J K Lakshmi Cement Ltd - 180.00 Rs

JK Lakshmi Cement Ltd (JKLC) was established in 1982 by hiving off the cement division from JK Corporation and is a part of well known HS Singhania group which has diversified interest in tyres, paper, sugar, clinical research, textile, auto ancillary etc. Since then, over the 25 years JKLC has emerged as a leading and reputed cement manufacturer in the northern and western markets. It basically markets three variants of cement under ‘JK LAKSHMI” brand which is a very popular brand today and is renowned for its strength, quality and performance. Besides, company has also forayed into lucrative ready mix concrete (RMC) & plaster of paris (POP) business thru its brand “JK Lakshmi Power Mix” & “JK Lakshmiplast” respectively. Apart from having its own marketing offices, company has a wide network of about 1,500 dealers spread across Rajasthan, Gujarat, Delhi, Haryana, UP, Uttaranchal, Punjab, J&K, HP and Mumbai. Presently, almost 65% of total sales of company accrue from northern region and balance 35% from western region.

JKLC’s state-of-the-art plant located at Jaykaypuram, distt. Sirohi, Rajasthan boast of using latest technology from M/s Blue Circle Industries and modern equipments from M/s Fuller International of USA. To cash on the buoyancy in the cement industry, it has rapidly expanded its capacity to 3.40 million from 2.40 million TPA during last fiscal. With cement demand expected to remain robust in coming years, it is further enhancing its capacity to 5 million TPA by Oct 2008. On the back of continuous & serious efforts by the company, the blended cement now contributes nearly 70% of total sales against 46% earlier. Notably, blended cement has a better margin as the cost of production is low due to mixing of 20% fly ash. But most importantly, company has installed and commissioned two pet coke based captive power plants of 18 MW each in March’07 and July’07 respectively. With this it has become self sufficient in respect of power requirement and will also be able to bring down its power cost considerably to the extent of more than Rs 15 cr per annum. On the other hand, it is betting high on RMC business as it has great potential along with high margins. Currently it is operating 5 RMC plants, but is aggressively expanding to add at least 5 to 6 plants more in near future. Hence, in all it has capex of around Rs 400 cr of which nearly 25% will be funded thru debt and balance thru internal accruals. It will also be getting Rs 35 cr thru conversion of 41 lac warrants allotted to group company @ Rs 97 Rs per share in June’06.

To maintain its growth momentum in future, JKLC intends to set up a Greenfield cement plant near Bhilai, Chhattisgarh with a capacity to produce 2.5 million TPA. For this company has identified couple of limestone mines and is looking to apply for mining lease. Meanwhile, it has replaced its high cost debts by cheaper funds to the extant of Rs 325 cr, which will reduce interest costs going forward and hence company has come out of the Corporate Debt Restructuring (CDR) purview. On the back of terrific nos for Sept qtr, it recorded 50% growth in sales to Rs 534 cr and Net profit increased by 130% to 142 cr for H1FY08. Hence even on a conservative basis, it may clock a turnover of 1100 cr and PAT of 210 cr for FY08 which translates into EPS of Rs 34 on fully diluted equity Rs 61.20 cr. However, the recent undue concession offered by the government for import of cement, including zero percent import duty, removal of countervailing duty and SAD, has put the Indian cement industry to a competitive disadvantage position which was already subjected to high cost of manufacturing vis-a-vis their counterparts in countries like China, Thailand, Indonesia. Despite this, investors are recommended to buy at current levels for a target of Rs 280 (55% return) in a year’s time.

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Bihar Caustic & Chemicals Ltd - 84.00 Rs

Bihar Caustic & Chemicals Limited (BCCL) was incorporated in 1976 as a joint venture between the Aditya Birla Group and the Bihar State Industrial Development Corporation, primarily with the objective of catering to the caustic soda requirements of Hindalco and to contribute towards the economic development of the backward region of Palamau district in Jharkhand. Today, it is among the leading caustic soda producer in the northern and eastern region of the country. Apart from caustic soda it also produces liquid chlorine, hydrochloric acid, sodium hypochlorite, compressed hydrogen and has recently ventured into aluminum chloride. In India, about 45% of the chemical industry depends upon the caustic soda industry as essential inputs for a host of industries like soap and detergent, aluminum, paper & newsprint, fibre, glass, tyre, chemicals & petrochemicals, pharmaceuticals, water treatment, dyes, textiles, oils, etc. However being a subsidiary of Hindalco Industries, BCCL is having an added advantage of assured off-take of caustic soda by the parent company. It also has a hydrogen bottling facility which provides an additional stream of revenue.

