STOCK WATCH

Bhushan Steel targets Rs. 800 cr. exports for FY05. Its new hi-tech Khopoli plant is working at almost 100 per cent capacity. For the half-year ended September 2004, its net profit doubled to Rs 68 cr. on a sales growth of 82 per cent to Rs 1187 cr. It is expected to post an EPS of around Rs. 35 for the full year. Moreover, for future growth the company is going in for backward integration and has plans to set up an integrated steel project with a capacity of 1,50,000 TPA in Orissa at an investment of Rs.3200 cr. A strong buy with a medium term perspective

By early 2005, GIPCL is planning to raise funds for its expansion plans by issuing shares. This will lead to a re-rating of this scrip in future. The company posted excellent numbers for the Sept.’04 quarter with NP zooming to Rs.32 cr. from Rs. 1.90 cr. in the corresponding last quarter. Its revenue was up 6 per cent to Rs. 203.40 cr. but its operating margin improved substantially to 55 per cent from 48 per cent YOY basis and from 46 per cent sequentially. For the full year FY05, it should report an EPS of around Rs.12, which discounts the current price of Rs. 65 merely by 5 times. A relatively safe bet.

Shree Cements is setting up 1 million MT greenfield cement plant at Ras in the Pali district of Rajasthan involving an investment of Rs.300 cr. This will take its total capacity to 3.60 million MT. For the six months ending Sept.’04, it reported an NP of Rs 43 cr., up 166 per cent on net sales of Rs. 292 cr. For the full year FY05, it is estimated to report an EPS of more than Rs. 25. A good long term bet which will provide Red-Oxide to your portfolio.

DCM Shriram Industries is reportedly doing well. For six months ended Sept 2004 sales increased by 30% to 249 cr and NP was 12.60 against 72 lac last year. Its operating margin also improved 200 basis point to 14.50%. For full year company is expected to post an minimum EPS of 14 Rs. Investor are advised to buy at dips keeping long term in view.

Bharat Gears - Rs.46.00

Bharat Gears Ltd, promoted by Bharat Steel Tubes and Raunaq & Co. in collaboration with ZF Friedrichshafen (ZFF), Germany, was incorporated in 1971 to manufacture automotive gears. The foreign collaborator holds 26 per cent stake in the company. Today, it is one of the largest gear manufacturers in India producing a wide range of gears - hypoid, spiral gears and differential gears, which go into axle assemblies and parallel axes gears and shafts that make up the gear box assembly. The company supplies to OEMs in Tractors, Trucks and Bus and Utility vehicles. It also serves the replacement market and exports to overseas market. The Company also specializes in heat treatment furnaces, manufactured and installed under licence from Holcroft, USA. It has a diversified client base with many OEM manufacturers including M&M, Ashok Leyland, Toyota Kirloskar Auto Parts, Volvo India, TAFE, Hindustan Motors, Escorts as domestic clients and New Holland, L&T John Deere, Same Deutz-Fahr, ZF Hungary, ZF China, Funk USA, TDI USA are some of its international clients. Its gear manufacturing units are located in Mumbra near Mumbai and Faridabad in Haryana near Delhi.

Bharat Gears actual turnaround in Q1FY05 was thanks to the financial restructuring package, which was approved under Corporate Debt Restructuring (CDR) scheme in FY04. Under this scheme, financial institutions and banks sanctioned additional term loans amounting to Rs.12.05 cr. and enhanced working capital facilities. Further, 10 per cent preference shares of Rs.2.08 cr. have been issued to institutions and banks as part of their dues. Monies were also received from ZFF and Indian promoters aggregating to Rs.3 cr. as stipulated in the CDR package. A part of the company's corporate office premises was sold during the year resulting in a profit of Rs.5.51 cr. Proceeds from this sale were utilised towards repayment of term loans. Total repayment of long term loans in FY04 amounted to Rs.6.46 cr. Further repayment of other term loans/debentures/10 per cent preference shares falling due for repayment during the year were rescheduled / rolled over in terms of the CDR package. In short, this restructuring scheme has resolved most of the issues and has brought the company back on track.

