STOCK WATCH

Surat Electricty (Code No.501736) (Rs.223.50) the Torrent Group power company, has still not caught market fancy. Promoters have increased their stake this year and are planning to rename it as 'Torrent Power SEC Ltd'. Its Q1FY05 was excellent and for the full year it's expected to register an EPS of more than Rs. 40. Interestingly, the Gujarat Government holds more than 6 per cent equity, which it may divest in future. A good long term bet.

Ahmednagar Forgings, (Code No.513335) (Rs.101.35) an Amtek group company has come out with excellent numbers. Operating margins have improved substantially and NP increased by 65 per cent to Rs. 5 cr. in spite of tax provisioning of more than Rs.2 cr. Company is expected to return to the dividend list in FY05. A must buy.

As per one fundamental analyst, Nagarjuna Construction (Code No.500294) (Rs.334.50) appears fully valued. He suggests to switch to Madhucon Projects (Code No.531497) (Rs.284.05) or Petron Engineering (Code No.530381) (Rs.72.00).Eastern Silks' (Code No.590022) (Rs.173.10) Q2FY05 numbers have beaten all analysts' expectations. Sales increased by around 40 per cent to Rs. 91 cr. and NP jumped 70 per cent to around Rs.9 cr. in spite of tax provisioning of Rs.1.20 cr. Operating margin also improved from 12.5 to 16 per cent. It has caught the market attention and a bull operator puts a price tag of Rs.250.

The boom in caustic soda prices is clearly visible in Gujarat Alkalies (Code No.530001) (Rs.82.25) Q2FY05 numbers. Although Net Sales increased by 10 per cent only, Net Profit has more than doubled to Rs. 36 cr. posting an EPS of Rs. 5. And this is in spite of higher tax provisioning of Rs. 23 cr. (for full year FY04 it was Rs. 25 cr). Its OPM also improved substantially to 34 per cent. Due to reduction in interest outgo and good expansion plans, this scrip is bound to cross Rs. 100 soon.

In spite of fall in sales and profit, one pharma analyst is mildly bullish on Krebs Biochem (Code No.524518) (Rs.191.50) due to its dividend yield and being a likely takeover candidate. He expects the company to post a minimum EPS of Rs. 25 for FY05.

Tata Sponge (Code No.513010) (Rs.142.85) results were below market expectations but still it is expected to perform well in future. It should be taken as an opportunity to accumulate more.
Bharat Gears (Code No.505688) (Rs.46.85) seems to have bottomed out at Rs. 46 and should be bought for long term. For FY05, it is expected to report an EPS of Rs. 8.

Although Savita Chemicals' (Code No.524667) (Rs.140) margin is under pressure, still its NP rose 5 per cent to Rs. 6.75 cr. and Sales increased by 35 per cent to Rs. 125 cr. For FY05, it should report a minimum EPS of Rs.30. At CMP it can be accumulated for long term. Once crude oil prices cools down, its operating margins will improve and its share price will shoot up. Also, it's quite ripe for a bonus.

Elder Pharma (Code No.) (Rs.146.85) did not participate in the recent pharma rally. Its Q2FY05 numbers are in line with expectations. Its future is very promising and the share price is tipped to cross Rs. 250 in the medium term.

Deccan Cements - Rs.52.00

Incorporated in July79, Deccan Cements is an Andhra Pradesh based mini-cement manufacturer with its captive power generation. It is one of the very few mini-cement plants that is operating profitably in the country. Mini-cement plants enjoy lower excise duty on the cement produced and sold compared to the larger plants. It is an established player in its chosen markets and has been able to realize relatively higher prices than other mini cement plants.

Currently, the company has the capacity to produce 3,00,000 TPA of cement and 5,00,000 TPA of slag cement. The cost of production of slag cement is considerably lower than the cost of producing ordinary Portland cement. Due to various initiatives of the government and the industry blended cement like slag cement is fetching almost the same rate as Portland cement and is well accepted in the market. In FY04, slag cement accounted for 56 per cent of its sales but contributed substantially to the company's profit.Since cement production is highly power intensive, the captive power plant have been very handy for the company to reduce power costs considerably and stay afloat in difficult times. Due to poor flow of water' however, the hydel power is almost non-operational. But if it operates it has the potential to increase the company's cement production substantially and enhance the profitability of the power segment. In short the company can scale up its revenues and profitability even with the existing infrastructure.

In the South, cement prices depend mainly on demand from government agencies. In future, the demand-supply gap will further reduce due to the government's thrust on infrastructure and housing. Currently, though cement prices have again dipped to Rs.130 from the peak of Rs.150 due to lower demand still its higher than last year's price of Rs.90-100 per bag. The medium to long term industry prospects look bright and this is evident by the promoters increasing their stake regularly. In the June'04 quarter too, also they increased their stake by 5 per cent taking their total stake to 53 per cent.