In early 2006, BCCL shifted the manufacturing process of the plant from its earlier mercury technology to the latest energy efficient and environment friendly state-of-art membrane cell technology. Simultaneously it also expanded is caustic soda production capacity by 50% from 150 TPD to 225 TPD at an estimated investment of Rs.112 cr. So presently its plant boast of having an installed capacity of 225 TPD of caustic soda, 200 TPD of liquid chlorine, 130 TPD of hydrochloric acid, 150,000 Nm3/day of compressed hydrogen and 3 TPD of sodium hypo chlorite. Further, company is in process of expanding capacity of its caustic soda plant by 20% to 265 TPD by addition of electrolysers as well by debottlenecking. Hence in order to gainfully utilize the additional chlorine produced after expansion; BCCL has recently commissioned an aluminum chloride plant in Jan’07. This plant has a capacity of 12000 TPA and will boost the topline considerably once fully operational. Aluminum chloride is basically used as an input for manufacturing of aluminum. Secondly, it has also taken a decision for setting up a stable bleaching powder (SBP) plant at an estimated cost of Rs.7.50 cr which will consume another 20 MT of captive chlorine per day. Importantly, as caustic soda production is power intensive, BCCL has put up its own 30 MW coal based captive power plant due to which its energy costs are lower than its peers. Although company is vulnerable to caustic soda price movement but with aluminum sector expected to remain buoyant and Hindalco being its biggest customer, this is relatively a safer bet.

To conclude, BCCL is poised for a good performance in the coming years due to the progressive improvement in capacity utilization of plant, projected expansion and addition of value added products like aluminum chloride and stable bleaching powder. Notably, BCCL also enjoys the highest operating margins among it peers - even better than Gujarat Alkalies and Chemfab Alkali. For H1FY08, its sales improved by 20% to Rs 79 cr and profit increased by 45% to Rs 21 cr. Accordingly it is estimated to clock a turnover of Rs 185 cr and PAT of Rs 45 cr which leads to an EPS of Rs 19 on current equity of 23.40 cr. Ironically, share price was trading around Rs 80 in Sept 2005 when Sensex was around 8500 and still this scrip is available around same levels even though Sensex has shot up to 21000. Hence it has been a huge underperformer despite sharp improvement in its fundamentals. Offlate, company has been on uptrend and hit a new high of Rs 105 few days back. There are also rumors that it may get merged with Hindalco industries. But if this happens, the true value of BCCL wont be unlocked, as the merger ratio will more favorable to the parent rather than subsidiary. Still investors are recommended to buy at current levels as scrip has the potential to touch Rs 150 in medium term.

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STOCK WATCH

More than copper and telecom, Bhagyanagar India (56.00) is now known as real estate and infrastructure company, as it presently owns around 175 acre of land bank valued at more than Rs 600 cr. Ironically the acquisition cost of land is one third of its present value which means company is sitting on a huge unrealized gains. To take the maximum benefit of the ongoing boom in real estate, company has aggressively forayed into real estate development and construction industry through its various subsidiaries and is, focusing mainly on housing and construction of IT Parks. Recently, it has formed a SPV along with IL&FS Infrastructure for undertaking, various infrastructure and entertainment projects such as theme parks, special economic zone, industrial parks etc on a large scale basis. On the other hand, it has successfully commissioned the wind power project with an installed capacity of 9 MW in Karnataka last fiscal. To concentrate on real estate business, company is planning to soon demerge its other divisions like copper, telecom, metals, auto components into a separate company. In order to fund its projects company had raised approx Rs 70 cr thru FCCB route @ 44 Rs per share in Oct 2006. Recently in Oct’07, it made a pref allotment of 1.15 cr warrants @ Rs 44 per share and now in Jan’08 it is making another placement of 55 lakh warrants @ Rs 90 per share. So it has made a funding arrangement of Rs 100 cr for future which will take its total diluted equity to Rs 21.40 cr. Scrip has the potential to shoot up 50% in 6~9 months.

