Pick of the week:
Gwalior Chemical Industries (GCIL):
BSE Code: 532764
Book Value: Rs.80.33
EPS: Rs.38.69
P/E: 2.3
Market Cap: Rs.219.62
Accumulate: To be bought around the strong support of Rs.86
Target: Rs.105—Rs.115
Time: 6months

Introduction: Gwalior Chemical Industries (GCIL) is a producer of specialty chemical products at its two chemical facilities located at Nagda (Madhya Pradesh) and Ankleshwar (Gujarat). It has built a formidable presence in the specialty chemical industry and extensively catered to the needs of customers covering the agrochemicals, pharmaceuticals, dyes and flavours and fragrance industries. It also manufactures and sells special Viscose Dye Pigments catering to the textile sector. It caters to various industries like agrochemicals, pharmaceuticals, and dyes industries. It also produces Chlorotoluene range of products like benzyl chloride, benzaldeyhde, benzotrichloride, benzyl alcohol and its other derivatives. It also produces sulphur chloride range of products.
Shareholding Pattern: The promoters hold 59.98% while the general public holds 40.02%. The FIIs hold 2.90% while the Mutual Funds hold 8.37% of the shares of the company.
Triggers:
• The first and the foremost reason for recommending the scrip is the growth in the agrochemical segment where the growth in the agricultural sector is expected to drive the growth. With government expected to go for another round of green revolution the demand for the same is expected to increase.
• The Company has decided a buyback of shares of the Company. In the first phase, the Company proposes to buy back 40, 50,000 shares at Rs.120 per share through a tender offer route in this financial year.

• The Company has completed the transfer of its chemical business at Nagda, Madhya Pradesh and wind mill businesses at Madhya Pradesh and Maharashtra to Lanxess India Pvt. Ltd. on September 01, 2009. The Company will invest the sale proceeds in power generation business and manufacturing of high value specialty chemicals at Ankleshwar. The cash derived from sale,
after initial distribution to Shareholders, when put to use in power generation and in building the Ankleshwar facility into specialty chemical hub will yield superior return to the Shareholders. This sale shall enable the Company to distribute some cash back to the Shareholders as well as invest in the growth of the businesses.

• The company gave a dividend of 12 % (Rs.1.20 per share) for the financial year ended 31st March 2009 same as in the FY08, inspite of the challenging market conditions. The total amount of dividend for the year ended 31st March, 2009 is Rs.296.12 Lacs.

• Expansion Plans and the year under review: In the year under review (FY10) the Company has earmarked upon expansion of capacities and infrastructure facilities thereof outlined herewith along with the expected dates of completion. Sr. Name of product Existing Expected Completion
No. Capacity Capacity
1. Chlorotoluene & its Derivatives: from 84100 TPA to 137000 TPA completion on September, 2009
2. Sulphur Oxy Chloride & its Derivatives: from 41000 TPA to 41000 TPA--> Completed
3. Pigments; from 2400 TPA to 3000 TPA--> Completed
4. Others: From 115700 TPA to 170400 TPA--->Completed
5. Co-generation power plant - NIL 4 MW Power & 45 TPH Steam Jan, 2010
• The Company has achieved an international award instituted by Indian Merchant Chamber,
Mumbai. The award is given to the company in manufacturing category for adopting world class
practices in quality management systems and for creating excellence in business performance and supply chain.

• The Company has also incorporated a wholly owned foreign Subsidiary Company in the name of Gwalior Chemicals LLC in May, 2008 under the law of the United State of America, with the
objective of carrying on business of selling products manufactured by it in the American Markets.

• The Company has also incorporated a wholly owned Indian NBFC Subsidiary in the name of GCIL Finance Limited with the initial paid up capital of 250 lacs.

• The company has adopted TPM (Total Productive Maintenance), designed by JIPM (Japan
Institute of Plant Maintenance), to improve the efficiency and performance of the plants by
eliminating Break down Losses and Defects.

• The Company has handled adverse effects of largest recession of century quite well. Its well
designed product basket with recognized quality coupled with strong domestic industrial base has enabled it to deal situation squarely. The products of the Company are focused primarily on the agrochemicals, pharmaceuticals, dyes and flavors & fragrance industry and as a result, its
operations are significantly influenced by the trends of the aforesaid industries. The Company
sees a robust growth in the industries in supplies too. On the other hand availability, cost and
quality of inputs like chlorine, steam and electricity have a significant impact on the working of
the Company.

