N R Agrawal Industries Ltd - 32.00 Rs

Belonging to the Mumbai based NR Agarwal group, N R Agarwal Industries Ltd (NRAIL) was incorporated in 1993 by Shri N. R. Agarwal, a qualified chemical engineer having over 40 years of experience in the paper industry. Hence, company is basically engaged in production of duplex board and newsprint. Infact today, it is the second largest manufacturer in terms of duplex (packaging) board in India. It makes grey back & white back, double coated duplex boards (heavy weight coated) from 200 to 550 GSM in different size as per industry standards. These coated duplex boards are mainly used a packaging material by various industries such as cigarette, pharma, FMCG goods, cosmetics, liquor, food and beverages, industrial products etc. Hindustan Unilever, Colgate, Glaxo, Ranbaxy, Nicholas Piramal, Gillette, Rasna, Reynolds, Amul etc are few of its end user. Besides, duplex boards are also exported across the globe to many countries including Sri Lanka, Bangladesh, Philippines, Egypt, East Africa and Gulf Countries to name a few. Under newsprint division, company manufactures five different qualities i.e. deluxe, deluxe prime, super deluxe, premium and super premium depending on the specific needs of publishing houses. It has been regularly supplying to Indian Express group, Lokmat, Sandesh, Jagran, Sakal, Pudhari, Janmabhoomi, Mumbai Samachar etc.

Post the recent amalgamation with two group companies namely M/s N.R. Paper and Boards Limited and Suman Paper and Boards Ltd, NRAIL now boast of having four manufacturing units located at Vapi, Gujarat with total installed capacity of 130,000 MTPA for duplex board and 40,000 MTPA for news print. Against this company sold 99480 tonne of duplex board and 30812 tonne of newsprint during FY07. Notably, as its feed stock company uses imported waste paper of various categories carefully selected after years of R&D. And it has already developed several sources of such raw across the world over a period of time. On the power front, company has recently put up 5 MW captive co-generation power plant in Sept 2006 at Unit I besides having 3 MW plant at Unit II. To diversify its product range, company has started manufacturing cream wove i.e. writing & printing paper form this fiscal itself. It has also taken up 2nd phase of modernization of existing plant at the cost of 25 cr. Moreover, as per unconfirmed reports it has acquired 90 acres of land near Vapi to set up a 125,000 MTPA Greenfield plant for newsprint cum writing and printing paper

With the growing culture of super market & departmental store, the consumption of packaging duplex board is increasing manifold. And with print media becoming stronger day by day, the demand for news print is also robust. Importantly, to improve the operating efficiency NRAIL has recently implemented the SAP ERP system and has even won the SAP Award for customer excellence among 152 companies. Financially, company recorded 30% growth in sales to Rs 267 cr whereas net profit doubled to Rs 11 cr posting an EPS of more than Rs 6 for FY07 and gave 15% dividend. However, the first two qtr nos indicates the company is facing some margin pressure and may accordingly end FY08 with sales of Rs 325 cr and PAT of Rs 9 cr. This translates into EPS of little more than Rs 5 on current equity of Rs 17 cr. Considering its cash EPS of more than Rs 10 Rs, 4% dividend yield at CMP, 73% promoter stake and gross block of 150 cr, it’s a decent buy at an enterprise value of 150 cr. Investors are advised to buy at declines with a price target of 50 Rs (i.e.40% return) in a year’s time.

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Sundaram Brake Lining Ltd - 350.00 Rs