Although share price of Andhra Petrochemicals (32.00) has doubled in the recent rally, still investors can accumulate this scrip at declines for further gains. It is the only producer of Oxo-Alcohols in India with a production capacity of 42,000 MTPA. The market demand for Oxo-Alcohols is currently estimated at 143,000 MTPA, out of which company caters to 30% demand and the balance 70% is met through imports. To secure a greater share of the market and meet the growing demand, company is in undergoing expansion and modernization programme to increase its production capacity to 73,000 MTPA. However, the enhanced capacity is expected to be operational only by Sept 2009. Importantly, company has been able to save a massive Rs 12 cr per annum only on power cost as it has installed and commissioned 2400 KVA uninterrupted power supply system and discontinued the operation of D.G.Sets from last fiscal. For FY07 company made a strong turnaround as sales increased by 35% to Rs 266 cr but NP zoomed up to Rs 36 cr compared to Rs 2 cr in FY06. It even gave 10% as maiden dividend. On the back of higher realizations and better efficiency, it has reported encouraging nos for the first two quarters as well and is expected to end FY08 with sales of Rs 300 cr and PAT of Rs 48 cr i.e. EPS of Rs 6 on equity of Rs 85 cr. As per grapevine, India’s leading corporate entity is eyeing to acquire this company. At the same time promoters i.e. Andhra Sugars have increased their stake by 4% in last one year thru creeping acquisition.

El forge (81.00) manufactures carbon, alloy and stainless steel forged components which are mainly used to manufacture engine parts, transmission parts, steering and suspension parts, break assembly parts, chassis parts, drive line and electrical parts. To move up the value chain, company is gradually shifting its product mix to machined components which have comparatively higher margins than forged products. Hence, it has recently put up a machine shop facility at Chromepet, especially for MICO. Moreover it is also set up a world class manufacturing facility at Sriperambadur near Chennai which has started commercial production recently, thereby enhancing the installed capacity to 23200 MTPA from 18200 MTPA. To fund this expansion company had raised around Rs 15 cr last year thru pref allotment of 12.15 lakh shares @ Rs 120 per share. And today it is available at good 30% discount to allotment price. For future growth company is betting on exports since India is becoming a major source of supply of forgings to the global auto industry. Financially, company has reported decent nos for the H1FY08 and is expected to end FY08 with consolidated sales of Rs 185 cr and profit of Rs 10.50 cr which works out to an EPS of Rs 12 on equity of Rs 8.50 cr. Currently FII’s including Goldman Sach, BSMA etc are holding 18% stake. Keep accumulating at declines

Jupiter Bioscience (175.00) is poised to become a global peptide solutions group having a broad canvas of peptide chemistry products, peptide reagents, coupling reagents, protective agents and supplier of key ingredients used in peptide based pharmaceuticals. Its operating in a very niche segment and is among the few companies in the world to have competency in synthesis of peptides. Company is on a very strong growth trajectory as it has recently raised 100 cr thru QIP route @ Rs 153 per share. It is setting up a 5500 sq ft manufacturing facility in Maryland, US to cater the USA, Canada and European markets. It is also looking to acquire few companies globally. Importantly, it has entered into a 10-year product purchase agreement with Ranbaxy on peptide pharmaceutical for gloabal market and as per contract allotted 31.77 lakh warrants @ Rs 147. Recently, it cancelled the 27.50 lakh equity shares allotted to promoters and instead issued 40 lakh warrants @ Rs 182 to strategic investors. So another Rs 100 cr funds ready to come into company on conversion of warrants. Moreover it has already invested whopping Rs 85 cr in a subsidiary company – Sven Genetech which was till now busy in setting up of infrastructure etc. For FY08, on a standalone basis, Jupiter Bio is expected to report total revenue of Rs 125 cr and PAT of Rs 30 cr i.e. EPS of nearly Rs 20 on current equity of 15.40 cr. Post all the warrant conversion, the equity will get diluted to Rs 22.50 cr but at the same time company’s topline as well as bottomline will shoot up accordingly. With 33% FII holding, it is trading fairly cheap at a current market cap of less than Rs 300 cr.

Small & Beautiful (Guj)

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Shree Ganesh Forgings (91.00) specializes in producing complete line of stainless steel, carbon steel and alloy steel forgings for various industries including automotive. Infact it boasts of making more than 2500 varieties of specialized items on piecemeal production and manufactures different variety of flanges and fittings weighing from 0.5 kg to 1000 kg. Recently company has acquired 100% stake in Hertecant N V Belgium & ELFE France from Outo Kumpu – Sweden which are reportedly doing well. Importantly its project to double the capacity from 11,000 tonnes to 22,800 tonne is almost completed and expected to commence production soon. Two press machines with 2500 tonne and 4000 tonne capacity and 48 computer numerically controlled (CNC) robotic machining lines has been already installed. On a consolidated basis company is estimated to clock a turnover of Rs 225 cr and bottomline of 20 cr thereby posting an EPS of Rs 16 on current equity of Rs 12.50 cr. Scrip has consolidated for long time and is poised to move up sharply post Q3 nos.

