Small & Beautiful Dt. 06.03.2008

Roto Pumps (55.00) is a reputed manufacturer of progressive cavity pumps and twin screw pumps which have very wide application in agriculture, domestic and industrial sector. Besides India, it has warehouse cum marketing office in Australia and U.K. and also good network of distributors spread across the globe. On the back of strong industrial growth and robust demand for its product, company has undertaken an expansion cum modernization plan at its manufacturing facilities. It recorded 20% growth in sales to Rs 28 cr and 40% rise in net profit to Rs 2 cr for nine months ending Dec’07. Accordingly it may register a topline of Rs 40 cr and bottom-line of Rs 3 cr for fiscal year 2008. This translates into EPS of Rs 10 on a tiny equity of Rs 3.09 cr. Moreover for FY09, company has the potential to post an EPS of more than Rs 12. At the current enterprise value of Rs 23 cr, scrip is trading fairly cheap.

Blue Bird (40.00) is one of the leading manufacturers of paper based notebook products and office stationery products like executive notepads, diaries, arch-lever files, 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, 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. For FY08 it is expected to register sales of Rs 485 cr and PAT of Rs 28 cr i.e. EPS of Rs 8 on equity of Rs 35 cr.

Asian Granito (55.00) is one of the largest producers of vitrified tiles in India under the brand name “Asian Tiles” offering a wide range including glazed, unglazed, rustic, matte, homogenous and non-homogeneous body, water jet cutting and tailor made designs as per clients requirement. In July 2007, company raised around Rs 68 cr thru IPO @ Rs 97 per share for setting up a wall tile unit and expanding its vetrified tile capacity. Accordingly, it has recently expanded its vitrified tile capacity to 16,000 sq mtr from 14,000 sq mtr tiles per day. Importantly, company has even started the trial run in Jan’08 at its new wall tile plant having a capacity of 9300 sq mtr per day. On the other hand its wholly owned subsidiary Asian Tile Ltd is into the business of manufacturing ceramic floor tiles with a capacity of 7,000 sq mt per day. Financially, it is expected to clock a turnover of Rs 200 cr and net profit of Rs 26 cr i.e. EPS of Rs 12 for FY08. For FY09 it is estimated to post 15 Rs EPS. Considering its brand value and future prospects, it is available fairly cheap at an EV of Rs 175 cr.

PBA Infrastructure (74.00) 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 the first three quarters its revenue increased by 45% to Rs 270 cr and NP increased by only 20% to 11.50 cr. Notably, company has been regularly bagging new orders and its current order book position is around 700 cr. Fundamentally, company is having a huge debt of 170 cr due to which its interest cost is very high. However, to fund its working capital requirement and reduce the high cost debt, company has finalized to make pref allotment of 30 lac warrants to promoter and promoter group. Meanwhile it is estimated to clock a turnover of Rs 375 cr and PAT of Rs 13.50 cr for FY08. This translates into EPS of Rs 10 on current equity of Rs 13.50 cr. Although share price can fall further, still its good to start accumulating from current levels.

Paramount Cables Infratech Ltd - 33.00 Rs

Incorporated in 1978, Paramount Cables Infratech Ltd (PCIL) erstwhile Paramount Communication Ltd, is the only Indian cable company to offer comprehensive range of specialized cables & wires needed by all sectors of the economy viz. power and electricity, thermal and nuclear power plants, space research, railways, telecom, IT, oil and gas, petrochemicals, steel, electronics & various other industries. Based on the product type, company has classified its business operation into three categories.

A. Power Cables: PCIL manufactures the entire range of cables for power sector including high tension & low tension power cables, Aerial bunch cables, control cables, instrumentation cables & thermocouple cables. Company derives nearly 55% revenue from this segment and is well positioned to take maximum advantage of the boom in the power sector because of its long-standing and prestigious track record with major players in the industry including NTPC, BHEL, Areva, L&T, various Electricity Boards, Power Grid, Reliance Energy, ECC, ABB. Alstom, Siemens amongst many others

B. Railway Cables: Ironically, Paramount is the single largest supplier of underground quad axle counter cables and underground signaling cables to the Indian Railways. It even supplies specialized instrumentation cable for underground and elevated Metro projects. Notably, more than 30% of total revenue comes from Railway alone.

