VST Tillers Tractors - Rs.132.00

Established in 1965, VST Tillers and Tractors Ltd. (VST) is the undisputed leader in the Indian tiller market enjoying more than 50% market share. It manufactures power tillers along with low horse power (sub 20 HP) tractors to cater to small farmers. Power tiller is nothing but the two-wheeled version of tractors and is meant for farmers with smaller land holdings and for those who cannot afford expensive tractors. The cost of a tiller is almost 1/3rd of a tractor. Presently, tillers is the main product of the company with 2/3rd revenue coming from it followed by tractors, which contribute around 20%. In addition, VST supplies farm equipments, diesel engines and precision components like crankshafts, connecting rods etc. It is also trades by supplying imported machinery from other countries such as rice transplanters, combine harvesters, garden tillers, reapers, hedge trimmers, bush cutters, hole diggers etc.

VST has three manufacturing facilities at Bangalore, Mysore and Hosur in technical collaboration with the Mitsubishi group of Japan. The products are sold under the brand name - VST Shakti, Mitsubishi-Shakti and Euro Trac and are also exported to countries in South Asia, East Asia, Middle East, Africa, Europe, USA etc. In order to beat the competition and increase its market share in the lower end tillers, VST has started importing Chinese tillers in CKD form, assemble them at its Hosur facility and sell them under a new brand Dragon Power Tiller (14 HP horizontal four stroke single cylinder) through its marketing and distribution network. In collaboration with Mitsubishi, Japan, it is planning to put up a manufacturing plant of diesel engines for power generators and tractors. Besides, the company continues to pursue cost cutting strategies, increasing manufacturing efficiencies, strengthening marketing initiatives and garner greater economies of scale to stay ahead.

In the Union Budget 2007-08, the government has put special thrust on agriculture and hence farm credit target has been raised from Rs.1,75,000 cr. to Rs.2,25,000 cr. with addition of 50 lakh new farmers to the banking system. This augurs well for VST since more than 80% of tractor sales are on credit. It has reported very encouraging results for the December 2006 quarter and may end FY07 with sales of Rs.160 cr. and profit of Rs.11 cr. i.e. EPS of Rs.19 on its equity of Rs.5.76 cr. The management may even declare Rs.4 as dividend. Its sales and net profit can rise to Rs.200 cr. and Rs.12.75 cr. for FY08. Moreover, it also has some surplus property in Bangalore, which may fetch a handsome value to the company, although officially not announced by the company. Hence investors are advised to buy at declines as its share price can appreciate by 50% in 9-12 months.

Visesh Infotechnics Ltd. - Rs.36.00

Established in 1989 as an ERP software product company, Visesh Infotecnics Ltd. (VIL) is today a mature and fast growing company committed to providing reliable and cost-effective IT solutions to organizations globally. It has a state-of-the-art software development facility in Bangalore and another one at Gurgaon. Besides, it also has a base in Bangkok with a large strength of software and networking professionals. Importantly it has strategic partnerships & alliances with global IT leaders like Novell, Microsoft, Oracle, Compaq, IBM, Sun, Cisco, 3Com, HP, Toshiba etc. Its software and technology solutions are being used successfully in almost all industry verticals such as telecommunications, chemicals, automobiles, pharmaceuticals, services (including finance & ITeS), government, education, sugar, sales & distribution etc. Hence, VIL has a formidable client list of more than 1000 large and medium size corporates including several reputed multinationals and overseas clients and has been declared a winner in the world-renowned Deloitte Technology Fast 500 Asia-Pacific 2005 programme. It is also winner in the inaugural Deloitte Technology Fast 50 India programme.

VIL’s operations can be broadly divided into three segments: IT Solutions & Product Support, Enterprise Software & IT enabled Services. It has a proud history of product development and that of an IP (Intellectual Property) creator. In the ERP space, the company has three products namely BusinesSoft™, BusinessPro™ and powERPro, which are doing extremely well. Another software product VRetail™ is specially designed for retail space and has been deployed successfully by several departmental stores, supermarkets and retail chains in India and overseas. The company has lately diversified into high technology and fast emerging areas of mobile telematics with launch of TransXS™ pioneering remote vehicle tracking service that facilitates corporates and fleet operators to get 24x7 real-time information of their fleet location and enhance logistics management through vehicle utilization analysis, route planning, asset tracking etc. VIL also has a division called InfraServe, which designs, builds and manages IT infrastructure for its clients globally through effective deployment of hardware, software and networking products. Last fiscal, the company ventured into business of Knowledge Process Outsourcing (KPO) & BPO through its newly-formed division VConnect™ which has good orders and is expecting new legal process outsourcing contracts from reputed US Based law firm. A few months back, it entered into 50:50 joint venture with Cyberworks Software, USA, to provide outsourced services to its clients from its contact centers (BPO units) in India. Its Lapps.Biz™ is an e-commerce portal that provides mobility devices (laptops, hand-helds etc.) and applications to the upwardly mobile retail buyer at the click of a mouse. The company also offers internet and web based services thru SignDomains™, StepOne™ & InfraSurf™.

