Royal Orchid Hotels Ltd 128.00

Founded in 1973 by Chender K Baljee, the Baljee Group which has been re-branded as Royal Orchid Hotels is soon becoming one of India’s most recognized names in hospitality with major presence in Bangalore. Royal Orchid Hotels Limited (ROHL) - the flagship company comprises of hotel assets, their management and the branding & marketing activities of these hotels. Apart from having ownership of hotels company also undertakes management contract with third party owners, so as to encourage the development of hotels and simultaneously provide with them with the benefit of professional management and a well recognized brand. From a modest beginning of owning single hotel in Bangalore, ROHL currently operates following eight hotels.

Name	Place	No of rooms	Categoty
Royal Orchid	Banglore	195	5 star
Royal Orchid Central	Bangalore	130	Business class
Royal Orchid Harsha	Bangalore	80	Budget
Royal Orchid Resort	Bangalore	54	Resort
Royal Orchid Metropole	Myosre	30	Heritage
Royal Orchid Brindavan Garden	Mysore	25	Gateway
Royal Orchid Golden Suites	Pune	71	Serviced Apts
Royal Orchid Central	Jaipur	70	Business class

Importantly, company follows a unique business model of taking properties on lease or entering into a contract for managing & operating the existing hotel instead of owning them outright. This has helped the company manage its funds efficiently, have lower payback period on its projects & earn attractive operating margins. Besides, it’s very clear from the above, that company is having presence across the hospitality category and is also de-risking its revenue model geographically. In the next few months, company is planning to open “Royal Orchid Central” – four star category hotels at Pune (120 rooms) and Hyderabad (65 rooms) to cater the business class. Subsequently it has plans to operate two five star hotels under brand Royal Orchid, one each at Mumbai and Delhi. It is also planning to set up one near the upcoming international airport in Devanhalli in Bangalore.

Off late ROHL has signed an agreement with New Jersey based Wyndham Hotel group which operates Ramada hotels globally. Under this agreement company will develop and manage 10 hotels over five year under Ramada brand in India. In 2009, ROHL is targeting international foray by opening hotels in Dubai and South East Asian countries. But for major growth, company wants to target the lower end of the hospitality pyramid and has plans to set up a chain of 50 budget hotels across India under the brand ‘Pepper Mint’ in next 3 to 5 years. Out of these 50 locations planned, 11 have been tied up with Indian Railway Catering and Tourism Corporation, which are Chandigarh, Nagpur, Jodhpur, Agra, Bhopal, Tirupati, Jalpiaguri, Darjeeling, Jaisalmer etc. Thru this tie-up ROHL is expected to get these properties on a 30 year lease for development and running of budget hotels. It ahs also won a bid from the Konkan Railway Corporation for developing a 60 room budget hotel in Madgaon for which land has been taken on a 60 year lease from the railway authority. Recently company acquired Royal Orchid Central, Bangalore property at a consideration of Rs 82 cr which was being managed by itself. To summarize, company is constantly looking to expand to several Tier II & III Indian cities through joint ventures, management contracts, leasing or setting up of its own properties.

Ironically, the current supply of 110,000 rooms is inadequate either to meet the demand of 4.4 million tourists who visited India last year-a figure that, according to the tourism ministry, will touch 10 million in 2010. Secondly, the hospitality industry in Bangalore is upbeat, with increase in average occupancies of the hotels and the city is emerging as international business destination. With the demand from IT, ITES and the financial service sector in cities such as Bangalore, Pune and Hyderabad growing, the demand for rooms in these cities is on a rise. Hence ROHL along with seven of its subsidiaries is expected to end FY08 with total revenue of 150 cr (excl. other income) and NP of 35 cr for FY08 on consolidated basis. This translates into EPS of 13 Rs on equity of 27.25 cr. Considering its issue price @ 155 Rs in Jan 2006, and 52 week H/L as 120 / 238 Rs its one of the safe bet in current market. Investors are strongly recommended to but at current levels with a price target of 180 Rs (i.e. 40% returns) in 9-12 months

