Rane (Madras) Ltd - 95.00 Rs

Established in 1960, Rane Madras Ltd (RML) is part of the well known Rane group - which is the undisputed leader of South India in auto components with companies like Rane Brakes, Rane engines, KAR Mobiles, Rane NSK Steering etc. Accordingly, RML is also a market leader in manufacturing of critical automotive components like steering linkages, ball joints, axial joints, suspension joints and manual steering gears. Company has broadly divided its product profile into two segments namely a) steering & suspension linkage products and b) manual steering gear products. It is a preferred supplier to most of the OEM’s in India and caters to every segment of automobile industry viz. passenger cars, multi utility vehicles, light commercial vehicles, heavy commercial vehicles and farm tractors. Importantly, it has strategic technical partnerships with M/s TRW Inc, USA for steering gear products & TRW Ehrenreich GmbH, Germany for steering linkage products.

Earlier RML was operating thru three plant one each in Chennai, Pondichery & Mysore with a combined capacity of 10.5 million units for linkage products and 0.6 million units for steering gears. But recently it has established a new facility in Varanavasi, Chennai for producing outer ball joints with an investment of 14 crore. This unit commenced operation only in Oct 2006 and will be primarily catering to export market with an installed capacity of 5.65 million ball joints. Presently, products are being exported to US, Mexico, Japan, Thailand and some European countries. It also supplies to SAARC countries for after-market segment. For future growth, RML is focusing more on global market and intends to take up its export share to 25% from 18% currently. The company has also set up a manufacturing facility at Integral Industrial Estate, Uttrakand for supply of steering gears exclusively to Tata Motors Limited. It is also contemplating to increase the product range to include hydrostatic steering gear for farm tractors and rack and pinion steering gears.

Off late, for better management and consolidation, Rane group has been taking various initiatives and implementing restructuring for all its group companies. Accordingly, in RML the individual promoters have transferred their shares in the company to Rane Holdings Ltd. With this, the shareholding of Rane Holdings in the company has increased from 20.00% to 51.28%, thus, making RML its subsidiary with effect from March 2007. Financially for FY07, it recorded 20% growth in net sales to 330 cr whereas NP jumped up 60% to 13.60 cr registering an EPS of 13.50 Rs on equity of 10 cr. Against this it gave 40% dividend for full year. For FY08 it is estimated to clock a turnover of 400 cr and PAT of 15 cr i.e. EPs of 15 Rs. Investor can consider taking some exposure as scrip has the potential to give 25~30% return in 9~12 months.

JHS Svendgaard Laboratories Ltd - 35.00 Rs

Promoted by Mr. Nikhil Nanda, JHS Svendgaard Laboratories Ltd (JSLL) was incorporated in 2004 to carry out the business of manufacturing, exporting, importing, trading, buying and selling of oral hygiene products whether raw, semi-finished or finished. In 2005, JSLL took over three proprietary firms namely M/s Sunehari Svendgaard Laboratories, M/s Sunehari Oral Care and M/s Jai Hanuman Exports, which were established by Mr. Nikhil Nanda only. Intially, company use to produce only toothbrushes, but today, JSLL is engaged in manufacturing a wide variety of dental and oral care products as contract manufacturer for many domestic as well as global brands. The product range currently includes toothbrushes, toothpaste, denture cleaning effervescent tablets, tongue cleaners etc. Recently it also started manufacturing and supplying whitening products such as mouth rinse and whitening gel for one of its customer who has introduced these products for the first time in the Indian market. Although not significant still it markets toothpaste under the brand name 'TAAZGI' in the domestic market.

JSLL has three manufacturing facilities viz. Unit - I & II at New Delhi and Unit - III (100% EOU) at Noida SEZ. Recently it has set up an integrated manufacturing facility at Kala Amb, in Himachal Pradesh to get excise duty as well as income tax benefit. Notably, company has imported Anchorfree technology enabled machinery from Boucherie, Belgium which is much better than conventional technology and is rapidly gaining importance across the globe. JSLL has slowly and gradually graduated from being just a toothbrush manufacturer to handle moulder as well as blister former and are further adding more and more integrated operations into the existing system, to become a single point solution provider for all the oral health care product requirements of its customers. On its HP plant becoming fully operational, its capacity will get augmented to 116 million units p.a. from 40 million for the toothbrush segment, 2700 tonnes p.a. from 450 tonnes for tooth paste. For denture cleaning effervescent tablets it will get increased to 180 million units p.a from existing 5 million and 500000 litres p.a from existing 60000 litres for other oral care products. Importantly the Kala Amb, HP plant has just started commercial production from April 2007.

