Buy Riddhi Siddhi Gluco Biols Ltd

Riddhi Siddhi Gluco Biols Ltd (RSGB) is the largest manufacturer of starch, liquid glucose, dextrose monohydrate and other derivatives, high maltose corn syrup and byproducts like corn gluten meal and enriched fibre, which are used in various applications such as chocolates, processed foods, glass and medicines, paper, glucose and textiles.

RSGB controls about 17 per cent of the total starch market. With the current expansion in place the market share is expected to increase around 25% by FY09. Currently exports constitutes around 10% of it's revenue and the company is projecting exports to increase 25% of it's revenue by FY10.

RSGB major revenue comes from clients like Nestle, HUL, Ranbaxy, Ballarpur, ITC, Grasim, Indian Rayon and Godrej.

At the current market Rs. 237/- the stock trades at around 10 times it's trailing 12 month diluted EPS of 24. Investor with medium to high risk profile can consider investment into this stock with a horizon of 20 to 24 months. We expect the stock to do EPS of around 38 in FY09E. Based on our FY09E the stock has a target of around Rs. 440/-

Positive on

1) The company recently added 500 tpa of starch capacity which is expected to be reflected in FY09 earnings.

2) Roquette which has around 14.95 per stake in RSGB and is also the world 5th largest starch manufacturer. Roquette will help RSGB add more value added products in its portfolio by way of providing technology and knowhow. The new products will be for nutrition, biotech and health and dextrose for sugar free goods.

3) The new value added product will help RSGB realize better margins.

Risks

1) Increase in Raw Corn Prices. Corn prices are in Increase due to US policy on using corn as alternate fuel.

2) There has been under utilization in the first two quarters of FY07 due to fire in one of it's plant. The company seems to be back in business after 5 months of severe disruption.

Orchid Chemicals - A Value Buy

Orchid is a globally recognized, integrated pharmaceutical company with core competencies in the development and manufacture of Active Pharmaceutical Ingredients (APIs) and Finished Dosage Forms as well as in drug discovery.

Orchid product range for the US market comprises 21 antibiotics and 20 non-antibiotic dosage forms, many of which are also aimed at European as well as other regulated and emerging markets.

Currently regulated markets like US, Europe and Japan contributes to around 77% revenue, while the less regulated market like Hongkong, China, India etc contributes to around 23%.

At the current market price of Rs. 222/- the stock trades at around 13 times it's 12 month diluted EPS of 17.08. Last two quarters the company saw a good spurt in their Operating Margin. The EBITDA margin improved significantly to around 35% during the quarter. This was made possible due to their new product Cefixime and Cefdinir. We expect the company to do EPS of around 21 in FY08. Based on it's FY08E EPS, Orchid has a target of around Rs. 340/- with a horizon of 12 to 15 months.

Betting On

In the antibiotics space Orchid expect to launch new products in the cephalosporins, betalactams and carbapenem spaces between 2007 and 2010 in US, EU and Japan. In the non-antibiotic space, Orchid is developing a robust pipeline of over 80 products covering diverse therapeutic segments.

Orchid is done with it's investment phase and hereon the investment is expected to get translated into revenues. Orchid has invested in and completed projects for expansion and diversification in the cephalosporin, betalactam and non-penicillin, non-cephalosporin (NPNC) or lifestyle drug spaces. Cephalosporin projects have already been translated into revenues; betalactam, carbapenem and NPNC projects will translate into revenues in this fiscal and beyond.

Orchid has also entered into the CRAMS (Custom Research and Manufacture Segment) with two agreements under execution

1) With Pfizer Inc. for animal healthcare products
2) With Biovitrum AB to undertake medicinal chemistry

Fundamentals

1) Cephalosporin and betalactam dosage form facilities would start generating remunerative generic business in Europe from the second half of 2007-08.

2) The Company intends to establish a marketing presence in Japan, the second largest pharmaceutical market in the world (estimated at around US$ 60 billion).

3) Entered into marketing alliances for antibiotics as well as non-antibiotics dosage forms with major pharmaceutical players in the US and Europe, strengthening its regulated market position.

Risks

1) Orchid further dilution of Equity can reduce the Earnings visibility.

2) Rupee appreciation against the dollar can impact the Operating Margins.

3) Cost control and taxes imposed by government can reduce the profitability of the firm.

Buy Alok Industries - A hidden gem in Textile Arena

Alok Industries Operates in a diversified business portfolio ranging from Home Textiles, Retail (Home and Apparels), Garments, Spinning, Yarn and Apparel Fabrics.

Alok revenue mix comes from Home textiles (18%), Textursing (26%), Apparel Fabrics (49%), Garment (2%) and Cotton Spinning(5%).

Currently Exports account for 35% of the total revenue. Out of which exports to US account for 53% and Asia 24%.

At the current market price of Rs. 66/- the stocks trades at around 6 times it's trailing 12 month EPS. Investor with a Low to medium risk profile can consider investment into this stock with a horizon of 18-24 months. Since the company has major additions coming up across it's businesses, it is too early to set a target price for the stock. The company seems to me a multibagger in the making.

Inspite of the rupee appreciation the company current quarter Operating margin were flat at 26.35%. This was made possible due to the mix of it's high margin business and diversified geographical portfolio. The Net profit margin were not impressive but it is expected to increase with the current expansion in place.

Alok's current significant customer base include Walmart, Kohls, Bed Bath and Beyond, GAP, CK, Ambercrombie & Fitch and others.

Expansion Details

1) Alok is scaling up it's Home Textile capacity from 60 to 82.5 million meters p.a. This is expected to get completed by end of FY2008.

2) Alok is adding a Terry towel manufacturing unit of 6,700 TPA and expected to commence operation by end of FY2008

3) Alok is currently increasing it's garments capacity from 8 to 15 million pieces p.a by FY08. The company is expected to get better realization on garments as 80% of it's garment is exported to EU territories.

4) Expansion of it's Texturising capacity from 75,500 TPA to 118,000 TPA is on the way and is expected to add in FY09 revenues.

The company has further expansions to it's plate which will be effective FY09. The details of these expansions are not covered in the current analysis.

Positives

1) The company subsidiary is planing to add around 100 stores as part of it's retail wing (H&A) by end of March' 2008. Currently it operates around 14 stores in major metros.

2) Alok has entered in to a agreement with "Aisle 5 LLC", under which it will manufacture and distribute home decor, bath, sleeping and dining home products in US and Canadian Market.

3) Acquisition of 60% stake in Mileta, a czech company to add to revenues.

4) Alok has signed a trademark license with peacock alley to market it's home linen products in the domestic market.

Risks

1) High Debt/Equity ratio.

2) Frequent increase in equity base which inturn has dampened the Earnings Per Share

3) Further rupee appreciation can impact profit margins of the company.