Chemfab Alkalies Ltd - 95.00 Rs

Incorporated in 1983 and promoted by Dr C H Krishnamurthi Rao, Chemfab Alkalies Ltd (CAL) is a reputed manufacturer of caustic soda, liquid chlorine, hydrogen gas, hydrochloric acid, sodium hypochlorite, bleach liquor and barium sulphate in south India. Infact, it boasts of being the first in the country to introduce pollution-free Membrane-Cell technology which became the trendsetter in the chlor-alkali industry. It is also the first company in India to manufacture barium sulphate from solid waste and even holds a patent for the same. It also produces industrial grade salt for captive consumption. The company’s products are consumed by variety of industries like aluminium, textiles, paper, soaps, PVC, water treatment, vanaspathi, etc. Post its amalgamation with Membrane Technologies Ltd in 2006, it now manufactures water purifying machinery & sells packaged drinking water under brand name “TEAM”. But most importantly, company has lately diversified into fast growing retail health care segment and has already opened ‘Team Health Shoppe’ in three locations at Chennai to market its own ‘Team Eubio’ care products as well as proven products from other manufacturers. Thru these outlets it offers a range of health care, body care, beauty care, skin care hair care and other nutritional food products. Its ‘Energy Herbal Water’ which can neutralize acidic wastes in the body and reduce weight has been a super hit and is witnessing strong demand. Presently, company derives 80% of revenue from chlor-alkali segment whereas balance 20% comes from water and heath care segment.

CAL plant is located on the east coast region about 500 mtrs from seashore at Kalapet in Pondichery. It has its own 110KV sub-station and receives power from Pondichery electricity department. Other than power and water, the key input for Chlor-Alkali plant is salt for which company has gone for backward integration and put up a salt field about 40 km from its manufacturing site. Notably, company has the lowest water consumption ratio for producing per ton of caustic soda. For FY07 it produced 41,027 MT of caustic soda against 38,725 MT in FY06. Incidentally, on its merger with Membrane Technologies, CAL has become the only manufacturer of multi bore hollow fibre ultra filtration membranes in India, the patents for which is held by Dr Rao Holdings - a Singapore based associate company. The international marketing of this special type membrane is done by global giant M/s Dupont. On the other hand, company has been successful in creating a good brand image and reputation as a quality bottled water manufacturer and is now spreading its marketing operations to Bangalore and Hyderabad as well. It is also getting lot of enquiries for franchise of ‘TEAM Health Shoppe’, but company prefers to have its own outlets and is looking out for suitable space, for additional outlets in Chennai and other important cities. On the manufacturing front, company has plans to increase its caustic soda capacity to 66,000 tonne a year in future. Besides, being the largest producer and seller of ultra pure hydrogen with 99.9999+ range, CAL has appealed to the government to employ compressed hydrogen gas as an automobile fuel, since it’s more safer, economical & environment friendly. In foreseeable future, it may also diversify into production of linear alkyl benzene, monochloro acidic acid, hydrogen peroxide and other chemicals from olefins.

Unfortunately, despite getting clearance from Pondichery govt, CAL’s desalination project is on hold due to protest from local fisherman. Also few months back, company has to suspend its production in caustic soda plant on account of some labor unrest. Accordingly, for the first six months the sales remain flat at 50 cr but NP declined by 25% to 8.25 cr. Hence the scrip hasn’t participated in this whole bullrun and is moving in a very narrow range. But it seems all the negatives have been factored in the share price and the risk reward now favors bulls. Secondly, with substantial additional caustic consumption coming up especially in the aluminium segment, the demand-supply scenario for caustic soda is expected to remain favorable in future. Also given the increasing distaste for synthetic products and high risk of side effects, people have started turning towards natural and herbal products for medicaments, cosmetics and nutrients, which augurs well for its health care division. To conclude, company can register sales of 110 cr and PAT of 16.50 cr for FY08 i.e. EPS of 18 Rs on equity of 4.59 cr having face value of 5 Rs per share. With a dividend yield of more than 5%, promoter holding 74%, P/E ratio at 5x times, gross block as 130 cr, the company is available fairly cheap at current enterprise value of approx 100 cr. Moreover it has the potential to register EPS of 22~24 Rs for FY09. Investors are strongly recommended to buy at current levels with expectation of 50% return in 12 months time.