In FY04, sales increased 31 per cent to Rs.116 cr. and NP jumped more than 4 times to Rs.5.95 cr. leading to an EPS of Rs.9. In Q1FY05, sale was up 16 per cent to Rs.32.40 cr. but NP rose only 7 per cent due to the increase in tax provision. The company has a small equity of Rs.7 cr. with huge reserves of Rs.50 cr. and book value of Rs.82. It's a regular dividend paying company it paid 20 per cent dividend in FY04. With cement prices expected to rise again in future, the company is estimated to clock sales of Rs.140 cr. and NP of Rs.9 cr., which will translate into an EPS of Rs.13. So at current market price (CMP) it is trading at less than 4 PE leaving ample scope for further appreciation. Scrip can be accumulated for long term to get 100 per cent return in 15-18 months.

Shah Alloys - Rs.88.00

Incorporated in 1990, Shah Alloys was originally started to manufacture alloy steel castings, carbon and manganese steel castings, ingots and billets. Later, Mr. Rajendra Shah, the promoter, diversified into stainless steel production in 1994 and his systematic expansion and time-bound execution made Shah Alloys the second largest stainless steel manufacturer in the country next to Jindal Stainless Steel. Today, its steel plant has an Induction Furnace, Ladle Refining Furnace and Rolling Mill and manufactures Stainless steel products including hot rolled plates, sheets, coils, slabs, rounds, flats, bars, billets, beams, bright bars, angles and wire rods.

The present installed capacity of the company is 2,60,000 TPA. It is a major slab supplier to the SAIL a unit at Salem. Approximately 50 per cent of the company's turnover comes from exports, which is mainly to China, Italy and Germany. The restoration of DEPB benefits and the government’s decision to continue with it, is a positive for the company. Since 1999, the company has been growing at a compound annual growth rate CAGR of 25 per cent and the management is confident to maintain the double-digit growth in future.
The company is now working towards becoming an integrated stainless steel producer for which it has ambitious plans of setting up a backward integration project at Gandhidham for producing sponge iron, ferro alloys and power through its subsidiary. The first phase of the Rs.205 cr. expansion is expected to start commercial production this fiscal with capacity of 1,80,000 TPA of Sponge Iron, 30,000 TPA of Ferro Alloys and 40 MW captive power plant (25 MW lignite based & 15 MW gas based). Apart from meeting its own raw material demand for sponge iron and ferro-alloys at a cheaper rate, this plant will substantially cuts its power cost to Rs. 1.50/Kwh from the current cost of around Rs 3.50/Kwh.

Along with this backward integration, its forward integration project of Rs.35 cr. is also under progress to manufacture high value added cold rolled products like - CR stainless sheets, coil etc. This 10,000 TPA plant will convert special steel HR coil manufactured in-house into CR SS sheets/coils to broad base its marketing thrust. Further, the company intends to develop various industrial grade products also. This plant is estimated to become operational from Dec 2004.

Fundamentally the company is strong with Sales increasing by 37 per cent to Rs.946 cr. and NP jumping 71 per cent to Rs.33 cr. in FY04. On a tiny capital of Rs.8.9 cr., the company has huge reserves of Rs.103 cr. leading to a book value of Rs.125. The Q1FY05 numbers were quite flat with Sales of 224 cr. and NP of Rs.7 cr. due to low exports on account of withdrawal of DEPB benefits by the government. With increasing global demand, robust SS prices and the company's thrust on export with backward integration, it is estimated that the company will achieve a NP of Rs.38 cr. on a turnover of Rs.1100 cr. for FY05. This works out to an impressive EPS of Rs.43. At current market price the share is trading at a PE of just 2. Investors can buy with hopes of 50 per cent appreciation in 12 months time.

STOCK WATCH

This South based Ferro Alloy company, Indsil Electrosmelts (Code No.522165) (Rs.44.20) has again posted excellent results for its first quarter ending 30th Sept 2004. Net sales had increased by 50 per cent to Rs.19 cr. and it earned NP of Rs.3.30 cr. against a loss of Rs.1.45 cr. in the corresponding quarter. With an OPM of 30 per cent, NPM of 17 per cent and an expected EPS of Rs.12 it is trading cheap and could be accumulated for the long term

Maintaining its profit margin, Finolex Industries (Code No.500940) (Rs.63.45) has doubled its NP to Rs.28 cr. as sales increased by 20 per cent to Rs.234 cr. The scrip is poised to cross the century mark this year. Accumulate it every dip

Man Industries (Code No.513269) (Rs.91.90) is expected to report excellent numbers for the next 2 quarters. Also its new plant at Anjar is expected to begin its operations in Dec 2004. For FY05, it will report an EPS of Rs.22 Investors could buy at the current price for handsome returns in 12 months time

