Tricom India Ltd - 105.00 Rs

From a modest beginning in 2000, Tricom India Ltd (TIL) is today, a well known non-voice IT enabled BPO services and IT enabled products company in document management space. It specializes in services like indexing, litigation coding, electronic data discovery, mortgage documentations, title plant maintenance and e-publishing. Tricom Information and Technology, a division of TIL offers total solution for electronic management of business documents, remittance processing, health claim processing, payroll management etc. It has been serving prestigious set of clients in the government and public enterprises in financial and banking, IT & software, legal, title plant, insurance, pharmaceuticals & logistics. With its presence in India and USA, TIL has more than 100 clients spanning across USA, UK, Ireland, Canada & Australia. Apart from having ISO 9001 and BS 7799 certification, TIL also boast of achieving the ISO 27001 accreditation, which is only awarded to companies who can prove highest levels of competency in information security management.

On the infrastructure front, TIL has state-of-the-art facilities measuring 29,000 sq ft. and 20,000 sq ft. across two locations in Mumbai (Vile Parle & Andheri), with an occupied capacity of 600-seats and 500-seats per shift. From January’07, it began operations in Nashik by leasing 10,000 sq ft area having world class facilities and recruiting 400 freshers. To expand and consolidate its operations, it has acquired another 10,000 sq ft area adjacent to its Nasik facility in May 2007. This facility with approx 250 employees is expected to start operations in next few weeks. Further for future growth, company is contemplating to acquire another 10,000 sq ft area and take the employee strength to 900 seatings with 30,000 sq ft of operational area in Nashik alone. Besides, Tricom Data Management Inc, its 100% subsidiary in USA has increased its hold in the U.S markets by adding 3 new offices over the existing 4 offices, thereby augmenting its presence to 7 cities in the USA. Earlier, it also signed an MOU with one company for Title Insurance for creating back plant for 25 countries in one of the States in USA. Offlate, TIL has ventured into e-publishing business under which it converts 26 conventional Newspapers and magazines to electronic form on a daily basis.

To summarize, TIL’s strategy is to first create infrastructure as per requirements of services which include domain knowledge, latest hardware, required application, secured network, etc. and then take up any assignment. Hence, it has managed to deliver 100% of its commitment and is growing at a scorching pace. For the latest March’07 quarter its topline more than doubled to 7.40 cr whereas its bottomline almost tripled to 3.25 cr. For the full year it recorded total revenue of Rs 30 cr and PAT of Rs 14.40 on standalone basis i.e. EPS of Rs 12 on equity of Rs 11.60 cr. Considering the booming BPO industry, TIL may report total revenue of 40 cr and profit of 15.75 cr i.e. EPS of 14 Rs on current equity. Company has a good dividend track report and gave 1:1 bonus last year. However the recent rupee appreciation is a cause of concern as it gets most of its revenue in US$ terms. Secondly, the low promoter holding of only 12% doesn’t give a comfort feeling. Therefore investors are advised to buy this scrip at sharp declines as scrip has the potential to give 50% return in 12~15 months.

Rohit Ferro-Tech Ltd - 35.00 Rs

Promoted by Mr. Suresh Kumar Patni, Rohit Ferro-Tech Limited (RFTL) was incorporated in April 2000 and is engaged in manufacturing, trading, import & export of various kinds of ferro alloys. It belongs to the well known IMPEX group which has more than two decades of experience in the ferro alloy, sponge iron, steel and also manages Impex Ferro Tech, Ankit Metal & Power etc. Today, RFTL is a leading producer of high carbon ferro chrome apart from manufacturing ferro manganese and silico manganese through submerged arc furnace route. Ferro alloys are primarily used in steel making as an additive to add strength and quality required in a particular grade of steel like stainless steel etc. Nearly 40% of total revenue comes from export to countries like China, Japan, Korea, Taiwan, Turkey, Abu Dhabi, Germany, Mexico, Greece etc.

RFTL’s main plant is located at Bishnupur, WB with a production capacity of 40,000 MT of only high carbon ferro chrome. Few months back, it installed a fourth furnace thereby enhancing the capacity to 55000 MT. It is further setting up a fifth furnace with 15000 MT capacity which will start operation by end of this calendar year. From the IPO proceeds last year, company has set up a green field plant in Jajpur, Orissa with an installed capacity of 25,426 TPA of silico manganese, 52124 TPA of high carbon ferro chrome and 35,947 TPA of ferro manganese. Notably, all the furnaces can be used interchangeably for producing any of these products. However, the commercial production from this plant started only in Dec 2006. So as on today its total production capacity stands at 1,65,000 MTPA which will get augmented to 1,80,000 MTPA by Dec 07. As a step towards backward integration, RFTL has applied for mining lease to the state government of Orissa for chrome ore as well as manganese ore which are located within a radius of 50 Kilometers from its Jajpur plant. Besides, in order to reduce the power cost, company may put up its own thermal based captive power plant in future. For international marketing, it intends to have a warehouse at Rotterdam to cater the demand of European countries.

