STOCK WATCH

Belonging to the respected BC Jindal group, Jindal Polyfilms (230.00) makes polyester films (BOPET), polypropylene films (BOPP), metallised films and coated films with in house ability to produce polyester chips for captive consumption. It is India’s one of the largest manufacturer of flexible packaging films with an installed capacity of BOPET (111000 tpa), BOPP (90000 tpa), metalized film (40000 tpa), coating (18000 tpa) and polyester chips (70000 tpa). It announced decent nos for the latest March qtr and accordingly ended FY08 with sales of Rs 1258 cr and PAT of Rs 134 cr. This translates into EPS of Rs 48 on equity of Rs 28.10 cr. With Cash EPS of more than Rs 75 and book value of whopping Rs 280, scrip is trading fairly cheap at a P/E ratio of less than 5x times. Company is further implementing huge capex under which it will be expanding its capacity by 90,000 tpa for BOPP, 50,000 tpa for BOPET, 14,000 tpa for metalized films and 4500 tpa for Coating. Although rising crude oil price is a cause of concern still investors can accumulate at sharp declines.

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. Recently, it reported satisfactory set of nos for the March qtr as sales improved by 8% to Rs 274 cr but NP jumped up 40% to Rs 19 cr due to better operating efficiency and lower tax provisioning. Hence for entire FY08, although sales remained flat at Rs 1033 cr but its PAT shot up 280% to Rs 89 cr which works out to an EPS of Rs 35 on equity of Rs 25.25 cr. Importantly, to protect its profit margin company has re-negotiated the pricing formula with the customers, so as to built-in escalation clause. To maintain its growth momentum, 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. Meanwhile its 30 MW power generation plant from waste gas in Durgapur is expected to be commissioned within couple of months. To sum up company is estimated to post an EPS of Rs 38~40 for FY09 on fully diluted equity of Rs 28.25 cr.

Micro Technologies (320.00) is a global provider of security, safety and life-support solutions with its very unique, hi-tech, first of its kind and innovative products like Home Security Micro HSS, Vehicle Security Micro VBB, Lost Mobile Tracking System, Secure-Bank Black Box, Disaster Management System, Access Control Solution etc which have huge demand world wide. It also boasts of introducing dynamic products like Office Black Box, Shop Security System & Electric Black Box. Once again company has reported excellent nos for the March qtr as its topline as well as bottomline increased by 70% to Rs 51 cr and Rs 16 cr respectively. For full year it earned a NP of Rs 53 cr on total revenue of Rs 171 cr. This leads to an EPS of Rs 48 on current equity of Rs 10.95 cr. Recently, it has launched Lost Notebook Tracking System, Micro Video Door Phone & Micro Intelligent Surveillance System. It was also successful in making a tie up with MTNL under which it will offer Micro LMTS to secure the mobile handsets of 2 million MTNL Subscribers. Although constant equity dilution will restrict the upside of the scrip, still investors can accumulate at sharp declines.

Recently, Jupiter Bioscience (165.00) declared satisfactory set of nos for the March qtr. Accordingly, it recorded 25% growth in sales to Rs 130 cr but net profit zoomed up 65% to Rs 30.70 cr for entire FY08. Of late it has cancelled the 27.50 lakh equity shares allotted to promoters and instead issued 40 lakh warrants @ Rs 182 to strategic investors. So its current equity stands at Rs 15.40 cr and not Rs 18.13 cr and thus for FY08 it registered an EPS of Rs 20. Importantly, company 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. It is also setting up a 5500 sq ft manufacturing facility in Maryland, US to cater the USA, Canada and European markets. Couple of weeks back it finalized to take over a manufacturing facility of Merck Life Sciences in Switzerland and the acquisition formalities in under process. At a reasonable discounting by 12x times scrip can shoot up to Rs 240 within a year. Keep accumulating at declines.

Small & Beautiful (Guj)

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Sujana Towers (110.00) is basically engaged in manufacturing of galvanized steel towers used in the power transmission and telecom tower sectors. Besides it also offer various services including engineering and consultation, turnkey installations, inspection and maintenance of towers etc. Of late it has expanded its towers capacity at Hyderabad from 28,125 TPA of galvanized towers to 128,125 TPA and is further augmenting it by another 100,000 TPA manufacturing facility at Chennai. For the latest March’08 quarter it reported revenue of Rs 152 cr and net profit of Rs 12.30 cr. Hence, it is expected to clock a turnover of Rs 590 cr and PAT of Rs 45 cr for FY08. This leads to an EPS of Rs 11 on current equity of Rs 20.70 cr whereas Rs 9.50 on diluted equity of Rs 23.50 cr having face value of Rs 5 per share. To fund its growth plans, company has made preferential allotment of 80 lac warrants @ Rs 140 and is planning to raise nearly 300 cr thru FCCB/GDR route. Kee adding at declines.

