Wanbury Ltd - 135.00 Rs

Wanbury Ltd (Wanbury) actually came into existence with the merger of the two diverse companies, Wander and Pearl Organics. These two entities are now functioning as the independent business units of Wanbury. While Wander Ltd became the formulations division catering the domestic market, Pearl Organics manufactures bulk drugs for international market under API division. Ironically, Wanbury is the world’s largest producer of Metformin Hydrochloride - a diabetes management product and Salsalate, an anti-inflammatory drug. Presently, more than 50% of revenue comes from export to over 50 countries serving 200 customers including three of the top five generic players in US. And notably, 65% of the total export is done to regulated markets like USA, UK, Europe etc. The key bulk drugs manufactured by the company are ibuprofen, glucosamine, promethazine, tramadol, atenolol, sertraline etc. Under the formulations business, company’s product profile comprises of anti diabetic, neutraceuticals, antibiotics, cough & cold solutions, anti- inflammatory & analgesic with specialization in gynecology, orthopedic pediatrics, nutrition etc. Wanbury also offers telemedicine and video conferencing services which are new revolution in healthcare industry.

Post its recent amalgamation with Pharmaceutical Products India and Doctors Organic Chemicals (DOCL), Wanbury now boasts of having three world class large scale plants spread across Patalganga & Tarapur in Maharashtra and Tanuku in Andhra Pradesh. Of these, it’s Patalganga and Tanuku facilities are USFDA approved for multi-products and also of EDQM standards. Apart from having corporate office in Vashi-Navi Mumbai, it has set up two hi-tech R&D centers: one in Turbhe-Navi Mumbai, for API and another at Chembur-Mumbai, for formulations. Currently, Wanbury has 23 DMFs with USFDA and is looking to file another 4~5 DMFS in near future. Off late it introduced 2 new brands ‘C-Pink’ and ‘Rabiplus’ in domestic market and both are doing exceedingly well. As a part of its growth strategy, company has launched a super specialty research division `Osteolife' catering to orthopedic health issues such as osteoporosis, osteoarthritis and pain management. Besides, with acquisition of DOCL, Wanbury has got into CRAMS business also and does contract manufacturing for leading MNCs like Pfizer etc.

Now most importantly, Wanbury recently acquired the generic ethical formulation business division of Industrial Farmaceutica Cantabria, Spain for approx 250 cr thru its wholly owned subsidiaries. Interestingly, only 40% payment is to be made upfront with balance 60% to be paid in two year and the assets of the Spanish firm will be used as collateral to raise loans to fund the acquisition. Cantabria, which owns 17 brands in various therapeutic segments like traumatology, pain management, asthma, anti depressants, anti eplileptics, anti ulcerants, cephalosporin’s, beta blokers etc is targeting a revenue of Euro 33 million (i.e. Rs 200 cr) with an EBITDA of Euro 8-10 million (i.e. Rs 50~60 cr). Moreover, it has product development worth Euros 6 million in the pipeline for the next year and is expected to grow at CAGR of 15~20% over a five year period. In short this first overseas acquisition has significantly propelled Wanbury into new dimension.

In April’07, company issued FCCB aggregating Euro 15 million in order to fund the Cantabria acquisition, organic expansion, related diversifications and new R&D activities. Out of this, Euro 8 million is fully paid up whereas only 10% is paid-up for balance 7 million and these FCCB’s can be converted into equity shares @ approx 140 Rs. Apart from modernizing and expanding its manufacturing capacity, company is also in the process of acquiring domestic ethical brands. Moreover the rise in outsourcing of pharma activities to low-cost offshore destinations like India bodes well for Wanbury as company is now in a unique position to offer a single point of contract for R&D, process development and commercial production. For FY08, on a consolidated basis including the Cantabria business, it is expected to clock a turnover of 375 cr and PAT of 35 cr. This leads to an EPS of 26 Rs on current equity of 13.60 cr. However on fully diluted equity of 21 cr (post conversion of all warrants & FCCB’s) the EPS works out to 17 Rs. This can move up to 20 Rs for FY09. Hence at a reasonable discounting by 12x times against its FY09 earning, scrip has the potential to cross 240 Rs in 12~15 months. At the same time if rupee appreciation continues, the bottom-line may get affected to some extent.

