STOCK WATCH

Tera Software (22.00) is one of the leading e-governance solution providers, undertaking data entry/scanning works for digitization of information maintained under Right to Information Act. It also undertakes short-term projects like issue of photo ID cards, ration cards and election commission cards. Last year company successfully executed Maharashtra Vikri Kar Seva Project in Maharashtra State (VAT Implementation of Maharastra sales tax department) on BOOR (Build own operate and refresh) model as the scope of work was computerization of sales Tax department in the entire state of Maharashtra. Of late company has been able to procure additionally six new projects of the State Government of Andhra Pradesh, Karnataka, Rajasthan, West Bengal and Himachal Pradesh. It also ventured into imparting computer education in more than 225 schools in Goa and AP by establishing the computer labs with Computers and providing the teaching staff and maintenance of systems. In the first two quarters, company has already posted an EPS of more than Rs 4 and is expected to end FY09 with topline of Rs 75 cr and PAT of Rs 10.50 cr i.e. EPS of Rs 8 on equity of Rs 12.50 cr. It may declare 15% dividend for FY09 which gives a yield of 7% at CMP. Moreover company has few acres of surplus land in Hyderabad, which it can either sell or enter into JV with infrastructure company. Scrip can double in 12~15 months.

Hitachi Home & Life Solutions (45.00), a 68% subsidiary of Hitachi-Japan is amongst the top airconditioning companies in India with an installed capacity of 250,000 units per year. It maufactures high technological home and commercial air conditioners like window AC, split AC, concealed splits, ductables, chillers and specific telecom cooling solutions. To capitalize its brand equity and strong distribution network in India. company has also ventured in the business of trading for the refrigerators and washing machines. Its plant at Kadi, Gujarat is among the seven Hitachi room air conditioner facilities worldwide. Being a technology driven company, it has introduced several innovative products such as “ACE, IOTA, ATOM Square, Takumi” which are doing extremely well in the market. Its refrigerator and washing machines sales are also picking up. On the other hand its commercial air conditioning division is also on a rampant growth mainly due to the retail sector and mall culture expanding in a big way. Although there is general slowdown but demand for consumer durable continues to be satisfactory. Hence, company has planned a capex of Rs 45 cr for the current year to expand its line of business. After registering an EPS of Rs 9 for H1FY09, company is poised to report sales of Rs 525 cr and profit of Rs 35 cr i.e. EPS of Rs 15 on equity of Rs 23 cr for FY09. With such a strong brand value this debt free MNC is available extremely cheap at an EV of merely Rs 100 cr.

IMP Power (50.00) is engaged in manufacturing of entire range of power & distribution transformers, electrical & digital measuring instruments, testing equipments etc. It has been manufacturing transformers ranging from 10 KVA to 100 MVA upto 220 kV class. It has vendor approval from almost all the State Electricity Boards, major turnkey EPC contractors and the only transformer company in India to be in zero sales tax zone enjoying 15 year sales tax holiday which shall continue till year 2012. Secondly, it has achieved backward integration through manufacturing of OLTC & RTCC in house thereby emerging as one of the lowest cost manufacturer of transformers. To cater to the rising demand and increase its market share, company has recently doubled its production capacity from 3600 MVA to 7000 MVA. With this company mow list among the top 10 EHV and power transformers manufacturing companies in India. Besides last fiscal, company has also upgraded its Kandivali plant to manufacture complete range of analog meters such as ammeter, voltmeter frequency meter, dynamometer type watt meter, power factor meter, phase sequence indicator, KVA Meter etc. in addition to high end meters like maximum demand indicator, trivector Meter, multifunctional and kWh Meters. After ending FY08 on quite a buoyant note, it has reported terrific nos for the Q1FY09. For the year ending June’09 it may clock a turnover of Rs 185 cr and PAT of Rs 11 cr i.e EPS of Rs 16 on current equity of Rs 7 cr. Scrip may shoot upto Rs 75 within a year.

