STOCK WATCH

At the time where most of the its peer companies are finding it difficult to maintain the topline as well as margin, Asian Granito (52.00) came out with flying color for the June qtr. Due to commencement of production at wall tile unit, its sales zoomed up 70% to Rs 73 cr and NP shot up to Rs 9 cr posting an EPS of more than Rs 4 for the single quarter on a standalone basis. Company is one of the largest producers of vitrified tiles in India under the brand name “Asian Tiles”. Recently, it has expanded its vitrified tile capacity to 16,000 sq mtr from 14,000 sq mtr tiles per day and also started new wall tile plant having a capacity of 9,300 sq mtr per day. Besides, its 100% subsidiary Asian Tile Ltd which is getting merged with itself, is into the business of manufacturing ceramic floor tiles with a capacity of 7,000 sq mtr per day. So on a consolidated basis, company is estimated to register a turnover of Rs 350 cr and PAT of Rs 32 cr for FY09. This works out to an EPS of Rs 15 on equity of Rs 21 cr. Even a average PE ratio of 5x times scrip can appreciate 50% in a year

Prime Property (60.00) is a small real estate developer based in Mumbai which boasts of constructing landmark residential and commercial buildings for high end customers in Mumbai. Prime Avenue, Prime Centre, Prime Beach & Prime Plaza are few of its popular residential & commercial development at prime area like Santacruz(W) & Vile Parle(W) in Mumbai. Presently, company is focusing to complete its two ongoing projects in Mumbai namely “Prime Down Town Mall” - a 270,000 sq ft luxurious composite Mall with multiplexes and “Prime Tech Park” which is 90,000 sq ft commercial building. Besides these, company has started construction work for two more shopping malls called “Prime Square” - 70,000 sq ft mall in Goregaon Mumbai and “Prime Pune Mall” - gigantic 430,000 sq ft state-of-the-art mall with anchor shop, multiplex, food court, entertainment area and a hotel in Pune. For FY08 it clocked an EPS of Rs 16 and declared a dividend of Rs 1.50. It announced excellent results for the June’08 quarter and considering company’s current project in hand and that too at prime locations it may report total revenue of Rs 150 cr and net profit of Rs 40 cr for FY09 i.e. EPS of Rs 20 on current equity. Only aggressive investors are advised to buy at current levels.

PBA Infrastructure (60.00) is engaged in execution of civil engineering projects and specializes in construction of highways, dams, runways and heavy RCC structures, bridges and other infrastructure projects of various govt bodies. It is executing projects from Kashmir to Kanyakumari and has taken up new works like toll collection and quarrying to augment its income. For FY08 it posted an EPS of Rs 11 with 30% rise in sales as well as PAT to Rs 371 cr and 14.60 respectively. However for the June quarter it reported de-growth as revenue fell by 15% to Rs 84.50 cr and profit decreased by 30% to Rs 3.35 cr. But, company has been regularly bagging new orders and its current order book position is quite impressive at around Rs 700 cr. Two days back it bagged a huge road construction order to the tune of Rs 122 cr from the Muncipal Corporation Pune. Fundamentally, company is having a huge debt of 170 cr due to which its interest cost is very high. Hence to fund its working capital requirement and reduce the high cost debt, company is contemplating to make pref allotment of 30 lac warrants to promoter and promoter group. Meanwhile for FY09 it is estimated to clock a turnover of Rs 425 cr and PAT of Rs 17 cr. This translates into EPS of Rs 13 on current equity of Rs 13.50 cr. A good bet for medium term.

Associated Alcohols & Breweries (45.00) is one of the largest distilleries in India with presence in every aspect of the value chain from potable alcohol, country liquor, ENA, grain spirit (extra fine grade, triple distilled), rectified spirit, IMFL to bottling scotch whisky. Notably, company markets its own brands, as well as manufactures and bottles IMFL and Scotch whisky for many Indian and international companies. Apart from being the leader in Madhya Pradesh, company boasts of having strong portfolio of popular brands such as Red & White, James McGill & Bombay Special in Whisky, London Bridge in Gin and Jamaican Magic in Rum. For FY08 its sales increased by 50% to Rs 120 cr and PAT zoomed up 140% to Rs 5.60 cr posting an EPS of Rs 8 on current equity of Rs 6.80 cr. To increase its market share, company is the midst of expanding its capacity to 65 million litres from 42 million litres by setting up a multi-pressure ENA plant along with 2MW bio-gas fuelled cogeneration captive power plant. Hence it may clock a turnover of Rs 150 and profit of Rs 7 cr which translates into EPS of Rs 7 on fully diluted equity of Rs 10 cr. Despite promoter concern and risk of further equity dilution, scrip can bought be declines for reasonable return within a year.