Linc Pen & Plastics Ltd - 38.00 Rs

Established in mid 70’s and founded by Mr. S.M. Jalan, Linc group has over the past three decades established itself as one of the market leaders in the writing instrument industry of India. Today, Linc Pens & Plastics Ltd (LPPL) boasts of having a product portfolio of over 200 SKUs including stationery equipment. It offers a wide range of writing instruments from ball pens to gel pens and markers to pencils. Its products are targeted primarily at the mass markets, schools and offices. The USP of the company has been quality product at reasonable price i.e. value for money thru economically priced products with great price-to-performance ratio. It was the first company to launch a gel pen at Rs.10 when the prevailing price of other brands was over Rs.15. Subsequently, it was again the only one to introduce 5/- Rs gel pen, which helped the company to be brand leader in the gel pen segment and increase its market share considerably. Incidentally, it is also the sole marketer for premium international brands like Lamy, UniBall and Bensia. Lamy, is not only the market leader in Germany but has also become one of the renowned brands for fountain pens, ball point pens, roller ball pens, multi system pens and mechanical pencils across the world. On the other Uniball is the most popular brand of Mitsubishi, Japan and Bensia is a well known manufacturer of non-sharpening pencils.

LPPL has three large state-of-the-art manufacturing facilities with two in Goa and one near Kolkata. Apart from having ISO 9001:2000 certification, its plants are also approved by some of the world's leading retail chain of stores like M/s. Walmart Stores Inc, Tesco International, W.H. Smith etc. Presently, 20% of revenue comes from export to over 30 countries. The primary focus of the company has been on private label contracts with top chain stores like Steadtler, Liquimark, Poundland, ICO, Stypen, Dollar Tree, Office Works, CVS, John Lewis, Coop Norden etc to name a few. Here in India, LPPL has ventured into lucrative retailing business with two format stores namely – ‘Just Linc’ and ‘Office Linc’. While the former stocks only ‘Linc’ products, the latter is one-stop shop for all kinds of stationery products required in an office, from pins to laptops. ‘Office Linc' has roped in channel partners like Airtel, DHL, Blue Dart, Microsoft, Music World, Book Cellar, Anderson Printing, Presto, Aqua Java, SKP Moneywise and Talk, who will stock their products and provide after-sales services as well. As on today, total 18 stores of both format are already operational and the company intends to have pan India presence in future. Importantly, LPPL has appointed Rediffusion DYR, the fourth largest ad agency for brand building and has allotted more than 7 cr for ad campaign.

Last fiscal, company revamped its product mix by phasing out couple of high volume low value brands, due to which the average realization per pen increased from 2.25 to 2.60 Rs. It was also successful in increasing the average realization per refill from 0.82 to 1.16 Rs. In order to have better information system, LPPL is implementing ERP system from SAP and has chosen M/s. Price Waterhouse Coopers as their implementation partners. Increasing working population, growing level of literacy, burgeoning middle class, huge retail revolution etc – all these augurs well for the growth of LPPL. After reporting flat performance for FY07, company is now growing at healthy pace and has registered 20% and 30% growth in sales and NP respectively for H1FY08. Thus it is expected to clock a turnover of 175 cr and PAT of 5.50 cr for FY08 i.e. EPS of 7 Rs on an equity of 8 cr. With 52 week H/L as 52/28 Rs, book value of 36 Rs, dividend yield of nearly 4% and specially considering its brand value, the company is available fairly cheap at an enterprise value of 60 cr. At a reasonable discounting by 8x times, scrip has the potential to touch 60 Rs (i.e. 50% appreciation) in 12~15 months. However, investors should keep in mind that company is in a very price sensitive business with cut throat competition and is operating at very low net margin of 2~3%.

