Stocks that can double from current level

Hitachi Home & Life Solutions (India)

Hitachi Home & Life Solutions (India) Ltd., a subsidiary of Hitachi Home & Life Solutions, Inc., Japan, is headquartered in Ahmedabad, Gujarat, the company's manufacturing facility at Kadi is among the seven Hitachi room air conditioner facilities worldwide. The Indian plant also exports Hitachi room air conditioners to the SAARC, Middle East and other tropical countries in addition to catering to the Indian market.

It has a nationwide sales, distribution and service network. It has 14 Branches, 250 Sales and Service Dealers, more than 800 Showroom Dealers and 350 Service Points. Hitachi currently has a market share of around 45% in the Indian split AC segment market. Apart from air conditioners the company also sells Chillers, Refrigerators and Washing machines in the Indian market. The Refrigerators and Washing machines are imported and were introduced during the financial year 2005-06. These products are well received and expected to have a annual growth of 35%.

At the current market price of Rs. 110/- the stock trades at around 6.4 times it's trailing 12 month EPS of 17. With new product range and Increasing domestic and Infrastructure spending we expect the demand for Hitachi products to continue and expect the company to clock a annual turnover growth of 30 to 35% for the next two years. Investor with medium risk profile can enter into this stock with a target of Rs. 195/- over the next 12 to 18 months.

Ramsarup Industries

Ramsarup Industries manufactures low relation precast steel wires, galvanized wires and TMT bars. The company caters mainly to power and Infrastructure. Power transmission sector accounts for around 40% of ramsarup revenues and the rest from construction and infrastructure.

At the current market price of Rs. 143.65/- the stocks trades at less than 5 times it's expected FY08E earnings. With repeat orders from the existing client tele and the expected capacity expansion in place we expect the revenues to grow at an annual rate of 35 to 40%. We recommend the stock to investors with medium risk appetite and a possible target of Rs. 295/- with a horizon of 18 to 24 months.

Orchid Chemicals - A Retrospective Analysis

Lot of mails and speculation has been offlate floating around Orchid Chemicals. The stock had its market cap wiping off by half in just two trading sessions.

Orchid had topped our recommendation List for quiet sometime now. We initiated a Buy at Rs. 222/- last year, after which it hit a high of Rs. 328/- almost near our recommendation target and then it has all the way crashed to current market price of Rs. 116/-. Let us take a retrospective analysis of what happened and what looks ahead of Orchid Chemical.

Most of you by this time know the reason for the steep fall, Bear Stearns which was acquired by JP Morgan offloaded its stake in Orchid Chemical to ease its liquidity crunch. Sudden liquidity in this stock was even more aggravated when the margin call on a particular portion of promoters stock got triggered of selling another 7.9% stake in the firm.

Question remains

1) Is it legal to increase the stake through borrowed funds on margin?

We do not see anything wrong in that. Looking at the brighter part the promoters had faith in growth of the firm and so increased stake in the company through the route of borrowing money.

2) What is the future of the company?

The company is fundamentally strong and will remain so with lot of USFDA filing waiting for approval. Secondly many of major drugs going off-patented in the years to come is expected to benefit Orchid.

3) What to look ahead and when is the recovery possible?

We need to watch for the upcoming shareholding pattern for more information and also the current quarter results. We need to look at share holding pattern to see if any other institution had sold its stake. If so the liquidity floating the market can make it a speculators den.

Let us just understand that this is a huge personal loss for the promoter K Raghavendra Roa and going by the success story of Orchid he is not a guy who will get visibly rattled. Yeah true it will take him sometime to recover out of this loss. K Raghavendra Roa has scripted the success story of Orchid Chemical for almost 14 years now and let us hope he will continue to do so.

At the current market price the stock is available at less than 6 times its FY08E fully diluted EPS of 22. Also Orchid market cap is around 0.56 times it expected FY08 sales.

Orchid Chemicals also has unutilised foreign currency convertible bonds (FCCBs) amounting to US$193mn. With the stipulated conversion price for these FCCBs now at a significant premium to the current stock price, it is highly unlikely that the holders will exercise the option. This may leave Orchid with a significant loan obligation to be serviced in 2012.

KEI Industries - Growing with Economy

KEI is one of the leading cables manufacturers in India offering a comprehensive range of power cables and housing wires. KEI Manufactures variety of cables namely High Tension (HT) and Low tension (LT) power cables, Control and Instrumentation Cables, other specialty cables, rubber insulated power, control & instrumentation cables. KEI cables are used in a wide variety of industrial sectors, including power and transmission, refining and petrochemicals, oil and gas, cement, metals, telecommunication and fertilizer. KEI also manufactures and sell wide range of steel wires, which have various applications such as manufacturing of springs and fastenings.

The firm has four manufacturing plants in New Delhi, Bhiwadi in Rajasthan and Silvassa along with eight marketing offices across India and one marketing office in Dubai.