Orient Ceramics (64.00) produces wall as well as floor tiles under the brand name “Orient” and offers one of the largest range by way of designs, colors, sizes, choice of surface finishes etc. It also makes special tiles under various collections branded as Artline, Midline, Vivaldi, Novista, Goemetricos & Egyptian Rustic collection which are unique and based on some theme, finish, pattern, cost etc. Besides, company has created a niche for itself thru “Rangoli” - its designer collection which is fusion of tradition with modernity. With the introduction of latest machinery, it has started producing high value glazed and polished vitrified tiles from current fiscal. Further, it has converted all manufacturing lines to fuel saving single fast firing technology. To increase the presence in south, it has opened a regional distribution centre in Bangalore apart from strengthening its dealership network. Fundamentally also company has been successful in maintaining its profit margin despite intense competition. On the back of expanded capacity to 220,000 TPA, it is estimated to clock a turnover of 240 cr and NP of 11.50 cr i.e. EPS of Rs 11 on equity of 10.50 cr. Moreover, a company having a gross block of 157 cr; is available at an enterprise value of merely 125 cr which is extremely cheap by any standards. It’s an indirect bet on infrastructure play.

South India Paper mills (85.00) 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.

Although share price of Andhra Petrochemicals (32.00) has doubled in the recent rally, still investors can accumulate this scrip at declines for further gains. It is the only producer of Oxo-Alcohols in India with a production capacity of 42,000 MTPA. The market demand for Oxo-Alcohols is currently estimated at 143,000 MTPA, out of which company caters to 30% demand and the balance 70% is met through imports. To secure a greater share of the market and meet the growing demand, company is in undergoing expansion and modernization programme to increase its production capacity to 73,000 MTPA. However, the enhanced capacity is expected to be operational only by Sept 2009. Importantly, company has been able to save a massive Rs 12 cr per annum only on power cost as it has installed and commissioned 2400 KVA uninterrupted power supply system and discontinued the operation of D.G.Sets from last fiscal. For FY07 company made a strong turnaround as sales increased by 35% to Rs 266 cr but NP zoomed up to Rs 36 cr compared to Rs 2 cr in FY06. It even gave 10% as maiden dividend. On the back of higher realizations and better efficiency, it has reported encouraging nos for the first two quarters as well and is expected to end FY08 with sales of Rs 300 cr and PAT of Rs 48 cr i.e. EPS of Rs 6 on equity of Rs 85 cr. As per grapevine, India’s leading corporate entity is eyeing to acquire this company. At the same time promoters i.e. Andhra Sugars have increased their stake by 4% in last one year thru creeping acquisition.

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Smart Investment (Guj)

Tera Software

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Mazda Ltd

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Corrigendum – Bihar Tubes

In my report dated 5th Jan 2008 on Bihar Tubes, it has been erroneously mentioned diluted equity as Rs 9.60 cr instead of Rs 12.75 cr. This is because I didn’t calculate that 31.75 lac warrants are also eligible for 1:1 bonus issue. Accordingly I have downgraded my target to Rs 250 in next 12 months and would advise investors to buy only at sharp declines.

I am sorry for the miscalculation and request you all, to please download the revised report from below link.

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Smart Investment (Guj)

GM Breweries Ltd

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ANG Auto Ltd

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Small & Beautiful (Guj)

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Syncom Formulation (58.00) is a Mumbai based small pharmaceutical companies offering more than 250 products in various dosage forms including tablets, capsules, dry syrups, ointments/creams, dry powders, injections and ampoules. Being WHO-GMP certified, company's products are exported to more than 15 countries including China, Vietnam, Latin American Countries Kenya, Uganda, Sudan, Russia, Ukraine, Maldova and Domino Republic. It also offers comprehensive contract manufacturing services including pilot plants, technical services, quality control and regulatory services for both domestic as well as foreign companies. Its prestigious expansion cum modernisation project at Pithampur is near completion. Last fiscal, launched a new division "Cratus Life Care" to expand its operations in domestic market and expects this division to become the driver for growth in the coming years. For FY08 it is expected to clock a turnover of Rs 70 cr and net profit of around Rs 4.50 cr i.e. EPS of Rs 8 on equity of Rs 5.92 cr. Hence, this debt free and constant dividend paying company can be bought at current market cap of Rs 35 cr.

