Sukhjit Starch & Chemicals Ltd - 146.00 Rs

Established in 1944, Sukhjit Starch and Chemicals Ltd (SSCL) is a well known player in maize starch and its derivatives. Hence its engaged in manufacturing edible maize starch used in the preparation of ice-cream, custard powder, confectionery etc, maize starch used in the textile and paper industries, dextrine used in foundries as a binder, liquid glucose used in the manufacture of jams, jellies, chewing gums, etc and dextrose monohydrate (glucose) used in pharmaceuticals. Besides it also produces sorbitol, maize oil, maize gluten, maize husk, liquid glucose, high maltose syrup, oxidized/pregelatinized starch etc. It has an impressive clientele including corporates like Britannia, Dabur, Colgate, HLL, Heinz, Ballarpur, Berger paints, JCT, Mahavir Spinning. Wockhard etc.

SSCL has three manufacturing plants spread across Phagwara-Punjab, Nizamabad-Andhra Pradesh, and Malda-West Bengal. Incidentally, SSCL is the only multi-locational group in India as of now with a combined installed capacity of 1,50,000 tons corn grind per annum. With a view to take advantage of emerging opportunities in starch industry, company has embarked on new expansion project in Himachal Pradesh entailing a capital cost of Rs.30 crore. Trial runs have been carried out and commercial production is expected to start in June 2007. This new unit will enhance the capacity by nearly 25% and is likely to be dedicated for high margin starch and derivative products especially for pharmaceutical industry taking shape in Baddi, Himachal Pradesh. In future company is also planning to start producing maltitol, spray starch, cationic starches, acetylated starches etc. Although negligible currently, but going forward company may start exploring the international market for export.

However, SSCL’s performance largely depends on availability and cost of raw material i.e. maize which is subject to natural vagaries. Of late the maize prices are ruling very high, still the industry is in position to pass on increased raw material costs due to strong demand. Moreover the per capita production of starch is still much lower as compared to world average and there is reasonably a good scope for increased demand. It ended FY07 on quite a buoyant note, with sales grew by 32% to 162 cr but NP tripled to 21 cr registering an EPS of 28 Rs on equity of 7.38 cr. Assuming the company to register 18% operating margin for FY08, it can report sales of 200 cr and PAT of 23.75 cr i.e. EPS of 32 Rs on current equity. Being a commodity company, at a reasonable discounting by 6x times the scrip has the potential to touch 200 levels in 9~12 months.

Jenburkt Pharmaceuticals Ltd - 36.00 Rs

Jenburkt Pharmaceuticals Ltd (JPL) was originally incorporated as a private limited company in 1985 in the state of Maharastra, Bombay and was subsequently converted into a public limited company in 1994. It is promoted by ‘BHUTA’ family who has diversified interest in trading of chemicals, textiles, steel, finance, export etc. JPL is primarily into manufacturing and marketing of pharmaceuticals formulations. Today it is among the fast growing pharmaceutical company in the Indian market having products under different therapeutic group namely analgesics, anti-inflammatory, anti-bacterial, antibiotics, anti-diabetics, nutritional supplement, anti-allergic, skin preparations, anti-stress, ayurvedic, cough & cold remedies etc. Powergesic, Glucotrol, Zydol, Numox, Piril, Allerzine, Triben, etc are few of its popular brands.

JPL’s manufacturing facility is located at Sihor, Gujarat (24 km from Bhavnagar). Apart from having WHO cGMP certification, the plant has been audited by regulatory authorities of various countries and has been given accredition for export of the products. The plant also has been approved as per revised Schedule-M norms. From a modest beginning, JPL now has field strength of 325 people, and a distribution network of 19 super stockists, 4 consignee agents, 1100 stockists, over 1,00,000 chemists and 65,000 doctors on its promotion list. However off late company has been focusing more on lucrative export market, and is a busy registering product and appointing agent/stockists in several countries. It has filed nearly 25 products dossiers for registration, of which some of them have already been registered, and others are under process. Infact it has received the certification from Kenya, Zambia, Ghana etc and is looking forward to other African countries. Hence in future its international business division is expected to contribute substantially to the total revenue.