With huge capex in the power and infrastructure capacity by the end of twelveth planing commission the order book of domestic cables and wires demand is expected to remain strong. Opportunities for the cabling sector are also ripe in Africa, West Asia and the Gulf region which are poised to make significant investments in the power sector.

Expansion Plans

1) The company HT cables upgradation and LT cables expansion at Bhiwadi is in the final phase of construction and is expected to be operational by April 2008.
2) KEI new manufacturing facility at Chaupanki commenced commercial production in January 2008. The HT cable unit of the Chaupanki facility is in the final phase of construction and is expected to be commissioned by May 2008.
3) KEI is in the process of performing feasibility study to manufacture cables of 132 KV and 220 KV from the existing upto 66 KV. The company has also acquired land for the same.
4) KEI expansion in housewire segment is complete to 2,50,000 kms of capacity. The company revenue during the coming year is expected to increase exponentially.

KEI is in the process of massive brand building and visibility exercise to make “KEI” a household name. This along with the enhanced capacity in the house wire segment is expected to Increase KEI topline significantly.

Positives

1) Strong order demand from middle east, Africa and domestic companies.
2) Increased marketing presence in europe and south africa.
3) Strong business demand and low supply risk.

Risks

1) Increase in raw material prices.
2) Higher interest expense due to ongoing capital work in progress to impact the bottomline.
3) Further equity dilution can reduce shareholders return.

At the current market price of Rs. 63/- the stocks trades at less than 12 times it's fully diluted FY08E EPS of 5.6. We expect the commodity prices to cool down during FY09 with a possible US recession. This together with the full expansion in place is expected to fuel in KEI's bottomline and topline growth. Based on it's FY09E the stock trades at less than 7 times it's expected EPS of 10. Investor with medium risk profile can consider investment into this stock with a horizon of 24 months and a target of Rs. 120/-.

Alembic Limited - Contrarian View

Alembic is a vertically integrated pharmaceutical company with over 100 years of presence in the domestic and international market (Russia, Africa and South East Asia). Alembic USFDA approved facility is involved in the research, development, manufacturing and to effectively market pharmaceutical products and services.Offlate Alembic is focusing on tapping the rapidly expanding generics markets in US and Europe. Global sales currently contribute approximately 20% of Alembic's revenues.

On the international front, Alembic recently entered into a licensing agreement with the Brussels-based UCB for its Novel Drug Delivery Platform for Keppra(Levetiracetam Extended Release Tablets). Under the terms of the agreement, Alembic will receive milestone payments of $11 million and royalty on future worldwide net sales of Keppra.

On the Domestic front, Alembic consolidated its leadership in the acute therapies. Rekool, Roxid, Azithral and Cepime all 4 brands retained or gained the No.1 brand rank amongst their category.

Xceft (Ceftiofur Sodium), part of the Alembic's Veterinary Division achieved the No. 1 position in its category.

Alembic made a foray into the hi-growth lifestyle therapeutic segments of Cardiovascular, Diabetic, Gastrointestinal and Gynaecology by acquiring Dabur Pharma's non-oncology domestic formulations business comprising of 24 brands which are active in the market. This provides Alembic an entry in new segments and reduce dependency on anti-infectives.

The company offlate is focusing on development of non-infringing processes for high value Active Pharmaceutical Ingredients (APIs) with a clear aim to gain a firm foothold in the international generics segment in the developed markets. Alembic filed Six US DMFs last year taking the cumulative figure to 14.

At the current market price of Rs. 45/- the stocks trades at less than 6 times it's trailing 12 month EPS of 8.35. We expect the API segment and Dabur Acquisition to be the key driver going forward and add to it's topline along with the domestic formulation which is expected to grow at 10% y-o-y. Investor with a medium to high risk profile can consider investment into this stock with a horizon of 18 to 24 months. Alembic valuation at the current price seems to be attractive in comparison to it's peers with a marketcap well below it's trailing 12 month sales. Alembic stays top on our multibagger list with a possibility of the stock doubling from the current levels over the next 18 months.

Positives

1) Opening up of health insurance sector and expected growth in per-capita income are key growth drivers from a domestic sales perspective.
2) Large number of drugs is going off-patent in Europe and US between 2005 and 2009. This offers a big opportunity for the Indian companies to capture this market.

Threats

1) Threats from other low cost countries like China and Israel exist.
2) High Crude Oil prices. This would affect bulk drug units due to increase in prices of solvents and energy cost.

