Small & Beautiful (Guj)

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Couple of days back GM Breweries (85.00) came out with disappointing nos for March qtr. Sales improved marginally to Rs 49 cr but net profit declined by 25% to Rs 2.65 cr due to lower operating margin. Accordingly company declared 25% dividend (including 5% special dividend being silver jubilee year) which gives a yield of nearly 3% at CMP. Although the March qtr nos were below expectation still the entire FY08 figures are pretty decent as sales grew by 10% to Rs 186 and PAT increased by 25% to Rs 14.70 cr thereby registering a healthy EPS of Rs 16 on equity of Rs 9.40 cr. At the current market cap of Rs 80 cr scrip is trading at a PE ratio of merely 5x times. Having a gross block of whopping Rs 68 cr, low debt equity ratio, strong cash flow, decent margins etc, company deserves much better discounting. With 68% holding, promoters are investor friendly and have an uninterrupted record of dividend payment from the day of listing. At a modest discounting by 12x times, scrip has the potential to cross Rs 200 mark in medium to long term.

Paramount Cables Infratech (25.00) is among the few Indian companies manufacturing the entire range of power cables, railway cables, telecom cables and specialized cables & wires needed by all sectors of the economy. On the back of robust demand company is constantly expanding its production capacity and by end of this calendar year is expected to have an installed capacity of 90,000 km for low tension and 6,000 km for high tension from 55,000 km of LT and 3500 km of HT cables currently. Besides, in Sept 2007 it acquired UK based AEI Cables which claims a market share of 10-15% in UK and currently operates at 60-70% capacity level at its plant in Birtley, North East of England. For FY08 it is estimated to report sales of Rs 450 cr and profit of Rs 35 cr on standalone basis. This works out to an EPS of more than Rs 3 on diluted equity (post conversion of all FCCB @ Rs 53) of Rs 21.50 cr with face value as Rs 2/-. On consolidated basis, the key trigger will be the turnaround of AEI cables. The scrip is trading at almost two year low and its worth a buy.

Royal Orchid (92.00) operates in hospitality sector with major presence in Bangalore. Currently it manages eight properties including five star hotels, budget, resort, serviced apartments etc with a total room strength of around 655 rooms. Interestingly, company follows a unique “Asset light” 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. In the next few months, it 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 open five star hotels at Mumbai, Bangalore and Delhi. 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. Recently it bought 30 acre property in Tanzania and also formed a joint venture with Parsvanath to develop 10 hotels at an investment of Rs 500 cr. Couple of days back company also acquired 50% stake in Galaxy Beach Resort (65 rooms) in Goa. For FY08, it may report total revenue of Rs 140~150 cr and NP of Rs 35 cr on consolidated basis i.e. EPS of Rs 13 on equity of Rs 27.25 cr.

ADF Foods (40.00) is engaged in manufacturing, processing and marketing a wide range of canned, bottled and processed spices, vegetables and readyto-eat foods for exports. Today, it boasts of having more than 300 varieties of traditional and ethnic Indian food products including pickles, cooking pastes, chutney, spices in whole and ground form, IQF Indian vegetables, instant mixes, canned ready to eat vegetables, canned vegetable in Brine, frozen foods, various Indian curries and snacks. Moreover, it has also expanded its menu by introducing / developing non-Indian dishes viz. Asian dishes and Mediterranean dishes. Company’s products are quite popular in USA, UK, Canada, Australia & Middle East apart from being sold in leading supermarkets and retail chains across other countries like New Zealand, Japan, Hong Kong, Singapore, Germany, France, Spain and Denmark. Ashoka, Camel, Truly Indian, Aeroplane etc are few of its very popular brands. To cash on the ongoing retail boom and increased spending culture, company is also looking to enter domestic market as the demand for ready-to-eat foods is on rise in metro/urban cities. It is expected to report total revenue of Rs 90 cr and PAT of Rs 8.50 cr i.e. EPS of Rs 5 on current equity of Rs 18 cr. In Dec 2007, company made a pref allotment of 15 lac warrants to be converted @ Rs 70 to promoter and group. Considering its strong brand value company is available reasonably cheap at current enterprise value of Rs 80 cr. Accumulate at sharp declines.

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