STOCK WATCH

Despite all cats and dogs have rallied sharply in the recent bull run, share price of Sukhjit Starch (135.00) hasn’t moved anywhere for quite long time. Company is mainly engaged in manufacturing edible and non edible maize starch, dextrine, liquid glucose and dextrose monohydrate. It also produces sorbitol, maize oil, maize gluten, maize husk, 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. Although its Sept qtr were not that encouraging, still for H1FY08 it recorded 15% growth in sales to 85 and 40% increase in PAT to 10.30 cr posting an EPS of 14 Rs for six months. Notably, it 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. In July’07, company started commercial production at its new unit in HP which has enhanced the capacity by nearly 25% and is dedicated for high margin starch and derivative products especially for pharmaceutical industry taking shape in Baddi, Himachal Pradesh. On a conservative basis, it is expected to end FY08 with sales of 175 cr and NP of 18.50 which translates into EPS of 25 Rs on equity of 7.40 cr. Scrip has the potential to appreciate 30% in 6~9 months

Ironically, the share price of Rama Paper (28.00) which hit a high of Rs 59 in 2005 is hovering around half of that level in 2007, inspite of improvement in fundamaentals. Offlate company has increased its paper production capacity to 44500 TPA and is expected to enhance it to nearly 60000 TPA by March 2008. It is also putting up an additional line of paper manufacturing machine to produce tissue and poster paper with annual capacity of 18380 TPA under a capex of 24 cr. The civil and fabrication work is in progress for the same. But most importantly, company has put up 6 MW co-generation power plant for captive consumption which commenced operation recently and will lead to substantial saving in power and fuel cost. However, company reported lower sales for Sept qtr maybe due to some disruption in its manufacturing facility. Hence for FY08 it is estimated to clock a turnover of 80 cr and profit of 5.50 on back of higher operating margin. This can shoot up to 100 cr of sales and 8.50 of NP for FY09. With means an EPS of Rs 6 and 9 for FY08 and FY09 respectively on fully diluted equity of 9.70 cr. Last fiscal company raised around 16 cr thru equity route by making pref allotment to promoters and others @ 35 Rs. As on today promoters are holding 41% stake. At the CMP, company is available at an EV of 70 cr which is even less than its gross block of 79 cr. Buying strongly recommended as share price can shoot up 75 Rs in 12~15 months.

Although Deccan Cement has more than doubled, share price of Anjani Cement (36.00) is range bound since more than a year. Under the leadership of Mr. K V Vishnu Raju, company has made a strong turnaround in FY07 and is further growing at a healthy pace in FY08. It is in the process of continually increasing the capacities by modernization and up gradation. Last fiscal it installed balancing equipment and pollution reduction equipment to increase capacities and to reduce pollution. In line with its modernization and diversification plans, company acquired a grinding unit in an open auction conducted by A.P.I.D.C which has further augmented its grinding capacity. Notably, company has a captive limestone mine, captive power generation unit and state-of-the-art technology from Nihon of Japan. On the back of robust performance, company gave maiden dividend of 10% for FY07. For H1FY08 it registered 50% growth in sales to 59 cr and 60% rise in NP to 8.60 cr. On an estimated OPM of around 26~27%, it can record a PAT of 16 cr on topline of 125 cr for FY08. This works out to an EPS of 9 Rs on equity of 18.40 cr. Share price can easily appreciate 50% in six months or so. A screaming buy.

The core competency of Albert David (95.00) lies in the manufacture of bulk drugs, specialty formulations, herbal/ayurvedic products, disposable syringes & needles and intravenous (IV) solutions. It has technical collaboration with the world's largest manufacturer of amino acids, Ajinomoto Co. Inc. of Japan and with Roussel Morishita of Japan for manufacturing and marketing a wide range of crystalline amino acids, infusion solutions, oral solids and liquids in India. To maintain its market share, company is undergoing modernization-cum-expansion program in all its manufacturing units involving a capital expenditures of about Rs.52 crores. The last phase of this program is likely to be completed this fiscal itself. For H1FY08, its sales as well as profit grew by 20% to 89 cr and 6.90 cr respectively. In near future, company is planning to include some new products such as Alamin-Xtra - a nutritional supplement, Evaston - a gynaecological product, Opthalmological range - the eye care products and Betahistine - the antivertigo drug. It is also looking to launch the brand extension product like Actibile-SR and Ferrochelate-XT (the new iron compound haematinic). For FY08 it may clock revenue of 175 cr and NP of 12.50 cr which leads to an EPS of 22 Rs on equity of 5.71 cr. At a modest P/E ratio of 7x times, scrip has the potential to touch 150 levels in medium term