Gayatri Project (85.00) is engaged in execution of major civil works including concrete/masonry dams, earth filling dams, national highways, bridges, canals, aqueducts, ports, etc. Although the company has executed various projects in different sectors of infrastructure, its expertise lies mainly in the road and irrigation sectors. Of late company has moved up the value chain and is executing five lucrative BOT road projects having very healthy IRR of around 14%. It has also entered into joint ventures with DLF for construction of road on BOT basis and with ION Exchange for water transport projects. For the Sept’08 quarter its revenue increased by 45% to Rs 207 cr and PAT grew by 25% to 8.50 cr. Incidentally, it has already posted an EPS of Rs 20 for H1FY09. And as of now, it boasts of having a massive order book position of more than Rs 3000 cr which is 4x times its FY08 turnover thereby providing strong revenue visibility. Notably, irrigation projects constitute 30%, transportation projects 60% and industrial building constitutes the balance 10% of order book. Thus for FY09 it may register a topline of Rs 950 cr and profit of Rs 30 cr i.e. EPS of Rs 30 on current equity of Rs 10.10 cr. However, the huge debt of Rs 450 cr on its book is a cause of concern.

Small & Beautiful

Tera Software (22.00) is one of the leading e-governance solution providers, undertaking data entry/scanning works for digitization of information maintained under Right to Information Act. It also undertakes short-term projects like issue of photo ID cards, ration cards and election commission cards. Last year company successfully executed Maharashtra Vikri Kar Seva Project in Maharashtra State (VAT Implementation of Maharastra sales tax department) on BOOR (Build own operate and refresh) model as the scope of work was computerization of sales Tax department in the entire state of Maharashtra. Of late company has been able to procure additionally six new projects of the State Government of Andhra Pradesh, Karnataka, Rajasthan, West Bengal and Himachal Pradesh. It also ventured into imparting computer education in more than 225 schools in Goa and AP by establishing the computer labs with Computers and providing the teaching staff and maintenance of systems. In the first two quarters, company has already posted an EPS of more than Rs 4 and is expected to end FY09 with topline of Rs 75 cr and PAT of Rs 10.50 cr i.e. EPS of Rs 8 on equity of Rs 12.50 cr. It may declare 15% dividend for FY09 which gives a yield of 7% at CMP. Moreover company has few acres of surplus land in Hyderabad, which it can either sell or enter into JV with infrastructure company. Scrip can double in 12~15 months.

Jupiter Bioscience (40.00) 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. It is operating in a very niche segment and is among the few companies in the world to have competency in synthesis of peptides. The technology focus of the company has enabled it to develop more than 400 products in its catalogue and establish a leadership position in the peptide business internationally. For H1FY09 it has already clocked an EPS of Rs 9 as it reported 15% growth in sales to Rs 60 cr and 10% increase in PAT to RS 14 cr. Last year company invested considerable resources in developing the processes for manufacture of generic peptide APIs. It has also finalized to acquire a manufacturing facility of Merck Life Sciences, Switzerland and has even signed a long term business contract with them. Besides company 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. Last fiscal it raised 100 cr thru QIP route @ Rs 153 per share. Further it has allotted 40 lakh warrants to be converted @ Rs 182 to strategic investors. For FY09 on a standalone basis, it can report sales of Rs 150 cr and NP of Rs 30 i.e. EPS of Rs 20 on current equity of Rs 15.40 cr. A strong buy.

Orient Papers & Industries (21.00) is a diversified company engaged in manufacturing of cement, paper and electrical appliances. It derives 60% of total revenue and 90% profit from cement segment which has an installed capacity of 3.40 million tonne. With its popular brands 'BIRLA A1’ and ORIETAL GOLD’ and having main market as Maharashtra and AP, company’s cement division is reportedly doing well. Infact to increase its market share, company is in the midst of augmenting its capacity to 5 million TPA by April 2009. It is also setting up a 50 MW captive power plant to bring down its power cost. At the same time on the back of strong demand for tissue paper, it is expanding its tissue paper manufacturing capacity from current 10,000 TPA to 30,000 TPA by April 2009. Having a market share of over 17% in the organized sector, its ORIENT PSPO brand of fans are quite popular. To cash on this brand, company has ventured into lighting products also and is now setting up a up a modern manufacturing facility for Compact Fluorescent Lamps at its Faridabad. Financially, in the last two years company has repaid most of its loan and has significantly brought down its total debt to Rs 165 cr from Rs 435 cr in 2006. As a result, it has a very healthy debt equity ratio of 0.16x times. For FY09, it may clock a turnover of Rs 1350 cr and PAT of Rs 150 cr i.e. EPS of Rs 8 on equity of Rs 19.30. Scrip can easily appreciate 50% within a year.

