Spanco Telesystem and Solutions Ltd - 200.00 Rs

Established in 1995 by Mr. Kapil Puri and Mr. Rajesh Chhabria primarily to manufacture and supply of EPABX, Spanco Telesystems and Solutions Ltd (STSL) is today one of the leading telecom systems integration and IT services company in India. From providing telecom integration services to MNC’s, PSU’s and Defense sector, STSL has evolved to extend its expertise into the dynamic space of Business Process Outsourcing (BPO) and Radio-frequency identification (RFID). In short company is operating in following four business segments:

I. Turnkey Solutions
STSL’s core competency lies in offering telecom systems integration which includes implementation of multi-location, multi-services converged networks for carrying diverse multimedia traffic (voice, data & video) based on latest technologies like ATM, MPLS, Frame Relay, TCP/IP etc. In other words company undertakes the turnkey responsibility of supplying the requisite products and services under the PDIM (Plan Design Implement-Manage) model, thereby taking care of the networking and networking infrastructure requirements of the customer. It also offer network engineering services and acts as an ideal intermediary between Network Equipment Providers and Operators for the roll out of GSM/CDMA infrastructure across the length and breadth of the country. Notably, STSL has alliances with leading global companies like Alcatel, Nortel, Key Mile, Apropos, DMC Stratex Networks which help in bidding for large Indian contracts.

II. Business Process Outsourcing (BPO)
After hiving off its domestic BPO activities ‘Sparsh’ to Intelenet, SSTL currently manages ‘Respondez’ state-of-the-art international call centre in Mumbai serving clients in the US and UK. It offers BPO solutions in the entertainment, retail, telecom, healthcare, banking and financial services sectors and also provides technical support to gaming companies. Importantly, SSTL along with 50:50 joint venture with Spice group bagged a 10-year contract to set up, operate and maintain Interactive Voice Response System (IVRS) and Regional Call Centres (RCC) for the Indian Railways. In alliance with BSNL as the telecom service provider company obtained the license to operate the various passenger & tourism information services on behalf of Indian Railways. Accordingly, the Integrated Train Enquiry System (ITES) in north, east, west and south zones is serviced by SSTL only

III. IT Services
SSTL offers specialized IT solutions for an extensive range of embedded systems comprising device drivers, OS porting on newly designed chips and mobile programming. Besides offering e-governance, ERP product etc SSTL is among the early few to provide mobile application solutions like bill payments thru mobile etc. Infact company is looking to get patent for its M-Money product thru which one can make payment or literally transfer money thru his cellphone. Moreover it is one of the pioneering companies in India in the field of GPS/GIS which is actually a satellite-based locating and navigating utility that determines a user's precise latitude, longitude and altitude by tracking signals from satellites.

IV. Radio-frequency identification (RFID)
In 2006, SSTL ventured into RFID space by acquiring 51% stake in Skandsoft Technologies - a pioneering software solutions company which is dedicated to revolutionize the upcoming world of automated business processes through technologies like Radio Frequency Identification (RFID) & Automatic Identification and Data Capture systems (AIDC). This company has a patented platform (middleware), SETU™, which allows organizations to make the optimal usage of RFID technology.

On the infrastructure front, apart from 8 regional offices in India, SSTL has over 60 service and support facilities across the country. Internationally, it is present in the US, UK, Singapore and UAE. Besides, company has formed a joint venture “Spanco-GKS” with Golden Key Solutions of Oman to replicate its Indian business in the gulf region as well. It also has some technical tie-up with Great Wheel Corporation, Singapore. Further company is looking to acquire RFID service entity having presence in international market. Under BPO segment, company is once again focusing largely on domestic market and intends to become one of the largest domestic BPOs with about 25,000 employees and 15,000 seats in the next 2~3 years. Recently, SSTL has decided to transfer all its BPO related businesses including Respondez (international BPO), domestic call center operations and the IRCTC project (a 50:50 JV with spice telecom group) into a separate subsidiary. This step may be a precursor to unlock value by hiving-off or de-merging its BPO business into separate listed company in future. Financially company is doing quite well and considering its strong order book position it may end FY08 with sales of Rs 625 cr and profit of Rs around Rs 48 cr on a standalone basis. This translates into EPS of Rs 23 on current equity of Rs 20.65 cr whereas on diluted equity of Rs 23.50 cr (post conversion of 28.50 lac warrants) EPS works out Rs 20. Therefore investors are strongly recommended to buy at current levels with a price target of Rs 280 (i.e. 40% returns) in a years time.

