Jindal Stainless Steel - Rs.83.00

Jindal Stainless Steel Ltd. (JSSL), is a Rs. 2600 cr. turnover company is the flagship company of the Jindal Organization. It is the largest integrated manufacturer of quality Stainless Steel in India that caters
to more than 40 per cent of the total demand for Stainless Steel in the country and ranks amongst the top 10 producers globally. Products ranging from Stainless Steel Hot Rolled / Cold Rolled Coils, Plates & Flats, to Slabs and Blooms are produced keeping both national as well as international standards in mind. The main reason for the success of JSSL is the fact that everything from melting, casting to hot rolling and cold rolling is done in-house. Recently, the company acquired Maspion Stainless Steel of Indonesia, which is a Cold Rolling Mill with a capacity of 50,000 TPA, for $ 30 mn and is planning to double its capacity by the end of this fiscal. The company also wants to acquire the Salem Steel Plant of SAIL and is waiting for the government’s clearance on it.

The company has an integrated stainless plant at Hisar in Haryana and a Ferro Chrome unit at Vizag. It also has an offshore facility in Ohio under the name of Massillon Stainless Inc. with a cold rolling capacity of 50,000 tonnes. The Hisar plant has capacity of 5,00,000 TPA with integrated operations from melting to continuous casting of billets and blooms to hot rolling and cold rolling. An exclusive complex for manufacturing stainless steel for razor and surgical blades has been created. A coin blanking line has also been installed while its Vizag Ferro Alloys plant has an installed capacity of 40,000 TPA of high carbon Ferro Chrome. The company is upgrading its Hisar plant and has a mega expansion plan with a capex of Rs.450 cr. in a phased manner till 2007. By 2005, the company is increasing its steel melting capacity from 5,00,000 to 6,00,000 TPA, Steckel Mill form 4,00,000 to 5,00,000 TPA and by 2007 its Cold Roll capacity will be increased from 90,00 to 2,50,000 TPA. its ambitious greenfield project at Duburi in the State of Orissa is under implementation. Phase-I of the project is expected to be completed by the end of FY06. It will be backward integrated plant with capacity of 1,50,000 TPA of Ferro Chrome, 30,000 TPA of Ferro Manganese, 60,000 TPA of Silico Manganese and a Coke Oven battery unit with a capacity of 3,00,000 TPA. It is also setting up a 40 MW power plant for its own consumption. In Phase 2, the company is planning to set up a stainless steel melting unit with capacity of 8,00,000 TPA and 120 MW power plant with an capex of Rs.1000 cr.

For the half year ending Sept 2004, its net sales jumped 30 percent to Rs.1376 cr. whereas NP reported a modest gain of 7 per cent to Rs.91 cr. due to higher interest, depreciation and deferred tax provisioning. The company has a strong balance sheet with Rs.537 cr. of reserves on its small equity of Rs.20 cr. Its RONW is 40 per cent and ROCE is 27 per cent with OPM of 17 per cent. Looking at the company’s expansion plans, thrust on exports and higher stainless steel prices, it is estimated that the company will report Net Sales of Rs.2850 cr. and NP of around Rs.190 cr. leading to an EPS of Rs.19 on its current equity of Rs.20 cr. But equity dilution is expected going forward which may reduce the EPS to around Rs.15-16 on the diluted equity of Rs.25 cr. It is a relatively safe bet at the current price with an upside potential of 50 per cent in the next 15 months.

STOCK WATCH

Videocon International (Code No.511389) (Rs.207.60) is discounted poorly by the market due to concerns about the promoters and their investor-unfriendly attitude. Inspite of being in a highly competitive market the company enjoys a dominant position and is expected to perform well due to the increasing rural demand for its products and thrust on exports. Its glass business is performing well and contributes nearly 50 per cent to its profit. For the full year ending 30th Sept 2004 its sales was up 11 per cent to Rs.3990 cr. and NP increased by 69 per cent to Rs.177.50 cr. registering an EPS of Rs.25. The company has massive reserves of Rs.1390 cr. on an equity of Rs.71.20 cr. Aggressive investors can buy for medium term with a target of Rs.90.

As expected Star Paper Mills (Code No.516022) (Rs.51.15) is getting re-rated sharp rally is likely in coming days even from the current level. For half year ending 30th Sept 2004 its NP jumped 71 per cent to Rs.10.30 cr. due to higher price realization and better efficiency. For the full year FY05 it could report an EPS of Rs.12. The scrip has the potential to hit Rs.75 in the next 6 months. Buy at dips

Sunflag Iron & Steel (Code No.500404) (Rs.13.64) is hitting a new high on the bourses. This integrated specialty steel producer from the SunFlag group is doing well due to current steel boom. For Sept 2004 quarter, its Net Sales grew 43 per cent to Rs.182 cr.and its NP stood at Rs.10 cr. against loss in last year. Its OPM improved by 500 basis points to above 13 per cent from 8.5 per cent last year due to higher price realisation. For the full year ending 31st March'05 it can report an EPS of Rs.2.5. The scrip is expected to cross 20 going forward. Buy only at dips and sharp correction.