Established in 1976 as a joint venture with a world famous friction materials manufacturer, Sundaram Brake Lining Ltd (SBLL) is now a fully Indian owned company belonging to reputed TVS group of South India. It is engaged in manufacturing of automotive, non-automotive and industrial friction materials with specialization in asbestos-free brake linings and pads. Infact it enjoys the status of being the first Indian friction material company to introduce asbestos free brake blocks. Its products are extensively used in commercial vehicles, passenger cars, tractors (agricultural) and motor cycles. Besides, it also makes asbestos-free woven clutch facings, disc pads, flexible rolls, and insitu bonded shoes. It has a strong presence in the Indian original equipment market as it provides the logistic support for just-in-time deliveries to ensure zero production stoppage at its customer’s plants. It also services the Indian aftermarket through more than 140 TVS owned wholesaler outlets spread across major towns. On the other hand it derives 30% of total revenue from exports to around 70 countries worldwide. SBLL boasts of catering to the after market needs of international applications like Mercedes Benz, Volvo, Scania, Renault etc. It is also the preferred supplier to some of the well known axle manufacturers as original equipment. Ironically, apart from being an ISO / TS 16949 and ISO-14001 certified, SBLL has the singular distinction of being the first friction material manufacturer in the world to win the coveted Deming application prize for practising Total Quality Management (TQM).

SBLL has four manufacturing plants with two plants dedicated exclusively to produce asbestos-free brake linings and pads. To increase the export revenue, company has established Plant 4 in Mahindra World City - a notified Special Economic Zone (SEZ), last year only. The combined production capacity of all four facilities is 1.2 million brake blocks per month. Notably, company products have been tested to meet European ECE-R90, American FMVSS 121, Australian ADR 35/38, South African SABS 1506 requirements besides the Indian IS 11852. To service the US and Canadian markets instantly and establish a brand recognition, company has a warehouse facility in North America along with a business representative in USA who works closely with the US/Canadian brake re-builders and distributors. In view of changing trends, from drum brake linings to disc brakes for commercial vehicles the company is giving special focus on CV Pad business and in the process has created a wide range of 39 references and are aggressively marketing the same worldwide. It regularly participates in international fairs in North Amercia, Europe, Africa, Middle and Far East. Interestingly, company is also negotiating with various overseas buyers for servicing branded product programmes to ensure further export growth.

With more and more countries banning use of asbestos based friction material products, the future prospects of SBLL, being a pioneer looks promising. The number of countries which uses only asbestos free friction products has now increased from 34 to 37 countries. Secondly, the uptrend in domestic market is expected to continue on back of strong economic as well as industrial growth. However, rising input costs, constant downward pressure on prices by customers, availability of cheaper products and adverse exchange rate fluctuations are few factors putting pressure on the margin front of the company. Hence it is expected to clock a turnover of Rs 190 cr - same as FY07 with marginal decline in net profit to Rs 12.50 cr for FY08. This works out to an EPS of Rs 46 Rs on tiny equity of Rs 2.70 cr. Against its current market cap of 95 cr, SBLL is having huge reserves of Rs 62 cr (BV - Rs 240), Gross Block of Rs 117 cr and low debt equity ratio of 0.65x. Moreover company is having an excellent track record of uninterrupted dividend payment for last 15 years and at CMP the dividend yield comes to nearly 4%. Considering its 52 week H/L as Rs 598/320, this is one of the safer bet in the current all time high market. Investors are recommended to buy at current levels, as scrip can appreciate 50% in 12~15 months.

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Indo Asian Fuse Gear (155.00) manufactures wide range of electrical circuit protection equipment including distribution boards, switch boards, switch panels, fuse switches, MCCBs, HRC Fuses, MCBs, RCDs, etc. Besides, it’s one of the largest manufacturers of CFLs and MCB’s in India. To capitalize the ongoing boom, it is diversifying into power sector business and will undertake distribution projects on behalf of state electricity boards, corporations and utilities on franchise basis. Meanwhile, it has forayed into cables & wires manufacturing business as well with a planned investment of 100 cr in phases. For the higher end segment, company is setting up a plant in Haridwar under a joint venture with Simon Holding (Spain) for manufacturing home and building automation products for the first time in India. On the other hand it is putting up a facility in Saudi Arabia thru a tie up with Saudi National Glass for production of Compact Fluorescent Lamps (CFLs) and High Intensity Discharge Lamps (HID Lamps). On the back of not so encouraging nos for FY07 and H1FY08, the share price is still available at 50% discount against its high of Rs 320 in May 2006. For FY08 it is expected to clock a turnover of Rs 300 cr and PAT of Rs 18.50 cr which works out to an EPS of Rs 12 on equity of Rs 15.05 cr. However company has the potential to post an EPS of around Rs 18 for FY09. At a modest discounting by 12x times against FY09 earning share price can move upto 220 Rs in medium term.