Due to the booming Indian economy, the special thrust on infrastructure and the huge expansion plans by various companies every sector, Ador Welding (Code No.517041) (Rs.57.70) company is reportedly having the best time. For Sept qtr, Sales was up 23 per cent to Rs.48 cr. whereas profit jumped 800 per cent to Rs.3 cr. For FY05, the company is expected to register an EPS of around Rs.10 and declare 30 per cent dividend. Scrip can appreciate 50 per cent in 12 months time

Marketmen are waiting the results of Navabharat Ferro Alloys (Code No.513023) (Rs.374.60) which is scheduled for 25th Oct. For the June quarter its OPM zoomed up to 43 per cent. If it maintains this margin, scrip will shoot up to Rs.500 in no time

Though some broking firms are bullish on Stride Arcolab (Code No.532531) (Rs.174.55) and project a price target of Rs.250, investors are advised to stay away from this mid-cap pharma scrip and wait for its Sept number. Fundamentally it’s overpriced, and its June quarter was good only due to reverse Deferred Tax provision!

Amforge Industries (Code No.513117) (Rs.88.50) will post fantastic growth numbers on 28th Oct compared to its low base last year. FIIs are quite bullish on this company and the share price is tipped to cross Rs.120 before this year end.

One Pharma analyst is bullish on Surya Pharma (Code No.532516) (Rs.55.15) and expects the company to post an EPS of Rs.10 for FY05. The company is setting up a composite facility with a capital outlay of about Rs.60 cr. for the manufacture of Sterile Bulk Drugs, formulations, captive power plant and multipurpose bulk drug manufacturing facility at Banur (Punjab). The company has also added a Tablet section in addition to the existing capsulation section.

In the textile sector, one can have a look a Banswara Syntex (Code No.503722) (Rs.35.10) which is expected to register an EPS of Rs.12 and CEPS of Rs.25. It has good reserves of Rs.37 cr. on small equity of Rs.6.9 cr. leading to a book value of Rs.64. For FY05, it may declare dividend of 15 per cent. A good long-term bet.

Gujarat NRE Coke - Rs.89.00

Last year we recommended this scrip at 22.50 and since then it has given huge return along with bonus and dividend. Keeping its future growth in mind we still find it reasonably cheap and recommend it for medium term. Gujarat NRE Coke Ltd (GNCL) was incorporated in the 1986, by Mr. G.L. Jagatramka and his son, Mr. A.K. Jagatramka for producing Low Ash Metallurgical Coke (LAMC). LAMC is a variety of coke with an ash content of around 12%. It is the vital ingredient that fires the blast furnaces of the Nation as the corest of its core selects burn bearing materials to produce steel. It is used both for its high calorific value and its environment friendly nature and heat furnaces for a variety of other industries like soda ash plant, steel industry, zinc smelters, foundries & Ferro Alloys. Today GNCL has emerged as the largest producer of LAMC in India.

In March 2003 to consolidate its business Gujarat NRE Power Limited (78,000 TPA) and Aparna Projects Private Limited (1,17,000 TPA) were merged with GNCL. Companys manufacturing unit is located at Dharampur, Jamnagar in Gujarat with current production capacity of 3,58,000 TPA. Recently company has also set up second plant at Bhachau, Kandla consisting of 9 chimney for manufacture of 3,24,000 TPA of LAMC. Few chimney has already started the commercial production and the entire plant is expected to be operational by December 2004 in phases which will take the total capacity to 6.82,000 TPA. The Company expects to get a production of 1,50,000 ton from the new plant by March 2005. Due to the huge global demand and short supply, coke price have shot up 300~400 per centcompared to last year. To take the maximum benefit of this uptrend GNCL group company has set up one more plant at Karnataka in joint venture with Kalyani Steels Ltd with annual capacity of 324000 MT which is expected to be operational by March 2005. With this plant GNCL will cross the landmard production capacity of 1million TPA. For future company group has also plans to set up additional 4,00,000 TPA in Dharwar Karnataka. On the raw material side also company has tied up with its entire requirement of coking coal requirement for its coke plant at Jamnagar and the new unit being set up near Kandla Port for the year 2004-05 with Australian and South African Coal Mining Companies. Sitting on huge cash company is thinking for forward integration & is planning to acquire a pig iron production unit with a capacity 1,50,000 TPA, promoted by the Goa-based Dempo group.

The effect of coke price and expansion is clearly visible in last 2 qtrs with NP jumping 6~7 times. Company is expected to end this year Sept 2004 with sales of 310 cr and NP of 95 cr which means an EPS of 23 Rs. For FY05 with its full capacity going operational, company is expected to register sales of 580 cr and earn NP of 150 cr leading to an EPS of 36 on current equity. So at CMP this scrip is trading at a PE of less than 4 for FY04 earning and at 2 for FY05 earning. Investors can expect handsome return over a period of time.