C. Telecom Cables : With 15% revenue share, this segment offers a single point source for a wide range of high quality telecommunication cables which covers optical fibre cables, jelly filled cables, aerial telecom cables, buried service wires, installation cables, co-axial cables, computer cables etc.PCIL has two state-of-the-art manufacturing facilities at Dharuhera, Haryana and Khushkhera, Rajasthan. These plants are equipped with unique swing facility which enables it to shift from one type of cable manufacturing to other type depending upon the demand, thereby de-risking the business and increasing the capacity utilization. Last fiscal, company commissioned 1,500 km HT power cable capacity at its Dharuhera plant and increased the LT power cable capacity to 25,000 km. This year it has set up additional capacity of 30,000 km of LT and 2,000 km of HT power cables at the Khushkhera plant thereby taking the present installed capacity to 55,000 km of LT and 3500 km of HT power cables. On the back of robust demand company is further augmenting its capacity of LT by 35,000 km and HT by 2500 km. For this it has already commenced land development and civil construction on 25 acres of land just opposite to its existing plant. Post completion of this expansion which is expected to complete within this calendar year, PCIL will boast of having a capacity of 90,000 km for LT and 6,000 km for HT.More importantly, in Sept 2007, PCIL acquired UK based AEI Cables which is one of the oldest and internationally most reputed brands in the world, with numerous customer approvals and technological strengths. With a turnover of more than Rs 500 cr AEI claims a market share of 10-15% in UK and currently operates at 60-70% capacity level at its plant in Birtley, North East of England. Interestingly, this Rs 105 cr acquisition was substantially funded thru borrowings against the AEI Cables assets with PCIL actually infusing only Rs 25 cr. However AEI has made loss at PAT level for the first half of FY08, which PCIL is planning to turnaround by end of current fiscal.In order to fund its expansion plans, PCIL had raised more than Rs 65 cr in April 2006 thru GDR route @ Rs 40 per share. Subsequently in Nov 2006, it raised another Rs 120 cr thru FCCB, to be converted @ Rs 53 per share. Now it is planning to make preferential allotment of 91 lac warrants to promoters and promoter group which is expected to be made around Rs 35. To conclude, with huge investment in power sector, railway expansion plan and rapid growth in telecom sector, the cable industry in general and PCIL in particular is on exponential growth. Fundamentally, company reported stellar performance for FY07. However for FY08 it is estimated to report sales of Rs 450 cr and profit of Rs 35 cr on standalone basis. This works out to an EPS of more than Rs 3 on diluted equity (post conversion of all FCCB @ Rs 53) of Rs 21.50 cr with face value as Rs 2/-. On consolidated basis, the key trigger will be the turnaround of AEI cables. Once this UK subsidiary start reporting reasonable net profit, the share price of PCIL will shoot up substantially. Hence investors are recommended to keep accumulating the scrip at declines for a price target of Rs 50 (i.e. 50% return) in 12~15 months.

Greaves Cotton Ltd (GCL)

Established in 1859, Greaves Cotton Ltd (GCL) - part of B M Thapar group and well known as Greaves Ltd is one of India’s leading and well-diversified engineering companies. It manufactures a wide range of industrial products to meet the requirement of core sectors in India and abroad. GCL’s core competencies are production of diesel/petrol engines, gensets, agro equipment and construction equipment. Besides, it is also engaged in marketing high technology systems for marine, aviation and electronic applications. The business operations of the company are divided into four business groups strategically structured to ensure maximum focus on each business area and yet retain a unique synergy in the operations.

I. Engines - Power Generation Group (15%): This business group manufactures diesel engine (10 - 1000 HP) primarily for generating sets in the 15-550 KVA range, in both air-cooled and water-cooled versions and enjoys 15% market share in the domestic market. These engines also finds applications in barges, pilot launches, compressors, construction equipment, cranes, forklifts and various defense applications. Notably, GCL even manufactures dual fuel engines / gensets (30 KVA to 400 KVA) and gas engines / gensets (25 KVA to 300 KVA) operating on natural gas, bio-gas and producer gas.

II. Engines - Agro Equipment Group (10%): Under this group GCL manufactures light-weight, fuel-efficient, 2/4-stroke engines in 1 - 4HP range which are either marketed as complete pumpsets for the agricultural sector or as bare engines for multiple applications like water pumps, sprayers, construction equipments, allied agricultural machineries and more. With its plant in Chennai, this division boasts of making different types of petrol/kerosene run portable engines, sprayer engines, power tillers, portable gensets etc.