Belonging to the respected BC Jindal group, Jindal Polyfilms (275.00) is India’s largest manufacturer of flexible packaging films. It makes polyester films (BOPET), polypropylene films (BOPP), metallised films and coated films with in house ability to produce polyester chips for captive consumption. With its new unit at Silvassa becoming operational recently, the current production capacity of the company stands enhanced to BOPET (111000 tpa), BOPP (90000 tpa), metalized film (40000 tpa), coating (18000 tpa) and polyester chips (70000 tpa). Importantly, JPL’s export of high value BOPET film to European union doesn’t attract anti dumping duty although it’s imposed on other manufacturers in India. Moreover it also has a foreign subsidiary company viz. Rexor SAS, a leading metallised and coated film producer in France. Company has posted excellent set of nos for H1FY08 as sales grew by 35% to 613 cr but PAT jumped up 180% to 68 cr which is more then entire FY07 profit of 65 cr. Accordingly it is estimated to end FY08 with topline of 1350 cr and bottomline of 130 cr i.e. EPS of 46 Rs on equity of 28.10 cr. Notably company is having massive reserves of 760 cr leading to a book value of 280 Rs. Although scrip has seen a smart run up in recent past, still it has lot of steam left. Accumulate at sharp declines.

Belonging to BK Birla group, Mangalam Cement (185.00) is one of the leading cement manufacturers with an installed capacity of 1.8 million tonne. Its “Birla Uttam” brand is quite popular in western India as company derives 30% revenue from Rajasthan, 35% from UP, 25% form Delhi and balance form Haryana. Due to buoyancy in market, company is implementing Rs 75 cr capex plan which will enhance its production capacity by 0.50 million tonne thereby taking the total installed capacity to 2.30 million tonne. The project is near completion and expected to commence shortly. For future growth, company intends to setup another 1.5~2 million tonne plant either at same location or at Chittod where company has applied for a mining lease. But most importantly, company has installed 17.50 MW captive thermal power plant which started generating power only from August 2007. Earlier company was buying power from grid at Rs 4.06/unit. Thus, apart from preventing production loss, the power plant is likely to result into saving of Rs 120/tonne i.e. round about 15 cr per year. Hence for FY08 ending March 2008 it may report a turnover of Rs 525 cr and PAT of Rs 95 cr i.e. EPS of Rs 34 on equity of Rs 28.25 cr. Investor can buy at current levels with a price target of Rs 240 in medium term. Meanwhile BIFR has discharged the company from the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 and hence it ceases to be a sick unit.

As the demand for housing as well as housing loan continues to rise due to strong economic growth, Canfin Homes (78.00) is still one of the decent bet considering its cheap valuation. Apart from housing loan it also offers other personal loans like mortgage loan, loan against rent receivable etc. To provide free insurance to its client along with housing finance, it has tied-up with Aviva Life Insurance. It has a pan India presence with four zonal office and 43 branch offices across the country. However, because of stiff competition the net interest margin of the company is under pressure. For the first six month its revenue increased by 20% to Rs 109 cr but net profit declined by 20% to Rs 12 cr. Thus it may report total revenue of 225 cr and net earning of Rs 28 cr i.e. EPS of Rs 14 on equity of 20.50 cr. As company is having huge reserves of 177 cr i.e. book value of 97 Rs, the share price can shoot up Rs 120 in a year’s time. Moreover, to consolidate their position Canara Bank - the parent company has come out with open offer to acquire nearly 21% stake @ Rs 78 per share. That means the downfall is negligible.