Blue Bird (18.00) 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 debtor equivalent to four months of sales. This has led to huge debt of its book to the tune of Rs 325cr. Hence its annual interest cost (approx Rs 45 cr) is the biggest drag on company’s financial. For H1FY09, it registered marginal 5% growth in sales to Rs 254 cr whereas NP declined by 10% to Rs 12.50 cr posting half yly EPS of Rs 3.50. Accordingly, it may clock a turnover of Rs 500 cr and profit of Rs 19 cr for FY09 i.e. EPS of Rs 5 on current equity of Rs 35 cr. Scrip can double in 12~15 months.

Smart Investments

Sujana Towers Ltd
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Vakrangee Software Ltd
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Vakrangee Software Ltd - Rs 32.00

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. Over the years, VSL has emerged as the only provider of document management and printing management solutions in the organized sector. With more than 15 years of experience in servicing various government organizations, company forayed into the private sector for the first time during last year, which includes large companies from the banking and financial service, retail, power and telecom sector in both its document management and printing management vertical. Its IT enabled services comprise software development, system requirement study, tailored software development, system integration and election-related services. To meet the growing customers need in the printing management segment, VSL tied up with Eastman Kodak and has installed one large scale variable colour data printer which is the largest in Asia. Hence company boast of having the largest scanning and variable data printing capacity in India with 6 million pages per day. Presently, VSL derives 55% of total revenue from document management solutions and balance 45% from printing management solutions.

Till date, VSL has executed several prestigious projects including digitization of land records in Uttar Pradesh, managing electoral rolls for the Election Commission of India in Maharashtra, Gujarat, Rajasthan, MP and UP, delimitation exercise (redrawing boundaries of LokSabha and assembly constituencies) for Maharashtra state and handling documents in 22 offices of the Registrar of Company (RoCs) across different locations. It has also been associated with the Ministry of Corporate Affairs for the digitization of critical records under the MCA 21 project, the largest successful e-governance project in India so far. Company enjoys a pan-India footprint through 32 site offices. From 100% dependence on govt contracts, company has remarkably, within a year de-risked its business model with nearly 40% revenues now coming from private sector. It competently manages the printing of statements (monthly/quarterly/yearly), bills and mass communication collaterals of these private service providers. VSL’s service matrix includes secured data hosting in the Vakrangee Data Centre, data composition/mining from the data dump like CRM data, transaction data, billing data, design of a one-to-one communication layout and superimposing the relevant text data of each customer of the client to make an effective and efficient personalized communication statement, followed by printing the data stream so prepared in a physical format or SMS/e-mail it to the end customer.

To maintain its growth momentum, VSL is focusing more on private sector and is constantly adding new clients to its list. Accordingly, it has entered into a strategic alliance with Eastman Kodak to offer mass customization & personalization of customer communication practices in India and has been granted with the Kodak Gold Plus accreditation status. Besdies, it is setting up a new hub office at Gurgaon with another large scale variable colour data printer followed by 100 other small offices across the country. Further, it is contemplating to open a mega global client-servicing centre at Navi Mumbai, by the end of 2010-11. At the same time it will continue to execute government projects and is soon expected to manage all the inbound documents related to passport issue. In near futures it will be busy managing and printing new voting lists as well as voters' cards and slips with 2009 being s an election year. It will also benefit with various upcoming e-governance projects and increased budgetary allocation towards it.

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. On the other hand the BFSI and the telecom companies are also offering customized statements and other means of communications to retain its customers, opening up a sea of opportunity for VSL. Moreover the need for a paperless work environment across the globe enhances future prospect of the company.

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. For the latest Sept’08 quarter, VSL registered 60% and 50% growth in topline as well as bottomline respectively and has accordingly already posted an EPS of Rs 14 for H1FY09. For entire FY09 it is expected to clock total revenue of Rs 275 cr and net profit of Rs 50 cr i.e. EPS of Rs 23 on current equity of Rs 21.40 cr. Its EV/EBIDTA stands at merely 0.60x times. Unfortunately this debt free company which generated positive cash flow of Rs 150 cr thru operating activities is today available at a market cap of merely Rs 70 cr. Having a book value of Rs 127 cr, Cash EPS of more than Rs 50, dividend yield of 6%, VSL is available for a song at an EV of Rs 70 cr. Although, promoters hold only 19% and doesn’t enjoy that good reputation in the stock market still it’s a screaming buy at current levels. Sarcastically, scrip which hit a high of Rs 300 in May’08 is now trading at 10% valuation, maybe due to distress selling by some FII’s. Hence investors are strongly recommended to buy this multibagger as it can quadruple in 15~18 months.