D&H Welding Electrodes (42.00) is one of an established manufacturer of welding consumables inclding submerged arc welding flux and wires, low heat input welding alloys, welding trans and rectifier, manual metal arc electrode etc. Thus it offers a wide range of welding electrodes for diverse applications and has developed various special and ultra-special electrodes to meet the ever increasing and multifarious needs of customers. Last fiscal it successfully commissioned the flux-cored wire project. To maintain its future growth company is planning to expand the existing manufacturing capacity by 2500 MT per annum thru a capex of Rs 3 cr and is putting special thrust on export. Although no extraordinary growth is expected in this company still for FY08 it may do a sale of about Rs 38 cr and net profit of Rs 2.60 cr. This leads to an EPS of Rs 5 on equity of Rs 5.60 cr. Can be bought only at sharp declines.

Led by two technocrats - Jitendra Sura and Tejas Sura, Conart Engineers (45.00) is a small infrastructure company involved in detailed engineering, procurement and construction of industrial, commercial & residential projects. It specializes mainly in civil construction projects for the textile, pharmaceutical, heavy engineering, chemical industries, commercial complexes, effluent treatment systems etc, which involve civil engineering and structural work, sanitation & plumbing, etc. However, company couldn’t capitalize the ongoing boom in infrastructure sector as well as strong industrial growth. For FY07, it reported a flat topline of Rs 19 cr and a decline of 30% in net profit to Rs 0.74 cr. But for H1FY08 things have improved a bit with 30% & 45% growth in topline and bottomline respectively. Still, being a more than three decade old company it has far more potential to perform. Accordingly its is estimated to may end FY08 with revenue of Rs 25 cr and PAT of Rs 1.25 cr i.e. EPS of Rs 4 on small equity of Rs 3 cr. Like Petron Engineering this is also a good takeover candidate and may change hands sooner or later.

Lokesh Machines (142.00) is engaged in the design, development and manufacture of custom built special purpose machines and general purpose CNC (computerized numerical controls) machines along with their components. Presently, it derives 70% revenue from machining division whereas rest 30% comes from auto component division. Company primarily caters to customers in the auto OEM, auto ancillaries and general engineering space with separate dedicated facilities for M&M and Ashok Leyland. Off late, it has also made a foray in the overseas markets and has also got 100 machine order from its technical partner Wenig Wemas-Germany. For the latest Sept qtr, sales grew by 25% to 28 cr and profit increased by 50% to 3.40 cr. To fund its growth plan company came out with an IPO at Rs.140 per share in April 2006 and raised Rs.42 cr. On listing day it hit a high of 300 Rs, whereas currently it’s available at 50% discount to that. For FY08 it is expected to clock a turnover of 110 cr and PAT of 14.50 cr which leads to an EPS of Rs 12 on equity of Rs 11.80 cr. Scrip has the potential to touch Rs 200 in few months.

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Price Performance Update Report

Dear Investors,

First of all let me wish you all a very happy, healthy and a prosperous new year. Despite all apprehensions, 2007 was again a historical year as far as Indian stock market is concerned. Because of the unprecedented rally in all mid caps & small caps during the last few weeks, we ended the year on quite a buoyant note. But will 2008 be as good as 2007 – only time will tell. Although lot of foreign inflow is expected to come in this year and market is touted to touch 30K, still it would be prudent to do profit booking at this juncture and play safe. I would advise you all to have a very stock specific approach and bet on only fundamentally strong & growing companies. So all the best to all you guys there. Have a rocking 2008.

And yeah… thanks to the ongoing euphoria in our bourses and India’s strong economic growth, my recommendations too have done extremely well. I have updated my price performance report for the recommendations made from Sept’04 till Dec’07. You can have a look under “My Track Record”. Just to give a brief idea, till now I have recommended 327 scrips and the summary of their performance is as follows

Appreciation	No of Scrips
More than 10x times	4 scrips
5x to 10x times	26 scrips
2x to 5x times	128 scrips
50% to 100%	86 scrips
25% to 50%	47 scrips
Upto 25%	36 scrips
TOTAL	327 scrips

To conclude, I still strongly believe “MARKET IS A SLAVE OF FUNDAMENTALS”.