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Medi Caps (85.00) is one of the largest manufacturers of empty hard gelatin capsules shells which are widely used to package drugs, vitamins, antibiotics and cosmetics. It has pioneered many advanced features in product development such as “Pearlz Capsules” (Metallic Colored) as well as Python Printing & Li-Fill Caps. With all the major pharma companies undergoing aggressive expansion, the future prospect of downstream companies like Medi Caps is encouraging. Financially, it has been reporting consistent nos with other income forming the major part of net profit. Ironically, it is a cash rich company and is having an investment portfolio of whopping 26 cr only in mutual funds from which it has been able to churn out impressive Rs 5~6 cr on annual basis. Being a debt free company, at the current market cap of 27 cr, company’s core business is available for free. For FY08 it is expected to report a topline of 20 cr and PAT of 7.50 cr, including other income. This translates into EPS of Rs 24 on small equity of 3.12 cr. Buy at declines.

To take the advantage of the increased demand of Indian pharmaceutical products in the international market, Ahlcon Parenterals (68.00) - manufacture of life saving Intravenous Fluids and medical disposals, has off late made arrangements with several international agencies for increasing the base of export markets. It has recently added many new foreign customers to its existing list and is putting special thrust to increase direct and indirect exports. It has already filed product dossiers in both the regulated as well as unregulated markets and the registration formalities with more than fifteen countries are in progress. Accordingly company has upgraded its production facilities to conform to latest GMP standards as per international guidelines and specific requirement of the giant pharma customers. Since the plant is working at 100% capacity utilization, company is undergoing aggressive expansion to almost triple the small volume parenteral capacity from 59 million units to 162 million units. At the same time, it will continue to produce 32 million units of large volume parenteral. On the back of lackluster performance for the Sept qtr, scrip has been an underperformer for quite long time. As company is facing stiff competition in domestic market, it may end FY08 with sales of 55 cr and NP of 7.50 cr i.e. EPS of 10 Rs on equity of 7.20 cr. But with new capacity becoming operational and increase revenue from exports it has the potential to report an EPS of Rs 14 for FY09. Keep accumulating at declines.

Murudeshwar Ceramics (112.00) is one of the leading manufacturers of vitrified tiles, ceramic tiles and granites in India with its popular brand 'NAVEEN’. Importantly, company derives nearly 80% of revenue from sales of vitrified tiles which enjoy higher margin than the rest two. On the back of constant expansion, its present capacity stands at 6.3 million sq mtr of vitrified tiles, 2.7 million sq mtr of ceramic tiles and only 72,000 sq mtr for granites. Notably, institutional clients constitute 60% of total sales and retail clients constitute balance 40%. This is backed by a strong marketing network with 6 distributors, 74 show rooms, 45 depots and about 400 dealers spread across India. It is expected to report a topline of 275 cr and bottomline of 30 cr on conservative basis for FY08 i.e. EPS of 17 Rs on equity of Rs 17.50 cr. Notably, its Cash EPS stands at whopping 32 Rs. As current fiscal being a silver jubilee year for the company, it may declare liberal bonus for its shareholders. At CMP, scrip is trading at a P/E ratio of merely 6.5x times and is available at an EV of 400 cr which is below its gross block value of Rs 470 cr. However, icing on the cake is the 20 acres surplus land owned by the company near electronic city where it intends to develop IT park. Share price can shoot up to 175 Rs in medium term.

Belonging to well known Ruchi group, National Steel(40.00) has a cold rolling mill and a modern state-of-the-art colour coating line which produces sophisticated and unlimited range of coloured steel with high corrosion resistance. It manufactures galvanized corrugated & plain steel sheets as well as coils under the brand name “APPU” and currently has 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. For FY08 it is expected to clock a turnover of 2000 cr and net profit of 23 cr i.e. EPS of Rs 7 on equity of 32.60 cr. Notably, company has been making highest tax provisioning of around 34%. Despite its share price has seen a smart rally in recent past and is hitting new 52W high, still it is available fairly cheap at an enterprise value of 400 cr. Considering its book value of 58 Rs, scrip has the potential to appreciate 30~40% in medium term.

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