Aarvee Denim: rising popularity

ANALYSTS' CORNER

Sharekhan.com recommends a buy on Aarvee Denim. The report states that globally denim capacities are shifting from high-cost areas like the US to low-cost areas like India. Second, as a result of the removal of quotas, garment manufacturing capacities are also coming up in the country.

The Indian market is growing at 10 per cent per year with denim finding more uses (ladies wear, children wear and accessories) and becoming a rage even in towns and villages due to its affordability.

The report expects Aarvee to benefit from these developments, as it is one of the lowest-cost manufacturers in the country and would consolidate its number two position by expanding its capacity by more than 50 per cent from 47 million metre to 72 million metre per year.

As a result of the softening of cotton prices due to a bumper cotton harvest and savings in power and fuel costs, the company's EBIDTA margin is expected to improve by 300 basis points. The stock trades at a P/ER of 8x FY2006E.

Jubilant Organosys: high on acquisitions

Edelweiss Securities reiterates its "value buy" ¿n Jubilant Organosys. The company has acquired a 100 per cent stake in Target Research Associates Inc for $ 33.5 million. With Target's¿healthy EBITDA margins of 26 per cent 2005E, the price is a reasonable 1.4x EVales (2005E).

Jubilant will fund this by $ 13.5 million of equity and $ 20 million as debt. The report views this news as positive and has raised its EPS estimates by Rs 2.6 in FY06 and by Rs 7.5 in FY07. Target acquisition enables Jubilant to be a full-service CRAMS (contract research and manufacturing services) player.

Its recent acquisition of Trinity Labs strengthened the last link in the value chain- formulations. With this acquisition, it is now a full-service CRO as well. Jubilant is expected to realise synergies from conducting clinical trials in India and providing high-quality cost-effective data management services from India. The stock trades at 19.7x FY06E and 12.7x FY07E.

JK Paper: targets higher volume growth

Enam Securities, in its visit note to JK Paper, states that the company is expected to witness significant improvement in its performance in FY06 on the back of higher volumes, improved product mix and firm paper pricing scenario.

Operating conditions are likely to be back to normal as the company has successfully commissioned its Rs 80 crore coated paper plant. The company targets to sell 205,000 tonne of paper and pulp in FY06 vis-à-vis 182,818 tonne in FY05, implying a growth of 13 per cent.

Higher volumes are likely to come from improved utilisation and increase in outsourcing. The company expects to sell 35,000 tonne of coated paper in FY06 and 46,000 tonne in FY07.

It targets to win back the lost market share in branded copier segment, which is growing at 15 per cent. Due to a delay in commissioning and stabilising of coated paper plant, the company had to scale back production of copier paper last year.