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Sujana Towers Ltd 22.00

Incorporated in 2006, Sujana Towers Ltd (STL) was actually formed on demerger of the tower division from Sujana Metal Products Limited pursuant to the scheme of arrangement and amalgamation. It belongs to the well known Sujana group which has diversified interest in steel, domestic appliances, engineering, transmission towers etc. Hence STL is basically into designing and manufacturing of telecommunication and hi-tension transmission towers. Its main products include power transmission line towers (from 11 KV to 400 KV) and telecom towers (selfsupporting lattice towers upto 100 metres height, triangular/square cross-section, hybrid towers, angular/tubular towers, lattice Guyed masts and monopoles). It is the only integrated tower manufacturer in south India having an in-house re-rolling facility for structural steel & fabrication of tower and tower parts. Thus it has the capability to deliver ready-to-erect structures in customer-specified sizes in the shortest time spans. Notably STL is India’s largest galvanized steel tower manufacturer as it has a galvanizing plant which makes only galvanized tower to impart strength, longevity and resistance against atmospheric impact and peeling. Lately, to cash on its engineering skills and sound technical knowledge, STL has forayed into providing services like Engineering & Consultation, Turnkey Installation and Inspection & Maintainance. Thru joint venture with EPC companies like Deepak Cables, Annapurna Const, company is already executing turnkey EPC projects in power segment and aims to emerge as turnkey contractor in next couple of years.

Presently, STL has the manufacturing plant at Hyderabad, Andhra Pradesh with a galvanized tower manufacturing capacity of 128,125 MTPA while its heavy structural steel product capacity stands at 70,000 tonne per annum. Notably, the unit boasts of manufacturing transmission towers on turnkey basis (i.e. surveying, civil foundations, supply and erection of towers, stringing of conductors, commissioning and charging of lines) to electricity boards of Andhra Pradesh, Karnataka and Tamil Nadu and Power grid. Besides it has a huge clientele in private sector including Reliance energy, BHEL, Subhash Project and all the telecom companies like Rcom, Bharati, Idea, BSNL, GTL, Essar, Tata tele, Erricson etc. India currently has about 200,000 telecom towers and is estimated to need about 350,000 more towers in next five year. On the other hand power sector is undergoing a massive expansion coupled with rural electrification to achieve power for all by 2012. Hence to cater to the rapidly increasing demand, company is in the midst of setting up a Greenfield plant in Chennai with an installed galvanized tower manufacturing capacity of 100,000 MTPA. This plant will also have the facilities to manufacture high mast light poles, railway electrification structures etc and will also cater to export requirements. Due to liquidity crunch, project is expected to start operation by mid 2009 thereby taking company’s total capacity to 228,000 MTPA.

For future STL is looking to put up a new plant in Gujarat to produce galvanized steel parts with a capacity of 75,000 MTPA. Company is also contemplating to acquire a company in China for manufacturing of tower parts and set up a subsidiary in Hong Kong for sourcing cheaper raw material. Recently STL has acquired 51% shareholding in Telesuprecon Ltd a Mauritius based company, undertaking telecom infrastructure contracts in various cast/central African countries. Earlier in Oct 2007, company made a pref allotment of 80 lac warrants to be converted into equity @ 137 per share, out of which 25 lac warrants have been converted. For the trailing twelve months ending June 2008, it earned a NP of Rs 46 cr on sales of Rs 582 cr leading to an EPS of Rs 11 on current equity of Rs 20.80 cr having a face value of Rs 5/- per share. However, company has recently taken the extension to end the financial year in Sept 2008 with 15 months performance. With govt special thrust on power sector and strong growth in telecom sector, the future prospect of STL is very optimistic. Secondly the recent fall in steel and other raw material prices will relieve some pressure on profit margin going forward. Ironically, the scrip which hit a high of Rs 235 in Jan’08 has now collapsed by more than 90% due to poor market sentiment. Although company is facing difficulties in raising fresh capital to fund its expansion and working capital still investors are strongly recommended to buy at current levels as scrip can triple within 15 months.

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