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Selan Exploration Technology Limited - 155.00 Rs

Incorporated in 1985, Selan Exploration Technology Limited (SETL) is one of the very few private sector listed companies, engaged in oil exploration and production. Infact it was amongst the first private sector companies to have obtained rights to develop oilfields way back in 1992 when government of India opened up the oil sector for private initiative in exploration and production of hydrocarbons. Earlier it use to undertake seismic data acquisition work for ONGC. Hence, the promoters/management have extensive experience and domain knowledge in the field of petroleum exploration, development and production as well as in the field of geophysical data acquisition, processing and Interpretation. So based on their expertise, company entered into the business of developing proven oil fields and was awarded three oil fields in 1993. Subsequently in 1997, SETL received Letters of Intent for two additional fields out of which one was gas field. Since then company is basically involved in onshore drilling for exploration of oil and gas.

Presently, SETL boasts of owning four oil fields Bakrol, Indrora, Lohar, Ognaj and one gas field Karjisan; all in and around Ahmedabad, Gujarat. Incidentally, all the blocks have a well laid out infrastructure with easy accessibility and are in close proximity to the Government's crude gathering station as well as are in close proximity to a large industrial town. However, company has been producing crude from three oilfields only as the mining lease for Ognaj oilfield is still awaited from the government of Gujarat. But its Bakrol field alone is stated to have oil/gas reserves of around 45 million barrel which is huge by any standard. Against this, due to limitiation of funds and conservative management SETL produced only 100,000 barrels of crude in FY07 and is expected to do 140,000 in current fiscal which may move up to 2,00,000 barrels in FY09. With assured offtake of the entire oil and gas production from these blocks by the government, as per the terms of the production sharing contract there is zero marketing risk for the company. To take the advantage of high crude prices, SETL has been aggressively drilling new wells and is busy analyzing the well logging data to further identify prospective drilling locations which would be taken up for drilling in foreseeable future. Fortunately, these new wells are yielding good production levels.

With international crude oil prices hovering around 100$ per barrel and expected to remain high, the future earning of the company looks very encouraging. Secondly, company is constantly following up with government of Gujarat for mining lease of Ognaj Oilfield. And once the lease is obtained, company will initiate the development activities in the block. Meanwhile this debt free company is expected to clock a turnover of Rs 35 cr and Net profit of Rs 15 cr for FY08. This leads to an EPS of more than Rs 10 on equity of 14.40 cr. However for FY09 it is estimated to post an EPS of Rs 15. To conclude, considering company’s proven huge oil reserve and encouraging future prospects, scrip is trading fairly cheap at a current market cap of merely Rs 225 cr. Investors are advised to accumulate at declines as scrip can appreciate 50% in 15 months.

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STOCK WATCH

Ansal housing (205.00) has been the pioneer to introduce the concept of large integrated residential townships in the country and also the first to enter Tier - II & III cities like Ghaziabad, Noida, Allahabad, Lucknow, Ludhiana, Agra, Bhopal, Haridwar etc. Till now company has constructed massive 67.6 million square feet of commercial and residential project across India. Further, it has lined up gigantic 56.10 million sq. ft of development (80% in the residential segment) spread over 22 cities in the next five years. Recently, it has launched residential townships branded as “Ansal Town” across several cities. It will also be developing an I.T. Park in Bangalore apart from venturing into construction of budget hotels and serviced apartments. Currently, company has a rich land bank of 2500 acres with about 50% under its own name while the rest under firm collaborators agreement. Notably, the total value of the projects with the company and under joint ventures is massive 6000 crores. Few weeks back company has made a pref allotment of 17 lac warrants to promoters @ 208 Rs and 29.50 lac warrants @ Rs 225 to others. For FY08 on a standalone basis it may register a topline of Rs 260 cr and bottomline of Rs 58 cr i.e. EPS of Rs 35 on current equity of Rs 16.70 cr. A good bet on real estate story.

