STOCK WATCH

It seems that Vivimed Lab (75.00) has posted a loss for the March’09 quarter on standalone basis as its net profit for the full year declined to Rs 14.50 from Rs 16.50 for nine months ending Dec’08. Despite this, it has recorded flat nos for FY09 with sales of Rs 151 cr and PAT of Rs 14.50 leading to an EPS of Rs 15.50 on current equity of Rs 9.40 cr. However on a consolidated basis (incl. financial of M/s James Robinson,UK) company has clocked a turnover of Rs 276 cr and PAT of Rs 22 cr for FY09 which translates into consolidated EPS of Rs 23. Earlier company acquired 100% stake in M/s James Robinson,UK which is an international manufacturer and supplier of speciality chemicals used in hair dyes, pharmaceuticals and photographic films/prints to ophthalmic sunglasses. Company itself is a speciality chemical manufacturer catering to segments including oral care, sun care, skin care, hair care, natural extracts, preservatives, anti microbial, anti oxidants, anti-aging molecule etc. Infact it is world’s 2nd largest manufacturer of Triclosan - an antibacterial used for oral care and one of the top three companies for Avis – a chemical which improves UV absorbing ability of Sunscreen. Of late, it has decided to acquire Har-met International Inc a small importer of pharmaceutical & cosmetic product, based in USA. Organically as well company has been expanding its capacity and has chalked out Greenfield expansion plan in Uttaranchal and Hyderabad. Presently it boasts of having five manufacturing facilities spread across Karnataka, Andhra Pradesh & Uttaranchal. Earlier in 2007, company had raised nearly 60 cr thru FCCB route which may not get converted into equity considering the CMP. Buy at declines.

After ending FY09 with spectacular performance Oil Country Tubular (55.00) has reported decent performance for the Q1FY10. Its topline grew by nearly 20% to Rs 72.50 cr and bottomline improved by 25% to Rs 13.70 cr thereby posting an EPS of Rs 3 for the quarter. For FY09 it has recorded 25% increase in sales to Rs 420 cr whereas its net profit zoomed up 125% to Rs 65 cr on the back of saving in interest cost. Ironically, in the last fiscal company cleared all its term Loans to the institutions and banks thereby gaining the coveted status of debt free. It is one of the leading companies in the world processing a range of tubular goods required for the oil drilling and exploration industry. Its wide product range covers drill pipe, heavy weight drill pipe, drill collars, production tubing, casing, tool joints, couplings, pup joints, nipples, subs, and cross overs. Thus it will be one of major beneficiary of the recent budget as new tax exemptions will be granted to companies laying and operating cross country natural gas or crude or petroleum oil pipeline network for distribution on common carrier principle. This will indirectly boost the demand for pipes. On the other hand it is also quite active on the export front as nearly 50% of total revenue comes from catering to international market. Infact it is contemplating of setting up a joint venture between Golden Dunes International, Oman, & UMW Petropipes (L) Ltd, Malaysia for putting up a pipe threading facility in Oman. Although company hasn’t made the order in hand public still it can clock a turnover of more than Rs 500 cr and PAT of around Rs 75 cr which leads to an EPS of Rs 17 on equity of Rs 44.30 cr. Worth accumulating at every declines

Post dismissal performance for the Dec’08 quarter, Ratnamani Metals (65.00) is coming back on track and has reported satisfactory nos for the March’09 quarter. Its sales improved by 10% to Rs 259 cr and profit increased by 15% to Rs 15.70 cr for the quarter. Accordingly for the entire FY09, it reported nearly 15% growth in turnover to Rs 955 cr although the net profit declined by 20% to Rs 71 cr due to considerable fall in OPM from 21% to 16%. But with the fall and stabilization of metal prices, company is expected to regain its profit margin in coming quarters. Taking the benefit of recent amendments for AS11, company capitalized the exchange fluctuation loss to the tune of Rs 19 cr for FY09. It is basically engaged in manufacturing welded and seamless stainless steel (SS) pipes & tubes, carbon steel (CS) LSAW, HSAW and ERW pipes. To cater the rising demand company is adding 3,000 TPA of capacity in stainless steel tubes and pipes segment, which is to be operational shortly thereby taking the total stainless steel pipe capacity to 22,000 tonne. In carbon steel segment, it is adding 100,000 tonne of HSAW capacity through brown field expansion, which will double its HSAW capacity of 200,000 TPA and take the total carbon steel capacity to 400,000 TPA. As a part of forward integration, company has recently set up a 3 layer polyethylene and epoxy coating line with capacity of 2.7 million sq mtrs. To conclude the future prospect looks promising and scrip can be bought at current levels.

Although ICSA (155.00) reported subdued performance for March’09 quarter but still it ended FY09 on quite a buoyant note. It reported 10% fall in net profit to Rs 34 cr despite an impressive growth of 35% on total revenue to Rs 286 cr for Q4FY09. Still for entire FY09 its revenue was up by 65% to Rs 1111 and net profit increased by 35% to Rs 168 cr posting an EPS of Rs 36 Rs for the year. Company boasts of developing innovative products suitable for power utilities in the field of energy management, energy audit, control application which identifies distribution losses, and help the power utilities reduce their costs & streamline their operations. The list of its popular product includes Intelligent Automatic meter reading, Distribution transformer monitoring system, Theft detection device, Energy audit services, Pole top & Micro remote terminal unit to name a few. Of late it bagged huge orders to the tune of Rs 460 cr from Bihar and Maharashtra State Electricity Boards. More importantly, in the recent budget govt has proposed to enhance the allocation under APDRP scheme by 160% to Rs.2080 cr which will motivate the SEB’s to opt for reduction in T&D losses. Considering its growth potential, scrip is poorly discounted by the market. Keep accumulating at declines for handsome gains in long term

