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Whispers December 2017

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By IE&M Research

Lime Chemicals Ltd. (507759):

It’s a 46 year old chemical company engaged in the business of calcium carbonate. Their key clients are Colgate, HUL, Dabur, Anchor, GSK, Finolex, Asian Paints with the latest edition of Pantanjali. The company has long term back to back contracts with its clients & vendors. Total capacity is 60,000 tonnes p.a. with 70% capacity utilization. Management is confident of turning negative net worth into positive within next three years. The company expects top line and the bottom line to double by 2020 with the help of incremental capacity. The company plans to raise fresh capital through equity dilution, quantum not yet decided. Market participants expect a gradual re-rating of the company going forward.

Ballarpur Industries  (500102):

India’s largest paper maker is going through a very bad time financially with ARC company Edelweiss now involved with the company’s operations. The asset base is tremendous with wonderful products and distribution network. Malaysian mill purchased some time back has put the company in the current distress. In case Edelweiss is able to manage a disposal of the mill, there can be a big upside in the stock. This is a catalyst driven investment with high risk/reward. Banks have also taken a 51 % stake in the holding listed company and Edelweiss is involved at the operating subsidiary level. Any corporate action could see a big pop from the current `12 per share, market price. International pulp prices are strong and the company is well placed domestically.

Majesco Ltd.  (539289):

Majesco Ltd is a 1000 crore market cap company demerged from Mastek Limited, catering to insurance companies for their IT products and service requirements. The company recently executed a 10 year agreement with IBM, which is a part of its partnership deal entered into last October where IBM had selected Majesco’s platform to jointly offer a new cognitive, cloud-based platform. The ramp up of the cost led to negative impact on the bottomline this quarter, but gross margins should get better with expected growth in revenue Q3 onwards from IBM projects. The company is moving gradually from on-premise to on-demand cloud driven model. The growth in revenue from cloud business grew 26% YoY. Partnership with IBM is gaining traction, a 10 years cloud subscription deal having a potential subscription value of $35 million as envisaged by the management. It remains a stock to watch out for.

KCP Ltd. (590066):

The company is into cement, sugar, engineering and hospitality business. Cement contributes close to 60% to sales and the company is expanding it’s current capacity from 2.6 MT to 4.3MT. Conservative valuations of cement plant itself will be around 2000 crore. The current market cap is 1500 crore. KCP has 4 star hotel in Hyderabad, the conservative valuations of which will be 250 crore. Sugar sales is around 30% of overall and company has increased its capacity from 7000 TCD to 11000 TCD. Engineering division is expected to post positive result 18 and hotel division is expected to break even next year. Stock is available at 1 time annual sales, which itself is cheap. Informed investors are on an accumulating spree for the last few months.

Thangamayil Jewellery (533158):

Company’s fundamental setup has a high probability of changing gear. They are replacing costly liabilities by customer advances and are recovering from a down phase in sales. Both these factors are already in motion and should continue for some time. The interesting thing is that the business is quite small in size and therefore likely to exhibit a strong re-rating from a fundamental sense. The management is entrenched in the local culture and knows the nuances of the region. This is a very critical point when it comes to the jewelry business in India. Small cap king Kenneth Andrade has recently taken a large stake in the company. Informed insiders are expecting a blockbuster set of numbers going ahead.

Saurashtra Cements  (502175):

A Jay Mehta group company which has seen a huge jump in its stock price recently. The company  was a debt ridden lump in the cement sector, but post BIFR restructuring it has become a debt free company as of the date. Though margin and other numbers are not exciting the company owns the brand called Hathi Cement. The announcement of Ahmedabad-Mumbai Bullet Train also hints at increased infra spending in Gujarat going forward so the West India based Cement companies are expected to do well. Valuation wise the company is available nearly at 50$ ev/tonne valuations as compared to the current market deals happening at 120- 130$ ev/tonne. Market participants expect a takeover soon by a cement major which is further set to explode the stock in the northward trajectory.

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