Over the years, company has been growing gradually but consistently. For FY07 its sales improved by 22% to 35 cr and NP increased by 15% to 1.20 cr thereby registering an EPS of 2.60 Rs on equity of 4.65 cr. Importantly, company has been very liberal in dividend payment and has a amazing track record of payout ratio as high of 60%. Even for FY07 it paid 1.25 Rs as dividend. Considering JPL’s focus on export market and high value specialty product, its operating margin is expected to improve to around 12% for FY08. Accordingly, it may register a topline of 45 cr and bottomline of 2.75 cr i.e. EPS of 6 Rs on current equity. So investors can accumulate this scrip at sharp declines as it has potential to give 30% returns in 12~15 months.

STOCK WATCH

Real estate scrips are tipped to see a sharp rally on DLF listing. And Hazoor Multiproject (11.50) is one of the cheapest bet having a market cap of merely 25 cr. Recently, it announced another good set of nos for the third quarter ending May 2007. Total revenue grew by 25% to 6 cr whereas NP shot up 70% to 2.40 cr registering quarterly EPS of 1.15 Rs. Company is focusing mainly on real estate development which has now become the core activity. It has flagged off an 80 cr highly luxurious residential project at its own property in Lonavala near Amby Valley. Secondly it’s “HIGH LIFE” residential project at Pune under the joint venture with Bansal builders have been started in full swing and will start generating revenues in coming quarters. For FY07 ending August 2007, it may clock turnover of 25 cr and NP of 7.25 cr which works out to an EPS of more than 3 Rs on fully expanded equity of 8.60 cr having face value of 4/- Rs per share. FY09 will be the bumper year with sales more than 60 cr as its real estate division will contribute in a big way. A pure multibagger, if things pan out as planned.

Andhra Petrochemicals (21.00), the only producer of Oxo-Alcohols in India reported excellent nos for the March quarter. Sales increased by 45% to 82 cr and net profit stood at 16 cr against net loss of 0.85 cr last year. For the full year it recorded sales and NP of 266 cr and 36 cr respectively i.e. EPS of more than 4 Rs. On the back strong turn around and good cash earnings, it declared maiden dividend of 10%. Importantly due to robust demand and higher price realization, its OPM improved drastically to 26% for FY07 compare to 10% last fiscal. Sensing the bright future ahead, Andhra Sugars – the promoters are gradually increasing their stake thru creeping acquisition and has already bought more than 3% stake from open market in last fiscal. Accordingly for FY08, it can report sales of 300 cr and profit of 42 cr i.e. EPS of 5 Rs on equity of 85 cr. Although the dividend yield is quite good but being a commodity scrip investors are advised to remain bit cautious.

Shivalik Bimetals (14.00) specializes in the joining of materials through various methods such as diffusion bonding / cladding, electron beam welding, solder reflow and resistance welding. Its product range includes thermostatic bimetal, CRT components, shunts, snap action disc, precision stainless steel etc which have applications across industries including automotive, aviation, electronics, medical, domestic appliances etc. Financially, over the years company has been a consistent performer with a good dividend track record. For the March quarter its sales grew by 25% to 17.50 cr whereas NP zoomed up 50% to 2.20 cr due to lower tax provisioning. For the entire FY07, its topline remained flat at 62.50 cr but NP increased by 16% to 6.50 on the back of MAT credit This works out to an EPS of 3.40 Rs on small equity of 3.84 cr having face value of 2/- Rs per share. It gave 37.50 % i.e. 0.75 Rs as dividend which gives a yield of more than 5% at CMP of 14 Rs. Although no substantial growth is expected in FY08, still it’s a value buy at current market cap of less than 30 cr.

Indag Rubber (33.00) is one of the reputed players in tyre retreading business. It operates thru franchisee business by offering the technology, specialized equipment, retreading material, technical back up etc to the franchisee. It has a state of the art manufacturing unit to produce precured tread rubber along with allied items like cushion gum, repair gum, envelopes, other accessories and specialized equipment for retreading. Recently, it has set up a new plant in Himachal Pradesh which will give a fillip to its topline in coming quarters. Retreading is basically a process of bonding a new flap of pre-vulcanized rubber in place of the worn-out flap which increases the tyre life. Last year, the joint venture between Indian promoters-Khemka’s and foreign promoters-Bandag Inc, USA was mutually terminated and accordingly Khemka’s acquired the latter’s stake thereby taking their total holding to 81%. Financially, company has made a smart turnaround for FY07 with sales shooting up by 60% to 61 cr and registering a profit of 4.20 cr (incl. EO income) against net loss of 0.40 cr. However, for FY08 it is expected to clock a turnover of 70 cr and PAT of 3.50 cr i.e. EPS of 7 Rs on equity of 5.25 cr. Scrip has the potential to test 50 levels in 9~12 months.