Honda Siel Power (230.00) is engaged in manufacturing and marketing of portable generator sets, portable engines, internal combustion engines, pumping sets, water pumps, lawnmowers, spare parts and other related products in India. Being a 67% subsidiary of Honda Motor Co. Japan, company is the undisputed leader in the field of portable generators with its “HONDA” brand commanding more than 70% market share. Infact company boasts of launching India’s first LPG run gensets which is doing extremely well along with its super silent series. However, going forward the major growth for the company is expected to come from its engine and water pump sets division on back of strong industrial growth & increased mechanization in the agriculture/floriculture/horticulture sectors. To consolidate the manufacturing operations company is shifting its Rudrapur (Uttaranchal) plant to its factory at Greater Noida in Uttar Pradesh. Hence for the short term, company is incurring substantial costs along with production loss. But this restructuring will prove benefitial in longer term. So accordingly it may end FY08 with sales of Rs 240 cr and PAT of Rs 20 cr i.e. EPS of Rs 20 on equity of Rs 10 cr. Accumulate only at sharp declines only as scrip may drift down to sub 200 levels.

Belonging to high profile RPG group, Phillips Carbon (200.00) is the pioneer and largest manufacturer of carbon black in the country. Infact it is the undisputed leader with a capacity of 270,000 MTPA, which is almost 47% of the total installed capacity of carbon black in India It has also established a strong goodwill in the global market with more than 25% revenue coming from exports to over 15 countries including China, Japan, Indonesia, Iran, Sri Lanka, Vietnam, Turkey, Philippines, Australia, New Zealand and East African countries. To cash on the buoyant economic condition, company has chalked out massive Rs 350 cr expansion plan to be completed by Dec 2008, post which it will have carbon black capacity of 395,000 MTPA and power generation capacity of 74.50 MW. Importantly, to protect its profit margin company has re-negotiated the pricing formula with the customers, so as to built-in escalation clause. Accordingly it is estimated to clock a turnover of Rs 1050 cr and profit of Rs 85 cr i.e. EPS of Rs 30 on a conservative basis. For FY09 it has the potential to post an EPS of Rs 40. Accumulate at declines.

Blue Bird (48.00) is one of the leading manufacturers of paper based notebook products and office stationery products like executive notepads, diaries, arch-lever files, perforated pads, registers, filler papers and folders. Although notebook forms the core business with more than 80% revenue, 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 commercial printing under which it designs and prints annual reports, brochures, catalogues, offer documents, coffee table books, calendars, greeting cards, magazines, text books, publications etc. In order to cater the central and south India market efficiently, company has recently put up two new plants at Indore and Bangalore apart from having its main plant in Pune. It is also expanding its distribution network and has ambitious growth plans for publication division. Sarcastically, company is having very high interest cost else it’s trading extremely cheap at an EV / EBIDTA of hardly 4x times. For the current fiscal it is expected 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. Considering its IPO at Rs 105 in Nov 2006 and 52 week H/L as Rs 94 / 44, it’s a screaming buy at current market cap of merely Rs 170 cr.