The benefit of this financial restructuring in FY04 can be seen in the first half FY05 results. In both the quarters, the company reported good profits with substantial improvement in operating margins. For the half-year ending September’04, it registered Net sales of Rs.66 cr. up 70 per cent and earned a NP of Rs.2.30 cr. against a net loss of Rs.6.40 cr. last year. Currently, the company is also concentrating on exports and has receiving good orders from Europe, China, USA and the Middle East. Here in the domestic market also, the demand is expected to increase due to the aggressive growth plans of all OEMs in the auto sector and tractor sales picking up. To sum up, the future looks promising for the Bharat Gears and it could post a sale of Rs.120 cr. and earn a NP of Rs.4.75 cr. i.e. an EPS of Rs.8 on a small equity of Rs.6 cr. With auto outsourcing expected to boom in coming years, this auto ancillary should be accumulated for 100 per cent appreciation in 18~24 months.

Finolex Industries - Rs.63.00

Finolex Industries Ltd., (FIL), a part of the Finolex group promoted by Mr. PP Chhabria, was incorporated in 1981 and is today the largest PVC & PVC pipe manufacturer in India. It makes a wide range of PVC pipes and fittings for diverse applications in agriculture, housing, telecom, industry etc. It also manufactures specialty pipes and fittings, namely SWR (Soil, Waste and Rain Water) pipes and fittings for the construction industry and ducting for the telecom industry. It has a huge distribution network and enjoys a strong brand value.

The company has advantage over its competitors since it is backward integrated with its own PVC resin plant, which contributes nearly 70 per cent of turnover. Though the price of its raw materials have risen. PVC prices too have shot up, which will enable the company is able to maintain its profit margin. Its PVC resin plant, which makes suspension grade PVC and paste grade PVC has been set up in technical collaboration with Uhde GmbH of Germany under technology licence from Hoechst AG and currently has a capacity of 1,30,000 TPA. Its Pipes Division and associated concerns consume about 45,000 TPA of PVC. Its Pipe & Fittings Division with two ultra modern plants at Pune and Ratnagiri has the capacity to manufacture 58,000 TPA of pipes. To exploit the rising demand from agriculture, irrigation and housing sector, the company is doubling the PVC resin capacity to 2,60,000 TPA and increasing the PVC pipes capacity to 80,000 TPA at an investment of Rs.500 cr., which will be funded by internal accruals of Rs.150 cr. and by Rs.350 cr. of debt. The new capacity expects to be commissioned by end 2005, which will increase its market share from 16 per cent to 30 per cent. As part of its expansion plans, the company also plans to construct a breakwater facility so that its jetty, which is utilized for importing the feedstock for manufacture of PVC as well as for importing LPG, can be used in the monsoons too.

As far as shareholding is concerned promoters stake are 19 per cent but Finolex Cables and its subsidiary hold 32.40 per cent, which comes under non-promoters. Thus indirectly, the promoters stake can be said to be above 51 per cent. Recently, the company came out with very good Q2FY05 numbers. If we see its half yearly numbers ending Sept. 2004, the company’s Net Sales has increased by 25 per cent to Rs.482 cr. and NP has more than doubled to Rs.56 cr. leading to an EPS of Rs.4.50. Historically, its second half has always been better than its first half. Considering the upturn in the petrochemical cycle, the government thrust on agriculture and irrigation projects and the boom in housing sector, the company is to clock sales of Rs.1030 cr. and NP of Rs.125 cr. Given this perspective, Finolex Industries is trading quite cheap at a PE of 6 on an estimated EPS of Rs.10. The long-term prospects are very bright and investors are advised to buy at every dip to fetch a minimum appreciation of 50 per cent in the next 12 months. Its share price can even double in 2~3 years.

STOCK WATCH

A reputed analyst is quite bullish on Shah Alloys. The company has reported encouraging numbers for the Sept.’04 quarter with a top-line growth of 22 per cent and the bottom-line growth of 45 per cent. For the full year FY05, the company could post an EPS of more than Rs.35 and its share price is expected to shoot up substantially in future.