JSLL has a good mix of export and domestic sales roughly in a proportion of 50:50 and has received top exporter award for toothbrushes & dental plate brushes for the year 2004-2005 & 2005-2006 from The Plastics Export Promotion Council (PLEX), sponsored by Ministry of Commerce, Govt. of India. Couple of months back it acquired 51% stake in M/s. Nikiven Personal Care Products Pvt Ltd thereby making it a subsidiary of the company. In future company may announce few foreign acquisitions to become a global player. For FY07, JSLL recorded a modest growth of 10% for both topline as well as bottomline to 32 cr and 4.40 respectively. This works out to an EPS of 3.50 Rs on equity of 12.50 cr. With the expansion effect kicking in from current quarter it may end FY08 with sales of 50 cr and PAT of 6.50 cr i.e. EPS of more than 5 Rs on current equity. For FY09 it has the potential to post around 8 Rs EPS. Considering its IPO price at 58.00 Rs, scrip is currently trading at 40% discount to it and has almost bottomed out. Investors are advised to accumulate at declines with a price target of 48 Rs (40% appreciation) in 12~15 months.

STOCK WATCH

Belonging to BK Birla group, Mangalam Cement (170.00) has recently been discharged from the BIFR and ceases to be a sick unit. It has also changed the accounting year to March ending from the earlier Sept ending. Accordingly for FY07 (six months) it reported sales and PBT of 228 cr and 63 cr respectively. After huge tax provisioning of 21 cr, NP stood at 48 cr. On an EPS of 15 Rs company declared 2/- Rs as dividend. To cash on the increasing demand it is carrying out 0.5 million tonnes capacity expansion that will take the total capacity to 2 million tonnes by Dec 2007. Besides, it has installed 17.50 MW captive thermal power plant which will cater to 85% of companys requirement and will lead to saving of 12~15 cr per year. It is expected to commence its operation shortly. Hence for FY08 ending March 2008 it may report a turnover of 475 cr and PAT of 90 cr ie EPS of 32 Rs on equity of 28.25 cr. Interestingly, company is contemplating to debit the deferred tax to share premium account instead of P&L a/c, which will boost the bottomline further. Having a current market cap of 480 cr, share price can give 30~40% in a years time.

Rohit Ferro-tech (39.00), a leading producer of high carbon ferro chrome has recently announced very encouraging result for the June quarter. Sales more than tripled to 100 cr whereas profit shot up to 9.50 cr against 3.60 cr last year. This translates into quaterly EPS of 2.75 Rs on equity of 34.50 Rs. Recently company has set up a greenfeild plant in Orrisa thereby taking its total capacity to 165,000 MT from 55,000 MT. Besides it has applied for mining lease to the state government of Orissa for chrome ore as well as manganese ore which will make it an integrated player to some extent. On the back of massive expansion it is expected to clock a turnover of 400 cr and PAT of 35 cr for FY08 i.e. EPS of 10 Rs on current equity. Considering its issue price at 30 Rs and 52W high of 59, scrip may shoot up to 46~48 in short term. Moreover it is trading cum dividend (i.e. 10%) with a yield of around 3%. A good bet for short term as well as medium term.

Despite all apprehensions we are optimistic on spinning sector in the longer run. And Sambandam Spinning (108.00) is a good bet as all the negatives have already been factored in the share price. For FY07 its topline grew by 15% to 128 cr and PBT was up marginally to 13 cr. But due to lower tax provisioning it recorded 70% jump in NP level to 11 cr which led to an EPS of 26 Rs on small equity of 4.30 cr. Recently, it completed a 40 cr expansion of adding 13392 spindle thereby taking total capacity to more than 75000 spindles. Further it has started implementing 100 cr project to add another 30000 spindles and establish a weaving unit of 24 loom capacity by March 2009. For FY08 it is estimated to report a sales of 150 cr and NP of 10.50 cr ie EPS of 25 Rs on current equity. At a current enterprise value of 175 cr and with a dividend yield of more than 5% it’s a pure value buy. Sometimes it pays to take a contrarian call.

Ahlcon Parenterals (65.00) Ltd is engaged in manufacture of life saving Intravenous Fluids and medical disposals including dextrose, saline, electrolytes, amino acids, fat emulsion, blood substitutes, small volume injectables, eye drops etc. For FY07 its sales improved by 10% to 49 cr whereas profit increased by 20% to 8.20 cr registering an EPS of 11 Rs on equity of 7.20 cr. It declared 15% dividend. To increase its market share and cater to international market, company is setting up a new project to almost double its production capacities, which will be operational by the later half of August 2007. Offlate it has also diversified into value added ophthalmic products and is expanding its existing Infusions and anti- microbial solutions. For FY08 company is estimated to report a topline of 65 cr and bottomline of 10 cr ie EPS of 14 Rs on current equity. Therefore scrip is currently trading at a P/E ratio of less than 5x times and at a reasonable discounting by 7x times it can easily cross century mark.