Smart Investments (Guj)

International Combustion India Ltd

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Micro Technologies Ltd

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Small & Beautiful (Guj)

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GM Breweries (88.00) is the single largest manufacturer of country liquor in the state of Maharashtra and enjoys virtual monopoly in the districts of Mumbai, Navi Mumbai and Thane. This is proved from the fact that Maharashtra govt is getting one fifth of the total excise duty on country liquor from GM Breweries alone. For the latest Dec qtr, company’s sales improved by only 10% to Rs 49 cr but NP shot up 85% to Rs 4.40 cr on back of lower raw material cost and better operating efficiency. It recorded a healthy OPM of 14% against 10% last year. With the installation of additional bottling lines last fiscal, company now has the capacity to process 8.26 crores bulk litres of country liquor per annum. Hence it is expected to end FY08 with sales of Rs 190 cr and NP of Rs 15.50 cr i.e. EPS of Rs 17 on equity of Rs 9.40 cr. Having a gross block of Rs 68 cr, low debt equity ratio, strong cash flow, decent margins etc, company is available extremely cheap at an Enterprise Value of less than Rs 100 cr. With 68% holding, promoters are investor friendly and have an uninterrupted record of dividend payment from the day of listing. Company definitely deserves much better discounting and at a modest PE multiple of 12x times, scrip has the potential to cross Rs 200 mark in medium term.

Bhagyanagar India (51.00) the flagship company of Surana Group is touted as an emerging real estate story by the marketmen. Including its subsidiaries, company boasts of having around 175 acre of land bank valued at more than Rs 600 cr presently. It includes 25 acres of prime land in Gachibowli area Hyderabad, 50 acres in SEZ, Chennai, 25 acres near new Hyderabad airport etc. 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, SEZ etc. 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. At the same time its traditional copper & telecom products business is doing okay. Notably, couple of weeks back company has formed a joint venture with group company for setting up of solar photo voltaic cell and module project and has even been allotted 25 acres of land in the Fab City, Hyderabad. Although promoters don’t enjoy a good reputation in the market, still it’s a good trading bet.

Sarcastically, the share price of Rama Paper (23.00) which hit a high of Rs 59 in 2005 has been beaten down mercilessly to unbelievable levels, inspite of improvement in fundamentals. Off late, company has increased its paper production capacity to 44000 TPA and is further enhancing it to nearly 60000 TPA in near future. It is putting up an additional line of paper manufacturing machine to produce tissue and poster paper with annual capacity of 16320 TPA under a capex of 24 cr. But most importantly, company has set up 6 MW co-generation power plant for captive consumption which has already commenced operation leading to substantial saving in power and fuel cost. Last fiscal company raised around 16 cr thru equity route by making pref allotment to promoters and others @ 35 Rs. As on today promoters are holding 41% stake. For FY08 it is estimated to clock a turnover of Rs 80 cr and profit of Rs 6 cr on back of higher operating margin. This can shoot up to Rs 100 cr of sales and Rs 8.50 of NP for FY09. With means an EPS of Rs 6 and Rs 9 for FY08 and FY09 respectively on fully diluted equity of 9.70 cr. Buying strongly recommended as share price can shoot up to 35 Rs in short term.

Rohit Ferro Tech Ltd (80.00) is a leading producer of high carbon ferro chrome apart from manufacturing ferro manganese and silico manganese through submerged arc furnace route. During last fiscal only, company has set up a greenfield plant in Jajpur-Orissa thereby taking its total capacity to 165,000 MT from 55,000 MT earlier. Further it has set up fifth furnace with 15000 MT capacity in Bishnupur, which is expected to become operational shortly. To become an integrated player company has applied for mining lease to the state government of Orissa for chrome ore as well as manganese ore. Presently it is sourcing manganese ore from Australia besides local sourcing. On the other hand, due to higher production, better margins, and the better availability of raw-materials company is stressing more on production of ferro manganese in place of high carbon Ferro Chrome For future, it has chalked out a plan to setup a 110 MW captive power plant to being down its power cost. In order to fund this, it recently made a pref allotment of 80 lac convertible warrants @ 43 Rs per share to promoters as well as strategic investors like Kampani Finance, Foster Capital etc. On the back of stunning Q3 nos it may end FY08 with sales of more than Rs 500 cr and PAT of Rs 50 cr i.e. EPS of Rs 14 on current equity of 34.50 cr. Moreover company has the potential to post an EPS of Rs 20 on fully diluted equity of Rs 42.50 cr for FY09. Keep accumulating at declines

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