III. Engines – Automotive Group (55%): Engines including CNG/LPG variants manufactured by this division are for automotive, marine and industrial applications, with majority revenues accruing from the light-weight diesel engines used in 3-wheelers. Incidentally, GCL has been the sole supplier to Piaggio for more than a decade. To tap the emerging 4-wheeler SCV segment, company has indigenously developed the new generation twin cylinder engine with a suitable gearbox which has huge potential in coming years.

IV. Infrastructure Equipment Group (20%): GCL manufactures a wide range of products in both the road making & concreting equipment segments such as vibratory soil compactors, heavy/light tandem rollers, transit mixers, concrete pumps, batching plants. Secondly, company markets the entire range of CIFA and BOMAG tunneling equipments, which include shotcrete pumps, spritz system, tunnel forms, sprizzo, moulds, tampers, plate compactors, pneumatic tyre rollers, recyclers & refuge compactors amongst many other machines. It also deals in tunnel boring machine, roadheader, backhoes, stage loaders, lump breakers, conveyors, roof bolters, locomotives for mining, tunnelling and surface transport of famous international brands like Dosco, Clayton, WAM, SIM etcPresently, GCL has six manufacturing plants spread across Aurangabad & Pune in Maharashtra and Chennai, Ranipet & Gummidipoondi in Tamilnadu. In view of anticipated higher demand, company has last year set up an additional manufacturing facility for concrete mixers at its existing location in Gummidipoondi. Moreover, few weeks back it inaugurated its technology centre and a new diesel engine plant at Chinchwad, Pune equipped with the state-of-the-art facilities to manufacture new generation water-cooled multi cylinder medium HP diesel engines for one-ton four wheelers, gensets and industrial applications. As a part of company’s long term strategy to position itself in the global market, GCL last year acquired, Bukh Farymann Diesel GmbH (renamed as Greaves Farymann Diesel GmbH) which is engaged in the manufacture and marketing of single cylinder diesel engines and parts for Rs 25 cr.On the flip side, Piaggio – the largest client representing nearly 30% of GCL’s total revenue is planning to set up its own engine production facility, which is expected to be operational in 2010. However, the likely impact on this is expected to be more than offset by a combination of various initiatives being taken by the GCL, such as diversifying the application range of engines, focusing on global business opportunities by leveraging of 'Farymann' brand, introduction of newly developed twin cylinder engines and tying up new OEMs for SCV application. Moreover on the contrary, couple of weeks back Piaggio Group's Indian subsidiary signed a 8 year agreement with the company for purchase of mono-cylinder diesel engines for application on the three-wheeled vehicles manufactured by them. This implies that GCL will continue to be a single source supplier of such mono-cylinder diesel engines to Piaggio.On the other hand, its strong service and distribution network has helped GCL counter competition from China. To maintain its future growth company is putting special thrust on greater penetration in rural sector and targeting overseas markets for pump sets. In short, with ambitious plans to capitalize on the opportunities across the industrial, automotive and infrastructure sectors, GCL is set to boost its brand equity in the market. Although it ended FY07 on quite a robust note but for FY08 ending June 2008 it is estimated to clock a turnover of Rs 1400 cr and PAT of Rs 115 cr. This translates into EPS of Rs 24 on current equity of Rs 48.80 cr. At a fair discounting by 16x~18x times, scrip has the potential to touch Rs 380 ~ 430 within 12~15 months. Hence investors are advised to accumulate at sharp declines.

