Omax Auto - Rs 100.00

Omax Auto is a leading manufacturer of sheet metal and tubular metal components catering to the automotive sector. The company's product portfolio includes body frames, sprockets, electroplated tubular components, gear shafts, rocker arm shafts and piston rods. It is also one of the largest producer of sprockets in the country with a capacity to produce over 8 lakh units per month.. It has integrated facilities including a press shop, welding shop, paint shop and tool room for design and development of automotive components. Its domestic clients include all major two wheeler and passenger car manufacturers like Hero Honda, Maruti, TVS etc. and international clients like Tennneco, Delphi Automotives, Atlantis Global Service, Cummins Inc. to mention a few.

Visualising the huge outsourcing opportunity in coming years, the company will now concentrate on exports, which give better margins as well. To tap this growth story, Omax is incurring a capex of Rs.80 cr. over the next 12~18 months. This will be partly invested in the existing units entailing a capital outlay of Rs.20 cr. while the balance Rs.60 cr. is being spent on its Bangalore unit and the new unit at Gurgaon. Incidentally, both the Bangalore and Gurgaon units have commenced commercial production from Oct.2004. It is also setting up a export-oriented captive unit in Gurgaon to supply machine components for Tenneco an US automotive major. Moreover, it is in talks with 2/3 companies for acquisitions outside India and most likely in Europe. To fund its expansion, the company is raising money through a rights issue, preferential allotment and issue of convertible warrants which will dilute its equity going forward by Rs23.50 cr. from its current equity of Rs20.31 cr. It has bagged huge export orders specially from Delphi Automotives & Tenneco and is sitting on good orders in hand to be executed in next 2~3 yrs.

Considering the huge outsourcing opportunity ahead along with the healthy domestic market, the growth prospects for Omax Auto in the long-term picture appear excellent and it may report an sales of Rs600 cr. and NP of Rs22 cr. for FY05. This works out to an EPS of Rs11 on its current equity of Rs20.31 cr. But for FY06, it can post an EPS of more than Rs16. Hence investors are advised to accumulate it at sharp declines with a long term perspective of more than 2 years to get handsome returns

Eastern Silks - Rs175.00

Incorporated in 1946, Eastern Silks is the flagship company of Kolkatta based Eastern Group and is a leading manufacturer and exporter of silk goods. It exports high end value added products like Silk Fabrics & Made-ups, Silk yarn, scarves, Belts & other accessories. It also exports premium fashion fabrics and knitted garments. The company is recognized as a ‘Golden Star’ Trading House by the Government of India. It exports 40 per cent of its total production to the US and about 54 per cent to Europe and the CIS countries. It has won various prestigious awards from The Silk Promotion Council, the Central Silk Board etc.

The company has two weaving and processing plants in Karnataka and a twisting plant at the Falta export processing zone in West Bengal with a total production capacity of about 300 tonnes of silk fabric. It also has a modern processing unit in Noida near Delhi and another unit for leather products in Calcutta. Recently, the company has set up Rs60 cr. state-of-the-art silk fabric weaving unit at Anekal near Bangalore. It plans to add hi-tech Printing & Embroidery unit as well. Going forward, it intends to invest Rs100 cr. for further expansion and upgradation of existing facilities. Moreover, it has formed a joint venture with Chinese companies in Honkong to put up a silk yarn spinning unit in the Quanshi province in Central China. The entire 100 tonnes production of this venture will be consumed by Eastern Silks for its weaving operations in India thereby ensuring itself of good quality, economical & regular supply of raw material. As a move towards consolidation, the company has approved the Scheme of Amalgamation of Eastern Jingying Ltd. and Sstella Silk Ltd. with itself.

Currently, the company is concentrating to increase its exports and has bagged good export orders through exhibitions and creating new clients in Europe. For the six months ending 30th Sept. 2004 its sales increased by 21 per cent to Rs156 cr. and NP jumped 41 per cent to Rs12.85 cr. It has huge reserves on its small equity of Rs7.15 cr. and the book value of the share stands around Rs150. Given its expansion, it can register a turnover of Rs330 cr. and NP of Rs25 cr. posting an EPS of Rs35 for FY05. At CMP, the scrip is discounts this earning only 5 times and is available reasonably cheap. Investors are advised to accumulate it at every dip with a price target of Rs280 i.e. 65 per cent appreciation over the next 12~15 months.

STOCK WATCH

Sirpur Paper Mills (Code No:502455) (Rs.99.55) has decided on a massive expansion-cum-mill development at its existing 800 acres site at Sirpur-Kagaznagar in Adilabad district of Andhra Pradesh at an estimated cost of Rs294 cr. Paper prices are ruling high due to strong demand and Sirpur is expected to post an EPS of Rs25 for FY05. It is a safe bet.

The Tea sector is buzzing even in a falling market on expectations of an increase in tea price in the dometic market. A lesser know tea company, B & A Plantation (Code No: 508136) (Rs.43.00), is doing well. For the six months ending 30 Sept. 2004 it has already posted a NP of Rs3.05 cr. on its small equity of Rs3.10 cr. registering a half yearly EPS of Rs10. For the full year FY05, it can report an EPS of Rs12. A strong buy with a medium to long term perspective.

Kilburn Chemicals (Code No: 524699) (Rs.34.25) manufacturer of Titanium Oxide came out with good December numbers. Sales were up 47 per cent at Rs16.30 cr. and NP increased by 18 per cent to Rs1.51 cr. For FY05, the company is expected to post an EPS of Rs7. Currently, the stock trades at 5x PE and investors are advised to buy at sharp declines for handsome gain in the long run.

Orissa Sponge (Code No: 504864) (Rs.43.05) is an emerging player in the sponge iron industry. It has ambitious growth plans and will grow at much faster face in coming years. It’s a multibagger for long term investors. For the six months ending 30 Sept.’04, it posted a NP of Rs5.60 cr. on an equity of Rs.11.8 cr. Its OPM improved substantially form last year and is quite decent around 25~28 per cent. For FY05, it can report and EPS of Rs11 and is a screaming buy.

Most marketmen have written off shipping shares due to a decline in freight rates. But we still recommend it considering its promising future prospects. And SCI (Code No:523598)(Rs.149.00) with amazing fundamentals is the best bet in this sector. This scrip may surprise the market by its FY05 numbers and may report an EPS of more than Rs40. This scrip has the potential to double from the current levels in the next 12 months. Investors should hold on to it patiently.

To cater to the increasing demand of sponge iron, Monnet Ispat Ltd (Code No: 513446) (Rs.156.10) is implementing Rs230 cr. capacity expansion of 4,40,000 TPA, which will take its total capacity to 7,40,000 TPA. It is working on the acquisition of some iron ore mines in Chhattisgarh & Jharkhand, which is at a fairly advanced stage. In coming years, it will become a fully integrated player from raw material to finished product. For FY05, it can report an EPS of more than Rs35 and its share price can appreciate by 50 per cent over the next 12 months.

Deepak Fertilizers (Code No: 500645) (Rs.50.70) one of the largest producers of methanol is still discounted poorly compared to its fundamentals and future prospects. It’s a well managed & investor friendly company with good future growth plans. For FY05, it will report an EPS of around Rs8 and its share price has the potential to cross Rs100 in the future. Patient investors should buy it for long term to get handsome returns.