Aarti Industries - Rs.90.00

Aarti Industries Ltd (AIL) was originally incorporated in 1984 as Aarti Organics Ltd and was later merged with Salvigor Laboratories in 1997 to form AIL. Today it has acquired world-class expertise in the development and manufacture of basic bulk chemicals, dyes & intermediates, agrochemicals & intermediates, rubber chemicals, surfactant intermediates and speciality chemicals. AIL is among the largest producers of Benzene based basic and intermediate chemicals in India. The company derives economies of scale from its large installed capacities for nitro and chloro-benzene derivatives and makes a wide range of value-added downstream products. Under its inorganic acid division, it manufactures sulphuric acid and its derivatives. Its exports to more than 65 countries including USA, UK, Germany, Spain, Italy, Switzerland, Belgium, Japan, Korea, China, Russia, etc. It also has representatives in USA and a subsidiary company in UK to provide better services to its overseas customers

AIL has manufacturing plants at Vapi, Sarigam & Jhagadia in Gujarat and at Tarapur & Dombivli in Maharashtra. Almost all its plants are WHO GMP approved. Recognizing the importance of research, the company has established three full-fledged DSIR (Dept. of Scientific & Industrial Research)-Government of India recognized R & D centres, which carry innovative products and process development work. It is also setting up a new plant at Tarapur and a Customised Synthesis plant at Vapi to manufacture speciality chemicals & APIs for which USFDA approvals would be obtained by FY06. With the implementation of the product patent require in India, custom synthesis has become one of the big growth areas. It is also looking at marketing tie-ups with multinational generic companies. Besides AIL commissioned its sulphuric acid expansion project and a 6 MW captive power generation plant last fiscal and is expanding its nitro-chloro-benzene facilities. Recently, it has approved to merge its subsidiaries Avinash Drugs and Aarti Healthcare which is engaged in manufacturing of Active pharma ingredients in niche segments Viz: Anti – Hypertensive, Anti –Asthamatic, Anti-Cancer, Anti- Inflammatory / Anti- Allergic, Anti- Diabetic, Anti- Depressants, Anti- Thalassaemic.

Going by its dividend track record and bonus announcements, AIL appears to be an investor-friendly company. It has just completed its second bonus issue of 2:1(two shares for one share held), taking the equity base to Rs.36.39 cr. For the nine months ending 31st Dec’04, it reported a topline growth of 32% to Rs.507 cr. and the NP increased by 22% to Rs.37 cr. However its OPM decreased to 14% from 16% due to higher input costs and crude oil still remains a concern. Yet, it can post a turnover of Rs.660 cr. with NP of Rs.48 cr. This will work out to an EPS of Rs.13, which discounts the current market price by 7 times. Considering the company’s future plans & growth prospects investors can expect 50% return in 15 months from the scrip.

Medi Caps - Rs.48.00

Medi Caps Ltd (MCL) was incorporated on 6th August 1983 as a Private Limited Company and was converted into public limited on 3rd March 1986. Since inception, it has focused on the production of finest gelatin capsules in various sizes, which are widely used in the packaging of drugs, vitamins, antibiotics and cosmetics. Today, is the second largest manufacturer of hard gelatin capsules with an annual capacity of 3.5 billion capsules with clients like Wockhardt, Glaxo, SmithKline Beecham, Nicholas Piramal, Pfizer, Cadila, IPCA Labs, Lupin, Cipla, etc. Moreover, it has been exclusively manufacturing Halal Gel Capsules for the South East Asian Market.

MCL is an ISO-9001-2002 certified company with an ultra modern manufacturing facility and in-house R&D division employing over 300 people. Its high-tech automatic capsule manufacturing machines, sophisticated quality control laboratory and well-documented systems as required under a good manufacturing practices have helped it to achieve near zero defect capsules. Last year, MCL started manufacturing of sticky free capsules and liquid fill capsules, which have a great, demand and bring in good orders together with better margins. It is planning to launch new variants in the coming year and increase its export turnover. It is been done basically by better utilisation of manufacturing capacity, continuous modernisation & automation and substantial increase in realisation. Apart from being a well known name in pharma packaging.