STOCK WATCH 29.03.2008

Lok Housing & construction (210.00) is having a land bank of whopping 1222 acres across Mumbai, Pune and Bangalore with development potential of 62.5 million sq ft. Most of the land has been acquired long back at very low cost and are located at Ambernath(80 acres), Kalyan(92 acres), Vasai(136 acre), Turbhe(180 acre), Pune(425 acres), Bangalore(240 acres) and balance 69 acre spread across Andheri, Malad, Khar, Thane & Virar in Mumbai. With the recent merger of Lok Shelter, company is now involved into lucrative business of urban rehabilitation and reconstruction projects as well. Hence, it has already submitted a proposal to the state government to rehabilitate tenants of about 300 unsafe cessed buildings in Mumbai and simultaneously develop 6 million sq ft in the heart of the city in association with MHADA. At the same time it has several residential townships under construction at Mulund, AMbernath, Khar, Virar, Thane, Kalyan, Marol etc. Importantly, it has finalized to make pref allotment of 50 lac warrants @ Rs 354 to promoters. Keep accumulating at declines.
Yuken India (190.00) is one of the reputed manufacturers of power saving hydraulic pumps & valves which are very popular in heavy engineering industry as effective means of automation and hence find extensive use in various key sectors like machine tools, material handling equipment, construction machinery, drill rigs, automobiles, defence, steel, power & cement plants, plastic machinery etc. Besides it also manufactures complete hydraulic power units as per customer specifications, cylinders, parison controllers, actuators, accumulators and power packs. Due to phenomenal demand, company has recently doubled its hydraulic casting products capacity to 2400 TPA and is further augmenting it to 6000 TPA within next 2~3 years. Besides it made a tie up with Hydrocontrols SPA Italy to produce and market state-of-the-art mobile control valves especially for agriculture, construction, earth moving and lifting machineries. For FY08 it is estimated to clock a turnover of Rs 100 cr and PAT of Rs 5.50 cr which translates into EPS of Rs Rs 18 on very tiny equity of Rs 3 cr. For FY09, EPS is estimated to shoot up to around Rs 25. It’s a screaming buy as scrip as corrected 50% from its recent high of Rs 400.
3i Infotech (125.00) is the fourth largest Indian software products company offering a comprehensive range of software products & solutions primarily for banking, insurance, capital markets, mutual funds, telecom, manufacturing, retail & distribution industries. It provides complete end-to-end outsourcing solutions to various industries mainly in the domestic market and specializes in non-voice based BPO services. It is also recognized as one of the major national players in the e- Governance consultancy space in India. Importantly, company derives revenues from products and services in a 1:1 ratio which differentiates it from other IT companies. In order to beat the competition and grow at a rapid pace, company is betting high on inorganic route and has adopted an acquisition-led strategy to acquire new capabilities and foray into new geographies in the BFSI space. With net dollar inflow of less than 10%, company is hardly affected by the rupee appreciation. On the back of excellent performance till now and considering the strong order book position, it is expected to report total revenue of Rs 1200 cr and net profit of Rs 175 cr on consolidated basis. This works out to an EPS of Rs 10 on fully diluted equity of Rs 175 cr. A good contrarian bet.
Aurobindo Pharma (310.00) is among India’s top five pharmaceutical companies with operation in over 100 countries and marketing over 180 APIs and 250 formulations. Infact it is one of the largest players in Semi Synthetic Penicillin and Cephalosporin space and is backward integrated into manufacturing key raw material P-Gen. Presently company derives nearly 70% of the revenue from the sale of APIs and intermediates while about 30% comes from formulations. Interestingly, it is one of the largest DMF filer with the US FDA from India with 114 DMFs filed to date. Besides it has filed 100 ANDAs in US and 40 ANDAs in Europe, out of which 62 approvals (both final and tentative) have been received from US and only 7 approvals from Europe. In order to increase its foot hold in Europe, company earlier acquired Pharmacin in Netherlands with a portfolio of 203 market authorizations; and Milpharm in UK having 100 market authorizations. For future, company is planning to invest around Rs 200 cr in SEZ at Jedcherla near Hyderabad, and Rs 160 cr in Pharma city near Visakhapatnam. To fund its growth plan APL has raised nearly Rs 900 cr thru FCCB route to be converted into equity shares @ Rs 1014 and Rs 879 in tranches. On a standalone basis it is expected to register a topline and bottomline of Rs 2200 cr and Rs 280 cr for FY08 i.e. EPS of Rs 52 on current equity of 26.90 cr and Rs 40 on estimated diluted equity of Rs 35 cr (assuming FCCB conversion @ Rs 550). A good bet in pharma space.

