acid as well as direct dyes and a wide range of dye intermediaries like H-acid, Gama acid, Peri acid, vinyl suplhone etc. For the December 2006 quarter, it made a very strong turnaround as sales more than doubled to Rs.20.50 cr. and the net profit shot up to Rs.1.40 cr. compared to Rs.10 lakh in Q3FY06 thereby registering quarterly EPS of Rs.3. Impotantly, it reported a very healthy OPM of 19% against 7% last year on the back of higher realization for some of its products. Last fiscal, the company set-up a solvent plant system, which is the latest technology available to increase the yield and improve quality. For the first nine months, it has already clocked an EPS of Rs.5 and may end the full year with an EPS of about Rs.7. It’s a strong turnaround candidate.

To curb inflation, the government is adopting various measures and has reduced the custom duty on import of cement. It is further considering to ban export to increase the domestic supply. Although any further price hike is ruled out, cement companies are expected to do well fundamentally as cement prices are trading fairly high. NCL Industries Ltd. (Code:502168) (Rs.46.80) has once again reported stunning numbers for the December’06 quarter. Sales increased by 70% to Rs.56 cr. and net profit zoomed to Rs.9.30 cr. against Rs.0.83 cr. in Q3FY06. It has also decided to merge NCL Energy with itself through a share swap ratio of 1:6. A few months back, it was planning to raise around Rs.55 cr. for expansion through preferential allotment of equity shares to FIIs at Rs.68 per share, but somehow dropped it. However, for FY07, it may report net sales of Rs.200 cr. with NP of 22 cr. i.e. an EPS of Rs.8 on its current equity of Rs.29.22 cr. on a standalone basis. Buy at declines.

RS Software (India) Ltd. (Code:517447) (Rs.67.60), a SEI CMM Level 4 company, is a leader in providing quality software services and consulting to international players in the electronic payment space. Its bandwidth of offerings covers all segments from card associations to processors, acquirers & issuers, ISOs, all the way down to the merchants who manage POS terminals at retail outlets. For the December 2006 quarter, its revenue grew by 10% to Rs.25 cr. but net profit jumped up 70% to Rs.2.40 cr. due to improved margin and lower depreciation cost. For future growth, it is expanding aggressively to set up a new infrastructure of 60,000 sq. ft. in Kolkata, which would be completed by FY08. Apart from UK and USA, the company is also working towards expanding its operations to Asia Pacific and Far East countries. For FY07, it may register a top-line of Rs.100 cr. and bottom-line of Rs.8 cr. i.e. an EPS of Rs.11 on its current equity of Rs.7.40 cr.

Tonira Pharma Ltd. (Code:530155) (Rs.19.55) is a well-known manufacturer and exporter of bulk drugs, drug intermediates and active pharmaceuticals ingredients (APIs) with 95% of its products exported to more than 80 countries worldwide. It also has an USFDA compliant manufacturing facility at Vadodara, Gujarat. For the December 2006 quarter, its sales rose by 40% to Rs.9.30 cr. and net profit also increased by 40% to Rs.1 cr. registering an EPS of Rs.1.20 for the quarter. Last year, it tied-up with US-based Apotex Corporation and Teva Pharmaceutical to supply four API drugs for a period of five years. For the full year FY07, it is estimated to register net sales of around Rs.38 cr. and PAT of nearly Rs.3 cr., which works out to an EPS of Rs.4 on its equity of Rs.7.90 cr. However, low promoter holding of around 27% maybe one of the reasons for its low discounting by the market.