Although sales were down again this quarter for Murli Agro Products, its operating profit was up 24 per cent and it maintained a NP of Rs. 2.30 cr. recording an EPS of Rs. 3.30 for Q2FY05. Also, its paper division is reported to be doing well and the company is expected to report an EPS of Rs.12 for FY05. A good medium term bet.

Garware Polyester appears the best bet from the packaging sector. For H1FY05 ending Sept.’04, its sales grew by 21 per cent whereas NP increased by 29 per cent in spite of higher tax provisioning. For FY05, it could report an EPS of Rs.12. A good buy.

Despite the cut throat competition and price wars leading to worries about its operating profit, Videocon International continues to post robust numbers quarter after quarter. Short-term traders can accumulate with a price target of Rs. 65.

Some market-men feel that Varun Shipping can turn out to be a dark horse in the Shipping sector as it has potential to post an EPS of Rs 6 on its expanded equity of Rs.108 cr. They also predict a re-rating of the scrip once it gets listed on the Singapore Stock Exchange.

Subros Ltd - Rs.118.50

Subros Ltd, incorporated as Subros Pvt Ltd in Feb.'85, was promoted by Ramesh Suri, Lalit Suri and Jayant Nanda. Today, the company is the market leader in automotive air-conditioning systems, parts and components. In fact, it is the only integrated player in India with capability to manufacture Compressors, Condensors Evaporators, Hoses, Tube liquids and other connecting elements. It has collaboration with Denso Corporation and Suzuki Motor Company of Japan with each of them holding 13 per cent equity stake. It supplies mainly to Maruti & Tata, which constitute around 90 per cent of its sales. Besides it also supplies to Bajaj Tempo, Hindustan Motors and Reva. It is also in advanced stage of finalizing supplies to Mahindra & Mahindra and Hyundai Motors, which will boost its topline substantially going forward. It has also signed a MoU with Allied Signal Environment Catalysts (ASEC) of USA for a joint venture to produce catalysts to be used in catalytic convertors in vehicles using unleaded petrol.

To meet the growing demand, the company has recently expanded its capacity to 4,50,000 units per annum and is gradually working on increase it to 10,00,000 units in the next 2 years. The company's core strength lies in its R&D and the latest technology it derives from its technical collaborator, Denso Corp. of Japan. In addition to providing technical advice with regard to the design, manufacturing and production problems, Denso Corp also trains the technical personnel of Subros. The company now manufactures its own condensor and compressor and has set up facilities for squeeze die-casting and the manufacture of multi flow condensor. It has already set up state-of-the-art Product Design, Development and Evaluation facilities, which consist of virtual proto-typing and virtual analysis using high-end computer software and use of facilities such as Wind Tunnel and Calorimeter for product evaluation. The Company has successfully implemented SAP R/3 system for Enterprises Resource Planning (ERP), which will lead to improved controls and efficiency in business operations. The company is now concentrating on its core competencies, leveraging its brand and spreading its reach by increasing its customer and product portfolio to meet future challenges.

On the fundamental side too it is strong with sales increasing 42 per cent to of Rs.492 cr. and NP jumping 100 per cent to Rs.14 cr. in FY04 leading to an EPS of Rs.24 and CEPS of Rs.55 on an equity of Rs.6 cr. Recently, the company issued 1:1 bonus and thereby doubled its equity to Rs.12 cr. In Q1FY05 sales increased 31 per cent to Rs.152 cr. and NP jumped 50 per cent to Rs.4.60 cr. posting an EPS of Rs.4 maintaining its growth story. Moreover, various user industry players like Maruti Udyog, Tata Motors, Mahindra & Mahindra, etc have lined-up expansion of production capacity to meet the rising demand. Besides, many new players are planning to set-up car manufacturing units in India Hence, given its status as the market leader, the encouraging demand scenario, improving operating efficiencies and the rising economies of scale it is estimated that the company will register a turnover of Rs.590 cr. and NP of Rs.20 cr. This means that the share price is available less than 7 PE against an expected EPS of Rs.17 on expanded equity of Rs.12 cr. The share price could rise by 50 per cent in the next 12 months.