Notably, VIL has some aggressive expansion plans for which it is planning to raise around Rs.44 cr. through FCCB / GDR/ preferential allotment route and has already taken the approval at the recent EGM. For FY06, its top-line increased by 120% to Rs.78.50 cr. and net profit shot up by nearly 6 times to Rs.11.05 cr. i.e. EPS of Rs.4. It declared Re.1 as dividend, which means a healthy payout ratio of 25%. For this fiscal, it is expected to register total revenue of Rs.125 cr. and with profit of Rs.19 cr. i.e. EPS of Rs.7 on its current equity of Rs.26.97 cr. Promoters’ holding is around 56% and its book value stands at Rs.27. Although it needs funds for expansion, still it may declare 12.50% as dividend for FY07. Its forthcoming FCCB/GDR is expected to be placed above Rs.50 per share. Hence investors are strongly recommended to buy at current levels with a price target of Rs.55 (50% returns) in 9-12 months.

STOCK WATCH

IG Petrochemicals Ltd. (Code: 500199) (Rs.57.10) is the world’s third largest producer of Pthalic Anhydride (PAN), which is used in the manufacture of plasticizers, alkyd resins and as an intermediate in the production of dyes and pigments. Due to major financial restructuring and capital infusion by Spinnaker-a global fund, the company has made a strong turnaround this fiscal. For the December 2006 quarter, while its sales increased by 50% only to Rs.150 cr., its net profit zoomed to Rs.10.90 cr. against a net loss of Rs.15.60 cr. last year. Notably, it recorded the highest OPM of around 14% due to high realization, low raw material costs and higher capacity utilization. For the full year FY07, it is expected to clock a turnover of Rs.600 cr. with PAT of Rs.33.50 cr., which translates into an EPS of Rs.13 on its current equity of Rs.26.30 cr. and EPS of Rs.11 on its diluted equity of Rs.30.80 cr. A good turnaround scrip.

A major beneficiary of the Railway Budget will be Kalindee Rail Nirman (Engineers) Ltd. (Code: 522259) (Rs.164.75). It is a forerunner in execution of the railway signalling, gauge conversion from metre gauge to broad gauge, new railway line construction, modernisation of railway yards. up-gradation of railway sidings in ports, power plants, petroleum sidings, access control systems for metro rail, fibre optic networks, etc. Recently, it merged group company, Kalindee India Projects, through a swap ratio of 17:20, which will help it to bid for larger projects. Besides, it just now raised around Rs.27 cr. through a preferential allotment of 17.25 lakh shares at Rs.156.50 per share. Further, it is planning to raise approx. Rs.30 cr. through the GDR or FCCB route. It may end FY07 with a turnover of Rs.175 cr. with net profit of Rs.10.50 cr. i.e. EPS of Rs.10 on its diluted equity of Rs.10.34 cr. Since the company has more than Rs.750 cr. of orders in hand, its top-line is expected to shoot upto Rs.300 cr. with PAT of around Rs.22 cr. i.e. EPS of Rs.21 on its current equity for FY08. A solid buy as its share price can shoot upto Rs.240 in 12 months.

By this year’s budget, the government has expressed its special thoughts on health and family welfare by increasing its allocation by 20% to more than Rs.15,000 cr. This is positive for Sanjivani Parenterals (Code: 531569) (Rs.32.85) to some extent as it a supplier of pharmaceutical products to government bodies. Few months back, it bagged a prestigious order from the Mumbai Municipal Corporation and also won the bid of CMS Tender for bulk supply to all hospitals of the West Bengal government. Recently, it also entered into some contract with the defence ministry for three years, which is a good breakthrough for the company. For FY07, it may report a total revenue of Rs.75 cr. with net profit of Rs.4.50 cr. i.e. an EPS of Rs.8 on its equity of Rs.5.90 cr. Technically also, the scrip has bottomed out and the risk:reward clearly favours the bulls in this scrip.

After hitting a high of Rs.122, Paradyne Infotech Ltd. (Code: 532672) (Rs.87.30) has corrected sharply to Rs.80 levels on fears of MAT implementation and the FBT on ESOP. However, it is a rapidly growing mid-cap IT company set to capitalise on strong growth opportunities in HR and Banking software products, offshore & domestic software services, e-governance projects and IT infrastructure management services through both organic and inorganic initiatives in domestic as well as global markets. For the December 2006 quarter, its top-line grew by 60% to Rs.34.50 cr. and net profit more than doubled to Rs.3.95 cr. registering an EPS of Rs.3.65 for the quarter. For full year FY07, it may register total revenue of Rs.125 cr. and after providing Rs.2.50 cr. as current tax, net profit may stand at Rs.14 cr. This translates into an EPS of Rs.13 on its current equity of Rs.10.88 cr. For FY08, its EPS can rise to Rs.16. Buy on declines.

PBA Infrastructure Ltd. (Code: 532676) (Rs.95.30) executes civil engineering projects and specializes in construction of highways, dams, runways, heavy RCC structures, bridges and other infrastructure projects for various government bodies. Although the shares of construction and infrastructure companies have tumbled sharply on withdrawal of some tax exemptions in the budget, the future prospects of PBA Infrastructure are very encouraging as it regularly bags good orders. Its first three quarters revenue is up by 75% to Rs.187 cr. but net profit grew by 20% only to Rs.10 cr. only due to higher interest cost and tax provisions. Since it has pending contracts worth more than Rs.500 cr., it may report sales of Rs.265 cr. with net profit of Rs.12 cr. for FY07, which may shoot up to Rs.325 cr. and Rs.16.50 cr. respectively for FY08. This works out to an EPS of Rs.9 & Rs.12 for FY07 and FY08 respectively. The company is also planning to raise capital through FCCB/GDR/ preferential allotments, which will lead to its re-rating going forward.