STOCK WATCH

Kamat Hotels (138.00) primarily operates a 245 room five star Ecotel hotel “The Orchid” near Mumbai domestic airport and 190 room service apartment ‘Lotus Suites’ (now renamed as VITS) near Mumbai international airport. In Dec’07 cmpany has opened another 100 rooms five star hotel called “Garh Heritage” in Pune and a 200 room “Orchid Hotel” in Vaishnodevi. Besides it runs around 10 highway restaurants which contribute less than 5% of turnover. Notably, company is adding 130 rooms to “The Orchid” with an investment of Rs 80 cr and has a capex of Rs 250 cr for setting up various properties under VITS brand at Aurangabad, Nagpur, Pune, Nashik, Goa, Baroda etc. To fund its expansion plan, last year company raised a capital of Rs 80 cr thru FCCB route to be converted into equity shares @ Rs 225 per share. For FY08, it reported 30% growth in topline as well as bottomline to Rs 148 cr and Rs 27 cr respectively. This translates into EPS of Rs 20 on current equity of Rs 13.80 cr. Incidentally, foreigners contribute around 40% of the total revenue but company follows single-rupee tariff system. Although company boasts of very aggressive expansion plan but is actually slow in execution. Hence on a conservative basis for FY09 it may report total revenue of Rs 175 cr and net profit of Rs 30 cr which works out to an EPS of Rs 17 on diluted equity of around Rs 18 cr. A strong buy for 50% gain in 12~15 months.

Blue Bird (36.00) is one of the leading manufacturers of paper based notebook products and office stationery. Although notebook forms the core business, company has also ventured into publishing academic textbooks and self study books for children apart from general publications in subjects such as ayurveda and biographies. It also offers end to end solutions for commercial printing. The marketing and sales team at company supports the distribution network of over 600 dealers and distributors spread across 18 cities in India, as also overseas representatives in many countries. In order to cater the central and south India market efficiently, company has put up two new plants at Indore and Bangalore apart from having its main plant in Pune. Financially, company is weak in managing receivables as it has very high debtors equivalent to four months of sales. This has led to huge debt and recently to fund its working capital requirement company has privately placed Rs 100 Crores Redeemable NCD with LIC Mutual fund for one year. Hence interest cost is the biggest drag on company’s financial. Despite having healthy margin, for FY08 it is estimated to report total revenue of Rs 485 cr and NP of Rs 28 cr i.e. EPS of Rs 8 on equity of 35 Rs. Still it can easily give 30~40% return within a year from current levels.

Kolte Patil (88.00) is in the midst of developing 28 projects (24 in Pune and 4 in Bangalore), with a total saleable area of around 18 million sq. ft. consisting of 10 residential complexes, 11 commercial development, 5 IT parks, 1 integrated township & 1 service apartment. In addition, it has entered into MOU or has acquired development rights for another 22 million sq. ft. of saleable area in and around Pune and Bangalore. Although the actual land bank owned by the company is less than 15 acre but the development right is equivalent to whopping 755 acres of land. With this company has a total developable space of massive 40 million sq. ft. For FY08, its revenue jumped up 60% to Rs 369 cr and net profit shot up 55% to Rs 129 cr after paying tax to the tune of Rs 37 cr. Hence it reported an EPS of Rs 17 on equity of Rs 75.30 cr. Assuming the company to report lower operating margin of 30% for FY09 (against 43% in FY08), still it is estimated to clock a turnover of Rs 650 cr and PAT of Rs 150 cr i.e. EPS of Rs 20 cr on current equity. In short although the profit margin of company is too high to believe still scrip can give decent return in medium term.

Due to hardening of interest rate, rising CRR and recent hike in repo rate, banking sector has taken a huge beating on the bourses. Most of the banks are trading at 52W low levels and Allahabad Bank (65.00) is no exception. It is among the very few banks which are trading at huge discount against their book value. Moreover Allahabad bank is fundamentally a strong bank with Gross NPA at 2%, Net NPA at 0.80%, Capital Adequacy Ratio above 12%, Net interest margin at 2.80% and most importantly having a book value of Rs 117. For year ending March 2008, it registered 20% growth in total deposit and gross advance whereas its Net profit shot up by 30% to Rs 975 cr. This works out to an EPS of whopping Rs 22 on current equity of Rs 447 cr. Agianst this it declared 30% dividend. Hence scrip is current trading at a P/E ratio of less than 3x times and with a dividend yield of 5% at CMP. To maintain its growth momentum, bank has got the approval for opening 116 more branches and has additionally applied for authorization of 180 more branches during the current financial year. Besides bank is focusing to improve its fee based income and has made tie-ups with several organizations for marketing of mutual funds and insurance products. A safe bet.