One more sugar sector scrip has caught market attention and it is KCP Sugars (Rs.157.05). Being in the South, it has additional advantages like decent rainfall and absence of state advised price on sugar cane in AP etc. Secondly it has a huge carry forward stocks and enjoys a good market share in the eastern region too. For the first half its sales zoomed 84 per cent to Rs.134 cr. and it posted a NP of Rs.19.85 cr. against Rs.1.03 cr. last year. For FY05, it is expected to register an EPS of more than Rs.30 Investors can accumulate it for handsome gains with medium to long-term perspective.

If you believe in the telecom growth story, here is one good scrip which can appreciate handsomely going forward. Surana Telecom (Code No.517530) (Rs.63) has big plans for wireless telecom products and wants to create assembly line for CDMA terminals. Its also looking at the possibility of foraying into Internet Protocol TAX. For the first half it reported impressive result with Net Sales of Rs.70 cr. up 680 per cent and NP of Rs.5.30 cr. up 300 per cent. For the full year FY05, it may even report an EPS of Rs.12 and the scrip is expected to shoot up substantially if everything goes as per the plan. FIIs / Domestic funds are not active in this scrip as 71 per cent holding is with the promoters and 20 per cent with the public.

Purely on fundamentals VBC ferro Alloys (Code No.513005) (Rs.122) looks quite cheap and the share price may run up sharply in the current bull run. Promoter holding (36 per cent) and the management quality however, remains a concern. It declared excellent results for the Sept quarter as well. Now if we see for six months Sales grew by 26 per cent to Rsd72 cr. and NP increased 22 per cent to Rs.6.30 posting an EPS of Rs.16. Surprisingly, the company has very huge reserves of Rs.124 cr. on a very small equity of 4.05 cr. For full year, it should report an EPS of more than Rs.30 and the scrip has the potential to rise 25-30 per cent from hereon.

MUHURAT PICKS

Shah Alloys - Rs.108.15
This Rs.1000 cr. company is its way to become an integrated stainless steel producer and is setting up a backward integration project at Gandhidham for producing sponge iron, ferro alloy and power. It’s the second largest stainless steel producer and has ambitious growth plans for the future. It has just started to gain market fancy and can give handsome returns going forward.

Ankur Drugs - Rs.39.10
Ankur Drugs is into contract / license manufacturing of Tablets, Capsules, Liquid orals, Dry Syrup for pharma MNCs and Indian companies Like IT, contract manufacturing or outsourcing in the pharma industry is expected to see phenomenal growth in coming years. Ankur is well-poised to encash the trend that and is setting up a new plant at Baddi, Himachal Pradesh as per US FDA requirement. It will manufacture injectibles also alongwith high value products for direct export on behalf of foreign pharma MNCs. A good long-term story

Star Paper Mills - Rs.43.00
This Duncan Group G.P company is set to see better times ahead, thanks to robust paper prices and the strong demand. Recently, it upgraded and modernised its integrated plant Saharanpur and is increasing its capacity in a phased manner over the next 3 years. Its gearing towards becoming a more professionally managed company and has taken various initiatives to achieve high operational efficiency. To turn more investor-friendly, the management may even declare 25 per cent dividend for FY05. This muhurat pick has the potential to double by next Diwali.

Dhampur Sugar - Rs.46.40
We can’t ignore this sector which is estimated to see best of times in the coming 2 years and Dhampur Sugar is a good bet in the Sugar sector. It is one of the largest sugar manufacturing group in India with 5 sugar mills in India and one in Nepal with a total installed capacity of 32,000 tonnes of cane crushed per day. Other than sugar, it also manufactures Alcohol, Acetic Anhydride, Oxalic Acid, Ethyl Acetate Nicotinamide, INH etc. More importantly, all its 5 sugar plants have cogeneration by bagasse based power plants with a combined capacity in excess of 83 MW, out of which approx 41 MW is being evacuated to the UP Grid. Due to poor rainfall and various other factors, the sugarcane output has dropped drastically this year which lead to a spurt in the sugar prices and in coming year demand is estimated to exceed supply. Considering all these aspects Dhampur will see a good growth in its bottom-line.

SCI - Rs.164.95
Although shipping scrips have seen a good rally in the recent past but still shipping holds a promising future for at least one more year or so. SCI being the largest player will benefit the most. First of all, freight rates are very high and will remain high due to the Chinese demand and crude oil factor. Secondly, tonnage tax will boost its bottom-line substantially and the company may even report an EPS of Rs.40 for FY05. Thirdly, the Government is planning to divest 20 per cent its stake, which will improve its liquidity and will attract more FII / FI participation. Last but not the least, the dividend yield will be too good to resist. In short, 50 per cent return can be expected in the next 12 months.

Uttam Galva - Rs.28.55
Scrips from Steel sector have become the darlings of investors. We, too, couldn’t stop from recommending the one. Uttam Galva Steels Limited is involved in the production of Cold Rolled Coils & Sheets and Galvanized coils & sheets. The company has more thrust on exports and around 70 per cent of its production is exported all over the world to over 103 countries. To cater to the increasing demand, the company has chalked out huge expansion plans to be completed by mid 2005. It’s a multi-bagger in the long-run.

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.