Vakrangee Software Ltd - Rs 202.00

Incorporated in 1990, Vakrangee Software Ltd (VSL) is a leading provider of complete document and data management solutions encompassing large-scale data capturing & management, scanning, digitization and printing. It has three business segments, viz - document management services, printing management services and IT enabled services catering to various verticals like the central and the state government, banking and financial services industry, telecom, power, retail, aviation and others. Importantly, VSL has the largest scanning and variable data printing capacity in India with 5.6 million pages per day and 2.40 million pages per day respectively. Besides, company is a pioneer in multi-lingual application software and has developed versatile document management software, which can be used in 13 regional languages. After its Voters Identity Card software, Electoral Roll software, Voters Data entry Package, Cyber Saver etc, company is in the advanced stage of developing Human Capital Management software & School ERP software which have tremendous potential in domestic market. Currently, VSL derives 75% of revenue from government business while the balance comes from private sector. Hence its clientele comprises of various election divisions, government & semi-government organizations, public authorities & local bodies, business associates and other private organizations.

Earlier, VSL was mainly into election commission work and database management but now the focus of the company is on e-Governance including document management projects and further to printing management projects. It boast of successfully completing land record digitization project of Ghaziabad development authority, digitization of patent records at Indian patent office, public facilitation office under MCA-21 and various other election projects for the state of Maharashtra, Rajasthan, Chhattisgarh, Gujarat & UP. It has around 25 delivery centers in major cities across India. Apart from being an outsourcing partner to TCS & CMC, company has a tie up with Godrej & Boyce for jointly executing large election related projects at national and state level. In Dec 2006, VSL imported world’s fastest printing system - Kodak Versamark VT3000 which can print customized design from page to page. This machine has not only helped the company to execute all election commission related work in house but also enabled it to get more business from the emerging opportunities like printing documents (including bills) for telecom companies, electricity supply companies, retail groups etc. Recently it has entered into a strategic alliance with Eastman Kodak company to offer mass customization & personalization of customer communication practices in India and has been granted with the Kodak Gold Plus accreditation status. Maintaining records and issue of voter’s identity card for Maharashtra, MP, UP, Gujarat etc is an ongoing process for the company. For TCS, it is doing Registrar of Companies database management at 32 locations. Couple of months ago it bagged a prestigious project from the chief election commission, Maharashtra unit for the Delimitation exercise which consist of redrawing boundries of Lok Sabha and assembly constituencies to maintain equitable distribution of population across constituencies. This project involves preparation of the new electoral roll in multiple copies for more than seven cr electors of the state.

Today, e-Governance is the fastest growing business opportunity as well as a major social responsibility initiative in India. It is further fuelled by the implementation of Right to Information Act (RTI) by govt of India, which makes it mandatory for all govt departments to have all the information in digital form. This includes not only conversion of historical data but also to keep present as well as future information in digital form. In view of the innumerable ministries, departments, offices at center and state level and other authorities, e-Governance has emerged as a huge opportunity for the IT industry in general and for the company in particular. Besides, VSL has started focusing more to cater private sector and intends to take the share from this segment to more than 50% of the total revenue. Hence, with a rich experience and excellent track record it is all set to capitalize the huge opportunity in coming years.