• As regards the financial performance, the company posted good results for FY08 and FY09 as a whole. On a standalone basis, the total sales of the company for FY09, came out to be Rs.381.4 Cr as against Rs.295.7 Cr in the same period previous year. The net profit of the company for FY09, came out to be Rs.27.7 Cr as against Rs.24.32 Cr in the same period previous year. This gave an EPS of Rs.11.23 in FY09, as against Rs.9.85 in the same period previous year. For Q2FY10, the total sales of the company came out to be Rs.57.53 Cr as against Rs.74.77 Cr in the same period previous year. The net profit of the company for Q2FY10, came out to be Rs.76.5 Cr as against Rs.7.03 Cr in the same period previous year. The EPS of the company for Q2FY10, came out to be Rs.30.99 as against Rs.2.85 in the same period previous year.
Conclusion and Chart Check: Though the operating profit margins are in pressure but the Company is expected to maintain its margins in future as it will be able to pass on the cost to the clients. With good amount of rise in demand and increased capacity the valuations are expected to improve and hence, the investors can slowly accumulate the scrip near the support of Rs.86, for a target of Rs.105 115, in the next 6 months time frame. The stock may not rise immediately though Bollinger bands, MACD and Stochastic are more or less in the buy mode. It is not a momentum counter and hence its rise will be slow but steady. The stock is best suited for highly volatile markets.

Note: The stock was recommended to the Paid Groups on 20-12-09 in the Sunday Report.

AMBALAL SARABHAI ENTERPRISES LTD.

BSE Code: 500009,

Face Value: Rs.10

CMP: Rs.14.05

EPS: Rs.7.55

Target: Rs.22--25

Time Frame: 3 months time frame.

The company's principal activity is the manufacture and marketing of pharmaceutical products and bulk drugs. Its products are injectables, liquid, ointments, powders, tablets and capsules, vaccine and serum of penicillin, tetracycline or derivatives and Vitamin C and it derivatives. It operates in two segments: Pharmaceuticals and Electronics. The plants are located at Vadodara and Ahmedabad.

The promoter holding has increased from 26.12% in September, 2008 to 30.43% in September, 2009 quarter. Or on a Y-o-Y basis the promoters' holding has increased, which is a good sign. Now if you see, its peer group, then we would get surprised to find the names Cipla Ltd and Sun Pharma Ltd.

Some of the triggers are mentioned below:
* The Bulk Drugs plant of Synbiotics Limited, a wholly owned subsidiary of the company at Luna has already commenced production activities.
* The Company has acquired manufacturing and marketing Company i.e. Suvik Hitek Pvt. Ltd. The Ethical Division has re-launched the products of Suvik and Sarabhai Chemicals in market as planned with new team of field force who has promoted products to the selected doctors in India.

* The Oncology Division is also strengthened by adding new products and team of field force. During the year under review, Oncology Division has launched two new products viz. Fludagem & Xtinib.

* For the year 2009-10, Electronics Division of the Company has lined up high end products for marketing from reputed manufacturers and has also owned new products like Turbidity meter, Hb meter, Vis- Doublebeam Spectra, etc.

* Telerad Division would try to get the maximum possible orders for Spares/other Peripherals keeping Dollar business and system sales improving.

* During FY09, the Company has promoted a Company viz. Vovantis Laboratories Pvt. Ltd., a pharmaceutical specialists with a vision to establish a state of the art manufacturing facility specializing in Novel Effervescent drug delivery system. In a short span of time, this company is having presence in the US, Europe and Asian markets with its own offices in the respective places.

* Asence Inc., a wholly-owned subsidiary of the Company, incorporated in the US specializes in the supply of quality pharmaceutical preparations (Finished Dosage Forms and Active Pharmaceutical Ingredients) to international markets. Asence Inc., through the company, pursues a multi-layered growth strategy combining internal product development, strategic alliances and collaboration with cGMP manufacturing partners, acquisitions of products and leverage of infrastructure in India and the US.

* The Company is under massive restructuring process of its business to strengthen and improve its over all financial condition. In order to reduce cost, the Company has announced VRS Scheme and many employees have opted for the said Scheme including accounts officials and staffs.

Now if you go through the June, 2009 quarter results we will find that they were good as to compared to the same quarter previous year.

I remember a couple of years back, the stock raced from Rs.12 to around 32--33 hitting continuous upper circuits....this could be repeated this time also.

The stock has consolidated in a range for a long time before starting to move up.....Hence it should be prudent to accumulate the scrip around the CMP of Rs.14.05. The stock yesterday moved up with good volumes.