Tamilnadu Newsprint & Paper Ltd - Rs 75.00

Incorporated in 1979, Tamilnadu Newsprint & Paper Ltd (TNPL) was promoted by the Government of Tamil Nadu who still holds around 35% stake in the company. Inspite of being a public sector company, TNPL pioneered the concept of producing paper from Bagasse, namely sugarcane waste thereby using as little wood as possible. Today apart from being one of the lowest cost manufacturer, company boast of having the world’s largest bagasse based paper mill with a capacity of 2,45,000 TPA. It is also the largest exporter of wood free paper from India. TNPL basically manufactures printing and writing paper comprising cream wove, copier and mapiltho paper for business stationery, classical writing, computer stationery and other commercial and quality printing. It offers a range of high-quality surface sized maplitho paper to suit any kind of printing - sheet-fed or web-offset. It is the undisputed market leader for computer stationery in domestic market. Presently company’s product is supplied to over 30 countries across Asia-Pacific, Australia, Middle East, the Mediterranean and the African subcontinent with exports contributing nearly 20% of total revenue. Of late, TNPL has diversified into cement and real estate development in a very small scale.

TNPL is acknowledged as the world leader in technology for the manufacture of paper from bagasse and has the most modern paper mill in the country with unique bagasse procurement, storing, preserving, handling, processing and pulping system. It continues to enjoy its relatively lower reliance on wood because of its vision to make paper primarily from Bagasse - a sugarcane waste product, which is abundant and cheap, as compared to wood which is scarce and expensive. Ironically, due to this technology it actually avoids the chopping down of trees in about 30,000 acres of forest land every year. However it maintains a relationship of 65:35 for bagasse and wood pulp in production to ensure high quality of the paper. After the completion of the Phase – I of Mill Expansion Plan, TNPL now boast of having paper production capacity of 2,45,000 TPA. It has also increased its captive pulp production capacity from 170,000 TPA to 260,000 TPA with element chlorine free (ECF) bleaching. In order to further de-risk the exposure to volatile wood pulp prices, company has been constantly increasing the pulpwood plantation through farm forestry and captive plantation schemes. In the last fiscal i.e. FY09 company has further brought 10,571 acres under its fold thereby taking the total count to 40,291 acres. On the other hand, company is already self-sufficient in power with in-house captive power generation capacity of 86.12 MW and another 35.50 MW thru wind farm. Infact it has been supplying surplus power to State grid.

For FY09, TNPL made an all time high production of 2,54,903 tons of paper against 2,45,471 tons last year with a capacity utilization of 104%. And as usual, for the 18th year in the row company sold the entire production and achieved zero stock of finished goods as on 31st March 2009 which is a unique record in the paper industry. Recently during April’09, TNPL implemented the life cycle extension of its Paper Machine I thru a capital investment of Rs 70 cr. This has improved the runnability of the machine along with improved quality of product. Moreover, considering the robust outlook for paper industry and to maintain its future growth, TNPL is implementing the Phase – II of Mill Expansion plan which will augment the production capacity by whopping 60% to 400,000 TPA from the current 245,000 TPA. The project is expected to complete by June 2010 and involves an investment of Rs 1000 cr (increased from Rs 725 cr estimated earlier). The project has been funded mostly by debt and partially thru internal accruals. Interestingly, TNPL has entered into the carbon trading by having got its Bio-methanation plant registered as CDM project with UNFCCC and is expected to get 37,000 CER as carbon credit till 2013. Moreover it is setting up a mini cement plant with a capacity of 400 tpd for producing high grade cement using the lime sludge and fly ash – the waste material generated in the process of manufacture of paper. TNPL is also constructing an IT Park measuring an office area of 4 lakhs sq. ft. on its surplus land in suburb of Chennai. Both these projects are estimated to complete by mid 2010.
Financially as well as fundamentally company is on a strong footing, but however it has taken a significant debt on its books to finance the mill expansion plan. For FY09 company is estimated to have debt equity ratio of 1.3~1.4x times which is although not alarming. For FY10 it may pay around Rs 125 cr of interest which will eat up nearly 50% of profit thereby having a financial leverage of more than 2x times. However post commencement of the expanded capacity, cash flow will improve considerably and by FY12 its debt equity ratio may fall back to 0.80x times or so. Well, meanwhile for FY09 TNPL has recorded 17% growth in sales to Rs 1097 cr whereas net profit declined by 5% to Rs 107 cr due to substantial jump in interest cost. This translates into an EPS of Rs 15.50 on equity of Rs 69.20 cr. Company has maintained its dividend at 45% which gives an whopping yield of 6% at CMP. However, company has recognized Rs 18 cr gain on exchange fluctuation of earlier years. Moreover it hasn’t provided Rs 47 cr mark to market notional loss on forex derivative contracts but instead created a hedging reserve account. Although its an non operational item but any actual booking of loss may dent the bottomline in the coming years. But considering company’s eco friendly technology, Cash EPS of Rs 30, dividend yield of 6%, book value of nearly Rs 100 and most importantly future growth, scrip is available relatively cheap. Investors can buy at dips to get 50% return within 15 months.

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