Small & Beautiful 27.03.2008

Avantel Softtech (67.00) designs and manufacturers repeaters, filters, splitters, tappers, combiners, couplers & amplifiers to enhance the capacity and coverage of wireless communication networks for use in GSM, CDMA and 3G networks. Interestingly, it has developed customized solutions for INSAT based mobile satellite services with advance microwave, digital wireless communication and signal processing products for defence and commercial market. Hence it offers mobile satellite services for messaging, tracking and all locations based services with appropriate network security. Using this same technology it provides specialized products like Ship borne terminal, handheld terminal, S-band receiver, UHF transmitter, burst demodulator etc which are one of its kind. It has also signed a Transfer of Technology (TOT) agreement with ISRO for supply of hubs and satellite interactive terminals for EduSat networks. Thru its govt recognized R&D division, company has developed a number of products for defence sector by ensuring compliance of stringent defence standards. Being Q4 the best quarter for company traditionally, it may end FY08 with sales of Rs 35 cr and profit of Rs 5 cr i.e. EPS of Rs 10 on equity of Rs 5.15 cr.

La Opala (31.00) is among the very few well-established domestic crockery brand in the country with a range of 100 products including dinner sets, tea sets, coffee sets, soup bowls & spoons, mugs, plates, casseroles, flower vases and other table wares. Infact, it is the market leader with 50% market share in opal ware and 20% market share for crystal ware. It is having good distribution network with approx 50 distributors & 9300 dealers. Apart from having pan India presence company is also exporting to 30 countries across the globe including US, UK, Spain, Belgium, France, Germany, Japan, Dubai etc. In order to meet the growing demand and increase its market share company has recently set up a new fuel efficient unit of opal ware at tax free zone of Uttrankhand with a capacity of 4,000 MTPA at a cost of Rs. 35 cr. Hence company has more than doubled its opal ware capacity to 7500 MT from 3500 earlier. However, although company has started trial production in Sept 2007, but due to synchronization problem, this new plant is yet to operate its full fledge production. Hence FY08 will not be a great year but for FY09 it is estimated to clock sales of 75 cr and PAT of Rs 7.50 cr i.e. EPS of Rs 7 on current equity of 10.60 cr. A risk free bet.

KEI Industries (80.00), the second largest power cable company in India is engaged in manufacturing of high and low tension cables (HT and LT), control and instrumentation cables, house wires and stainless steel wires. In near future it plans to manufacture Extra High Tension cables which will serve the modern power transmission segment. It is also contemplating to move up the value chain from manufacturing and supplying cables to executing EPC contracts and manufacturing and supplying transformers. Last week company started commercial production at its new 100% EOU unit in Alwar-Rajasthan for manufacturing of HT and LT power cables. Hence it has increased its capacity by 10,000 Kms thereby taking the total cable manufacturing capacity to 50,000 kms per annum. Company has already registered excellent performance for the first three quarters and may clock a turnover of Rs 900 cr and PAT of Rs 52~55 cr for FY08. This translates into EPS of Rs 7 on fully diluted equity (post conversion of all FCCB) of around Rs 15.75 cr. But considering company’s recent expansion and future growth plans it is estimated to report an EPS of more than Rs 10 for FY09. Scrip can appreciate 50% in 12~15 months.

Shanthi Gears (70.00) is engaged in the manufacture of gears, gearboxes, geared motors and gear assemblies both standard and custom-made. Its product portfolio includes a range of worm gear boxes, helical & bevel gear box, geared motor, custom built gear box, mill gear box, open gearing, CNC machine tools and products for the textile industry. It also manufactures high precision gears for marine and aviation industries. It has recorded 25% growth in sales to Rs 176 cr and 30% rise in net profit to Rs 32 cr for nine months ending Dec 2007. Notably, company makes gearboxes of 250 KV for windmills and is looking for technical collaboration to manufacture higher capacity gears for windmills. On the back of strong industrial and economic growth company is sitting on a strong order book of more than Rs 100 cr currently. For FY08 it can clock a turnover of Rs 250 cr and profit of Rs 45 cr which leads to an EPS of Rs 5.25 on fully diluted equity of Rs 8.60 cr with a face value of Rs 1/- per share. Moreover for FY09 it has the potential to register an EPS of Rs 6.50 which means scrip is trading fairly cheap at P/E ratio of 10x times. Besides, company is having around 18 acres of surplus land in prime location of Coimbatore which can fetch handsome value once sold.

Spanco Telesystems and Solutions Ltd.

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.

Selan Exploration Technology Ltd.

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.