For the March quarter RFTL reported terrific nos as sales shot up by 135% to 78 cr whereas NP zoomed up to 6 cr against 1 cr last year. For the full year it recorded 60% rise in sales to 199 cr and NP increased by 75% to 19 cr. Hence it clocked an EPS of 5.50 Rs on equity of 34.50 cr for which it gave 10% dividend. Interestingly, these figures are achieved against the total estimated production of around 60,000 tonne for FY07. But due to recent expansion it may produce around 1,20,000 tonne for current fiscal which means 100% growth in volume terms. Therefore for FY08, it is expected to clock a turnover of 350 cr and PAT of 35 cr i.e. EPS of 10 Rs on current equity. Considering its issue price at 30 Rs in March 2006 and with 52 week H/L as 59 / 24 Rs the margin of safety is high. Moreover, scrip is trading cum dividend with a yield of nearly 3% at CMP. To conclude, investors are recommended to buy at current levels with a price target of Rs 50/- (i.e.40% appreciation) in 9~12 months.

STOCK WATCH

On the face of it, results of IFB Agro Industries (60.00) doesn’t look encouraging for the March quarter. But actually it has posted terrific result. The OPM shot up to 19% compare to 4% last year on back of lower raw material and operating cost. Hence its PBIDT increased by 170% to 8.40 cr, but due to extraordinary expense its NP declined by 25% to 1.50 cr. For the entire FY07, if we exclude the extraordinary expense of 11.70 cr (i.e. depreciation charge for earlier years) the NP works out to 14.50 cr on net sales of 176 cr. This translates into EPS of 19 Rs on equity of 7.70 cr. Against this scrip is trading extremely cheap at CMP of 63 Rs with a market cap of less than 50 cr. Assuming a conservative OPM of 8~9% and after making highest tax provisioning for FY08, it may report sales of 200 cr and PAT of 10 cr. i.e. EPS of 13 Rs on current equity. Scrip may hit a century with non stop upper circuits. Catch it if you can.

For FY07 Pitti Laminations (85.00) has reported an all time high sales of 15,447 MT of stamping and laminations. Sales jumped up 75% to 148 cr whereas NP shot up by 50% to 10 cr registering an EPS of 11 Rs on equity of 9.21 cr. Company has recently expanded its capacity to 25,000 MT, so for FY08 it will make sales of more than 20,000 MT i.e. at least 30% growth in volume terms. Besides it is implementing a forward integration project for fabrication of steel stator bodies, machining of stator bodies and dropping of assembled stator core into the stator body which will enhance its margin post completion. Accordingly for FY08 it is expected to clock a turnover of 200 cr and PAT of 13.50 cr. This translates into EPS of 15 Rs on current equity. At a reasonable discounting by 12x times scrip may touch 120/- Rs in medium term. A good bet for short to medium term.

The result of Winsome Textiles (40.00) is not as bad as it appears to be. Yes, for the March quarter, margins have come down due to various factors like lower yarn prices, rupee appreciation, increase in raw material cost etc. Still it reported a decent OPM of 10% against 15~16% in the preceding quarters. But importantly, because of huge deferred tax provisioning, it reported a net loss of 2.95 cr. For the full year sales grew marginally by 5% 140 cr, but on the back of improved margins its PBT zoomed up 125% to 11.25 cr. However company made a huge deferred tax provisioning of 4.40 cr (i.e. 40% of PBT) for which PAT increased by only 50% to 6.80 cr. This led to an EPS of around 12 Rs on equity of 5.90 cr. As high cotton prices and lower yarn prices being temporary phenomena, we expect the situation to improve in future. Moreover company is implementing modernization and expansion project and hence may report sales of 175 cr and NP of 6 cr on a conservative basis. i.e. EPS of 10 Rs on current equity.

Most of the retail investors are selling National Steel (23.50) as it has posted a 50% decline in its net profit for the March quarter. But one shouldnt evaluate the company by just one quarter nos. On the full year basis its topline as well as PBT were flat at 1920 cr and 32.50 cr respectively. However, due to higher tax provisioning NP declined by 10% to 20 cr thereby registering an EPS of more than 6 Rs on equity of 32.60 cr. In near future, company intends to diversify further to manufacture galvalume and other products like aluminium, zinc, alloy coating etc. For this it has an capex plan of 75 cr for FY08 under which it will add new capacity to produce 1,50,000 tonne of galvalume and also increase the pre-painted galvanized steel capacity by 20000 tonne. Ironically, a RUCHI group company having a capacity of 2,10,000 tonnes of galvanized steel, 2,40,000 tonne of cold roll steel and 80,000 tonne of colour coated line is available at an enterprise value of less than 300 cr. Besides, it has reserves of more than 150 cr ie book value of 55 Rs. Despite company having low profit margin and gives no dividend, it’s a value buy.