strong buy --rama paper

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the share price of Rama Paper Mills Ltd. (Code: 500357) (Rs.28) which hit a high of Rs.59 in 2005 is hovering around at
half that level in 2007, in spite of improved fundamentals. Of late, the company has increased its paper production
capacity to 44,500 TPA and is expected to enhance it to nearly 60,000 TPA by March 2008. It is also putting up an
additional line of paper manufacturing machine to produce tissue and poster paper with annual capacity of 18,380 TPA at
a capex of Rs.24 cr. The civil and fabrication work is in progress for the same. More importantly, the company has put up
6 MW co-generation power plant for captive consumption that commenced operation recently and will result in
substantial savings in power and fuel cost. However, the company reported lower sales for Q2FY08 maybe due to some
disruption at its manufacturing facility. Hence for FY08, it may clock a turnover of Rs.80 cr. with profit of Rs.5.50 cr. on
the back of higher operating margin. This can shoot up to Rs.100 cr. of sales and Rs.8.50 cr. of net profit for FY09. With
means an EPS of Rs.6 and Rs.9 for FY08 and FY09 respectively on its fully diluted equity of Rs.9.70 cr. Last fiscal, the
company raised around Rs.16 cr. through the equity route by making a preferential allotment to promoters and others at
Rs.35 per share. As of today, the promoters are holding 41% stake. At the CMP, the company is available at an economic
value (EV) of Rs.70 cr., which is even less than its gross block of Rs.79 cr. Buying is strongly recommended as its share
price can shoot up Rs.75 in 12-15 months.

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