Budget and Sector outlook

Automobile

Budget Highlights

* Reduction in excise duties from 16% to 12% on manufacturing of 2&3 wheelers and small cars
- Excise duty reductions will help lower prices and stimulate demand for 2&3 wheelers and small cars

* Reduce in excise duty on buses and their chassis from 16 per cent to 12 per cent
- Excise duty reductions will help lower prices and stimulate demand for buses
- Increased demand for new buses from STUs (State Transport Undertakings) as well as private players

* Agricultural credit outlay increased to Rs 2,80,000 crore
- Higher agricultural credit outlay will help boost demand for tractors

* 10% increase in defence sector allocation to Rs 1,05,600 crore
- Higher defence allocation will spur investment in new vehicles

* Higher allocation towards road development programme such as the NHDP.
- Increased thrust on road infrastructure is a positive for all the automobile manufacturers especially passenger vehicles and CVs

Major stocks:
Ashok Leyland
Bajaj Auto Ltd.
Tata Motors
Maruti
Mahindra and Mahindra

Hospitality Sector

Budget Highlights

* An amount of Rs 624 crore to be allocated for the Commonwealth Games.
- This would help bring in additional supply of rooms in the North India region

* Five year holiday from income tax is granted to two, three or four star hotels established in specified districts having UNESCO-declared 'World Heritage Sites'. The hotel should be constructed and start functioning during the period April 1, 2008 to March 31, 2013.
- This will help promote tourism in the country.

Major stocks:
Indian Hotels Company Ltd
Hotel Leela Venture Ltd
EIH Associated Hotels Ltd
ITC Hotels Ltd

Among other sectors, healthcare did receive some mention. Allocation towards healthcare spending has been increased by 15% for FY09. Apart from increased outlay for the National Aids Control Programme and eradication of polio, customs duty was also reduced on specified life saving drugs and on bulk drugs used for their manufacture.

Budget 2008 Highlights

Banking cash transaction tax withdrawn from April 1, 2009.

Commodities Transaction Tax to be introduced on the lines of Securities Transaction Tax.

Five year tax holiday for promoting cultural tourism.

Five year tax holiday for setting up hospitals in tier II and tier III regions for providing healthcare in rural areas from April 1, 2008.

For women, the income tax limit goes up from Rs 1.45 lakh to Rs 1.80 lakh. In case of senior women citizens, it increases from Rs 1.95 lakh to Rs 2.25 lakh.

Securities Transaction Tax is a deductible expenditure from now on

New tax slabs will be: 10 per cent for Rs 1,50,000 to Rs 3,00,000, 20 per cent for Rs 3,00,000 to Rs 5,00,000 and 30 per cent above Rs 5,00,000.

Short term capital gains tax increased to 15%

Changes in IT slab. Threshold of exemption for all Income Tax assesses raised from from 1,10,000 to 1,50,000.

NO CHANGE IN CORPORATE INCOME TAX, NO CHANGE IN SURCHARGE

General Centvat on all goods to be reduced from 16 per cent to 14 per cent. Excise duty reduced from 16 per cent to eight per cent on all pharmaceutical goods manufacture.

Excise duty on small cars reduced to 12 per cent from 16 per cent and hybrid cars to 14 per cent.

Duty on crude and unrefined sulphur reduced from five to 2 per cent to help raise domestic fertiliser production.

CIGARETTES TO BE TAXED MORE. Duty on non filter cigarettes to be raised.

Tax to GDP ratio increased from 9.2 per cent in 2004-05 to 12.5 per cent 2007-08.

Excise duty on two-wheelers cut from 16% to 12%

Duty withdrawn on naptha for production of polymers.

Special Countervailing Duty on power imports.

No excuse duty on wireless data cards, composting machines. Excise duty reduced from 16 to 8 per cent on water purification items.

Customs duty on specified sports goods machinery down from 7.5 per cent to five per cent.

Customs duty on specified life saving drugs reduced from ten per cent to five per cent.

CUSTOMS DUTIES TO BE REDUCED ON SOME POWER PROJECTS, STEEL MELTING SCRAP, ON SOME LIFE-SAVING DRUGS.

Rs 624 crore allocated for Commonwealth Games.

DEFENCE: Allocation to be increased by 10%

PAN NEEDED FOR ALL MARKET TRANSACTIONS.

GOOD NEWS FOR TEXTILES: Allocation for Textile Upgradation Fund to be more than doubled.

75 lakh people to be covered by health insurance schemes, says FM.

OIL EXPLORATION: Foreign investment of $3.5 billion to $8 billion expected for exploration and development of new oil blocks.

Rs 800 crore for accelerated power reforms programme.

Agricultural loans given by scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007 and due for December 31 that year will be covered under the waiver scheme to address the problem of indebtedness.

COMPLETE WAIVER OF ALL LOANS FOR SMALL AND MARGINAL FARMERS.

A target of Rs 2.80 lakh crore for agriculture credit set for the coming year.

Rice production estimiated at 94.08 million tonnes, maize 16.78 mt, soyabean 9.45 mt and cotton 23.38 million bales.

Services and manufacturing sectors expected to grow by 10.7 per cent and 9.4 per cent, says Chidambaram.

Govt will monitor foreign fund inflow, the FM said.

Growth rate of agricultre extimated at 2.6 per cent during the current year.

Agriculture growth was disappointing at 2.6% only, hurting the economy. The rise in global oil prices too has hurt us, say the FM.

Indian economy, like all developing economies, are beinghurt by these global upheavals in prices.

India's growth will be at 8.7% according to the CSO, but FM optimistic India will attain 8.8% growth at least.