STOCK WATCH

South India Paper mills (75.00) is having strong presence in packing paper and paper boards apart from manufacturing writing and printing paper. On back of robust demand for packaging grades of paper, company is implementing a brown field expansion with an investment of about 110 cr. It will more than double its paper manufacturing capacity to 105,000 TPA from 55,000 TPA currently. To support the enhanced energy requirements, it will also be augmenting its captive power generation capacity by 3.50 MW. Besides expansion, company is going for forward integration into high quality corrugated boards and intends to have at least one 100% owned facility and possibly one facility under joint venture near Chennai. However, the new paper capacity is expected to be commissioned by December 2008 and corrugated boards’ facility to start by June 2008. Meanwhile, company continues to report decent set of nos and is expected to end FY08 with sales of 125 cr and net profit of 12.50 cr. This translates into EPS of 17 Rs on equity of 7.50 cr. Considering company’s aggressive expansion plan and strong fundamentals, the share price can move up to 120 Rs at a modest discounting by 7x times. A slow but steady performer.

Haldyn Glass Gujarat (62.00) is engaged in mass production of clear glass bottles and containers with a furnace capacity of 160 TPD. It basically caters to industries such as liquor, pharmaceuticals, cosmetics, beverages, processed foods etc. Its brand name "HALDYN" enjoys very good reputation for top quality at competitive prices with timely deliveries in domestic market. Apart from having state-of-the-art manufacturing facility in Gujarat, it has full-fledged in-house design facilities and mould shop along with captive power plant and waste heat recovery system. It has the most coveted and excellent clientele with corporates like Mcdowells, Shaw Wallace, Reckitt & coleman, Parke Davis, Glaxo, Pfizer, Ranbaxy, Cadilla, Novartis etc. To capture the increasing demand of the user industry, company has installed a new furnace which is expected to become operational by early 2008. Notably, the liquor, FMCG and pharma industries who are the main user of company’s products are on an upswing due to strong economic growth. This has resulted in substantial surge in demand for the glass bottles, vials and containers. Moreover, Haldyn is looking to explore the untapped export market as well. For FY08, it is expected to report sales of 65 cr and PAT of 6.50 cr resulting into an EPS of 12 Rs on equity of 5.40 cr.

ABC Bearings (86.00) is India’s largest producer of taper roller bearing and third largest for cylindrical roller bearing after FAG and NRB. It supplies to all auto majors including Tata Motors, M&M, Ashok Leyland, Eicher Motors, Toyota, Swaraj Mazda etc. Currently it has a total installed capacity of 6.5 million bearings per annum which will be soon enhanced to 8.00 million thru the ongoing expansion plan. Due to stiff competition and in order to reduce its dependence on OEM’s, it is planning to increase its business from the replacement market as well. Few months back it has formed a 25% joint venture with NSK Ltd., Japan to set up a new plant in Chennai for manufacturing of bearings mainly for Japanese and other transplant customers. For future growth, it intends to enter the railway bearing segment and supply wheel bearings for freight wagons. However, on the bourses, the share price has tumbled down sharply and is hitting new lows due to dismissal performance by the company in the last two qtrs. Still it is expected to register a topline of 175 cr and profit of 19 cr excluding extraordinary expense of 4 cr on VRS. Hence, on an equity of 11.56 cr, EPS works out to 16 Rs. Moreover, most probably company is still sitting on a surplus land of around 18 acres in Lonavala. To conclude, at the current market cap of around 100 cr it’s a pure value buy.

KIC Metalics (65.00) is primarily engaged in production of pig iron and iron casting having an installed capacity of 110,000 and 18,000 MTPA respectively. Notably, it has a coke oven plant with 144,000 MT capacity for conversion of coking coal to met coke. Although on a small scale, it also produces and markets Portland slag cement under the brand name “KAJARIA” and has a capacity of 33,000 MTPA. Off late, company has installed hot stoves in the blast furnace to bring down met coke consumption and is further looking to put up sinter plant to use low priced iron ore fines. Besides, for last couple of years company is looking to set up a 4 MW captive power plant using its waste blast furnace gas. In near future, it has plans for installation of electric steel making facility to produce steel billet initially and subsequently putting up finishing rolling mills. Hence, company intends to become a mini integrated steel manufacturer of sizeable capacity to produce cheapest steel. For H1FY08, it recorded 40% growth in sales to 107 cr and 55% increase in PBT to 5 cr. Accordingly it may end FY08 with sales of 225 cr and PAT of 6.50 cr i.e. EPS of 12 Rs on fully diluted equity of 5.60 cr. Keep accumulating at sharp declines.