Since last three years, VSL’s topline and bottomline has been growing at an impressive CAGR of 90% and 160% respectively. Moreover, company has been consistently registering an OPM of more than 40% & NPM of 20%. For FY08 its revenue jumped up 90% to Rs 224 cr whereas its PAT more than doubled to Rs 50 cr posting an EPS of Rs 23 on equity of Rs 21.40 cr. Incidentally, despite a substantial fall coupled with bearish sentiment in the stock market, warrant holders (including promoters) still exercised their option and got their 22.50 lakh warrants converted into shares @ Rs 241 per share in March 2008. Further, company is contemplating to come out with right issue in near future. For the latest June’08 quarter as well, VSL reported encouraging result and is expected to end FY09 with total revenue of Rs 300 cr and net profit of Rs 60 cr i.e. EPS of Rs 28. So at a reasonable discounting by 10x times earnings, scrip has the potential to touch Rs 280 (i.e. 40% return) in 12~15 months. Although, promoters hold only 19% and doesn’t enjoy good reputation in the stock market still it’s a good bet as company has bid for high value new private sector orders through its alliance with Eastman Kodak Co. So, as and when opportunity arises investors can buy at sharp declines around 180~190 levels.

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Liberty Phosphate Ltd - Rs 19.00

Established in 1977, Liberty Phosphate Ltd (LPL) is the flagship company of the Liberty Group engaged in manufacturing Single Super Phophate (SSP) and NPK fertilizers. Ironically, company is the largest manufacture of SSP commanding nearly 10% market share in the country. Its ‘Double Horse’ brand is very popular among farmers and is having highest sales in India. SSP is a multi-nutrient fertilizer which contains phosphate as primary nutrient and sulphur & calcium as secondary nutrients along with magnesium, zinc, boron, manganese, copper, etc. Considering the deficiency in Indian soil, use of SSP has been recommended by Central Ministry (Fertilizer), Local State Agriculture Department, State Agriculture Universities as well Agriculture Scientists. Accordingly, the SSP fertilizer is a subsidized product which is affordable and preferred by small and marginal farmers. In various crops, which require more of sulphur and phosphate like oilseeds, pulses, sugarcane, fruits & vegetables, tea etc, SSP is an essential fertilizer. However, SSP is under the indirect control of the Central and State Government under the concession Scheme of de-controlled phosphatic and potassic fertilizers.

Presently with six plant across India, the group has total manufacturing capacity of 725,000 mtpa of SSP fertilizer and 165,000 mtpa of NPK fertilizer. Out of these, four manufacturing facilities viz Udaipur & Kota in Rajasthan, Nandesari in Gujarat, Pali in Maharashtra belong to LPL having an combined installed capacity of 463,000 mtpa of SSP. Because of its multi-locational establishment, LPL has the advantage of proximity to the availability of raw materials/markets and hence is one of the lowest cost producers of SSP. However in FY08, company produced only 194,827 tonne (against 280,288 tonne in FY07) of SSP representing merely 40% capacity utilization and 4374 tonne of NPK due to unfavorable business condition. Actually during last fiscal, price of sulphuric acid, one of the important raw materials shot up substantially and this being unable to pass on to farmers, made the production unviable. To compensate this rise in cost of production, central govt has recently with effect from 1st May 2008, increased the subsidy amount to be given to manufacturers of SSP from Rs 1125/- per tonne to Rs 3600~5600/- per tonne. Despite such increase in subsidy amount, SSP manufacturers are still finding it difficult to cover up the cost of production as prices of sulphuric acid and rock phosphate are trading high. Hence further, govt has also incorporated escalation/de-escalation clause in the subsidy of SSP correlating it with the prices of Sulphur and Rock Phosphate.

To summarize the above, LPL is going thru a difficult phase which may improve going forward either by raw material prices cooling off or by further increase in subsidy or by resetting of selling price. Meanwhile to fund its working capital requirement, last year LPL raised nearly 7 cr thru issue of preferential shares and equity shares. It is further raising 5 cr thru allotment of 28 lac equity shares to promoters and others @ Rs 18 per share. Incidentally, for FY08 despite a decline of 30% in sales to Rs 102 cr, PAT increased by 15% to Rs 1.60 cr posting an EPS of Rs 2.40 on equity of Rs 6.70 cr. Against this LPL entered the current year with a bang, doubling its sales for the June quarter to Rs 67 cr whereas net profit zoomed up 1000% to Rs 4.60 cr thereby posting an EPS of Rs 7/- for the single quarter alone. Even in such conditions, LPL has targeted a production and sales volume of 300,000 mtpa of SSP in the current year. Thus it can register sales of Rs 175 cr and profit of Rs 4.50 cr for FY09 i.e. EPS of Rs 5 on diluted equity of Rs 9.50 cr. Investors can hold or even buy at declines as scrip can appreciate 50% once the market sentiment turns positive.