Acrysil Ltd (70.00) is engaged in manufacturing of granite and quartz kitchen sinks which are made up of 75~80% special color treated natural quartz minerals that gives 'look of granite and feel of stone'. Actually Quartz stone is next hardest to diamond making the sink tough, scratch proof, dent proof with indestructible surface. Hence company’s premium brand ‘CARYSIL’ is quite successful & popular in north India for kitchen sinks. To cater the rising demand, last year company increased its production capacity from 82,0000 to 120,000 kitchen sinks. This year it is further augmenting it to 180,000 kitchen sinks. For the March’08 quarter its sales jumped up 75% to Rs 10.60 cr whereas its profit tripled to Rs 1.70 cr posting an EPS of more than Rs 6 for the single quarter. At the same time for entire fiscal it recorded 50% growth in sales to Rs 30 cr and 200% rise in profit to Rs 3.60 cr leading to an EPS of Rs 13.50 on current equity of Rs 2.70 cr. Notably, it declared 30% dividend for Fy08 which given an yield of more than 4% at CMP. Considering all the factors and at a fair discounting by 7x times, scrip has the potential to touch Rs 30~40% within few months.

Belonging to diversified Aditya Birla group, Tanfac Industries (60.00) is one of the largest suppliers of fluorine chemicals in India. It is mainly engaged in the manufacture of inorganic chemicals and fluorine based chemicals such as aluminium fluoride (ALF3), anhydrous hydro fluoric acid (AHF), sodium silico fluoride, ammonium bifluoride, sulphuric acid, potassium fluoride, cryolite and various chemicals. Besides it also produces organic fluorides & speciality fine chemicals which are used as intermediates in the manufacture of pharmaceuticals and agrochemicals. Recently it came out with terrific set of nos for the March qtr. Sales shot by 60% to Rs 54 cr whereas net profit zoomed up 145% to Rs 5 cr thereby posting an EPS of Rs 5 for the quarter. Accordingly for full year FY08 it registered 35% growth in sales to Rs 164 cr and 85% rise in PAT to Rs 12 cr i.e. EPS of Rs 12 on equity of Rs 9.98 cr. On the back of strong demand for aluminum fluoride, company is expected to do well in coming years as well. Buy at declines only.

Mazda Ltd (80.00) is among the few engineering companies in the world, manufacturing very specialized, high technology and critical equipments for various industries like power, refineries, fertilizers, chemicals, nuclear, sugar, paper, food, pharma etc. Broadly its product profile is segmented into Vacuum system, Valve division, Air pollution control equipment, Crystallizers and Evaporators. Last week it came out with satisfactory nos for th March qtr and ended FY08 on quite a buoyant note. For the full year its sales improved by 15% to Rs 60.50 whereas its profit increased by 30% to Rs 6.60 cr. Hence it registered a very healthy EPS of Rs 15.50 on a small equity of Rs 4.26 cr. Importantly, company has a technical collaboration with world renowned Croll-Reynolds Inc. USA, who holds 12% stake in the company. To cater the increasing demand, it is setting up a third unit with an investment of approximately 5 to 6 crores. Despite having promising future, this hi-tech engineering company is available very cheap at an enterprise value of around Rs 40 cr. It’s a screaming buy.

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Smart investments (Guj)

HBL Power Systems Ltd

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Patels Airtemp Ltd

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Pioneer Distilleries Ltd - Rs 75.00

Incorporated in 1992, Pioneer Distilleries Limited (PDL) is a distillery manufacturing company engaged primarily in the manufacture of extra natural alcohol (ENA), rectified spirit (RS), denatured spirit (DS), and absolute alcohol (Ethanol). The fine grade of ENA manufactured by the company is mostly used as raw material for many brands of renowned liquor manufacturing companies. On the other hand Ethanol is being supplied to pharmaceutical companies and petroleum companies. This apart, PDL is also processing the carbon-dioxide (CO2) generated in the fermentation process to manufacture commercial grade CO2 and has appointed SKVM agencies as its sole selling agent. Although company uses molasses as raw material but it has also obtained license for the manufacture of grain based alcohol. So in case prices of molasses shoot up or there is some shortage, company can use various grains like jowar, bajra, rice etc as alternative raw materials for the manufacture of alcohol.

PDL’s plant is at Nanded Maharashtra, which is located near many sugar factories that ensure regular and cheap supply of its raw material i.e. molasses. During FY07, company doubled its production capacity from 50 KLPD to 100 KLPD (kilo litres per day) and is currently running at 100% capacity utilization. Hence it is planning to further double the installed capacity to 200 KLPD for which statutory permission from the excise has been received. On the back of increased demand for ethanol product from petroleum companies, PDL is also contemplating to increase the capacity of ethanol plant from 30,000 to 130,000 ltrs per day. In addition it is also looking to set up acetic acid plant of 30 MT per day and ethyl acetate of 20 MT per day capacity. Apart from all these, company is setting up a 5 MW biogas based power generation project and additional effluent treatment plant to become a zero discharge company in the future. Both these are expected to commence operation by August 2008 thru a capex of Rs 40 cr. Notably, PDL is entitled to get carbon credits for its biogas power project and hence is in the process of tying up with a reputed organization based in UK for getting the registration with UNFCCC. However the power generated will be sold to Maharashtra power grid thereby generating extra source of income.