MCL has a huge potential market since India is looked upon as a global hub for formulations and hard gelatin manufacturing business. Financially, it is strong as it is debt-free with huge reserves of Rs.18 cr. and liquid investments of Rs.11 cr. on a very small equity base of Rs.3.40 cr. Though it may report flat numbers, the future is indeed promising. It will end FY05 quite flat with turnover of Rs.23 cr. and NP of Rs.3.75 cr. For FY06, it can report Sales of Rs.28 cr. and NP of Rs.5 cr. This works out to an EPS of Rs.12 and Rs.16 respectively. With an expected dividend of 20%, the yield works out to more than 4% at CMP. Its share price can easily appreciate by 50% in one year and has the potential to double in 18-24 months.

STOCK WATCH

While TISCO and other mid-cap steel scrips corrected sharply last week, Ashirwad Steel (Code: 526847) (Rs.36.45), a sponge iron manufacturer, was busy hitting upper circuits continuously. This means that knowledgeable persons are accumulating the scrip before the March’05 figures are announced. It’s trading very cheap at a PE of 2 on an expected EPS of around Rs15 for FY05. Its share price can even double from the current levels if the numbers are good. Aggressive investors can take an exposure in this company for handsome gains.

Indo Asian Fuse Gear (Code: 517318) (Rs.89.00) manufactures electrical safety devices such as miniature circuit breakers, residual current circuit breakers, HRC fuses, transformers, switchgears, wires & wiring accessories, industrial plugs & sockets, contactor relays, distribution boards etc. Its operating margins are better than that of Havells. It will end FY05 with an EPS of more than Rs12 and is expected to return to the dividend by 20% dividend for FY05. Dometic funds are bound to take exposure in this growing company and SBI MF has initiated the process by taking a small exposure recently. Besides it has come out of T2T segment, which may trigger the scrip in the short term. Medium term investors can expect a price of Rs150 in 12 months.

In a few months, Gujarat NRE Coke’s (Code: 512579) (Rs.126.50) second plant of 3,24,000 TPA will be fully operational. It is setting up its third plant at Karnataka for 4,00,000 TPA, which will take the company’s total capacity to 1.08 million TPA and 1.48 million TPA for the whole group. Due to the rising price of coking coal, which is the basic raw material, the company is importing Chinese technology to help reduce its input cost. Last month, it raised USD 55 million through FCCB. For FY05, it can report sales of Rs450 cr. and NP of Rs.135 cr. i.e. an EPS of Rs14 on the expanded equity of Rs94.32 cr. after the bonus issue. Considering its expansion plans and strategic tie-up with BHP Billiton, its share price can easily cross Rs200 in the medium term.

Orissa Sponge (Code: 504864) (Rs.57.70) is expected to end FY05 with net sales of Rs138 cr. and NP of Rs11 cr. Although its margin is a bit under pressure since the last 2~3 quarters, it will improve in future due to capacity expansion and the setting up of a power plant. It has ambitious long-term expansion plans to double its capacity of sponge iron as well as steel billets. For FY05 and FY06, it can report an EPS of Rs9 and Rs13 respectively. A good long term bet.

Investors are advised to accumulate Reliance Industries Ltd. (Code: 500325) (Rs.557.15) at every sharp decline. With rising crude oil prices, its refining margins will also increase. It has also increased its product prices due to rising input cost. Besides, it has very strong support at Rs540 and the management will not let it fall much as they have bought back shares worth Rs150 cr. only against the approved for Rs2999 cr. The risk-reward ratio is in favour of bulls and its share price can cross Rs650 soon.

Lot of speculation is going around in the Tech sector and analysts expect better future guidance from biggies like Infosys, Wipro etc. The Tech sector is expected to out- perform in coming months and one can buy Aftek Infosys (Code: 530707) (Rs79.00) at current level as its still available at a single digit PE. Although promoters hold only 14% stake (26% with Deutsche Bank Trust Company Americas as Depository) but it is a FII favourite who hold 13% stake and recently Goldman Sach acquired more than 3% stake at Rs80.