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Small & Beautiful

SEAMEC (118.00) is expected to register good growth in coming quarter as all the vessels have deployed at healthy charter rate and there won’t be any dry dock in foreseeable future. Its first vessel is deployed with Dolphin offshore for two years @ US$ 23,333 per day, second vessel with CONDUX SA DE, Mexico @ US$ 56,000 per day, third vessel is hired by M/S Superior Offshore @ US$ 55,555 per day whereas fourth vessel has been let out @ US$ 105,555 per day to M/s Sime Darby Engineering, Qatar. Meanwhile company has reported poor performance for H1FY08 as couple of its vessels was under dry dock and its second vessel met with an fire accident. Hence it reported a loss of Rs 9 cr with a decline in revenue by 7% to Rs 96 cr. Still it is expected to register total revenue of Rs 250 cr and PAT of Rs 45 cr for CY08 i.e. EPS of Rs 13 on equity of Rs 33.90 cr. However for the year ending Dec 2009, it has the potential to clock an EPS of around Rs 24. Hence the scrip is currently trading at a PE ratio of less than 5x times against its CY09 earnings. On the back of robust outlook company is planning for 1 more acquisition of vessel by end of this calendar year. Due to strong cash flow and debt free status funding the acquisition is not an issue for the company. Although company is operating in a cyclical industry, still it deserves much better valuation. A solid bet at current levels.

Andhra Petrochemicals (17.00) 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. Incredibly, 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. Despite considerable rise in input cost company was able to maintain its bottomline for FY08 on reported sales of Rs 281 cr. Although it announced poor performance for Q1FY09 but it has the potential to report healthy margins once the crude oil prices cools off. On the optimistic front, it may clock a turnover of more than Rs 300 and PAT of Rs 35 cr posting an EPS of Rs 4 for FY09. Can be bought at sharp declines.

Belonging to diversified Aditya Birla group, Tanfac Industries (55.00) 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. For June’08 quarter it reported excellent result as sales jumped up 50% to Rs 47 cr whereas PBT more than tripled to Rs 5.20 cr. But due to high tax provisioning its net profit zoomed up by 150% to Rs 3.30 cr. Company is estimated to perform better in FY09 as it has undertaken new market initiatives, new products launch, capacity expansion of existing production and cost savings from process improvement schemes. Moreover, company has also got its CDM project approved and is expected to generate additional revenue from carbon credits this fiscal. Accordingly for FY09 it may clock sales of Rs 200 cr and profit of Rs 13.50 cr i.e. EPS of Rs 14 on equity of Rs 9.98 cr. Scrip can shoot up 50% as and when market sentiment improves.

Krone Communications (110.00) is a 62% subsidiary of US based ADC Telecommunications, which is world leader in communications network infrastructure and has presence in over 150 countries worldwide. Thus, Krone provides the connections for wireline, wireless, cable, broadcast and enterprise networks in India. Its innovative network infrastructure equipment and professional services enable high-speed Internet, data, video, and voice services to residential, business and mobile subscribers. Besides structured cabling solution, it also offers Wi-Fi and Wi-max solutions. In addition, the company enables wireless carriers to get more from their networks with its Digivance™ radio frequency transport solutions and ClearGain® tower-mounted amplifiers. Because of its hi-tech professional service its clientele includes corporate giants like Bharti Televentures, Reliance Infocom, Tata Teleservices, Siemens, HFCL Infotel, TCS, Alcatel, Cognizant, Lucent, etc to name a few. For Q3FY08 i.e. quarter ending July 2008, its topline grew by 35% to Rs 29 cr but profit declined by 10% to Rs 2 cr. Hence for entire FY08 ending Oct 2008 it may register revenue of Rs 100 cr and PAT of around Rs 8 cr i.e. EPS of Rs 17 on tiny equity of Rs 4.60 cr. That means this debt free MNC is available at a very cheap discounting of 6x times. Buy at current levels.

Smart Investments

Tantia Constructions Ltd

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India Glycols Ltd

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