Financially, after making a remarkable turnaround in FY07, PDL continued to report encouraging performance for FY08 as well. Due to better operating efficiency and fall in raw material cost, company was able improve its operating margin from 14% to 24% in FY07. Based on first three quarter nos, it is further expected to improve its OPM to 28~30% for FY08. In order to fund its expansion, earlier it made an preferential allotment of 11.45 lac warrants @ Rs 21 and recently allotted another 7 lac warrants @ Rs 53. For FY08 it may clock a turnover of Rs 75 cr and net profit of Rs 12 cr which works out to an EPS of Rs 11 on current equity of Rs 11.20 cr. Interestingly, PDL also owns around 300 Acres of land which is being used for agricultural purpose where treated effluent is used for cultivation. Considering company’s expansion plan and other factor it can post an EPS of Rs 14 for FY09. Hence at a fair discounting by 8x times against FY09 earnings scrip can move up to Rs 110-120 Rs (i.e. 50% return) within a year.

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Lokesh Machines Ltd - Rs 74.00

Established in1983 and promoted by Mr. Lokeshwara Rao - first generation entrepreneur & technocrat, Lokesh Machines Ltd (LML) is engaged in the design, development and manufacture of custom built special purpose machines(SPM) and general purpose CNC (computerized numerical controls) machines along with their components. From a modest beginning by handling job works, today company has emerged as an integrated machine tool manufacturer with operations in two main business segments namely machine tools and auto parts. Over a period LML has developed various range of SPMs including single and multi spindle machines, shuttle type, way type, linear and rotary indexing machines, linear transfer lines etc. Under the CNC segment, it manufactures horizontal and vertical machining centre, turning centre, milling and boring machines etc. And in the auto component sector, it has been concentrating on manufacturing / machining auto components like cylinder blocks, cylinder heads etc to original equipment manufacturers. Hence LML primarily caters to customers in the auto OEM, auto ancillaries and general engineering space. Presently, company derives 70% revenue from machining division whereas rest 30% comes from auto component division.

LML has five manufacturing units all located in Andhra Pradesh and under technical association with Grob Gmbh-Germany, Fagima-Italy, SCMS-Japan, AVM Angelini-Italy, Wenig Wemas-Germany & IMT Intermato-Italy. In the domestic market company supplies mainly to M&M, Ashok Leyland, Force Motors, Cummins, Tata Motors, Bajaj Auto, Bharat Forge, Kirloskar Oil Engines, Everest Kanto Cylinders etc. LML has a capacity for machining and supply of 1,20,000 units per annum each of cylinder blocks and cylinder heads, especially for M&M. And recently, it has set up an additional facility for machining of 40,000 units per annum each of cylinder blocks and cylinder heads, especially for Ashok Leyland. After successful trial runs, the production at this facility has commenced from April 2007. Off late, LML has also made a foray in the overseas markets with orders from M/s FPT Industries Spa-Italy, Honda Motorcycles-Japan and HOWA-Japan. Further, its technical partner Wenig Wemas-Germany has also placed initial order of 100 machines worth 20 cr. So going forward company is looking to gradually increase its share from international market as well.

In April 2006, LML came out with an IPO at Rs.140 per share and raised Rs.42 cr. This entire proceed has been utilized for setting up new facility for Ashok Leyland and also to meet the cost of modernization and to upgrade the existing facilities for the manufacture of CNC machine tools. Financially, company is doing well as it recorded 20% and 30% growth in sales and NP to Rs 68 and Rs 8.60 cr respectively for nine months ending Dec 2007. Thus for entire FY08 it is expected to clock a turnover of 105 cr and PAT of Rs 13 cr i.e. EPS of Rs 11 on equity of 11.80 cr. Therefore, the scrip is currently trading at a P/E ratio of merely 8x times which is extremely cheap for such a fast growing engineering company. Moreover the continuing growth in the domestic demand for machine tools both in the capital goods and auto component sectors offers an opportunity for further progress. So for FY09 it has the potential to post an EPS of Rs 14~15. Interestingly, scrip made a 52W high of Rs 166 on 7th Jan 2008 and a low of Rs 51 on 24th March 2008. Considering its IPO price of Rs 140 Rs and the current market sentiment, this is one of the safe bet which can give handsome return in medium to long term. Investors are strongly recommended to buy at current levels as scrip can easily appreciate 50% within 9~12 months.

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